Are Disruptive Innovations Undermining Traditional Payment Processes?

The recent upsurge of disruptive innovations in the payment world have caused many to predict a fall in the importance and in some cases, extinction of banks. Clayton Christensen, who came up with the theory of disruption, predicts that "Banks, many of them, won’t exist ten years from now. Their functionality will be taken over by IT companies who don’t have the same assets and income statement challenges".  Banking hasn’t really changed that much over the last 100 years; the only real disruptive innovation that has come about was probably the introduction of the credit card. Apart from that banks have gradually changed and adapted with the times without having to deal with much competition.

However the recent rise in mobile payments are causing a real threat to traditional banking. Smartphones and mobile platforms operate in real-time, making payments straight away whereas traditionally banks process payments overnight or a couple of working days. Customers do not want to see one balance on a statement, another at the ATM and another online. Mobile payments create an easier and faster way of paying.


Below are three revolutionary payment innovations:

• Card Case app – This app is a payments system that could spell the end of even needing a wallet. It’s not an app where you have to pay with your phone but simply with your name. The app connects with the stores location and so when you go to the cashier, you say your name, your picture and name comes up and the cashier clicks it. A receipt gets sent instantly to your account and the payment is made. Obviously not every shop in the world has the payment system but after one year since its creation in 2010, 800,000 readers were sent out and the number is rising rapidly. https://squareup.com/

• TransferWise – This peer-to-peer payment system enables international transfers by acting as a middle man between parties for much lower costs than doing the transfer with a bank. Whereas with many big banks the cost for a transfer of around $1000 dollars could cost around $40; TransferWise will do the same from peer-to-peer for around $1. It is no surprise it has had interest from huge names such as Richard Branson and Facebook.  https://transferwise.com/us

• Uber – Uber, now worth over $18 billion, is a perfect example of frictionless payment as everything is done via mobile. The taxi is booked and paid for using the Uber app and the taxi comes to your exact GPS location. It negates any need for cash or trying to hail a cab in the street. https://www.uber.com/

Banks need to begin to understand the needs of their customers; Cisco carried out a survey that found "43 percent of U.S. customers believe their primary bank does not understand their needs; 31 percent feel their bank is not helping them reach their primary financial goals".

The three payment innovations shown above negate the need for banks and their ATM’s; banks need to start to revolutionize their approaches to payments or customers will simply use them as a place to store money.

Join us at the All Payments Expo February 23-25 at the Caesars Palace in Las Vegas. New to APEX 'The Disruptive Technology Forum' a devoted meeting place for mainstream payments and FIs to meet and discuss new business models and innovative ideas with new, disruptive technologies. Companies looking to invest, partner, white-label or acquire new platforms and technologies will hear from the most provocative and intelligent disruptors.

New payments and banking alternative companies are disrupting the very future of financial services and payments. Get a leg up on competition by hearing from the leading technologies. Meet potential partners who can help you achieve scale faster.

Download the full agenda here.

Register now and save $100 - Use the code XU2848BLOG


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Sources:
Forbes - http://www.forbes.com/sites/stevedenning/2014/12/05/innotribeswift-can-banks-master-disruptive-innovation/ 
Cisco - http://www.cisco.com/c/dam/en/us/solutions/collateral/executive-perspectives/Internet-of-Everything-executive-summary.pdf

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Live From All Payments Expo & FinTech Partnerships - Morning of Day 2

The first session of the morning was a very informational discussion -  Partner or Perish: Corporate Venturing's Role in Payments Partnerships

Moderator:
Jim Hale - FTV Capital

Panelists:
Robert Schiff - McKinsey & Company
Kevin Jacques - Intuit
Jay Reinemann - BBVA

Presentations from:
Shamir Karkal - Simple
Michael Diamond - Mitek

Discussion highlights:

2013 Corporate Venture Capital Investment in US:
- First non bubble year ever that more than 10% of the total VC deployed came from corporate VC groups
- Total CVC invested up to 39% in 2013 over 2012 (3.1B vs 2.2B)


Pitfalls to get VC partnerships started - how to go to market and convince your corporate management team:
- Executive leadership team, forward thinking and understanding the problem
- Show the cycles to your management team, walk them through the longevity
- Need curiosity
- Be careful how you set up the governance mechanism

You need to measure success both strategically and financially - where is the partnership going and are you on the right path?

Remember to track the impact that your team is having.

10 years ago advantage rested alone with the largest companies - today the situation is almost completely reversed because of small and medium businesses new adoption and solutions.

2.5 million money making households outside the banking industry - tapping this market has a high potential. The concept; build new payment rails that will force adoption.

Thank you to the outstanding panel and stay tuned for more live recaps from All Payments Expo & FinTech Partnerships.

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Live From All Payments Expo & FinTech Partnerships - Morning of Day 1

This morning we had a lively panel discussion at FinTech Partnerships - The Mash-Up: When Big Meets Start-Up

The panel consisted of:
Jim Hale - FTV Capital
Mike Diamond - Mitek Systems
Steve Carlson - Intuit
Robert Schiff - McKinsey & Company
Moderated by Jane J. Thompson of Jane J. Thompson Financial Services 


Discussion highlights: 
Think of it in terms of elephants and mice, the big banks and issuers are the elephants and the innovators and start ups are the mice.

For elephants, fewer and fewer people are empowered to say yes, while more and more are empowered to say no. So mice need to have a way to solve a problem for the elephants to be interested in the potential partnership - they want certainty.

Key points to remember as the innovator: 
- Keep your eye on the ball; natural alignment focused on selective objectives
- Be wary of side agreements like revenue sharing agreements and exclusivity agreements 
- Be stingy with control 
- Partners' ownership is additive
- Think long term; begin with the end in mind

What makes a partnership successful? 
- Be clear about the problem you are trying to solve 
- Internal champions are critical - career risks, putting a lot on the line
- Make sure goals and objectives are aligned early on

Currently the consumers are driving innovation - this creates new challenges for the elephant and the mouse. Further cementing the importance of aligned goals and objectives between all parties involved. 

Thank you to the outstanding panel and stay tuned for more live recaps from All Payments Expo & FinTech Partnerships!

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Q&A with Matt Davies, Executive Director, Gift Card Network

2014 All Payments Expo speaker Matt Davies, Executive Director, Gift Card Network sits down with APEX for a brief Q&A about the future of the payments industry. To hear more about the landscape of the payments industry from Matt, make sure you register for APEX today! And remember, blog readers receive a 10% discount - register here.


1) What is the most overheated opportunity for payments players? What is the most overlooked that should get more attention?

Mobile Wallets and its many iterations has dominated the discussion without bothering to define it. There are so many different concepts and approaches that the market is confused and will stay stagnant until a major player comes in and pushes the market in a specific direction with a goal that the public and merchant population has bought into and finds value in.

Education about the payments space is the most important thing for us to focus on. Startups needing merchant support must look at the things that merchants care about, and go about building their own brand and market share prior to asking for support, and educate and market themselves to their potential clients in a comfortable way.

2) What is one thing blocking innovation for payments in the U.S.?

The cultural difference between entrepreneurs, who are have incentive to break the rules, and the decision makers, who have incentive to create new rules or play by them. There is a vast difference between what CAN be done and what SHOULD be done for each particular merchant- we need to break down the psychological barriers and engage in neutral problem-solving conversations.

3) In ten years, what will be the new payment type that’s gotten the most traction?

Flat transaction rate credit and debit card providers. It's an ideal state for retailers to get away from the percentage based model, and it allows consumers to utilize credit.
 
That, or monkey-bucks.

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Readers Receive 10% Discount to the 2014 All Payments Expo

Save 10% when registering for All Payments Expo 2014 - Use Code: XU2748BLOG

At All Payments Expo, you will hear from and interact with 2,000+ attendees from the most powerful payments companies. For companies both large AND fresh out of Silicon Valley, it's a gathering of industry doers and thinkers, who come together to do business and generate new partnerships.

See you in Las Vegas!

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The ‘Cross’ Sequence that Mature FIs are Headed Down

There’s a running chorus of catchphrases echoing across the banking industry: Build once, use many. Create a single customer database. Simplify the customer experience. Operate like one company around the world.

All great suggestions, right? No one would argue the benefits of any of these catchphrases, but it’s tough to accomplish even one of them, let alone all of them. That said: if you have the money, resources, and wherewithal to do all of these at once then give me a call. I’d love to be your Chief Miracle Implementation Officer.

Seriously, though: if you’re coming to the FinTech Partnerships conference, I assume you’re in the same boat I am: trying to improve things for your digital channel customers and improving your company’s bottom line, all with limited resources. We all have our roadmaps for which functions we’d add to the online and mobile channels, but we also need to look at making the channels themselves more productive, customer-centric, and nimble.


Here’s how I’m approaching it:

• Cross-channel: Channels in silos simply aren’t going to work anymore. It costs too much to deploy functionality in online, then pay as much again to deploy it in mobile, and then again on the tablet. For this you need a single services layer in your architecture (if you don’t have one by now, you need to sit your chief architect down for a serious heart-to-heart), and some excellent responsive design resources. Your customer might not see a difference, but your IT run budget will thank you.

• Cross-LOB: There are few things customers hate more than when we make them figure out our org structure. There are undoubtedly good reasons why banks built separate secure sites for banking vs. billpay vs. investments. But your customer couldn't care less about those reasons. And don’t say “single sign-on” -- that’s a stop-gap...Imagine the cross-sell opportunities when you can tie, say, day-to-day transactions together with investing: “Hey, you spend $150/month on coffee, but other customers like you only spend $100. Click here and we’ll set up a new investment account with an automatic savings plan of $50, and send an alert to your phone when you get close to your new monthly coffee budget.” There’s a lot of work involved in making that a reality – a single enterprise-wide customer CIF, for one – but that kind of guidance and advice is exactly what we owe our customers. There may be infrastructure cost savings from shutting down extraneous sites too.

• Cross-segment: Serving personal customers, small business customers, mid-size commercial customers, and large corporate customers with the same digital channels may have questionable returns. But if you have your solid services layer and a single customer CIF, and you want to ensure that you capture 100% of your commercial customers’ personal business (and vice versa), then this may be important to you. It won’t be easy, but portal technologies like Backbase give you a fighting chance.

• Cross-border: Customers may not differ that much across geographies, but regulators and payment methods sure do, so tread carefully. If you want to serve all your customers around the world with one digital channel, you’d better be on a single core system or a perfectly disaggregated services layer. Otherwise, pick your spots: figure out which functions customers need to be cross-border and tackle those. Oh, and this likely involves going cross-language too, so hire some translators.

Our Guest Author, Dan Dickinson is the Managing Director, Online and Mobile Banking (Canada) for BMO Bank of Montreal. He is responsible for the strategy, project development, and sales growth of BMO’s digital channels in Canada, which serve over 2 million active customers. In recent years his team has delivered such customer enhancements as BMO MoneyLogic, real-time branch appointment booking via the online and mobile channels, and real-time multichannel sales lead delivery to online banking.

Don't miss FinTech Partnerships, click here to learn more about the event.

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Five Ways Traditional Banks are Missing Millennials

Over 80 million strong, millennials rival baby boomers in their numbers.  Their purchases already account for a little over  one out of every five dollars spent on consumer goods and services.  And in just over five years they will hit their peak and become a defining force in the US economy.

This me generation matured along with digital technology.  The oldest of them remember dial up modems and the youngest were still in high school when the iPhone debuted.  But all are quick to latch onto the latest innovations, often disrupting entire industries (bye bye, old media).  For banks the impact has so far been manageable, but at Moven we believe all of that is about to change.

Equipped with smart-phones millennials now navigate their social, physical and even service environments in completely brand new ways.  In particular, the rise of mobile applications has fundamentally redefined how they find, select and purchase services.  Traditional banks are missing this shift towards "appification", where constant experimentation and innovation is the new norm.  And while the landscape is changing around them, there are five key principles that they've missed:

1. Download the App
An app is easy to download and set up.  A bank account, not so much.  Whereas the best apps can have millions of users in a very short time, banks struggle to achieve single digit account growth.  Without a streamlined mobile account signup, the app discovery and trial behaviors that millennials love is impossible with banks.

2. Share with Friends
Millennials look to their friends and peer groups for recommendations and are quick to share when pleased.  If getting an app takes minutes, it's far easier to champion the brand.  The best apps go further, creating shareable moments  that complement millenials' own personal social brand.

3. Get Instant Insights
As with a bank relationship, apps are all about usage and retention.  And when it comes to making money decisions, millenials want insights at their fingertips.  Foursquare tells me where my friends are, Yelp how good the food will be, and Google the fastest way to get there.  But what does my bank app do?  My balance is a start, but certainly not the end.  At Moven we've created MoneyPulse™, a real time analysis of your spend compared to your goals, but there's room for lots more experimentation by banks.

4. Be Financial Healthy
Entering the workforce during this great recession with heavy student debt, millenials are making very different money decisions.  Whether it be living at home, buying fewer cars, and even postponing marriage, many are trying to be better savers.  But while the intent is there, the behavior is not as they dedicate more of their spend towards smaller discretionary items.  Traditional banks have yet to tap into this financial angst and provide meaningful, effective solutions that fit the new "appified" service paradigm that millennials prefer.

5. Trust Us
Finally, millenials are extremely skeptical of banks.  It's not that they're unwilling to pay for services, but that they expect banks to take every opportunity to exploit them (cue occupy wall street).  The increasing appeal of prepaid cards in this segment signals their willingness to choose consistency and transparency over hidden fees and the temptation of greater debt.  While banks are moving towards this, they can go even further by committing to an oath, as we have done, assuring customers that their best interests always come first.

Mohamed Khalil, Head of Product, Data & Partnerships at Moven, has over 15 years of experience in financial services management consulting, fintech startups, and retail brokerage and bank strategy.  He has an undergraduate degree from Princeton University and an MBA from Wharton. Moven is a startup dedicated to providing mobile money management services that help consumers spend, save and live smarter.  Moven was awarded a Best in Show at the 2013 Finovate London event.

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Prepaid Expo Day 2: Mid Day Recap

"Are GPR Cards a Destination or a Journey?" was an interactive panel with many industry heavyweights debating the trajectory of prepaid GPR cards. The panel was moderated by the CEO of Paybefore Marilyn Bochicchio and the panel was made up of: - Dan Henry, CEO, Netspend - Brett Adams, Lead, U.S. Prepaid Products, MasterCard Worldwide - Mark Putnam, SVP & Divisinal Manager of Prepaid Solutions, First Data - Adam Rust, Director of Research, Reinvestment Partners Incase you missed the session, here are some highlights: - There are 68 million people that are underbanked - for many, GPR cards are the only choice (18-23% of all people get turned down on traditional banking options) - Over the past few years, the total cost of ownership for prepaid cards has steadily decreased - Prepaid options that are totally transparent can lead to increase trust from the consumer - Mobile enabled features is key: it all comes down to combining the paper and the digital worlds - The appeal of prepaid is about having immediate access to your funds

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