Archives for April 2012

Feeding My Inner Geek

As many of you may know, I used to work at a very large ACH – over a €1.4trn per year of transactions. Its therefore with some excitement that I look forward to Nachas’ Payments 2012 conference next week in Baltimore! Whilst much broader than just ACH, there are few other places where I can indulge my inner geek and talk about some of the nitty-gritty of ACH. ACH has tended to be considered by those outside of the ACH industry as something of a backwater. Its only recent times when people have realised just how important ACH is, that we’re starting to see many advisory organisations turn their attention to the subject. Just count how many tier 1 consulting firms are presenting next week, let alone will be attending, compared to even just a few years ago. Yes, ACH isn’t geeky anymore, its sexy! You heard it here first 🙂 There are always the announcements that accompany any show. I’m party to one announcement between 2 clients that I think is a very interesting – expect commentary and thoughts when its in the public domain next week! From the inquiries I’ve received, I also expect the Nacha consultation on Same Day Payments to be a topic of many conversations, along with the inevitable questions relating to mobile. Anyway, I’m looking forward to meeting many clients and prospects, and as always, if you see me, please do stop me and me and say hello.

Leading the Bird: What Bankers Can Learn from Duck Hunting

Every duck hunter knows that in order to avoid coming home empty-handed, one must aim ahead of the bird – lead the bird as it is commonly referred. The idea is that if one aims directly at the bird, every shot will be a miss no matter how precise the aim. That’s because by the time the bird shot gets in the vicinity of the duck, it will have flown out of the shot pattern.

How Much to Lead is the Tricky Part
How Much to Lead is the Tricky Part
What does this have to do with financial services? Tons! Today’s financial services landscape is challenged with astonishing array of changes, and the rate of change is faster than most have seen in our lifetimes. It’s my observation that most financial institutions aren’t leading the bird. One example lies with retail banking delivery channel priorities. With astonishing consistency, banks and credit unions respond to surveys indicating that channel priority is simply a function of channel usage. The more the usage, the higher the priority. Simple enough, except for the fact that doing so doesn’t lead the bird. Instead, doing so guarantees that financial institutions that behave this way will forever lag the market. The faster the bird, the greater the miss. Other examples in banking: • Overreliance on the branch channel for sales even though all indications point to continued declines in foot traffic. • Slowness in deploying mobile RDC even though most major retail brokerage now offer. • Waiting for Americans with Disabilities Act (ADA) mandates to invest in deposit automation ATMs even though ATM usage skyrockets among FIs that deploy them. An example of leading the bird is PayPal. EBay Inc.’s top brass made it clear in a recent earnings call that mobile technology is dominating strategic thinking at PayPal Inc., even though it does not yet account for a significant share of transaction volume for the eBay unit. As reported by Digital Transaction News: Addressing stock analysts during eBay’s quarterly earnings call, eBay chief executive John Donahoe lauded the expansion of PayPal’s point-of-sale payments service to some 2,000 U.S. Home Depot Inc. stores earlier this year. “This is just the beginning,” he said. “We have signed contracts with several additional retailers.” Leading the bird doesn’t mean having to be on the “bleeding edge” of technology. Even fast followers can lead the bird. And, leading the bird isn’t the same as being proactive. It’s not a matter of attitude. Instead, leading the bird is a way of aiming. It means taking action based on where things are going, not where they have been – or even where they are. It’s analogous to the difference between predictive analytics and business intelligence. Both are useful, but they serve two very different purposes. Leading the bird doesn’t mean you come home with all the spoils, but it does invite doing so. At the very least, it ensures you come home with… something.

Relevance in FS Advertising

Many financial service firms are going to great lengths to ensure advertising is timely, relevant and compelling. Indeed, campaign management applications promise this very thing,.with the objective of improving sales lead rates. While on a family trip from Atlanta to Ohio last week, I had the occasion to experience FS advertising at multiple venues along the way. Below are two examples. The first was classic. BP is offering a VISA rewards card with the ability to redeem rewards in the form of discounts applied at the gas pump. It is merchandising its new card with well-coordinated and well-placed pump signage – a great example of timely and relevant marketing. The only thing missing is a way to apply for the card while there at the pump. bp-marketing2

The second example was at a QT. I never did find the ATM.


Ensuring Competition in Payments

Last Friday, the European Commission announced that it has extended its investigation into Project Oscar, the proposed mobile payments joint venture from a group of UK telcos. The regulator is concerned that the venture could be anti-competitive. Project Oscar is a JV between Vodafone, Telefonica and EverythingEverywhere (Orange and T-Mobile) to develop an infrastructure which would enable mobile payments as well as other mobile services, such as couponing, loyalty, etc. As required, they submitted their plans to the EC for approval last month and after the inital review period ended, the Commission decided to extend its investigation for another 90 working days. This week I received a lot of enquiries about what this means. Does this kill mobile payments in the UK before they even take off? Will this have implications for other similar JVs? Indeed, a similar partnership in The Netherlands known as Sixpack also had to delay their launch plans as they went to seek the EC approval. And in a different area of payments, I heard that the interoperability pilot between the three existing OBeP schemes (EPS, iDEAL and Giropay) is also being stopped by the European Commission investigation into allegations of anti-competitive behaviour by the European Payments Council, which commissioned the pilot. However, I wouldn’t read too much into this at this stage. To me, the latest UK announcement simply implies that:
  • Payments regulation is complex and there are many issues to consider when approving new entities, especially in new and unfamiliar territories, such as mobile infrastructure;
  • The regulator is not willing to make rushed decisions and is prepared to take an in-depth look at the new venture;
  • Three, another UK telco, has likely done a good job at raising their concerns about being excluded from this partnership so far.
My view is that all the regulators around the world should keep in mind three primary objectives of payments regulation:
  1. Protecting the parties conducting a payment transaction, i.e. consumer and merchant protection;
  2. Fostering competition and ensuring a level playing field among payment service providers;
  3. Managing systemic risk and ensuring security, soundness and stability of the overall economy.
By taking its time to review the proposals, the regulator is only fulfilling its obligation around the objective #2. Lets wait and see what the decision is at the end of August.

Hurray for RuPay?

I hope many of you will have had chance to read Zil’s excellent report on the outlook for a 3rd European Card scheme. I think we’re left in no doubt on his opinion – and one to which I whole-heartedly agree. However, I was reminded this week that this position – “don’ re—invent the wheel” – shouldn’t necessarily be applied to all other markets. The National Payments Corporation of India have been talking about their new national debit card, RuPay. India has low levels of card penetration, for some obvious reasons. The levels of unbanked are significant. For example, one of my favourite “wow!” statements (though I’ll free admit to not being able to identify or confirm the source) is this: There are more people in India with mobile phones, but without a bank account, than the entire population of the US. Some of the noise so far about RuPay has been that it will be significantly cheaper than its international card scheme rivals. One source has suggested that the rivals charge charge around $30,000-$50,000 as one-time fee and around $10,000-$30,000 quarterly fee from the banks, whilst RuPay does not charge any one time joining fee from banks and other charges are around 40% less than Visa and Mastercard. I think those are important aspects, but its much broader. Whilst the work started in January by UIDAI, the body tasked with issuing a unique ID to every Indian citizen, will help (as after all banks are more likely to engage with people they can track and identify, a major issue in country), there are some more structural problems. Part of this is the switch from how things work currently. For example, shopkeepers have been reluctant to accept cards. Why? It’s not just the delay in funding and the margins & fees on very low prices, but something more fundamental. They like cash because they pay their suppliers in cash, their staff in cash, particularly as many don’t have bank accounts and therefore there is no other easy of paying them etc. Cards potentially make that a double challenge. Cards may or may not be the appropriate payment type – a discussion in itself – but more significant growth can be achieved by addressing the wider value chain, particularly those parts outside of their usual remit. With NPCI having a much broader remit, that’s why I believe that RuPay could well be the right answer. And its not all bad for the others as they’ll benefit from the growth in card attractiveness and a more developed market.

I’m A Twitter Influencer? Huh?

Yesterday, I was informed by Obopay that they have ranked me in their top 10 Twitter influencers in North America. Before I pat myself on the back, and get you to congratulate me, I’d like you all to consider what this really means. I’d like to thank Obopay for the accolade, but the answer is it means nothing. There are all kinds of fun ways to measure social “influence.” The most popular one is Klout, and Obopay uses the Klout score in its methodology. Klout’s got a convoluted mechanism of gauging your so called influence. I’m just an occasional tweeter, and my interactions are what contribute to my score. If I spent my entire day tweeting out news and links, who knows, maybe I’d reach #1 on the Obopay list! These scores are easily gamed, and don’t measure an individual’s true interactions or influence. Plus, Obopay’s list is incomplete as I can easily identify several individuals from Celent and other firms that aren’t even listed. I could go on with this but I have to get back to the report I am writing. What an analyst does on Twitter represents only a fraction of their role and potential to influence. Would you make a business decision based on my Klout score or Obopay influencer rank? I hope not.

Some Facts About Data Breach at Global Payments

Last Friday, the press began reporting about a major data breach at Global Payments, a large US card processor. As always in the early stages of such events, there were plenty of rumours and speculation with various sources reporting stolen card numbers to be as low as 50,000 or as high as 10 million. This morning, as I write this, Global Payments is holding a conference call to provide us all with more information. So, this is what we have directly from the company:
  • Up to 1.5m cards records “may” have been affected;
  • The incident is contained to North America only;
  • Only Track 2 data has been taken (not Track 1 data and not customer name, address, etc.);
  • Visa removed Global Payments from a PCI compliance list;
  • The incident does not involve any merchants, ISOs or customers and occurred on some “local servers” at Global Payments;
  • Due to the ongoing federal investigation, the company can’t be specific about timelines, but did confirm that “about 3 weeks ago” it discovered that some card data “may have been taken” and immediately contacted federal law enforcement agencies and the schemes;
  • Customers are “encouraged to be vigilant”. Also, the company is setting up an information site for consumers which should be operational later today:
The trading of Global Payments shares was suspended on Friday and the full impact on the company remains to be difficult to estimate at this stage. However, the executives on the call remained positive and stressed that the company:
  • Continues to process all card transactions, including Visa;
  • Is working with the schemes and other parties to address the situation; “~100 people are working on this”;
  • Intends to get its ROC (Record of Compliance) back “as soon as it is humanly possible”;
  • Will continue with its planned investments in other areas, but also will “spend even more on security” going forward;
  • Expects to come out stronger and more experienced as a result, and believes that their customers will recognise this.
Data breaches are unpleasant, dangerous and costly. They are also a fact of life. In our most recent payment trends report, we called retail payments security as an important focus area for 2012. As commerce environment gets more complex (online, offline, mobile, etc.) and as access points to payments proliferate, security issues are only getting more complex. What are your thoughts on how best to ensure payments security in the digital age?