The diversity of payments in the US

As a payments geek, I am always curious about payment experiences in various parts of the world. In the last month I had a couple of trips to the US – to New York and to New Orleans – and they just reminded me how diverse the US payments environment is. And I am only talking about the physical POS; I haven't really ordered anything online or in-app while I was there.

First, a few observations around EMV. As I live in the UK, all my cards are Chip and PIN, and the US market has been migrating to EMV for a while now. Of course, the migration can't happen overnight – some merchants have already upgraded their terminals, but many haven't yet. Also, there is no mandate in the US to use offline PIN, so "chip and signature" EMV cards are common amongst the US issuers. As an end-user, I experienced a full gamut of payment scenarios:

  • Majority of merchants would simply take my card, swipe it and give it back to me straight away. Not one of them checked if my card is even signed, let alone if the signatures matched…
  • On a few occassions, I was asked to insert the card into an EMV terminal and enter my PIN. And then we waited. And waited more. And a bit more. I knew EMV transactions take longer in the US, but I didn't realise just how much longer… Not surprisingly, the networks had to do something about it and have announced software updates (e.g. Visa's Quick Chip for EMV and MasterCard's M/Chip Fast) to speed up transaction processing.
  • Not a single eating establishment I visited had a handheld EMV terminal. All of them just took my card and disappeared for a while in the "back of the room" – a practice that sends shivers down the spine for most Europeans 🙂
  • On at least one occassion, I entered the PIN, yet the salesperson was still looking for a signature box on the receipt and wanted me to sign it. I had to explain that PIN replaces the need for signature; of course, these things will disappear once merchants learn more about the EMV cards.

A number of merchants in New Orleans had a Clover POS station. It looked really sleek on retailer desks and transactions seemed fast and easy. I asked a couple of them what they thought of it, and they all said they were very happy with the device, its looks and ease of use.

As a side note, American Express cards seem to be far more widely accepted in the US. In Europe, I got into a habit to double check at new places if they take Amex; in the US, that seems unnecessary.

Of course, it's no longer just cards. US was the first market in the world to see the launch of Apple Pay, Android Pay and a number of other digital wallets. The challenge for many of these wallets is the lack of places where they can be used, as contactless terminals remain relatively rare, albeit growing. However, when they can be used, they work very well. The biggest advantage that I can see as the UK user of Apple Pay is that in the US I can use Apple Pay for any transaction, whatever the amount (as long as my issuer is happy to authorise it). I had no problem paying for a taxi ride from New York's JFK airport to downtown by Apple Pay ($70+ fare with the tip). In the UK, Apple Pay and Android Pay (which has just launched this week) are subject to the same contactless card transaction limits and can only be used for transactions of £30 or less. Again, we expect this to change, as contactless terminals get upgraded.

I was also intrigued to see a PayPal acceptance badge at one of the POS terminals. I asked the cashier if it was a popular payment method amongst their customers. The cashier said that it seemed new to him, and that he personally had yet to see anyone trying to use it. I must admit, I am a fan of the PayPal wallet and use it whenever I can, but nearly all of my transactions are online/ via a mobile app. This time, I only noticed the PayPal sign after I already started paying by card, so can't quite report on the actual experience…

And yet, cash remains hard to beat, with many places only accepting cash. I refrained from visiting any of the dodgier establishments on New Orleans' Bourbon Street, but I didn't even had to in order to experience the power of cash. Most sellers in the French Market clearly prefer cash; getting into (jazz) Preservation Hall is "cash only" at the door, and while not every place has the sign as artistic as the one in the picture below, "cash only, one drink minimum" was a common mantra of many bars with live music.

cash only

Clearly, there is a lot of payments innovation in the US. Various wallets and innovations in POS contribute to the diversity of end user experiences. Such diversity is a good thing and if anything, it will only increase, as customers will have increasingly more ways to pay. And as the migration to EMV continues, the undesireable kind of diversity should reduce as well.

Banks are dead? Long live banks!

A few weeks ago, Zil blogged about the recent set of reports that he and I wrote on reimagining payments relationships between banks, retailers and Fintech. They were commissioned by ACI Worldwide, and the reports took a perspective of each party. Given the current focus on the topic in the industry, we highly encourage you to read them. But it’s worth just summarising our thinking in a few sentences. Contrary to what many people think, we don’t believe that Fintechs will replace banks, but that all three parties will co-exist, and rather than Fintech being a wedge between bank and client, they will become the glue, and an increasingly important part of the ecosystem. Whilst I trust our insight was unique, the topic certainly isn’t. It seems mandatory to have Fintech in every press release and every conference! What is interesting though is that many people seem to see Fintech in isolation, and that there are many other things happening that are not just enablers, but perhaps multipliers of the impact that Fintech will have. Take PSD2 and the XS2A provision. We’ve covered this numerous times in reports, but in short, is a mandated requirement to allow third parties access to account level information, and the ability to initiate a payment from that account. In theory then, a Fintech can now access your data at your bank and, with your permission, pay anyone directly from your account. In the context of above, what is interesting is the responses we’ve seen from the industry. A few banks have seen the opportunity. Most see it as a threat and/or a regulatory burden they have to fulfill. Few Fintechs seem yet to have publicly declared any interest – or indeed, knowledge! – of the PSD2 at all. The most interesting conversations seem to have been coming from the merchants. They’re exploring the potential to bypass cards. The appeal is obvious – if they become a third party provider, they can get the consumers to push payments directly, with no fees payable by the merchant. Given the growth in real time payments, these will be increasingly good funds, with instant value. One scenario then sees the merchants dramatically impacting the business model of the banks, with card revenues plummeting, with the merchants benefiting from improved cash flow. Yet there are other implications in that scenario. For example, can those merchants actually handle the volume of payments? Is their ERP system real-time, and able to reconcile at the same speed? Are they sophisticated enough to cope in the change in their cash management profile? Yet central to this change remains the bank. Those merchants will need the banks more than ever, not less. The services might change, the business model might change for most of the parties involved, but the requirement remains as strong as ever. Banks are dead? Long live banks!

Banks and Fintech: friends or foes?

The question in the title of this post has become a rather hot topic lately. Earlier this week, I was kindly invited to join the panel on “what’s hot in Fintech” at Citi’s Digital Money Symposium, and it was one of the central questions we debated as a group. My colleague Stephen Greer has also discussed Bank-Fintech relationships on these very pages, for example, see here and here. The question is not necessarily new. Back in 2011, I wrote a report titled Innovative Payment Startups: Bank Friends or Foes? In the report, I looked at companies presenting at the inaugural FinovateEurope and concluded:
“Banks have little to fear from this particular group of payment innovators. Some solutions actively support the established payment systems, in particular cards. Others are expanding the market by enabling payment transactions in places where they may not have been possible before.”
There is no question that the pace of innovation has increased in the last five years since that quote. However, today we also have many startups and Fintech companies that are actively serving banks with their technology tools (from authentication and fraud management to back- and middle-office systems). Others, such as Apple partner with banks to develop propositions that “wrap around” a card transaction. In the last few months, we have also noticed an increase in stories around collaboration between banks and Fintech. Most payment unicorns (private companies with valuation of over $1bn) achieved their impressive scale and valuations mainly by competing with banks in a specific niche and focusing on being the best in class in that area. Often, it is in merchant services, such as those provided by the likes of Stripe, Adyen, Square, and Klarna, while TransferWise is successfully attacking banks in the international payments market. Yet, even among the unicorns there are those that have chosen to partner with banks, such as iZettle which has partnerships with Nordea, Santander, and other banks in Europe. TransferWise, a unicorn that has long been positioning as an alternative to banks, is now partnering with LHV, an Estonian bank, to offer its service via the bank’s online and mobile channels, and is rumoured to be in discussions with “up to 20 banks” about adopting its API. The Wall Street Journal recently quoted Ben Milne, the CEO of Dwolla, as saying, “Time humbles you. Working with banks is the difference between running a sustainable business and just another venture-funded experiment.” It has become fashionable to pronounce the death of banking. The disruption caused by Fintech is supposed to blow the old-fashioned banks out of the water. Of course, we acknowledge the disruption and recognise that banking is changing. We simply don’t agree that banks will disappear — at least not all of them:
  1. Today’s smartest banks will figure out a way to stay relevant for their customers.
  2. Some of today’s disruptors are becoming banks (e.g. Atom, Mondo, Starling in the UK)
  3. Both Fintech and banks are starting to acknowledge the value they each bring to the relationship and will learn to collaborate effectively.
My colleague Gareth Lodge and I have just published a series of reports on reimagining payments relationships between banks, retailers and Fintech. Commissioned by ACI Worldwide, the reports take a perspective of each party and explore this topic in a lot more detail. Just like a family is locked into a set of relationships, banks, retailers, and FinTech form a payment ecosystem that we believe is more symbiotic than many would want to admit.

As conference season rolls on, here’s what I’ll be looking for at Money20/20

We’re smack in the middle of conference season and the team has been traveling all over the world. We’ve been busy with Sibos and BAI (unfortunately held at exactly the same time), AFP, and next week, Money20/20.  In only its fourth year this new conference had to move to a new venue so that it could avoid running afoul of the fire marshal. Given the excitement around the payments ecosystem, we think it will be an exhausting whirlwind of a week. What will Zil Bareisis and I be looking for? Three main topics top the list:
  • What’s the view on blockchain? There was a lot of discussion at Sibos on the corporate side (we don’t think retail will be leading), but we’d like to find out if there’s heat behind the light.
  • What sort of value added services around the payment are in production or on the drawing board?
  • Is the apparent stall in mobile payments adoption temporary, and what can be done by ecosystem participants to jump-start it?
There will, of course, be many other payments topics covered, and we’re looking forward to plunging in to soak up the zeitgeist. What will you be looking for? If you’ll be in Vegas next week, we look forward to seeing you. If you still haven’t registered, you can get $250 off your ticket by using the code celen250.

UK payments outlook 2024

Our friends at PaymentsUK have released their latest forecasts, the ever excellent UK Payments Market 2015. Whilst we don’t have a copy of the full report (hint, hint…), the press release does give us some interesting insights. For example, payments will hit 44 billion transactions a year by 2024. This is a net growth of 3.4 billion, which hides significant and continued declines in both cash and cheque usage (53% to 33%, and 1.1% to 0.4% respectively). The table provided (and replicated below – the link above has a better quality version) shows that, for consumers at least, cards continue to drive the growth. There are obvious reasons for this: consumers switching from Oyster-like cards to contactless, and indeed, contactless generally, is just one good example.   Number of annual consumer payments made per adult uk pay 3 One thing that really stood out for me is the final line before the total – the “other” category. Celent’s forecasts typically count prepaid and store cards into our debit forecasts. But what is notable is that PayPal is explicitly mentioned… and mobile payments aren’t. At all. We’ve not seen the full report, so it may be explained there, but given what we read in the press, this is hugely surprising. Recent examples include: Actually, it’s not surprising. Firstly, what is a mobile payment? That in itself will cause heated debates! Secondly, for the latter to be true, I ought to know at least someone who is making those mobile payments – or rather, every other person I know! I’m being slightly tongue in cheek – read Zil’s post from a few weeks back about him at least trying. However, I’d still argue that even this wasn’t a true mobile payment – the mobile device is just holding the card credentials. I refer you to my first point! So what are the takeaways? Firstly, the growth may continue – but in reality is perhaps less strong than you may initially think. A 3.4 billion growth in 10 years is actually only a CAGR of c 0.5% a year. Compared to some developed countries (France for example) that’s good, but compared to some developing countries that’s low. Secondly, there may be 101 new ways to pay, but they’re unlikely to make significant inroads, instantly. Current methods are deeply embedded in our every day life. Indeed, many of the “new” methods run on top of the existing rails, and the volume often gets counted as the old method. This doesn’t mean that there are no improvements to be made but that they are just that – tweaks to the existing. Finally, perhaps the phrase of there are lies, damn lies and statistics, ought to be caveated that many of the issues seem to be with PR people and journalists. Many inadvertently misread the numbers, but some of the latest releases underline that we all ought to find the original source rather than necessarily solely relying on what’s being reported.

Musings from the airplane

I am not writing this literally on the plane, but I might well be – this is a conference season, so many of us are on the road. My colleagues have already been blogging from SIBOS, Finovate, Finnosummit and other events. I wanted to share my own observations from the events I attended. EMV, tokenisation, mobile, Blockchain – these were just a few major themes discussed in depth in Las Vegas at PayThink. This used to be known as ATM, Debit and Prepaid Forum and remains THE event to go to discuss these topics in the United States. It is organised by PaymentsSource and chaired (for the last 12 years!) by Tony Hayes, my colleague and Partner at Oliver Wyman. Thank you to the organisers for inviting me to moderate a panel on lessons learned from cards platform transformations, and many thanks to my panelists – senior executives from FIS and e-Global for sharing their insights. We talked about the drivers forcing processors and issuers to upgrade their processing platforms, such as growing transaction volumes and types, need for flexibility and speed when adding new products, and how the processing proposition changes. Processors are now moving away from out-of-the box to componentised solutions, are changing how they package and price their services, and are re-thinking the business terms how to engage with clients. When working with software vendors, our panelists stressed the importance of “soft aspects”. Of course, the technology matters and must meet the requirements to get you on the short list. However, often it will be your people that will win or lose you the deal – flexibility and commitment they demonstrate during proof of concept and other advanced stage interactions are often major factors when clients make a final decision. Last week I was in Lithuania, the country I grew up in and left over 20 years ago… I go back every year, but this was the first time I went there as an analyst. The Central Banks of Lithuania and Sweden jointly organised a conference on the role of Non-Banks in the Payments Market. I was kindly invited to join the panel to discuss “what’s in the future.” As our clients know, our view at Celent is that the disruption in banking is real and that, as a result, banking will change, however, banks will not disappear. Of course, some of them will, but others will adapt, and some of the today’s non-banks will become banks. The challenge for all is how best to manage that tension and the ongoing evolution of the industry. In between travels, I also published a new report on tokenisation, a hot topic in the industry at the moment. The speed of tokenisation evolution in the last 12-18 months has been remarkable, and there are no signs of slowing down. Celent clients can access the report here. Finally, it’s not long before we board the plane to go back to Vegas to Money 2020. The meteoric rise of this event has been absolutely amazing – fours years ago there were about 1,200 of us; this year, the organisers expect 10,000! My colleague Dan Latimore and I will again be there as well. My diary is already full, but if you are a client and would like to say hello, do reach out to your account managers and we’ll do our best to meet up. With everything going digital, the physical handshake remains as important as ever! Safe travels!

Why I won’t be using Apple Pay during rush hour on London transport

I am finally a proud user of Apple Pay! It came to the UK on July 14th while I was away on holiday, but I managed to set up my first card even while I was abroad. And I was very proud and pleased when I got back and completed my first Apple Pay transaction. My experience has been more or less as expected. I got an email from American Express announcing that Apple Pay is available and suggesting that I should add my card to it. I have been using my Amex for iTunes, so adding it to Apple Pay was relatively straightforward. Somewhat unexpectedly, I now also get notifications on the phone for all transactions, including those made with a card – I would have thought Passbook would only have my Apple Pay transactions, but I guess it does make more sense to see all transactions on the card in the same place. I also added a debit card issued by my bank. The bank also promoted Apple Pay to me, and when I logged into my mobile banking app, Apple Pay was featured prominently at the top of the “home screen.” Clicking on the banner took me to the screen within the bank app which explained about Apple Pay and had an “Add Card” button. Given that I was already inside the bank’s app having authenticated myself via TouchID, I was expecting that this button would give me a list of the bank issued cards I have and I could add any of them to Apple Pay by just clicking on it. Somewhat disappointingly, I was taken out of the bank’s environment into the regular Apple Pay “add card” process and had to scan my card, wait for the text message with a security code to arrive, and set it up just like I would have done with any other card. I can imagine that what I wanted is perhaps challenging technically, but it still seemed like an opportunity missed to “surprise and delight” me as a customer. When everything works as expected, the transaction experience is brilliant. However, I already expressed my concerns about the reliability of TouchID on these pages before, and they proved to be true – TouchID does not always work for me when trying to use Apple Pay. While this is not much of an issue in a retail setting, it is not something you want when fighting the crowds to get on a tube or train platform during rush hour in London. As Transport for London confirmed in response to a number of complaints about over-charging, you have to touch in and out with the same device throughout the day to ensure the correct fare is charged; touching in with Apple Pay and out with a card or Apple Watch might result in being charged twice, even though all payments might eventually come out from the same card. The other thing is that Apple Pay quickly conditions you to getting transactions confirmed on the phone. Because TfL has daily and weekly caps, it cannot confirm each transaction instantly. Instead, I was charged 10p when I touched in with Apple Pay, with the balance for the day’s travel being charged to my card much later. While this is understandable and a minor gripe, it still contrasts with the experience of other transactions. None of this is TfL’s fault, which deserves plaudits for continuing to improve and give options to how we pay for travel. However, while I will definitely continue to use Apple Pay at the retailers, I am going to stick with a tried and tested Oyster card or a bank contactless card when travelling in London. It is simply not worth fretting every time I approach the gates whether the technology will work at the speed needed to keep the crowds flowing.

The next step in European ACH competition?

Yesterday saw very interesting news coming out of Europe regarding a joint venture between 6 European ACHs.  To understand why many of us have sat up and taken VERY close interest in the announcement, we need to review some recent history first. Much of this will be covered in more detail in a forthcoming report on ACHs. In the very early days of SEPA, the European Commission made many public comments. As SEPA was as much a political goal as anything, many of these were observations on how the Commission thought the market ought to develop. Given the size of the task and the perceived reluctance to the banks to do anything about SEPA, the Commission narrowed down the observations to a set of specific requirements, eventually culminating in the regulations that made migration mandatory in Euro countries. The downside is that some of the initial elements triggered some activity, but they were never fully pushed through. One such item was the Commissions perceiving their to be an over-supply in payments processors. In the Commissions view, a single market would reduce the 50+ processors to between 5 and 7. That would be enough for a competitive market, but not so many for an inefficient market. The latter stance is based on the fact that processing is broadly a fixed cost business and so the larger the volumes processed, the cheaper the cost per transaction is to process. As a result of this statement was a flurry of activity amongst the ACHs to be one of the “survivors”. It triggered a wave of mergers (Equens is a German/Dutch/Italian merger for example), near mergers (everyone courted everyone else!) and direct approaches to banks and markets to acquire them as customers and boost volumes. But whilst there were mergers, the market broadly remained unchanged. Indeed, some markets chose to build their own SEPA compliant ACH, rather than use the services of a SEPA-ready ACH. There are many reasons for this, not least ownership and control. The announcement yesterday therefore was very significant. At face value, 6 ACHs are going to collaboratively process cross-border SEPA payments. Given the tiny volumes, this isn’t exciting. However, dig deeper, and it becomes clear that Equens – arguably the largest ACH in Europe – is providing all the infrastructure and services to the new company, and the new joint entity company is registered at… Equens HQ. Those other 5 ACHs are considerably smaller – their volumes combined are still dwarfed by Equens. Secondly – it’s for cross-border SEPA payments today but mentions possibly delivering the real-time payments interoperability that’ll be required going forward. That means more ad more services that will be offered by Equens to these other ACHs. It’s particularly noteworthy as many believe that EBA Clearing has been positioning itself to provide exactly that service, and has been leading the discussions. The third point is a broader one. There has been considerably more talk in the last few months about processing, given various elements of PSD2. It’s not yet clear whether the scheme/processor split will apply to “just” card companies, particularly when some of the ACHs process cards. A number of organisations have also mooted whether the XS2A provision potentially provides a way to bypass ACHs – that is break the connection between bank and ACH. Given the range of potential impacts, it seems likely that there will at least some impact. Finally, we are aware of more than one discussion in Europe about the future of that countries ACH, particularly as they ponder on how to deliver a real-time payments solution for that country. All bets are off. The net result suggests to me that we’re entering new phase for payments processors, particulalrly ACH, which has been a relatively stable market for many years. The industry – and technology – is in a very different place than when the discussions happened in c. 2005. What made sense then may not make sense now. We believe that the announcement yesterday will be just the first of a number over the next 2 years. The phrases exciting times and ACHs can be at last mentioned in the same sentence!

Reflections on Nacha Payments 2015

As many of you know, I’ve been on something of a world tour, which started with Nacha Payments in New Orleans in mid-April. Expect a flurry of blogs as I pass on my impressions from my travels, starting with the Nacha show. Whilst I may live in London, I have global coverage. Payments is an interesting business – whilst its perhaps one thing that unites all businesses and consumers in all countries, and we are moving increasingly to global standards, the finer details show that it is still a parochial business. I don’t mean that negatively, more that payments have evolved over decades, if not centuries, to address specific local needs. That’s why the SEPA project was so difficult – even what we meant by certain terms turned out to be not straight forward. Nacha Payments this year was in New Orleans. For those not familiar, it’s a long standing show focused primarily on the ACH business. It has a very active conference schedule – I was on a panel with Dwolla and BBVA talking about real-time payments – and an exhibition floor. The US is the single largest payments market, so it’s not surprising that the show is very US in focus. What still surprises me, even now, is the fact that in a shrinking list of exhibitors each year, every time I attend there are vendors I’ve never even heard of, let alone am familiar with their products. This demonstrates the size of the market rather than my lack of knowledge! Take-aways for me: What a difference a year makes. Last year, one senior banker said real-time payments wouldn’t happen in the US in his lifetime. This year, it’s seen as a when, no question about if. Indeed, all the talk was about the “secret” (so secret that every meeting I attended asked me about it!) meeting the key Clearing House banks were having to build out the requirements for the Clearing House solution. The general opinion is that the Clearing House is seeking to go live long before the Fed working groups even get close to having a plan for requirement gathering. More on this soon. Business is alive and well. At first glance, the exhibition floor looks notably smaller than the previous year. One thing to note is that the conference is often attended by more junior people, who also get re-certification credits for attending sessions – with so many sessions to choose from, the exhibition hall is often very quiet. Yet all the vendors reported greater numbers of good meetings, with tangible next steps – in short everyone was happy. Which several said wasn’t the case of some of the new sexier shows as Money2020. It strikes me that they’re very different events. Looking overseas. Payments are largely domestic in nature and what works in one country doesn’t always work in another. For example, check technology from the US (which writes 2/3rds of all checks globally) won’t be of interest in Finland (as checks were abolished in 1993!). As such, payment conferences tend to be very domestic in focus. Not a criticism, just pragmatic. Given the changes the US is facing, and given that many other countries have already faced many of the challenges, it was interesting to see such a noticeable increase in conversations seeking an international viewpoint. I don’t think we’re anywhere close to a global market – but the US seems to have taken a significant swing from “not invented here=not relevant” to “don’t re-invent the wheel”. See you next year, in Phoenix!

Thoughts from American Banker Retail Banking Conference 2015

This last week the American Banker Retail Banking Conference 2015 was going on in Austin, TX. As expected, it was a great way to read the temperature of the banking industry. The conference was well attended, with broad representation from all institution sizes and markets. There were a couple of overarching themes throughout the event. Competitive pressures on smaller institutions were top of many bankers´ minds. The conference was full of community bankers discussing evolving business models and the pressures its placing on their ability to gather deposits. Customer centricity is forcing a convergence of traditionally segregated value propositions. Large banks are now trying to compete on serving the customer and they´re positioning themselves to look and feel like a community experience. New entrants and delivery models are also opening up the competitive landscape. Consumers are no longer limited by geography when choosing a bank, and they have a growing number of alternative financial options from which to choose. Smaller institutions are finding it hard to overcome some of the barriers of resources and marketing that arise as the competitive landscape broadens. Many presenters discussed developing non-traditional revenue streams. With interest rates low and new regulations following the financial crisis, banks are running incredibly thin margins, and traditional revenue sources are no longer viable. Presentations focused on targeted marketing for “moneyhawks”, new P2P models (e.g. P2P lending), and new payment schemes. A few thoughts on some of the talking points:
  • Breaking down omnichannel applications for financial services: Omnichannel within banking was a popular talking point between attendees and among presenters, and it´s obvious there´s still more than enough ambiguity around its application in the context of banking. One of the presentations used non-FI examples to look at how banks can approach integrating omnichannel into customer interactions. Home Depot was an interesting case study. The retailer combines the in-store and app experience to enhance the customer buying process. Customers can browse the app and make a list of the materials they need. The app shows only what´s in stock at the nearest physical location, and each item is given a corresponding aisle number for easy location on arrival. While in the store, customers can scan QR codes on each product to bring up specific measurements and statistics. This is the essence of an omnichannel experience. It´s not about doing everything from every channel—it´s about optimizing the customer experience across the variety of methods used to interact with the retailer (or bank).
  • Community banks differentiating from large institutions: This was a common thread running throughout the presentations. How do community banks grow deposits in a climate of shrinking deposit share? Presenters proposed some solutions. One spoke of the need to market correctly. A recent study found that despite problems with megabank perception, 73% of those asked said a recognizable brand was important in choosing a financial institution. A regional bank poll of millennials found that not one could name a community institution in their area. These institutions find it hard to inform consumers about the value they provide, and often lacking the resources and experience to do so. A few small institutions spoke about shifting towards serving small businesses. Despite only having 20% of deposits, community banks are responsible for 60% of small business loans. Focusing on small businesses could be a way for small institutions to remain viable, without having to drastically alter their businesses.
  • eCommerce and Merchant Funded Rewards (MFR) through mobile banking to help consumers save:  During one of the sessions, a banker made a good point: consumers don´t need help spending, they need help saving.  The comment reflected a number of discussions about the role financial institutions can play in helping consumers save money, but was echoed across a handful of presentations on digital commerce. US Bank discussed Peri, its eCommerce app developed in cooperation with Monitise, while other presenters spoke about card-linked and MFR propositions.  These initiatives are definitely innovative, but is conflating the ideas of saving and driving commerce shaping the conversation around a fundamentally misaligned approach?  First, will a bank´s eCommerce app be able to compete with the likes of Amazon and Google?  Banks often do not have the customers, data, or pricing competitiveness to match big online retailers, and they seldom win on brand favourability. Second, even when these initiatives are successful, do they really help people save?  For many, the data isn´t targeted enough for banks to offer deals on purchases a consumer was going to make anyway.  For example, based on one bank´s demo, a customer would go to make a purchase at a retailer and the bank app would push out a geo-located card-linked offer for a nearby restaurant. This requires additional spending.  Without the right data, these programs are mostly playing off impulse purchasing, not saving.
Do these themes resonate with your experience? Feel free to leave comments about how your institution is tackling these challenges.