Musings from the airplane

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

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?

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

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

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.

Capgemini, the 40-40 Rule, and the rise of the robots

Capgemini, the 40-40 Rule, and the rise of the robots
Capgemini recently hosted a few dozen consultants and industry analysts to Chicago for their two-day Analyst and Advisor Day event. The presentations were held at the firm’s very impressive Accelerated Solutions Environment facility, with its dramatic curved glass exterior and prime views across the Chicago River to the famous Merchandise Mart.  Unfortunately, it was typical Chicago winter weather with sub-zero windchills and snow flurries, but for those who braved the conditions it was a very interesting and informative event. Things appear to be going well at Capgemini. Even though organic growth in revenue was only 3.4% in 2014 (to EU 10.5B), bookings were up 13%, operating margins were improved by 70 basis points (to 9.2%), and profit jumped by a full 31%.  The financial services business (covering banking, insurance, and the securities industries) provided Capgemini with significant sales momentum into 2015, with Q4 growth of 9.2% (second only to the firm’s public sector services business).   In the financial services sector, Capgemini’s business theme was digital transformation, which in their view would be driven by the replacement of knowledge workers by automation and algorithms. During Q4, Capgemini signed an important deal with First Data Corporation (FDC) to take over application management responsibility for its VisionPLUS card processing platform. VisionPLUS is FDC’s international card platform and serves over 180 clients in 70 plus markets in Central and South America, Europe and the Middle East, and Southeast Asia.  John Elkins, FDC’s Chairman of International, came to Chicago to talk up the new partnership, and it appears that FDC is very pleased that Capgemini is taking over responsibility for maintaining and expanding the functional coverage of VisionPLUS. Essentially, Capgemini will work with FDC to continue the build out of the platform, FDC will use the software to drive its own processing business, and the partners will share certain license and managed services revenues for new bank clients. Paul Nannetti’s made an interesting key note presentation covering emerging trends in Capgemini’s business, and several times he mentioned the “40-40 Rule”.  This was a new buzz word for me, so I was happy when another analyst asked Paul what he meant by the 40-40 Rule.  According to Paul, the 40-40 Rule says that 40% of the scope of new outsourcing contracts will be suitable for digitization (automation), and that within this realm, digitization will drive out 40% of existing labor content. In other words, global outsourcing companies like Capgemini will need 40% less FTEs to process the same work load due to the introduction of automation to its business processes. This brings us to the issue of robots.  A few weeks ago, I had read an article about the opening of a futuristic hotel in Japan called Henn-na Hotel (apparently translated as “Strange Hotel”) that will be almost entirely staffed by robots. The hotel will employ robots to clean rooms, staff the front desk, and run the bag room, and guests will be able to unlock their rooms through facial recognition.  Hotel president Mr. Hideo Sawada was quoted in the Japan Times as saying “We will make the most efficient hotel in the world. In the future, we’d like to have more than 90 percent of hotel services operated by robots.” Capgemini’s Global CTO Lanny Cohen shared that indeed robotics and artificial intelligence technologies were under close scrutiny at the firm, and the firm maintains a global network of 40 innovation labs to investigate this and other areas of emerging technologies. For a firm like Capgemini whose financial success over the past 10 years has been in large part based on managing a very large off-shore workforce, this is indeed a bold strategy. And that’s also very good news for Mr. Roboto, who may have a future in banking and insurance if he ever tires of his current gig at the Henn-na Hotel. Stay tuned. You can follow the conversation about the day on Twitter here.

Cashless Britain – not coming to a town near you soon

Cashless Britain – not coming to a town near you soon
There have been a number of reports in the UK since the beginning of the year heralding a cashless Britain, suggesting that cash “dies” this week. Of course, I’m being somewhat tongue in cheek, but it was suggested that February 2015 would be the last month that cash was king. That’s true in many ways – the share of cash on a total transactions basis will drop below 50% for the first time in the UK this year. But that doesn’t really tell the whole story. Firstly, “not cash” isn’t a single payments type of course. There are debit and credit cards, ACH payments,  still (shudder) some cheques. Fact 1 – by volume of transactions, cash is by far the most dominant, as at 50% share, it’s obviously the same size as all the other payment types …combined. So cash isn’t dead, and not even mildly under the weather! Secondly, the decline isn’t quite as dramatic as it may first seem. There are lots of new payment occasions being created (iTunes, mobile phone subscriptions, cable TV etc) that are electronic only. And conversion from cheque to direct debit generally sees an increase in payment volumes (ie quarterly cheques becoming monthly direct debit). Fact 2 The net result is significant growth in the overall size of the pie, biased to electronic payments – yet the share of cash has only decline by a few percentage points rather than the significant drop implied. This is particularly important to remember in the coming months. Early indications suggest a significant increase in contactless is coming. Fact 3 It’s a migration from Oyster that will drive massive contactless growth this year, rather take-up of contactless. This is important as Oyster had already forced a conversion from cash, with individual cash transaction (ie for each journey) into a single top-up transaction. The switch to contactless is unbundling this back into individual transactions, albeit applying a daily cap. We’re not saying that contactless isn’t going to grow impressively, just we mustn’t simply look at the headline numbers and draw conclusions. It’s not all negative. That Oyster habit converted to cards will help create a contactless habit which will spread. Coupled with the raising of the limit of £30, and with many cash payments being below that value, there is the possibility to see some levels of cash replacement that could move the needle. Cash is far from dead but we are certainly moving into a LessCash rather cashless world.  

A preview of Innovation and Insight Day

A preview of Innovation and Insight Day
Celent’s Innovation and Insight Day is about a month away, and I couldn’t be more excited. We have great external speakers bookending the day, and we’ll be exploring exciting technology implementations with 18 Model Banks in five categories (plus Celent’s Model Bank of the Year):
  • Digital
  • Omnichannel
  • Legacy and Ecosystem Transformation
  • Innovation and Emerging Technologies
  • Payments
Our first speakers, Betsy Hubbard and Debra Jasper, are from Mindset Digital, an online social media training firm. As financial firms grapple with their approaches to social media, Betsy and Debra’s perspective, delivered in a completely different style than what most banks are used to, will provide ample food for thought and some concrete next steps. Suresh Ramamurthi, Chairman (and CTO!) of CBW Bank, will tell the story of how a fintech entrepreneur bought a small ($13 million in assets, 7 employees) bank in Kansas and is in the process of turning it into a bank of the future. You may have seen the bank profiled in this story in the New York Times. Registrations are running well ahead of last year, and our Carnegie Hall venue may well get to Standing Room Only (although you won’t be able to buy tickets at TKTS on Monday morning). We hope to see you there on March 23rd; to learn more and to register, please visit our I&I day site.  Model Bank Logo

P2P lending makes it to main street?

P2P lending makes it to main street?
Can old dogs learn new tricks? What about banks? Banks are trying; not only by making interesting bets around digital but also social. On the social aspect of banking, Banco Colpatria in Colombia offers credit cards to individuals using Lenddo’s social scoring. Lenddo has created and extensively tested an algorithm that analyzes the connections of people in their social networks to determine their character and willingness to pay. Lenddo is leaving behind its start-up origins as a micro-lender and entering into partnerships with financial institutions to take advantage of this scoring which can extend the traditional loan customer base to include new segments with no credit history (college students for example). In this same line, Banco Galicia in Argentina has a very interesting offering – Galicia MOVE – aimed to college students based on a totally digital proposition, underpinned by the use of digital channels and a targeted marketing strategy. Galicia MOVE includes a savings account, a debit card and a credit card. Jumping into social based propositions is just around the corner for them. Clearly, digital and social are terms that go together and could certainly benefit those banks that want to bet on these. Another look at the same issue is that it seems inevitable that banks begin to incorporate business models that otherwise threaten their own business from the periphery. Change or die. Peer to Peer (P2P) lending is one of those situations and banks have started to experiment with it, taking P2P lending to main street. Santander Bank through a lead generation model in partnership with Funding Circle’s and RBS using a 3rd party platform are perhaps the most significant cases right now, but we are aware of more movements in this direction. Banks are certainly not playing hide and seek with P2P lending. In our research, our conversations with key financial industry stakeholders and as collaborators at bringing together banks, fintech start-ups and VCs, P2P lending appeared as an area that banks should explore to attract customers through a different value proposition. P2P lending provides a way for the bank to acquire customers not covered by their traditional offering while making some money in the process and retaining a customer that can eventually move into financial products from traditional banking as their business / financial condition makes them a subject fit for bank credit. Regulation is an important issue for banks to get into P2P lending and depending the country, there may be restrictions. Perhaps the P2P lending company that has best understood and dealt with this issue so far is Afluenta; working with regulators in each country to adapt its model and operate under authorization of the financial regulator. For example in Argentina it was the first P2P lender to operate with the approval of the regulator, under a trust structure where Afluenta administers the trust and the money is out of its estate. Money is owned by lenders (peers), which is in the spirit of the P2P proposition. From my point of view in order for banks not to get trapped between their traditional business model, processes and restrictions imposed by the regulator there are some models that banks can explore before deciding to dive into P2P lending all by themselves: lead generation as Santander, a partnership to use the platform of an existing player or possibly an acquisition of an existing player (as BBVA did with Simple to speed up in the digital race). The end game will have banks incorporating services based on digital and social, leveraged by the use of data. I believe it will have them as main actors, therefor competing directly with the fintech-startups, such as the P2P lending companies. In the meantime, coexistance may be possible. Because I also wanted the view from someone working in the heart of this business I spoke with Alejandro Cosentino, a seasoned financial services executive and founder of Afluenta, who until now remained very skeptical about banks entering into the P2P lending space. Nevertheless he believes in its potential: since launching, Afluenta started to transform personal finances into the greatest and most participating peer-to-peer lending community across Latin America with AR$ 25M, 1300 loans, +90,000 investments transactions and covered +1,000 in social networks, blogs, news and traditional media. Afluenta originates loans at a cost which is 25% of the cost incurred by a bank. In Mexico he believes that loans could have a return of 12% against 3% which is the return for money invested by an individual in a bank. Following some of his impressions, which he gently accepted to share with you and me. P2P lending is first and furthermost a financial business and only then a technological business. Many P2P companies approach it the other way round and that is why they fail. P2P lending has to be played in a (highly) regulated and complex environment where you need to understand what risk management is about. This is why he works on 3 key issues (in order of importance):
  1. Regulation
  2. Credit
  3. Technological
He recognizes having been recently contacted by banks looking to enter the P2P space but in his opinion central banks, regulators and securities commissions will not easily allow banks to enter directly into this market. Authorities are not concerned about the systemic risk; their main concern is banks’ responsibility regarding delinquent or bad credit. In the heart of this issue is who owns the risk? who owns the money? the bank or the peers? Authorities’ view, he says, is that if a bank is in the business it will have to take the risk of delinquency or bad credit because they are trustees of that money. This is the view in Mexico, where P2P lenders have to constitute SOFIPOs (micro-finance institutions), not representing the true spirit of P2P lending because risk is taken by the financial institution and not the peer. With such a framework of legislation it is understandable that banks don’t find P2P lending attractive. The Mexican regulator is expected to review the legislation to provide a better framework to operate P2P lending by August 2015, though he believes it will take some more time than that. The issue of addressing the business without financial expertise, including poor risk management, has some P2P companies working with credit delinquency over 26 % (100 loans over 350 loan portfolio with debt for more than 90 days), making it unbearable . Afluenta instead has less than 3% with a much larger volume of loans. They have analyzed loan portfolios from banks and there have been cases where, based on their P2P lending underwriting, they would have not granted loans (which subsequently became delinquent), showing the level of intelligence and accuracy in risk analysis capable of being used in P2P lending. From his perspective banks are tepid regarding P2P lending. It is not a general trend or something that comes as a strong directive from top management, even though some banks are engaging for the sake of innovation or because they still have doubts about the future of P2P lending but don’t want to just watch the ship sail out of the harbor, in case the journey ends being successful, with them not on board. Alejandro believes that the way to go for banks interested in taking a shot to this market is through a model where they act as an online trading agent, going from lead generation to a more stronger partnership where they can direct their own institutional investments through the P2P platform. An Argentinean insurance company for example has agreed to use his P2P platform as a vehicle to directing investments, having a preferred option to finance the cases submitted by peers. An acquisition by a bank is possible if the P2P entity stays separate from the bank, otherwise it will face the regulation problems he described above. You can believe banks are still tepid about P2P lending as Alejandro does, or that it is already hitting main street, which is what I believe. Whatever you choose to believe, rest assure that banks will not play hide and seek about P2P lending. The time to get this bull from the horns has come.

Highlights from Money 20/20

Highlights from Money 20/20
I’m on my flight back from Las Vegas and thinking about how to encapsulate the highlights of Money 20/20. Its third year was the biggest yet, capped at 7,500 people (not counting the Fire Marshals patrolling the hallways). At many conferences I’m able to distill several distinct themes; this time, the overwhelming impression was the emphasis on … PARTNERSHIP Celent’s been talking about the need for banks (and others in the ecosystem) to partner better for quite a while. At Money 20/20, the word was on everyone’s lips. Discover, Visa, and a host of others mentioned their eagerness to team with other members of the ecosystem to drive more activity in ways that are better, faster, and/or cheaper. Some other random observations:
  • The big four U.S. banks sent an average of 40 attendees, with the high being 55 and the low being 30.
  • MCX said that CurrentC is in pilot with merchant employees in several cities, but missed the chance to show us a demo. And as an interesting counterexample to the partnership theme, Visa told us that they “look forward to MCX presentations so that they can learn what’s going on.” I’ll stop there.
  • Customer Experience continues to be a big theme
  • There was way too much emphasis on Point of Sale terminals – and why does every POS terminal still look like it came from 1985 (Poynte and Clover being two exceptions)?
  • What happens when there is no Point of Sale, like with Uber? (Incidentally, I wish I had a dollar for every time someone has used Uber as an example over the last twelve months – I’d be on my way to Tahiti)
  • Facebook is doing some really interesting things on the commerce side: if they identify a group of profitable customers who have a certain profile (e.g., mid 30s, likes dogs and hiking), they can go find other Facebook users with the same profile.
  • Security, as always, was a hot topic
One of the things we do is attend conferences so that you don’t have to. If you’ve got questions about this or other events, please let us know.