Getting A Slice of the $86 Billion P2P Pie

    Aug 17, 2017

    Business Insider estimates that P2P mobile payments could represent $86 billion in 2018, but as I speak with community bankers from across the country, the common refrain I hear when I broach the topic of P2P is, “Why does my bank need a P2P solution when there is already an abundance of P2P solutions in the marketplace?” 

    While it’s true that consumers have a number of P2P options, as I referenced in my last blog post, the majority of consumers prefer to use financial solutions offered by their bank and would gladly make the switch. There is a twofold reason for this: security and privacy. Consistent with federal and state laws and regulations, banks have trusted procedures for protecting, storing and accessing customer data and are routinely examined to ensure compliance. Many nonbank P2P apps are more social than secure. They can access social media sites and features on the device such as cameras and contacts, in addition to accessing bank account login information. Some even post customers’ payment activities on social media sites. Nonbanks offering financial services are subject to the same laws and regulations as banks, but not the same oversight and examination.  

    Let’s take a look at what I consider some of the best-in-class P2P solutions in the marketplace today.  

    Easiest Enrollment – Square cash – While enrollment in Square cash is one of the quickest and easiest to complete, the service has limitations. Square cash holds your money in your Square cash wallet until you request the funds be transferred to your bank account. Transfers take one to two business days, unless you are willing to pay a 1 percent fee for immediate availability.

    Greatest Flexibility – Paypal – Without a doubt, Paypal has the most flexibility and the most users. In recent months, Paypal’s partnerships with banks and the card networks allow it to offer the fastest availability without a fee (debit card). However, users do not have to transfer their money to their bank account (a process that can take at least a day). They can simply leave it in their Paypal account and use it for purchases.

    Speed – Venmo – Owned by Paypal and geared toward millennials, who are adopting Venmo at double digit rates, Venmo is easy to navigate.  Sending money is fast and it sends messages in social media about payments giving it appeal with millennials (This is why it is coined a “Social Money App”). However, it still takes one to two business days for a Venmo transfer to be available, and it requires the user to immediately surrender the login credentials to their bank account.

    Biggest Potential Game Changer – Zelle - According to Early Warning Systems, the bank owners of Zelle (short for Gazelle), their app will represent 60 to 70 percent of the U.S. DDA market. This could be the first P2P system with ubiquity thanks to the integration being built by FIS, Fiserv and Jack Henry, eliminating two of the biggest adoption hurdles – user fees (Zelle is free) and interoperability of existing apps. Couple that with near-time and eventually real-time payments, this one is sure to disintermediate the fintech solutions.  

    Of course, there are many other P2P solutions on the market – Dwolla, Amazon, Snapcash, Google, and Apple Pay (fall 2017) to name a few. P2P solutions are expanding into e-commerce, m-commerce, and small business applications, which should further increase their popularity.

    Now is the time for community banks to embrace P2P. Even if your clients aren’t asking for it, they will use it, and they will thank you. Next month we will dive into The Clearinghouse’s Real Time Payments (RTP) system, the first new payments system “rail” in decades.

     

    Mythbusting Digital Misconceptions

    Jun 29, 2017

    According to a new Price Waterhouse Cooper digital payments study, 46 percent of bank customers interact with their banks EXCLUSIVELY through digital channels (e.g., mobile, tablet and PC). This staggering trend away from traditional banking methods begs this important question: “What products and services is my bank delivering to customers living a digital life?” If your answer is none and you think that your bank will be unaffected by the digital payments tsunami because your customers aren’t asking for digital services, think again. If you’ve subscribed to the notion that older customers don’t bank digitally or that younger customers won’t be attracted to a community bank, let me dispel those myths right now!  

    Myth #1 – My customers aren’t asking, so we don’t need to provide it.

    Guess what? If your customers are not asking for digital services, it’s because they are already getting them elsewhere. According to First Annapolis Consulting, 51 percent of respondents in their 2016 Study of Mobile Banking & Payments have a mobile wallet. Yet, only 7 percent are getting the wallet from their bank! Not surprisingly, Apple is leading the pack as the purveyor of digital wallets, followed by PayPal and Google. But guess who is tied for fourth with banks? Amazon! If you just sucked in your breath when you read the name Amazon, don’t despair. Forty-five percent of respondents in the same study indicated that they would prefer a mobile wallet from their bank versus a non-bank provider.

    Myth #2 – My bank serves an older clientele.

    The average age of a community bank customer is just over 51 years old. Don’t let age fool you, the First Annapolis study indicates 64 percent of consumers aged 45-54 have made a mobile payment - even baby boomers are getting in on the action! According to the 2017 FIS Consumer Banking PACE report, baby boomers have 9.1 touches per month with their bank through digital channels and only 2.9 via a branch or ATM. That number would probably be higher if it wasn’t for consumer concerns regarding merchant acceptance, privacy and security.

    Myth #3 – My bank doesn’t attract younger customers.

    Why not?  According to FIS, 5 million (about half) of all small businesses are owned by millennials and Gen Xers (age 18-52). But here’s an interesting statistic - by 2020, millennials and Gen Xers will make up 70 percent of the workforce in the United States. So, the number of this group who are business owners is likely to grow. Unlike consumers, small businesses use their bank’s mobile services slightly more than services from non-bank providers. In fact, these small business owners wish they could offer MORE digital services through their trusted bank partner.  

    It’s not too late to get in the game.

    Now for the good news - it’s not too late to get in the game! While the speed of change is beyond anything we have historically experienced, there are many partners out there to help your bank succeed in navigating the digital payments space (including ICBA Bancard). Customers will still seek digital services from their bank first. Not only that, if they are already with a non-bank provider, they will switch back to their bank when the digital solutions become available. Why? Because banks offer security and regulatory protections that non-banks cannot. Year to date, there have been more than 760 data breaches in the United States affecting over 12 million records, 55 percent of which were in the business sector.   

    Where to start.

    It seems like a daunting task if you feel like you’re already out of the game, but with three steps you can get back in there.

    First, you need to create a digital payments strategy. For help getting started, read my first two blogs (and coming soon, I will provide a template to help you). 

    Second, look at your organizational structure. Where do payments fit?  Are the responsibilities fragmented and siloed? Is there a payments champion on the senior/executive management level? Organize around digital – always think digital first. 

    Third, more of your customers will adopt digital technology when you do. Do you have the right services in the right delivery channels?  Are your employees embracing these channels?  Can your employees talk about the features, benefits, and demo the solutions?

    Next month, we will take a look at the various digital wallets on the market and why this is a channel you can’t afford to ignore.

     

    Faster Payments — How Fast is Fast?

    May 17, 2017
    As I sat down to work on my blog, I decided to review the definitions of fast and faster. According to our trusted friend Webster, fast is when something is “characterized by quick motion, operation or effect; moving or able to move rapidly.” 

    Faster, conversely, is defined as “moving or capable of moving at high speed.”

    For years, I have been saying there are three categories of payments: Sometime, near-time and real-time. 

    Checks are a sometime payment – as the issuer you have no control over when the check is deposited or when it clears, but you know that it will sometime in the future.

    Automated Clearing House (ACH) payments fall in the near-time (fast) category, whereas wire payments, until recently, were about the only thing we had that came close to real-time (faster). 

    Faster payments is a drum you’ll frequently hear me beat and I have made it something of a personal mission, to ensure that the voices and concerns of community bankers are front and center as industry stakeholders work to improve the U.S. payments system.

    I have had the honor of representing community banks on the Federal Reserve’s Faster Payments Task Force since it was formed in May 2015, as proposed by the Federal Reserve’s Strategies for Improving the U.S. Payment System. In two years, the Task Force has made considerable advancements in their pursuit to identify effective approaches for implementing safe, ubiquitous, faster payments in the United States.

    I am proud to say that both myself and Cary Whaley, first vice president, payments and technology policy at ICBA, have represented community banks in this effort since the very beginning.

    The Task Force, itself, is comprised of more than 300 diverse organizations ranging from regulators to fintechs to consumer groups. The varied viewpoints and expertise that make up the Task Force contribute to work products that are representative of all payment stakeholders. As part of our work effort, the Task Force developed 36 Effectiveness Criteria, categorized into six groupings (Ubiquity, Efficiency, Safety and Security, Speed, Legal, and Governance) that represent the collective views of payment stakeholders and serve to guide innovation. 

    But, that isn’t all we’ve accomplished. The Task Force accepted proposals and commissioned an independent assessment of 22 payments solution proposals against the Effectiveness Criteria, 19 of which were reviewed by the Task Force. Sixteen of those will be included in Part Two of the Final Report publication this summer.  In case you missed it, The U.S. Path to Faster Payments, Final Report Part One was published in January 2017.

    Real-time payments are fast approaching. To keep up with the newest developments follow @fedpayimprove on Twitter or visit Fed  Payments Improvement.

    Skate to Where the Puck is Going

    Apr 21, 2017

    My favorite sport is ice hockey. My kids have been players since they were little, and my youngest is entering the North American Hockey League next season as a Bismarck Bobcat (shout out to my customers in Bismarck!). As we move into the NHL Stanley Cup Playoffs, and I move into a series of discussions on U.S. faster payments efforts, I am reminded of a quote from the great one, Wayne Gretzky. His now-famous quote has been used over and over—“Skate to where the puck is going, not where it has been.” When I think about faster payments, that couldn’t be more true.  

    As I begin packing to head to NACHA’s Faster Payments 2017 Conference (stop by our booth #705 and mention my blog and we’ll give you a special gift), I can’t think of a better place to start than Same Day ACH since it does predate the Fed Faster Payments Task Force. First, let’s explain why the ACH network is so important to payments. NACHA just released its 2016 stats, and ACH volume reached a staggering 25 billion in transactions totaling $43 trillion. Of that, 13 million credit transactions totaling $17 billion were same-day ACH, and that was only one quarter, given that Same Day ACH credits did not go into effect until Sept. 23!  (To read the full story, click here.)

    Keep in mind that Same Day ACH is being phased in through March 2018 with debit being added in September 2017 and funds availability required by 5 p.m. in March 2018. This is arguably the biggest change to the ACH network in years (remember IAT?). While I am sure more use cases will evolve as people come up with creative ways to use the ACH network, the primary use cases are still direct deposit (think about the forgotten adjustments for holidays and hourly workers), person-to- person payments, forgotten bill payments, and disaster relief funds (e.g., the floods in Louisiana or the fires in Tennessee). And now with the U.S. Treasury announcing its plans to participate beginning Sept. 15, 2017, the opportunities are even greater!

    Faster Payments

    Remember, participation as a receiving depository financial institution is not optional, but origination is. If you are an originator, your processor can help you set up Same Day ACH services for your customers. For businesses, you can potentially charge a premium to originate a Same Day ACH file and generate some additional revenue. For more information on Same Day ACH, click here.

    Also, May is Direct Deposit and Direct Payment Month, and the theme this year is Split to Save. Visit the website to get a free toolkit and educational resources. Speaking of May, next month I will provide an update on the work of the Fed’s Faster Payments Task Force. Stay tuned, and happy Same Day ACH, everyone.  




    March Was A Mad Month

    Apr 05, 2017

    March was a mad month! Forget about the NCAA Division I Basketball Tournament (my sympathy Gonzaga), at ICBA Bancard we’ve been on a full court press.

    Besides launching two exciting new product offerings (more on that later), I attended my very first ICBA Community Banking LIVE® convention in San Antonio. During my banking career, I’ve attended many large conferences, but I must say that ICBA LIVE now tops my list. I have never seen so many engaged bankers and vendors in one place and was truly moved by the commitment, dedication and passion for our industry that was on display.

    It was a pleasure meeting many of you and I hope that those of you who attended my presentations on How to Develop a Payments Strategy and Faster Payments received useful information, plus some quick hits that you could take back to your bank and implement immediately. (See my interview with CB Broadcast on payments strategy).

    As I mentioned, ICBA Bancard unveiled two new payment solutions to help community banks better serve their retail and small business customers.

    The first is a small business receivables solution that provides a risk-managed platform for the registration, underwriting and delivery of ACH, remote deposit capture and card payments through one easy-to-use cloud-based system. As a community banker, I witnessed many examples of small business owners who excelled at their craft, but didn’t have a clue about how to manage their cash flow and account receivables. Knowing that community banks are the preferred banks of small businesses and that ACH adoption by this segment is still relatively low, we saw an opportunity to help community banks provide a valuable service to these small business owners. (Don’t miss our upcoming webinar to learn more).

    Likewise, ICBA Bancard’s new prepaid solution also offers several useful applications for small business customers. It can be used to reduce payroll costs for your bank and/or its business customers by facilitating 100 percent employee conversion to direct deposit (even those without a bank account). It can also be used for travel and entertainment or expense reimbursement. On the retail side, it’s a great tool to teach teens or young adults budgeting and money management skills, while providing a convenient way to pay for purchases (and for Mom and Dad to see what they’re buying).

    We’re taking the momentum from ICBA Community Banking LIVE and moving the ball forward. Be on the lookout for more announcements from ICBA Bancard, plus a future post on Same Day ACH, which will be the first in a series on the quickly evolving faster payments landscape in the United States.

    Developing A Payments Strategy Part II: The Nitty Gritty

    Feb 22, 2017
    Getting started is the most difficult part of any undertaking, but if you’ve been able to accomplish most of the steps I outlined in my last post, the really challenging work in developing your community bank’s payments strategy is done.

    Your next step is to identify any and all corporate strategies at your bank that are payments related. Examples could be your bank’s delivery channels or perhaps a goal of increasing non-interest revenue. Next, you’ll want to concentrate on strategic areas of focus such as integration, improving client interaction and/or user experience. I always tell ICBA Bancard clients to: 

    • Think digital first;
    • Emphasize relationship/service;
    • Focus on security;
    • Evaluate multi-channel capabilities; and
    • Pick the right vendors with open architecture for API solutions.

    In my former role as a community banker, I always found it helpful to create visual aids to clarify complex relationships and concepts. In the example below, you can see how a bank’s payments strategy initiatives can be compartmentalized based on whether you are expanding an existing channel or innovating through new channels.  
    170001_CBU_BDP Newsletter Jan-Feb_charts1


    For a more complex or rapidly evolving product like mobile, you can use a chart like the one below to track and evaluate opportunities against your bank’s key metrics. In the example below, mobile wallet opportunities are examined and measured against pre-determined criteria such as:

    • Is this product relevant to our clients? Remember, your clients today may not be your target clients in the future.(Competitive Differentiator/Table Stakes)
    • Will it increase our revenue or reduce our expenses? (Table Stakes/Quick Hits)
    • What resources including cost and time will be needed for implementation? (Quick Hits)
    • How is marketplace adoption? (Black Hole/Shooting Star/Competitive Differentiator)
    • How will the product/service integrate with our existing offerings and what will the customer experience look like? (Competitive Differentiator/Quick Hits)
    Payments Strategy Initiatives
    Your bank’s payments strategy should be thought of as a dynamic blueprint that is always evolving. This isn’t a one-and-done proposition and there is no one-size-fits-all plan that is perfect for every community bank. As consumer behavior and technology continues to change, community banks must be flexible enough to respond.

    Developing A Payments Strategy Part I

    Jan 23, 2017

    Happy New Year! With a nod to the new ways we share information, and a desire to connect more personally with ICBA Bancard’s community bank clients, I’d like to welcome you to my new blog, Tina’s Take on Payments. My goal in starting this blog is to share with you the latest information on trends affecting payments, while occasionally highlighting some of the work we are doing at ICBA Bancard.

    In the six months that I’ve been president and CEO of ICBA Bancard, a recurring question I keep hearing from community bankers is, “How do I develop a payments strategy that will best position my financial institution for the future?” As a former community banker, I absolutely understand this concern.

    According to the Federal Reserve’s 2015 Consumer and Mobile Financial Services Study, one-third of Millennials and Gen-Xers were already conducting mobile payment transactions two years ago. These adopters represent 160 million cardholders and will be the biggest adopters of mobile payments. Millennials are already using the name of PayPal’s money transfer service Venmo as a verb. Do you know what other brand names are frequently used as verbs? I’ll hold tight while you Google that.

    I don’t think any of us needs a crystal ball to see what’s coming. Fintech will continue to migrate to mobile-first solutions. Tablets will replace computers. The Internet of Things will explode, driving digital convergence. Change is inevitable, but it doesn’t have to be scary. The British Army has an old saying about proper planning preventing poor performance that I’ve found applies to any monumental task I’ve undertaken. Below I’ve outlined some practical steps that you can follow to evaluate your payments landscape and engage leadership and the appropriate stakeholders at your bank. In a future post I’ll share more about the nuts and bolts of developing a payments strategy. But in the meantime, let’s get started!

    1. Determine your target clients – the clients you have today may not be the clients you target in the future.
    2. Assess your current payment offerings – take inventory of what you offer and usage.
    3. Identify gaps in your current offerings – are there products missing that would be considered table stakes?
    4. Determine your current costs by product/service – vendor invoices are helpful if there are not unique general ledger accounts. Don’t worry about overhead initially – just identify your processing and any hardware/software expenses.
    5. Determine your revenue by product/service.
    6. Determine what percentage of your non-interest income is generated from payments – a high-performing bank should derive 35 percent or more from payments.
    7. Assign a senior manager and executive sponsor to your payments solutions.
    8. Determine your risk tolerance.
    9. Identify trends by payment type – are volumes increasing, about the same or declining?
    10. Benchmark against peers – the Federal Reserve Tri-Annual Payments Survey is a good place to start, and it’s free.
    11. Establish a payments committee – be sure to include all stakeholders, including commercial, retail, IT, compliance, finance and executives.
    12. Determine vendor offerings and roadmaps.
    13. Develop a payments strategy.
    14. Prioritize initiatives based on your organization’s risk tolerance, target segments, ROI, and growth goals.
    15. Review and refresh regularly!