The Future of Payments:Delivering Digital Transformation

Channie Price

CO-OP Financial Services

June 18, 2019

Members - Your Most Valuable Asset

“For 2018, the financial industry maintains record-high customer satisfaction at an ACSI score of 81 and marks the first year that banks rate as high as credit unions.” Source: The American Customer Satisfaction Index

(ACSI) Finance and Insurance Report 2018

Key to Member Experience is Data

73%

of business leaders say that delivering

a relevant and reliable customer

experience is critical to their company’soverall business performance.

13%

of companies have a single sourceof customer

intelligence today, and

30% are working toward that.

23%

say they are able to act on all or most

of the customer data that they collect.

HBR and Salesforce Study

Challenges and Opportunities:How are Financial Services Evolving

Sources: CB Insights, Crunchbase, Funderbeam, Bloomberg; Market Data as of June 2016

Disruption from Every Direction

Macro-economic Situation

Source: Accenture

Comparator

Coupons,Vouchers,

Loyalty

TargetAds

D-MarketPlace

Ticketing

PolymorphicPayments

BuyingSuggestions

Near Future for FIs: Evolution of Traditional DeliveryA 360° Financial Services Experience via a Living, Breathing Ecosystem

Comparator

Coupons,Vouchers,

Loyalty

TargetAds

D-MarketPlace

Ticketing

PolymorphicPayments

BuyingSuggestions

Record FinTech InvestmentUS fintech investment for 2018 more than

doubled to $52.5B, from $24B in 2017.

Banks Investing In Ecosystems

Developing an ecosystem through acquisitions $1.4 Billion major technology investment in 2018 aloneMobile-only bank: “Finn by Chase” (4-mins to open account)Digital car buying/loan service“Quick capital” for business customers

Focusing on a partnership strategy Collaborative relationships with Intuit, Sigfig, Xero, Finicity and BlendDigital account acquisition (5-mins to open account)Personalized advice at scale

Focusing on Digital Innovations$3 billion annually in technological initiatives, such as AI bot, Erica35M digital customers / 25M mobile banking users”Peopleless” financial centers

You Can See the Opportunity…But How Do You Get There?

Top Drivers for Financial Institution Transformation

Source: Capgemini Financial Services Analysis, 2018

29.2%

41.7%

58.3%

75.0%

95.8%Offering Customers a Better Experience

Cost Reduction Measures

Developing New Products/Revenue Streams

Need for Introducing LatestTechnologies/Replacing Old Tech

Need for Conforming to FastChanging Regulations

Driving Transformation Shift Towards Digital

90% Financial services firms who have commenced digital transformation activities

30% Digital transformation activities that have yieldedresults

How Consumers Want to Engage

Human Interactionin branches for

complex tasks and as main trust driver

Superior CX & Technology

main drivers to attract new customers

Mobile Firstnow the paradigm for

vast majority of consumers

Find a Balance Between Superior CX, Human Touch When Needed, and a Certain Coolness Factor to Attract New Members. Design the end-to-end member journey.

Overall Experience

40% OF GLOBAL CONSUMERS ARE NOW POTENTIAL NOMADS-

OPEN TO SELF-ASSEMBLING THEIR OWN SUITE OF BANKING PRODUCTS

Payments are the Gateway to Opportunity

Payments Ecosystem: Partnering for Growth

Retailers

• Drive customer loyalty

• Increase Spend

• Reduce transaction cost

• Reduce purchase friction

Fintech

• Facilitate Online Commerce

• Create Alternative Payment Networks

• Reduce Transaction Costs

• Leverage Data for insights and marketing

Credit Unions & Banks

• Protect Revenue and Relationship

• Support migration to online commerce

• Create alternative network?

Payments Objective

What We Know – Payments Cannot Be Neglected

Payments revenue is 25% to 50% of non-interest income at credit unions and banks

Multiple players in the payments industry are trying to take that revenue

• New players (PayPal, Square, Apple) have powerful models

• P2P and Real time payments are becoming a rising threat to card revenue

• Merchants are investing heavily in ways to bypass MasterCard and Visa fees

• Wallet players are trying to control money movement

Consumer payments behavior is fundamentally changing

We are likely to continue to see compression of debit fee income due to:

• Reduced margins based on network merchant deals

• Migration of signature debit to PIN and compression on PIN margins

Payments need to be actively managed to maximize interchange, fee and interest income while reducing expenses

Mobile usage and multi-channel customer relationships may be the new “sticky”

Payments Industry Market Forces

There are many pressures, but the U.S. debit and credit card markets are expected to continue to enjoy healthy growth

PriceCompression

Financial Industry

Consolidation

Fraud & DataBreaches

PaymentsDisruptors

New Regulations

Financial Institutions

Merchant Acquirers

Core Processors

Target

Home Depot

Neiman Marcus

PayPal

Apple Pay

Samsung Pay

Card Act

Durbin Amendment

CFPB Proposed Prepaid Rules

NACHA/Fed Same Day ACH Rules

Competition

Service Commoditization

Financial Institution Consolidation

Michaels

Counterfeit Card Fraud

Card Not Present Fraud

Chase Pay

Walmart Pay

Delivering Digital Transformation: How We Get There Together

In 2019, digital transformation moves from super-wide enterprise efforts to a pragmatic, surgical portfolio view of digital investments with the goal of making incremental and necessary changes to operations.

Source: Forrester-Predictions-2019

Travel Notifications

Member Rewards

Members Expect Digital Experiences

Card Controls & Alerts

Bill Pay

CO-OP ATM &Shared Branch Locator

P2P Payments

Cardless Cash

Lost/Stolen

Card Activation & PIN Change

Digital Card Issuance

Online/Mobile Banking

CU/Member Needs

Interaction by Use Case

Digital Channels

Service, Operations &Technology

Master Data Management

Enterprise Security

3rd Party Service Providers

Open SolutionEnvironment“OperatingSystem for CU”

CU/Member Needs

Interaction by Use Case

Digital Channels

Service, Operations &Technology

Master Data Management

Enterprise Security

3rd Party Service Providers

Open SolutionEnvironment“Operating

System for CU”

Thank You.

Channie PriceCO-OP Financial Services

Channie.Price@coop.org