Lee Wetherignton- Foget Fintechs Convention/Handouts/Lee... · Predictions & The Fintech Lumascape...

7/19/2017

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Forget FintechsThe Quiet Devastation of Silent Churn

1 @leewetherington

Lee WetheringtonDirector of Strategic InsightJack Henry & Associates, Inc.®

Annual Meeting & Convention2017

© 2017 Jack Henry & Associates, Inc. All Rights Reserved

Lee WetheringtonDirector of Strategic Insight

• Develops actionable insight and strategy for the financial services industry at large

• Delivers keynotes nationwide

• Technology Faculty Chair for Southwestern CUNA Management School

• Authors articles for industry trades

• Degrees in Economics and Englishfrom Duke University

@leewetherington

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Agenda

• Where We Are

• The Quiet Devastation of Silent Churn

• The Unbundling & Re-bundling of Banking

• What’s Ahead

• “Fintegration” & the Future

• API Platforms: The Glue of Fintegration

• Emerging Techs: Contextual Commerce, Chatbots, etc.

• Blockchain & Bitcoin Bottom Lined

• What CUs Should Do Next

• Master Your Data

• Find a Fintech to Help Differentiate


Where We Are

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1. Generic just-good-enough digital banking commoditizes financial products and services

2. Members begin shopping FIs on price only

3. While credit unions may hold the checking account, many members turn to secondary FIs for profitable credit cards, mortgages, and other loans.

4. Credit unions become primary in name only.

Digital Creates Silent Churn

SOURCE: Javelin’s “Bank Switching: Combating ‘Silent Churn’ to Maximize Primary FI Status”; November 2015


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Primary vs. Secondary Relationships (by FI Size)


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Checking Accounts & Credit Products (by FI Size)



The great

unbundling

of banking?

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The “Unbundling of Banking”?

SOURCE: Celent’s “BANKS, RETAILERS, AND FINTECH: REIMAGINING PAYMENTS RELATIONSHIPS PART THREE: THE FINTECH PERSPECTIVE”; Zilvinas Bareisis and Gareth Lodge; January 2016”; Stephen Greer; November 2015

Commercial Retail


So are fintechs teaming up to become bank-like?

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Fintech Funding Growth Rate Slowed in 2016

SOURCE: Global FinTech Funding Reached $36 Bn in 2016 With Payments Companies Securing 40% of Total FundsJanuary 2, 2017; By : Elena Mesropyan; www.letstalkpayments.com

$36B in venture capital invested in fintech firms globally in 2016.

SOURCE: Financial Technology Partners


SOURCE: www.businessinsider.com; “The 5 Top Fintech Predictions & The Fintech Lumascape Infographic; 2016

Fintech Trends

• Though Brexit, protectionism and political chaos slowed growth rate of intech funding in 2016, FIsincreased their participation in fintech deals.

• Venture capital has shifted to fintechs who position themselves as collaborators rather than disruptors.

• Trump’s election may slow fintech investment due to uncertainties of immigration policy on H-1B visas and disruption caused by protectionist trade policy.

• OCC to offer special-purpose national bank charters for fintechs.

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“50% of [financial institutions will] give up their existence to a range of FinTech providers and tech companies.” –Brett King


1. The “augmented” future of banking still requires device-independent value stores (accounts).

2. FIs will retain (even in Brett’s forecast) the biggest value stores (accounts).

3. Information about these value stores (balances, transactions, etc.) will be the differentiating context required for enriched real-time payments experiences.

4. FIs will leverage and monetize their valuable data with fintechs by turning APIs into products of their own.

5. FIs will own faster and real-time payment rails.

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Why Brett is wrong…

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“Brett King once hoped his company, Moven, would become “the Facebook of banking.” Today, he is selling his software to the banks he once scorned.”Nathaniel Popper, The New York Times, 2/22/17

PHOTO SOURCE: AN RONG, THE NEW YORK TIMES


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SOURCE: www.businessinsider.com; “The 5 Top Fintech Predictions & The Fintech Lumascape Infographic; 2016

“60% of fintech funding (in North America) now backs collaborative fintechs vs. disruptive fintechs.” --Celent

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SOURCE: Financial Technology Partners

Payments & Lending Fintechs Receive Most Funding

“Payments startups received 40% of fintech funding in 2016.” –Financial Technology Partners


• Instant loans

• Real-time funding must be preceded by instant decisioning

• Instant account opening/funding

• Real-time verification of account ownership via test credit/debit

• Real-time fraud monitoring and control

• No time for manual review and handling

• Real-time analytics

• Dynamic segmentation by behavior

• CU-wide real-time rails

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Real-time Payments Means Real-time Everything

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SOURCE: Celent’s “BANKS, RETAILERS, AND FINTECH: REIMAGINING PAYMENTS RELATIONSHIPS PART THREE: THE FINTECH PERSPECTIVE; Zilvinas Bareisis and Gareth Lodge; January 2016”; Stephen Greer; November 2015

“Disruption” in Payments? Not really, no.


Amazon Go store leverages sensors, machine learning, and AI to allow customers to walk in and walk out without going through a checkout line.

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SOURCE: http://cunexusonline.com/autoxpress/

Voice Commerce

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Contextual

Commerce

3.0


…interest,

intent, and

ability to buy!

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How to classify

fintechs?


Attitude.



Fintechs by attitude toward CUs.

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Credit Unions vs. Fintechs

SOURCE: Celent’s “NEOBANKS: IS THE MOBILE EXPERIENCE REALLY THAT FAR AHEAD OF THE TOP BANKS?”; Stephen Greer; November 2015

Credit Unions Fintechs

PROS

• Small loyal member base• More agile than big banks• Intimate knowledge of members• Trusted

• No legacy technology• Very agile• Lower expenses• Culturally digital

CONS

• Legacy infrastructure can inhibit innovation and adaptation

• Slow-moving organizations• Metrics not aligned with digital

• Most have no license/charter• Limited resources• Difficulty assimilating more

advanced financial products• Little brand recognition and difficult

consumer acceptance


Where fintechs are better…

SOURCE: Celent’s “NEOBANKS: IS THE MOBILE EXPERIENCE REALLY THAT FAR AHEAD OF THE TOP BANKS?”; Stephen Greer; November 2015

Fintechs are better at integrating PFM, money management, user experience, and connections.

--Celent

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Impulse Savings


Messaging & Finance Apps Pave Way for Chatbots

Mobile App Usage Year Over Year, 2015-2016

SOURCE: Flurry Analytics, 2016-2016 Year-Over-Year Session Growth

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Source: Citi Research, TechCrunch, Company reports

Chatbots and Artificial Intelligence

Chatbot growth outpacing

smart device apps, and will

become part of financial

services delivery over the

next several years.

A chat-based personal finance coach.

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• Access to new ideas

• Access to new technology

• Access to agility: speed market

• Access to data expertise

• Exposure to different culture

• Access to consumers – trust, inertia

• Access to clearing and settlement

• Access to payments expertise/rails

• Access to data

• Avoid regulation

CUs & fintechs need each other

SOURCE: Celent’s “BANKS, RETAILERS, AND FINTECH: REIMAGINING PAYMENTS RELATIONSHIPS PART THREE: THE FINTECH PERSPECTIVEZilvinas Bareisis and Gareth Lodge; January 2016”; Stephen Greer; November 2015

Why CUs need fintech… Why fintech needs CUs…

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The Future? More Complexity

http://banknxt.com/wp-content/uploads/2015/10/1DukeDeUVf67fFMSHZuHutw.png

MembersThe Distributed CU

Scenario 1

Scenario 2

Scenario 3

Scenario 4

The Better CU

The New CU

The Disintermediated CU


The great

re-bundling

of banking?(a.k.a. API Banking)(a.k.a. “Fintegration”)

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• APIs are the interfaces between applications/systems

• CUs can expose their data to third parties, in particular fintech companies, through open APIs.

• The word “expose” probably makes you really nervous.

• CUs can not only make their own product data available but also allow their members to share members’ CU data with third-party providers (TPPs).

• This emerging model is called “open banking”.

• A model being driven by regulatory mandate in Europe.

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API: Application Programming Interface

SOURCE: Aite Group’s “The Programmable Bank: How Banks Can Deploy and Monetize Open APIs; by Ron van Wezel; November 2016


CUs can expose APIs for…

• making payments,

• providing access to account data,

• performing KYC checks,

• getting information about members,

• managing cards

• …and many other products

40 SOURCE: Aite Group’s “The Programmable Bank: How Banks Can Deploy and Monetize Open APIs; by Ron van Wezel; November 2016

API Architecture

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• Rise of the “programmable web” thru APIs• https://www.programmableweb.com/

• Directory of 17,000+ publicly available (open) APIs

• Rise and proliferation of fintechs

• Rise of neobanks

• European regulation

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Drivers of API Banking

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Internal CU Channel

• Use APIs internally as a channel for own CU products

• Faster development; better UX

• Many CUs using this model as part of digital strategy

App Market

• Expose CU services through open APIs to third-party developers

• CU charges for API calls or shares revenue if third party brings clients

• Examples: BBVA, Capital One

Distributor

• Integrate/bundle external financial services with own offerings

• Deliver best-in-class products with partners

• Revenue share from service providers and new members

• Example: N26

Aggregator

• Aggregate multiple APIs from financial service providers into a single API

• Multi-FI offering; standard solution for TPPs

• Examples: Figo, non-FI PFMs (Yodlee, Strands, Treefin)

Banking-as-a-Platform

• Offer open banking platform including APIs to other FIs

• Accelerates digital strategy

• License maintenance fees, revenue share

• Example: Fidor, CBW/Yantra, Open Banking Platform

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API Banking Models: Steps Toward Open Banking?



• CU’s banking services are exposed through private APIs to member-facing applications, such as mobile banking.

• CU’s services are made available through the API to the CU’s own apps with a single, integrated UX.

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Internal CU Channel Model


CU services

CU APIs

CU products only

CU-owned app

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• APIs are made available to third-party developers (e.g., fintechs, other FIs) through a developer’s portal.

• CU creates ecosystem in which not only CU-owned apps but also third-party-developed apps can be made available to members.

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App Market Model


CU services

CU APIs

• CU app store with CU-owned app(s) and third-party apps

• UX not integrated with third-party apps


• CU connects through back-end APIs to external financial service providers.

• Integrates externals services and offers them thru front-end APIs to members.

• Maintains a single UX for members.

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Distributor Model


CU and third-party services

CU APIs

• CU-owned app• CU and third-party products

fully integrated• Single UX

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Getting Paid: Monetizing APIs



• Raw data not only from payment accounts, but also from savings accounts, credit accounts, loans, mortgages, etc.

• Enriched or calculated data, e.g., categorization of account activities, liquidity forecasts, or credit scores

• Combined data, e.g., for identity/authorization services (KYC), money-saving offers based on transaction history, or income tax preparation

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Value-Added API Products CUs Can Monetize


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A.I.

Machine Learning

DATA49


Predictive analytics will drive UX, revenue and retention

SOURCE: Predictive Analytics: Think Big, Start Small… Just Start Now!, The Financial Brand, July 2016

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From Diagnostic to Prescriptive Analytics

• Where do members shop, which merchants do they frequent?

• What do they buy?

• Do they have accounts elsewhere?

• Did they use PayPal or Mint.com?

• Are they enrolled in a rewards program?

• Does this signal a life-phase event?

• Are there cross-sell opportunities?

• Are they a candidate for PFM, P2P?

• Are they putting money in savings?

• Did business members use payroll services?

• Would they benefit from Corporate Cash Management?

• When do they send direct deposits?

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• Persistent vigilance for life-cycle transitions

• Checking account transactions (e.g., tuition check)

• Debit card transactions (e.g., marital license fee)

• Credit card transactions (e.g., baby furniture purchase)

• Social media updates (e.g., new jobs, relationships, moves, etc.)

• END GOAL: humanize digital interactions

• Anticipate needs

• Alert members with limits/concerns/tradeoffs/context

• Prescribe next steps

Dynamic Segmentation: Data Analytics Trends

SOURCE: Celent’s “CHANGING THE LANDSCAPE OF CUSTOMER EXPERIENCE WITH ADVANCED ANALYTICS APPLICATIONS IN BANKING, WEALTH MANAGEMENT, AND INSURANCE”; KarlynCarnahan, Dan Latimore, & William Trout; October 17, 2016


• Stop thinking of fintechs purely as competitors

• Explore new models of partnerships with fintechs

• Ask existing vendor(s) about their data analytics and API platform roadmap(s)

• Monitor fintechs that can help convert weaknesses into strengths, especially differentiating strengths

• Data analytics, UX, etc.

• Begin thinking about how you will curate, manage, secure, and monetize connections to fintechs of choice

• …and the criteria you will use to assess fintechs!• SEE: Fintech Assessment Checklist

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The Takeaways

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Lee [email protected]

http://discover.profitstars.com/leewetherington

@leewetherington

http://www.linkedin.com/in/leewetherington

Lee Wetherignton- Foget Fintechs Convention/Handouts/Lee... · Predictions & The Fintech Lumascape...

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