FALL 2015
payments industry insights journal
Strategies to:
1 3> Use the Internet of Things in your business plan
How merchants and acquirers have an opportunity to capitalize
19> Understand what millennials really want
Creating an effective engagement strategy
49> Take ownership of your customers’ financial health
Collaboration and concern are key in product development
plus
09> Understanding Europe’s fintech renaissance
23> A rivalry continues: chip and PIN vs. chip and signature
27> Who’s getting funded in the crypto-currency horse race?
37> The next big opportunity at the point of sale: integration
cover story
The Future of Loyalty
Marketing for Retailers
and Brands
Four trends that encourage
repeat customers for
tomorrow’s commerce
Special Money20/20 EditionFollow us on Twitter @ngenuityjournal for live updates from the show.
35Going Beyond the Status Quo to Secure Financial TransactionsAnd why every payment should begin with user authentication
cover story
3The Future of Loyalty Marketing for Consumers and BusinessesFour key trends that will shape the loyalty marketing industry
features
45 Payments Profiles 60 Seconds With Anil Aggarwal A founder of Money20/20 and career entrepreneur shares some personal and professional thoughts
47 Policymakers at Work A View From Washington Payments regulations and legislative news from Capitol Hill
49 Perspective in Payments Why it’s Time to Take Ownership of Your Customers’ Financial Well-Being Collaboration and concern are key for product development in fintech
7Not So Fast — How Mobile Wallets Can Overcome Major Obstacles to AdoptionWhile leaving your wallet at home sounds neat, there’s quite a way to go
17The Complexities of Overdrafts and Fees in an Income-Challenged EconomyEvolving overdraft fees in an era where more consumers have irregular incomes
19Millennials and Financial Services: What They Want, What They Don’t, and WhyUnderstanding a generation to create an effective engagement and retention strategy
37The Next Great Payments Opportunity: IntegrationMaking payments just one of many features at the point of sale
41Rising from the Ashes, How the Credit Industry Transformed Post-CrashA revolution in lending and credit analysis
13How the ‘Internet of Things’ Will Spawn New Business ModelsWhy merchant acquirers have opportunity to capitalize
9Understanding Europe’s Fintech RenaissanceWhy cross-border collaboration will define the future of financial services in Europe
313D Printing and its Implications for RetailersIt’s more than cool technology — it’s a game-changer
27The Leaders in the Crypto-Currency HorseraceWho is getting funded in crypto as VCs pony up?
23Chip and PIN vs. Chip and Signature: A Rivalry Nears Historic ProportionsIs a signature equal to a PIN when it comes to chip cards?
1 n>genuity Fall 2015 www.tsys.com 2
n>genuityFall 2015
Volume 8, Number 2
n>genuity® journal features industry
articles on global payments topics and
is published by TSYS.®
editorial
Editor In Chief: Virginia Ann Holman
Managing Editor: Erin M. Sarris
Editorial Coordinator: Stan Merritt
editorial board
Charles Marc Abbey
Anil Aggarwal
Sean Banks
Deborah Baxley
Carol Coye Benson
Virginia Ann Holman
Kenneth Howes
Steve Mott
Joanne Robinson
Patricia Sahm
Matt Simester
Scott Talbott
Karen Webster
contributing editors
Cyle Mims
Rebecca Stephan
Robin Keegan
production
Design and Creative Direction: Laura ChampionPaula Sutton
Printing: Columbus Productions, Inc.SM
subscribers
To request additional copies, make
comments or request electronic
delivery, contact Stan Merritt
at +1.706.641.6586 or
TSYS Marketing
One TSYS Way
Post Office Box 2567
Columbus, GA 31902-2567
For more information, visit our website
at www.ngenuityjournal.com.
© 2015 Total System Services, Inc.® All rights reserved worldwide. Total System Services, Inc. and TSYS ® are federally registered service marks of Total System Services, Inc., in the United States. n>genuity in action: n>gen
SM is a service mark of Total System Services, Inc., in the United States
and in other countries. Total System Services, Inc., and its affiliates own a number of service marks that are registered in the United States and in other countries. All other products and company names are trademarks of their respective companies.
The information in this document is confidential and proprietary. Reproduction, in part or whole, is strictly prohibited without written permission from TSYS.
contributors
Andrew Morris: Andrew Morris is senior vice president, head of content for Money20/20. He leads content development, including speaker selection/recruitment and all agenda planning for Money20/20’s flagship event in the U.S. and is a contributor to content for Money20/20 Europe.
Charles Keenan: Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997. His work at the American Banker included writing about credit and debit cards, merchant processing, and bank stocks. He later freelanced for the Banker and industry publications such as Banking Strategies, Bank Director, Community Banker, and U.S. Banker. He also writes about investing, insurance and health care, and is based in Los Angeles.
Pat Patel: Pat Patel is the content director, Money20/20 Europe. With more than 15 years financial services experience, Pat started from an actuarial and risk background at Chubb Corporation and Cardif Pinnacle, a BNP Paribas Group company. He then spent eight years at VocaLink, one of the largest clearing houses in Europe, in a variety of roles including market intelligence, corporate strategy and product management. He brings deep knowledge and insight of real-time payment systems, mobile payments, e-Commerce, the European financial services, payments and emerging fintech landscape.
Steve Mott: Steve Mott is a 25-year veteran of the electronic payments industry, specializing in transaction economics, innovative uses of debit networks, authentication and security technologies, and emerging alternative payments types and venues such as stored value, online and mobile commerce and transacting over social networks. As principal of BetterBuyDesign, a payments consultancy, Steve conducts strategy, product, technology and market assessments for banks, processors, networks, technology providers and merchants, and advises a number of investment firms on industry trends and developments.
Stan Merritt: Stan Merritt is the editorial coordinator for n>genuity journal and a member of the Global Brand & Corporate Communications team at TSYS. In addition to writing industry articles, he focuses on studying payments industry trends, product innovations, regulatory issues and game-changing technology. Prior to joining TSYS, Merritt was engaged in the private practice of law for more than 15 years.
Roger Alexander: Roger Alexander is a non-executive director of Accourt Ltd., a UK-based consultancy specialising in the payments industry. He had an extensive career in payments, primarily with Barclays, but prior to his retirement in 2008 he was CEO and President of Elavon Merchant Services in Europe. In addition to Accourt, Roger has a portfolio of other non-executive roles across Europe.
Rob Wells: Rob Wells is marketing director and resident bitcoin enthusiast at Money20/20. Rob brings a background in marketing and hospitality, along with an MBA, to his third straight year at Money20/20.
Mark Beresford: Mark Beresford is a director located in the London office of Edgar, Dunn & Company (EDC). Before joining EDC, Mark was a program director and client engagement manager with significant experience in strategic business planning, product development, business process improvement and service delivery gained on several long and short-term assignments in a variety of blue chip organizations.
Chris Souther: A near-Atlanta native, Chris Souther spent the early 90s in the U.S. Air Force, then as a civilian network engineer before returning to school and launching his marketing communications career. Since then, Chris has worked with industry pioneers such as Internet Security Systems, IBM and Verifone. Chris is now the content director for Money20/20 U.S.
Rick Oglesby: Rick Oglesby heads up the payments research division at the Double Diamond Group. He is a respected industry veteran and research professional with more than 20 years of industry knowledge and solid research methodology experience, and he specializes in merchant acquiring, new product development, product management, and emerging payments strategies.
Sanjib Kalita: Sanjib Kalita is chief marketing officer of Money20/20, the largest global event focused on payments and financial services innovation. A fintech leader for almost 15 years, he has worked for large organizations like Google, Intel and Citi. He splits his time between Northern Virginia and New York City.
Anil D. Aggarwal: Anil D. Aggarwal is the chairman & CEO of Money20/20. He previously started two emerging payments processors — TxVia, acquired by Google in 2012, and Clarity Payment Solutions, acquired by TSYS in 2004. He has raised over $75 million in venture capital from investors that include Oak Investment Partners and Bain Capital Ventures. Throughout his career, Anil has been committed to industry development initiatives, including founding the Network Branded Prepaid Card Association (NBPCA), a leading nonprofit trade group.
Scott Talbott: Scott Talbott, J.D., C.P.A., is senior vice president of government affairs at the Electronic Transactions Association. He is an experienced policy advocate and communicator with two decades of experience in Washington. Talbott has represented the largest financial services firms in the country before Congress and federal regulators, most notably during the fiscal crisis. He is also an expert on communication, appearing regularly on national and international media. He has been called the voice of the financial services industry and one of the most recognizable faces in the industry.
Kimberly Gartner: Kimberly Gartner is a senior vice president at the Center for Financial Services Innovation (CFSI). CFSI is the authority on consumer financial health, leading a network of committed financial services innovators to build better consumer products and practices. Kimberly brings her deep knowledge of consumers, understanding of the financial services marketplace, and vision for financial health to spur people and companies to action.
“Our greatest hopes could become reality
in the future. With the technology at our
disposal, the possibilities are unbounded.”
The words of inspirational geniuses echo wide and far across many industries, and this comment by legendary scientist Stephen Hawking is a prime example. The digitization of payments and financial services is evolving on a daily basis and at an amazing speed — and as we continue to strive for progress, the potential for innovation is indeed limitless. We think this issue of n>genuity journal captures Dr. Hawking’s sentiments and how they apply in the world of commerce.
The annual Money20/20 event is a leading-edge forum for discussion of the present and future of payments and financial services innovation for connected commerce at the intersection of mobile, retail, marketing services, data and technology. With this convocation of industry leaders and innovators always comes the kind of insightful discourse that drives progress. The gathering will be held this year at The Venetian in Las Vegas from October 25-28, and it is our honor to serve again as the event’s official publication and to present this year’s Money20/20 edition.
As we know, the consumer is the key in our industry. Our cover story looks at the future of consumer loyalty and strategies for innovation by brands and retailers in the area.
The Millennial generation has assumed its place as an incredible force in commerce. We feature an article in this issue discussing strategies to engage and retain them as customers — through understanding their wants and needs.
As the online world becomes increasingly important in our physical world, the phenomenon known as the Internet of Things cannot be ignored. An author in this issue explores how leveraging this merger of the virtual and physical worlds can lead to tremendous business efficiencies.
Another author discusses the value of a holistic approach to consumer financial health and how it should drive product development. We also feature an interview with a payments industry expert — Money20/20’s own Anil Aggarwal — with a track record that proves that expertise.
These are just some highlights from this edition, and we hope that all of our articles reflect just how exciting things are right now in the world of commerce — and that the sky is the limit in the future. We invite you to subscribe to our journal online at www.ngenuityjournal.com and to follow us on Twitter (@ngenuityjournal) so you can take advantage of the offerings you’ve come to expect from us.
We truly welcome your feedback and thoughts. Feel free to email us at [email protected].
Enjoy the read!
Sincerely,
M. Troy WoodsPresident & Chief Operating Officer TSYS
3 n>genuity Fall 2015 www.tsys.com 4
cover story
The Future of Loyalty Marketing for Consumers and Businesses Four key trends that will shape the loyalty marketing industry
There is nothing more basic to business success
than loyal customers. Fred Reicheld, author of
The Loyalty Effect and founder of Bain & Company’s
loyalty consulting practice, reports that building
loyalty with five percent more customers leads
to an increased average profit per customer of
between 25 and 100 percent.
by> andrew b. morris
www.tsys.com 4
5 n>genuity Fall 2015 www.tsys.com 6
A staggeringly large industry now exists
to support programs designed to drive
repeat purchases by existing customers.
Colloquy estimates that there are
nearly three billion loyalty program
memberships in the U.S. and that more
than $12 billion is paid in retail loyalty
incentives each year. And if you include
payment card, hospitality and travel
reward programs, that number jumps
to $50 billion.
In this increasingly competitive market-
place, retailers and brands require
strong returns on their remarkable
level of investment in loyalty programs.
Here we explore four key trends that
will drive the future of the loyalty
marketing industry.
#1 “Small Business,
Big Loyalty”A 2014 BIA/Kelsey and Manta study
of 1,000 small businesses in the U.S.
revealed that while more than 60
percent of small to mid-sized business
(SMB) owners generate a majority
of their annual revenue from repeat
customers, more than two-thirds do
not have a loyalty program in place.
“Until recently, effective loyalty
programs have been largely out of
reach for small merchants,” explains
Rick Ducey, managing director, BIA/
Kelsey. “The programs have been too
cumbersome for SMBs to manage, and
SMBs often lacked the technology to
implement them.”
As a result, an increasing number of
loyalty solutions are emerging that
bring the type of loyalty capabilities
that were previously only available to
national chains to this underserved
SMB marketplace. Solutions are
typically cloud-based and leverage
smartphones and tablets to engage
mobile-first consumers as well as to
be more cost-effective.
#2 “Getting to Know You”Emotion is an important
component in creating authentic
customer engagement — and personal-
ized service helps drive this emotional
connection. Imagine walking into an
old-fashioned general store. Given
his relatively small group of regular
customers, the general store proprietor
could keep all of his customer data
in his head, but to implement this
same experience at scale requires
automation.
The most valuable type of data is
purchase data. Card-linked marketing
uses purchase data to deliver relevant
ads through mobile and online banking
applications. A leader and pioneer of
card-linking is Cardlytics, with nearly
400 banking relationships in the U.S.
and U.K.
Card-linking is simple for the
consumer — no extra steps, coupons
or paperwork. The consumer captures
the reward by paying with a card, and
the reward is deposited into their bank
account. Card-linking is also simple
for the retailers who advertise on
the platform.
Whether it is card linking or another
data-driven approach to marketing, the
ability to gather and analyze customer
data in real time to deliver personalized
customer experiences is an important
trend driving the future of loyalty.
#3 “Location, Location,
Location”One of the most important factors in
delivering personalized and relevant
experiences for consumers is the
context in which they are receiving
communications. The location
technologies found in every smart-
phone today are precise enough for
marketers to understand when
the customer is at or near the store
and to use that contextual information
to increase the relevance of marketing
communications. A technology
called “beacons” is the most
common approach.
Adoption of beacons — Bluetooth-
enabled sensors that connect with
nearby mobile phones and tablets
— is spreading. Nearly one-third of the
top-100 retailers in the U.S. will have
deployed beacons by the end of this
year, according to Business Insider,
and 85 percent will have beacons by
the end of 2016.
“Beacon technology has been met with
huge enthusiasm among retailers,” said
ShopKick co-founder and CEO Cyriac
Roeding in a release. ShopKick is one of
the pioneers in using beacons. It uses
points called “kicks,” which are awarded
when users walk into participating
stores. Kicks are also awarded for
scanning product barcodes or QR
codes using a device’s camera, and
for making purchases.
Business Insider says that beacons
will influence more than $4 billion in
U.S. retail sales this year — a scant
0.1 percent — but that this number
will increase tenfold in 2016. Based on
in-store campaign performance and
shopper surveys conducted during the
2014 holiday season, 60 percent of
shoppers engaged beacon-triggered
content, the company says, and 30
percent took advantage of a beacon-
triggered offer. The data also revealed
that 73 percent of shoppers indicate
that beacon-triggered content and
offers increased the likelihood of
purchase during a store visit, and
61 percent said they would visit
stores with beacons more often.
#4 “So Happy Together”Abeer Bhatia, CEO of U.S.
Loyalty at American Express, knows
his company is placing a big bet on
Plenti, its new coalition loyalty program
launched in March 2015. In a company
press release, Mr. Bhatia explained that
Plenti is “the first U.S.-based coalition
loyalty program where consumers will
have the flexibility and choice across
seven well-known brands to earn and
use points for purchasing a wide range
of products.”
Many have tried coalition loyalty but
few have succeeded, with the two
most successful programs in the
U.K. (Nectar) and Canada (Air Miles).
Many reasons have been cited for the
lack of coalition loyalty success in the
U.S. market, including daunting POS
technology requirements, the lack
of unified membership and card-
tracking infrastructure, the competitive
business environment, and the lack of
a national retail anchor for repeated
consumer spending.
But there are significant advantages
in coalition programs like Plenti.
For program sponsors, the coalition
provides wallet space and customer
engagement, cost benefits, and a more
complete and useful customer database
— and there’s more cumulative value
for consumers.
An eye to the futureThe good news is that many exciting
solutions are coming into the
marketplace. And innovation in loyalty
marketing is happening across the
entire retail and payments value chain.
The call to action for brands and loyalty
solution providers is to create programs
that more efficiently bring value to both
consumers and businesses.
About the Author
Andrew Morris is senior vice president, head of content for Money20/20. He leads content development,
including speaker selection/recruitment and all agenda planning for Money20/20’s flagship event in the
U.S. and is a contributor to content for Money20/20 Europe.
In this increasingly competitive marketplace,
retailers and brands require strong returns on their remarkable
level of investment in loyalty programs.
7 n>genuity Fall 2015 www.tsys.com 8
Not So Fast — How Mobile Wallets Can Overcome Major Obstacles to Adoption While leaving your wallet at home sounds neat, there’s quite a way to go
by> charles keenan
Last year, Apple Pay was the first wallet to involve the banks in any big way, and its integration of a fingerprint scanner and NFC chip in the iPhone 6 took away friction at the point of sale. Samsung’s purchase of LoopPay and recent announcement of a wallet that taps into existing magnetic stripe technology already in terminals at the point of sale also promises to reduce that friction.
But while the thought of leaving the credit and debit cards at home might sound neat, mobile wallets still have a way to go.
“In concept they seem really cool,” say Brian Riley, a senior research director, CEB TowerGroup, a Boston-based consulting firm. “But I think it will be a long time before I’m ever willing to leave my house without a credit card and be counting on my phone.”
Grasping the consumer perspectiveAt first glance, the growth of mobile payments looks encouraging. Total volume of proximity mobile payments at the point of sale totaled $3.5 billion in 2014, according to eMarketer, a research firm. That figure will skyrocket to $118 billion in 2018, but mobile payments will still be far from dominating the point of sale.
To put the numbers in perspective, U.S. consumer spending in goods and services totaled $48 trillion in 2014, according to the Bureau of Economic Analysis — meaning that mobile payments accounted for just 0.0073 percent of consumer spending last year.
Compared with plastic, mobile wallets have challenges getting traction. Less than one in 10 consumers say they prefer to use their mobile payments over credit cards or cash, according to a recent survey by Comrade, a mobile and Web design firm based in Oakland, Calif.
While there are early adopters of Apple Pay, observers say these are the easy consumers to get — tech-savvy and willing to experiment with payment methods like contactless. “They are already comfortable with that method of payment, and it is a very easy behavioral replacement,” says Greg Weed, director of card research at Phoenix Marketing International, a consulting firm based in Rhine, N.Y.
About the Author
Charles Keenan has written about payments since joining the American Banker as a staff reporter
in 1997. His work at the American Banker included writing about credit and debit cards, merchant
processing, and bank stocks. He later freelanced for the Banker and industry publications such as
Banking Strategies, Bank Director, Community Banker, and U.S. Banker. He also writes about investing,
insurance and health care, and is based in Los Angeles.
Compared with plastic, mobile wallets have
challenges getting traction.
Mobile wallets have been one of the hottest topics in payments for
years now, but they still have yet to gain traction in any big way.
Plenty of obstacles remain — though there has been progress.
Pain points and solutionsMobile wallets need to overcome the following problems to replace plastic cards:
1. Friction at the POS: Apple Pay is a start, but for wallets to succeed they must replace the speed and effectiveness of magnetic stripe cards, especially for small-dollar transactions where a signature is not needed. About 75 percent of consumers who don’t use mobile payments said that it’s easier to pay with cash or a credit or debit card, according to a 2015 Federal Reserve study of 2,900 consumers. Despite the popularity of QR codes, they often don’t scan on the first pass, making them slower on average than a card swipe.
2. Lack of trust: Perception of security has kept consumers cautious when it comes to using a mobile wallet. About 65 percent of consumers said a hacker getting personal information from a smartphone would be a “major problem” in their willingness to use a mobile payment app, according to Phoenix. About 57 percent said the prospect of a lost or stolen phone and giving merchants access to personal information would be major problems. To encourage adoption, trust is key, says Young Pham, chief strategy officer at Comrade, a Web and mobile design agency based in Oakland, Calif. “It goes beyond the simplicity of what that is from a mobile experience,” Pham says. “Does the experience include things that address security?”
3. No compelling value proposition: Part of the success of the LevelUp and Starbucks apps boils down to the rewards they offer. But most wallets don’t have a compelling enough deal to get consumers to use them regularly. “It gets back to why do I need this and why do I need to go out beyond my bank,” Riley says. “Everything I can do with a mobile wallet I can do with my bank account.” “There’s an area of the mobile wallet that has yet to be developed that would transform it beyond the payment card,” Weed adds. “Ultimately it has to be something that a payment card can’t do, to give the wallet a life of its own.” It could be as simple as giving immediate notification at the point of sale of a balance after the transaction, or a message from the issuer that making the purchase would give the buyer rewards points. “Since the phone is an online device, and a payment card is not, it creates the area in which the mobile wallet can be highly differentiated,” Weed says.
But hope is far from lostOn the bright side, mobile wallets will almost certainly have some kind of future — after all, it took a while for the credit card to take hold, Pham notes. “If the barriers to the customer experience are addressed, that is when you’ll see mass adoption.”
9 n>genuity Fall 2015 www.tsys.com 10
Understanding Europe’s Fintech RenaissanceWhy cross-border collaboration will define the future of financial services in Europe
The European financial services industry is
rapidly changing as product development
accelerates. As the barriers to entry fall,
opportunities increase.
Combining this with the fallout from the
financial crisis, it’s clear to see that the
financial services market is in a state of
flux. This certainly goes some way to
explain the confidence investors have
placed in the industry, as investments in
the fintech sector throughout Europe grew
215 percent to $148 billion in 2014, with
growth likely to continue throughout 2015.
by> pat patel
11 n>genuity Fall 2015 www.tsys.com 12
Commerzbank. This is a model that is gaining traction across Europe.
These initiatives are largely in the early stages of generating tangible value. One challenge is the level of global competition for the best startups. Of equal importance will be the ability to form real partner-ships with the corporates involved. So far, early indications reveal that on average from an intake of 10 startups in a program, most will not survive beyond six months — and only two or three will be in opera-tion beyond a year with some degree of success (investment, customers). This will gradually improve over time and with maturity of the program.
Vive la (r)evolutionCollaboration between fintech companies will be a key feature defining the future of financial services in Europe. According to Mariano Belinky, managing principal of Santander InnoVentures, “Funds alone are not enough. To move to the next phase of evolution in financial services, banks need to invite fintechs to work within our industry, even inside our own businesses. That means investing in fund-ing but also giving access to our expertise, as well as utilizing our client base and our own innovation initiatives.”
With a wide variety of cultures, languages, behaviors and regulatory environments, growing businesses to scale in Europe is a challenge. This is slowly easing as a result of a number of regulatory and collaborative measures to reduce inefficiencies, support commerce and create opportunities. These include:
¬ SEPA, the Single Euro Payment Area, a payment-integration initiative for the simplification of bank transfers
¬ Payment Services Directive II, aimed to protect consumers and create a level playing field for both banks and non-banks
¬ The Single Digital Market to reduce regulations and combine 28 national markets and enable better access to digital goods and services by promot-ing open standards, collaboration and interoperability.
In the past, Europe struggled to support its tech community. This is slowly chang-ing at national and international levels, and it is one of the drivers for the Single Digital Market initiative.
The start of a homegrown movementThe allure of Silicon Valley for a European tech startup is very compelling. The U.K. still leads the way in Europe, with 60 percent of all European fintech startups based in the U.K. and British companies attracting half the total investments in fintech businesses across Europe. The fintech industry is worth an estimated £20 billion in revenue to the U.K. economy.
Level39 in London is one of the most successful initiatives in Europe, attracting more than 170 startups and continuing to deliver innovative approaches in develop-ing the community, from hackathons to educational and networking events. The recent success in London has been a catalyst for other major cities to respond to the challenge. In Denmark, the Copenhagen Fintech Innovation Research association (CFIR) has been initiating a number of projects to create an ecosystem to support established and emerging companies within financial services — which includes building relationships with universities. CFIR has aspirations to collaborate with associations and the wider industry across the Nordics and the Baltics.
Holland Fintech is similar to CFIR, but it is a commercial company seeking to create an internationally connected ecosystem that enables maximum acceleration and adoption of fintech. Within a year, it cre-ated a network of 68 companies, as well as partnerships with several other coun-tries. One initiative being explored is how administrative barriers can be reduced to allow entrepreneurs to set up a business within a short timeframe, rather than months or years, by using digital tools to accelerate requirements from a legal, financial and administration standpoint.
One of the most recently formed associations, Fintech France, is seeking to capitalize on its renowned specialists within finance- and mathematics-based engineering. Within a few months, membership has risen to 50 fintech companies across a whole spectrum
of sub-verticals. Government support has been forthcoming, with ministers backing the initiative and seeking to help shape the environment to reduce the barriers to development and growth.
Each association hopes to leverage its historical, cultural and geographical envi-ronment in order to gain an advantage. Remember that it took Silicon Valley many years to reach its current position as a global phenomenon. Collaboration across the hubs in Europe is essential to allowing Europe to compete, as is government support to provide a regulatory environment that reduces barriers to entry.
Partnering with startupsIn 2015 alone there have been a number of new accelerator programs or incubator units launched from either established companies within banking, retail and payments enablers (e.g., METRO Group, Temenos, Visa Europe, Deutsche Bank) and independent companies/associations (e.g., Emerging Payments Association). This is in addition to the established programs such as those initiated by Barclays and Accenture. In most cases hosting an accelerator program is viewed as a way to outsource and hasten innova-tion, as the goal is to partner with the most innovative startups to generate value and develop new products.
One of the early initiatives, “main incuba-tor” (based in Frankfurt and founded by Commerzbank), seeks to provide invest-ment, access to bank customers, insight, and IT and infrastructure support. It also seeks to build companies to address opportunities and challenges within
About the Author
Pat Patel is the content director, Money20/20 Europe. With more than 15 years financial services
experience, Pat started from an actuarial and risk background at Chubb Corporation and Cardif Pinnacle,
a BNP Paribas Group company. He then spent eight years at VocaLink, one of the largest clearing houses
in Europe, in a variety of roles including market intelligence, corporate strategy and product management.
He brings deep knowledge and insight of real-time payment systems, mobile payments, e-Commerce, the
European financial services, payments and emerging fintech landscape.
Remember that it took Silicon Valley many years
to reach its current position as a
global phenomenon.
13 n>genuity Fall 2015 www.tsys.com 14
Hershberger, an entrepreneur who
cofounded Flat 12 Bierwerks craft brew-
ery with some partners six years ago,
observed that the business of selling
beer was much less precise than he was
accustomed to from his background in
software and analytics. Beer distributors
typically give guidance on what they’ll
buy from brewers three to six months in
advance, but that guidance was typically
off by 30-150 percent of the volume of
beer made. “It was guesswork at best,”
Hershberger says.
So three years ago, Hershberger set
out to bring the power of analytics to
beer. As chief executive of Indianapolis-
based SteadyServ Technologies, he had
designed a specialized weight sensor
for kegs.
The sensor monitors how much beer
remains in the keg and communicates
wirelessly with a router nearby. An RFID
tag on the keg helps track the type of
beer. All of the data is then sent to iKeg,
a secure, mobile, cloud-based inventory
and order management system view-
able on an iOS or Android app.
Now brewers using the system know
where their product is, how old it is
and how many days it has been on
tap. Analytics can be used to forecast
next season’s demand, so bars and
restaurants can determine the
optimum mix of beers.
While Hershberger says the beer
industry is like any other in terms of
being resistant to change, sales of his
product are starting to flow. Since its
debut of iKeg last August, SteadyServ
is approaching 300 accounts in six
states and Brazil, with The Netherlands
on deck.
“If something can be measured and
that measurement can deliver economic
or lifestyle value — securely and in a
How the ‘Internet of Things’ Will Spawn New Business ModelsWhy merchant acquirers have opportunity to capitalize
Steve Hershberger was tired of not having
enough beer — or too much of it.
by> charles keenan
“If something can be measured and that measurement can deliver
economic or lifestyle value
— securely and in a cost-effective fashion —
then you should do it,” Hershberger says.
15 n>genuity Fall 2015 www.tsys.com 16
cost-effective fashion — then you should
do it,” Hershberger says.
Physical + virtual = actionable dataSteadyServ’s iKeg represents how
business is seizing on opportunities now
offered by the Internet of Things (IoT),
a network of physical devices integrated
with electronics, software and sensors
to extract actionable data for its users.
Thanks in part to falling prices for
hardware and cloud computing, IoT is
changing the way companies conduct
business, giving rise to entirely new
business models and offering big
opportunities in merchant acquiring.
In a sense, IoT has been affecting
digital commerce for some time. Google
uses smartphone GPS data to provide
real-time traffic maps. RFID tags improve
supply chain management. Smart
meters send electricity usage directly
and wirelessly from homes to utilities.
Hospitals are starting to install sensors
at hand-washing stations to increase
staff compliance.
But it’s just the beginning.
There are now an estimated 15 billion
“smart” devices — ranging from small
chips to large machines — connected to
the Internet, according to research by
Santa Clara, Calif.-based Intel. That is
expected to grow to 200 billion by 2020.
“We certainly see a great deal of the
infrastructure in place and the right
sort of pricing around the potential for
these services,” says Jonathan Collins,
principal analyst at ABI. “More and more
businesses are being set up to help build
on those foundations.”
Disruption, disruption, disruptionSteadyServ is showing that one
application can profoundly change how
companies do business. Carl Bruggemeier,
chief executive of Indianapolis-based CZH
Hospitality Group, uses iKeg and hasn’t
looked back. Bruggemeier estimates that
the percentage volume per keg wasted at
the restaurants he advises was in the high
teens — as much as 1.7 gallons of beer
per keg.
Now, using analytics, he can see which
beers sell well — in real time. Beers
running low can be replenished faster
and automatically ordered. At the
Lighthouse Restaurant, an upscale
steak and seafood establishment in
northeastern Indiana, the new system
helped drop the percentage of wasted
beer per keg down to single digits, trans-
lating to a projected $40,000 boost in
annual revenue and $30,000 additional
profit for a restaurant with just 10 taps,
according to Bruggemeier.
For a merchant such as Bruggemeier,
using analytics has become key to his
business since most everyone carries a
smartphone now. While SteadyServ helps
with the flow of beer, the Lighthouse
Restaurant also uses RestaurantConnect
to monitor table inventory, manage
private and group dining, and explore
dining preferences of guests.
“We’re very interested in everything that
a customer consumes,” Bruggemeier
says. “We’re interested in their demo-
graphics, how far away they travel to
come to us, and how long different
party sizes are at the table.”
Payments won’t be left behindWith mobile devices playing such a role
in the IoT, payments are naturally being
folded in. Tablets, for example, are used
to order and pay for meals in quick serve
restaurants such as Chili’s. “Payments
are going to be something that many
computer devices will need to perform
as a workload,” says Michelle Tinsley,
director of mobility and payment security
at Intel. In retail, this can also translate to
ordering a custom combination of frozen
yogurt at a kiosk, or reducing lines at
movie theaters, she notes.
And the payments industry sees the
potential. In April, Intel announced a
deal with Ingenico, a Paris-based
merchant terminal and payments
company, to develop a payment solution
for the IoT to debut next year. The goal is
to be able to offer value-added services
to devices such as “intelligent” vending
machines and kiosks.
For merchant acquirers, IoT innovation
means new opportunities. “As an acquirer
and ISO in the network, think about
your business model,” Tinsley says.
“Instead of keeping the status quo of
selling 50 basis points below the next
guy, [think] ‘What kind of future services
should I be offering?’”
About the Author
Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997.
His work at the American Banker included writing about credit and debit cards, merchant processing,
and bank stocks. He later freelanced for the Banker and industry publications such as Banking Strategies,
Bank Director, Community Banker, and U.S. Banker. He also writes about investing, insurance and health
care, and is based in Los Angeles.
With mobile devices playing such a role in the
Internet of Things, payments are naturally being folded in.
17 n>genuity Fall 2015 www.tsys.com 18
Few subjects in retail banking raise as much scrutiny and ire as
account overdrafts — and the disparity of practices and fees
employed by regulated financial institutions when they happen
to consumers. Today, the industry is holding its collective breath
as the Consumer Financial Protection Board (CFPB) prepares to
weigh in further on this issue in the next year.
The Complexities of Overdrafts and Fees in an Income-Challenged Economy Evolving overdraft fees in an era where more consumers have irregular incomes
About the Author
Steve Mott is a 25-year veteran of the electronic payments industry, specializing in transaction economics,
innovative uses of debit networks, authentication and security technologies, and emerging alternative payments
types and venues such as stored value, online and mobile commerce and transacting over social networks. As
principal of BetterBuyDesign, a payments consultancy, Steve conducts strategy, product, technology and market
assessments for banks, processors, networks, technology providers and merchants, and advises a number of
investment firms on industry trends and developments.
It turns out that the overdraft fee problem has many dimensions
and complexities that have been incompletely captured by the
available research. For example, there is a wide disparity about
how often FIs actually pay the item in question (typically a bounced
check or debit card purchase decline). When the FI pays the item,
and assesses a fee (now about $35 per item), the banking industry
views that activity as beneficial to consumers, and it ostensibly helps
them avoid more expensive credit options such as payday lending.
Perhaps.
But when the FI declines to pay the item and imposes the $35 fee
anyway (the system cost for which is typically no more than a few
cents if it occurs with a debit/ATM card), the value to the consumer
becomes very questionable. And in many cases, the consumer then
runs up a series of overdrafts during the same day — often due to
the FI posting and processing high-amount items first, which results
in many smaller items moving into overdraft status and incurring
multiple fees.
The 80/20 rule
Moreover, there isn’t good data on how often banks actually
experience overdraft conditions, but when good customers
complain, they incur high consumer-touch costs in writing some
of them off. In other words, the actual incidence of events that
trigger overdrafts is still known only by the individual bank.
While 20 percent of consumers generate 80 percent of overdrafts,
some surveys suggest half or more of consumers experience
overdraft situations at least once a year. That makes determining
appropriate and fair national policy difficult — and it thwarts
possible accommodations that big banks might make to minimize
the unproductive costs of overdrafts.
Overdrafts, therefore, have become a source of perhaps billions
in fees and high-margin income for billers — who outsource
most of their payment processing operations but encounter very
little regulatory scrutiny (other than Regulation E requirements)
for providing consumers with accurate, helpful information and
alternatives for managing auto-debit systems.
Alternative ways for consumers to keep their accounts active and
services flowing, like phone payments, either come with a fee or
get processed as normal ACH items, which can take 2-3 days.
In fact, there are myriad other problems that are vestiges of
the legacy electronic bill payment (EBP) business that confound
consumer intentions and capabilities to pay far beyond declined
debit card purchases. These include irregular deposit holds
(particularly after an overdraft event), inability to pay online
after an overdraft except by bankcards, and unavailability of
timing of debits and payment postings.
Pre-crisis engineering
The problem here is that the EBP business was crafted prior to the
banking crisis, which has seen the majority of consumers revert
to paycheck-to-paycheck households, with high levels of income
instability and unpredictability. These systems are fundamentally
premised on and set up for regular access to funds where overdrafts
would largely only occur when consumers were irresponsible —
rather than trapped by a cycle of irregular income.
No wonder, then, that many consumers have unhooked from
online bill payment when and where they can. For many, returning
to cash and alternative credit sources comes too late for bank
account closings and bad credit score impacts. There are solutions
to these problems, but they must be holistically derived, data-driven
and posited with respect to financial responsibility on the part of
all parties.
Clearly the government needs to define, size and track all of this
problem’s components, and enable responsible FIs to recoup their
costs (and make a fair margin) while limiting chronic and serial
abusers. And this should all occur at levels that reflect responsible
financial management and outcomes for income-strapped
consumers, rather than punishment that makes their financial
lives undeservedly worse.
Smaller banks and credit unions, which are more dependent
on overdraft (and Non-Sufficient Fund) fees, are particularly
concerned about further steps the Feds might take in
restraining banks from imposing arduous fees on the public.
In 2010, FDIC surveys prompted the Federal Reserve to impose
some restrictions — namely requiring banks to get consumer
“opt-ins” for overdrafts — as well as a number of initial CFPB
actions. But updated surveys by the CFPB in 2012 identified
a number of continuing problems, which were described in
a 2013 report, updated in July of 2014, and supplemented
by new data from 626 large financial institutions (FIs) made
available for the first time this year.
No small potatoes
The new data indicated that the overdraft fee income of banks
surveyed was about $10 billion, suggesting an industry total
of perhaps $15 billion, when smaller institution fees might
be counted. This number is a far cry from the well-publicized
$30 billion or so the Moebs group asserts, but concern over a
number of practices — including consumer misunderstanding
of the opt-in process — still may generate further CFPB
actions. The big questions are: What actions, where and how?
by> steve mott
19 n>genuity Fall 2015 www.tsys.com 20
Millennials and Financial Services: What They Want, What They Don’t, and WhyUnderstanding a generation to create an effective engagement and retention strategy
Businesses of all kinds across
the world are clamoring to
attract the Millennial genera-
tion — conventionally defined
as those born after 1980, with a
rough cut-off birth year of 2001.
The unique attitudes, traits and
experiences of the generation,
also referred to as Generation Y,
present several new challenges
for financial services players
looking to bring Millennials into
their fold.
by> stan merritt
And a couple of things are clear when it comes to this generation: Carrying on business as usual and looking for organic growth in Millennial business is a fool’s formula; proactively tailor-ing services to meet unique Millennial needs — and wants — is an absolute necessity. But it all begins with understanding core financial values, expectations and behaviors.
A different kind of wallet-watcher and penny-pincherAndrea Hershatter is a professor and associate dean at the Goizueta Business School at Emory University, and deals with Millennials on a daily basis. She is quick to note that Millennial attitudes on spending and saving are both in stark contrast to those of past generations.
“What other generations might consider luxuries are actually needs to Millennials,” she says. “I’m talking travel, eating out, going to clubs, gen-eral recreation…these experiences are more important to them than ‘stuff.’”
But Hershatter also points out that Millennials should by all means be described as fiscally conservative. “They track every penny,” she says. “They know where their money is, where it goes, and they are vigilant in making sure it doesn’t go someplace it should not.”
These attitudes have interesting impli-cations in savings and budgeting.
Hershatter says that Millennials absolutely know that they should be saving, yet they are “more likely to create a budget so that they can spend guilt-free money on what’s important to them. It’s less about saving for a rainy day and more about budgeting for their daily expenses.”
Millennials and debt = oil and waterFinancial Institutions (FIs) should understand that Millennials hate debt — including debt they may already have.
“Student debt is a major issue for Millennials who attended university,” says Sam Maule, emerging payments practice lead at Carlisle & Gallagher Consulting Group. “The impact of this debt, combined with the experience the Millennials have had with their parents and grandparents losing savings through the 2008 crash, has had a significant impact on their response to debt.”
In addition to an aversion to big purchases and loans, Millennials also dislike credit cards, notes Maule. He cites recent statistics indicating that 63 percent of Millennials don’t have a credit card.
21 n>genuity Fall 2015 www.tsys.com 22
“They’d rather use traditional debit or even a prepaid product,” says Hershatter, “than go in arrears and pay interest.”
Dislike vs. disinterest: good news and bad newsGenerational attitudes notwithstanding, Millennials actually don’t harbor ill-will toward their grandfather’s bank.
“Any cultural bias against traditional banks that’s cropped up in the last ten years has not been due to Millennial involvement — they’re too young,” says Hershatter. “Millennials want what they want, and they don’t care whether it comes from an established global bank or a new financial services disruptor.”
The biggest challenge for traditional FIs in dealing with the Millennial mentality is not disdain or dislike, says Hershatter — it’s disinterest.
“Millennials have typically postponed several traditional banking relationship events, such as car and home pur-chases, and even marriage and having children,” says Maule. “The traditional entry point of ‘checking’ doesn’t have the appeal it once held.”
And that trend is continuing.
Millennial must-haves and deal-breakers“Millennials want their financial institution to be a lot more proactive…not reactive,” says Maule.
Once they do decide to make milestone purchases, Millennials want FIs to educate and assist them throughout the process. “Personalized recommen-dations will go a long way. For example, working with referrals for car and home purchases, and education on the loan types and best fit for their individual needs will go far in building loyalty,” he continues.
Noting that tech-obsessed Millennials are avid early-adopters, Maule also rec-ommends that FIs focus on integrating with existing financial tools currently used by Millennials. Some good candi-dates for FI integration or collaboration are Digit and SmartyPig as savings tools, Mint and Level for financial awareness, RobinHood and Acorn in investment decisioning, and Moven and Simple for pure-mobile banking, says Maule.
Then there are some things that Millennials just won’t tolerate, such as dishonesty, bureaucracy and disorganization. “Millennials demand transparency,” says Hershatter. “And they are huge fans of disintermedia-tion. They don’t like smoke and mirrors or middlemen.”
So what about outsourcing customer service?
“Millennials want real-time solutions from people with real decision-making ability,” says Hershatter. She notes that it is not uncommon for a Millennial to terminate a business relationship if they realize or even suspect that they have been “passed on” to a remote call center.
“It’s unfathomable to the average Millennial that a customer could hold multiple accounts with the same FI yet have to deal with different entities with regard to each account,” Hershatter says. In the same vein, being required to repeatedly fill out forms or provide information that they have previously provided to an FI evokes frustration.
And there aren’t many second chances. “With Millennials, you have one opportunity to make a
first impression,” says Victor Corro, vice president of member services with the World Council of Credit Unions (WOCCU). “They’ll move on fast when crossed.”
Making moves toward MillennialsWhile individual financial institutions struggle to make the vaunted Millennial connection, the industry at large is not idle on this front.
MasterCard recently announced the launch of its in reachTM program, which features access to a personal financial mentor, budgeting and credit-building tips, and advice on building a professional and polished social media profile. This is good news for traditional issuers of credit, debit and prepaid cards looking for a turnkey solution to integrate and reach out to the generation.
In the credit union space, WOCCU has launched a content-rich website, wecu2.org, to foster relationships with Millennials.
“The credit union model aligns philosophically with the generational mentality of Millennials…way more so than banks. So many in the generation just don’t know it,” says Sarah Timmins, corporate social media manager for WOCCU. “At the same time, credit unions don’t realize what a great fit they are for Millennials. There’s a true generational gap between Millennials and the credit union establishment, and we want to help bridge it for everyone’s benefit.”
The biggest challenge for
traditional FIs in dealing with the Millennial
mentality is not disdain or dislike, says Hershatter
— it’s disinterest.
About the Author
Stan Merritt is the editorial coordinator for n>genuity journal and a
member of the Global Brand & Corporate Communications team at TSYS.
In addition to writing industry articles, he focuses on studying payments
industry trends, product innovations, regulatory issues and game-changing
technology. Prior to joining TSYS, Merritt was engaged in the private
practice of law for more than 15 years.
These attitudes have
interesting implications
in savings and budgeting.
23 n>genuity Fall 2015 www.tsys.com 24
Chip and PIN vs. Chip and Signature: A Rivalry Nears Historic ProportionsIs a signature equal to a PIN when it comes to chip cards?
If you ask Mike Cook, Walmart’s assistant treasurer
and a senior vice president, EMV rules in the U.S.
are a joke. At a recent industry conference, he
expressed his dismay with chip and signature
being treated equally to chip and PIN, calling
signature a “worthless form of authentication.”
Not so, says Stephanie Ericksen, vice president of risk
products at Visa, Inc. “We don’t see a need for it, [as chip
and PIN] will have a shorter shelf life,” she said, noting that
the company is moving to new technologies and innovation
that look beyond EMV.
In short, it’s a case of two high-ranking executives from two
major organizations in the U.S. voicing two very different
perspectives about the October 2015 fraud liability shift
rules. Which begs the question of who is correct — either,
neither or both?
Is a signature equal to a PIN when it comes to chip cards?
Revisiting European roots, context and lessons
EMV in its chip-and-PIN incarnation was designed for
effective use in a predominantly offline card ecosystem
(e.g., the U.K. at that time), enabling issuers to delegate
authorisation authority to the chip without requiring
an online authorisation from the issuer’s host system.
In 2002, following years of growth in various fraud types,
the U.K. card industry formally began its migration to
the EMV chip coupled with PIN — seen then as the most
effective approach.
The U.K. chip and PIN programme was ultimately regarded
as an industry success, and it certainly achieved one of its
objectives: reducing counterfeit and lost-and-stolen fraud
numbers significantly. However, the U.K. migration was not
without harsh lessons learned at the time and since:
¬ A credible industry business case was extremely difficult
to develop due to varying approaches to risk appetite and
management across the industry. Ultimately, the view was
that there was enough of a case to move forward instead
of doing nothing.
¬ Consideration of the downside of a protocol shift is a
necessity. Mitigating certain fraud types (e.g., skimming/
counterfeit) might incent criminals to focus on other
fraud types (e.g., card not present or “CNP”). The solution
might lead to a greater problem.
¬ A card scheme liability-shift mechanism (like the one
beginning in October 2015 in the U.S.) is critical to drive
appropriate and timely actions across the industry.
¬ ATMs — primary card-skimming enablers — should have
been (or should be) one of the first channels to convert.
¬ Up-front agreement to prevent fallback to magnetic
stripes is critical to drive desired behaviours, even though
this is an extremely difficult proposition for merchants
and consumers.
Approaching the POS precipice in the U.S.
Given these and other learnings from Europe, is chip and
PIN a must in the U.S.? There are many factors to consider,
not least of which is cost — financial, operational, customer,
social and cultural.
by> roger alexander
25 n>genuity Fall 2015 www.tsys.com 26
Let’s deal with cost first. It is widely established (e.g., in
Europe and Australia) that implementing EMV chip is one of
the most effective methods of reducing skimming/counterfeit
fraud. The addition of the PIN element generally mitigates
losses from lost/stolen card fraud.
The chart above provides perspective on the 2014 card
fraud loss landscape in the U.S.
Counterfeit and CNP fraud predominate, though lost/stolen
fraud is not insignificant. Bearing in mind that the U.S. is
almost entirely an online authorisation ecosystem and
chip and PIN was designed for a predominantly offline
ecosystem, does it make sense to invest significantly to
support offline PIN?
From a purely financial cost perspective, it makes sense to
focus limited resources on the areas of greatest exposure
and impact. So based on current experience and predictable
outcomes, it appears that chip and signature would be
the most balanced, cost-effective, immediate solution in
skimming and counterfeit fraud.
This would also be a significant step toward rendering card
data obtained from data breaches useless in geographies
where EMV chip is the only acceptable form of face-to-face
card payment. The caveat however, is that as long as a
magstripe exists on today’s payment cards, there is still a
risk that this data can be used to commit fraud in online
environments (though it must be noted that EMV in and
of itself does not reduce CNP fraud risk).
“Too little, too late” for chip and PIN?
Another inquiry is whether the payments ecosystem has
changed such that chip and PIN is no longer viable. Clearly,
technology has changed dramatically since the early days of
EMV. There are numerous fraud solutions that did not exist
at the time that PIN-versus-signature decisions were being
made outside the U.S., and their existence today significantly
influences considerations that underpin such decisions.
An oft-cited justification for ignoring PIN is the argument
that a large portion of the American population is unlikely to
remember and use PINs. Experience does not support that
argument — Americans have been successfully using PIN-
based debit products for years.
Perhaps a less obvious but potentially important consider-
ation is how chip and signature cards will be treated outside
the U.S. — after all, chip-and-signature cards presented
where chip-and-PIN cards are expected will cause friction.
So, is there a clear winner in this debate?
The position of Walmart’s Mike Cook that was referenced
in the introduction of this article is both valid and
unsurprising. A check-out staffer carrying the burden
of signature authentication, for example, is unrealistic, and
PIN helps to address this issue. And the company has already
made the investment in a PIN-based strategy — something a
number of competitors are not keen to do.
Bolstering the contrary position of Visa and other association
stakeholders, there are other innovations being driven
into the market in this space. While it will take considerable
time for these to gain ubiquity, it makes sense to balance
limited resources (i.e., industry investment) across these
innovations with investment in today’s tools for fraud and
risk management — like EMV.
So perhaps both positions are somewhat correct and neither
is completely correct.
Signature has long been a very poor form of authentication.
But given the state of the U.S. market, implementing PIN
where there are more advanced and effective methods of
authentication makes less sense today than historically.
U.S. Card Fraud Losses (2012-2014)
Counterfeit
Lost/Stolen
CNP
(U.S. $ Billions)
2012 2013 2014
$3.0$2.4$2.1
$2.6 $2.8 $2.9
$0.9 $0.8 $0.8
About the Author
Roger Alexander is a non-executive director of Accourt Ltd., a UK-based consultancy specialising in the payments
industry. He had an extensive career in payments, primarily with Barclays, but prior to his retirement in 2008 he
was CEO and President of Elavon Merchant Services in Europe. In addition to Accourt, Roger has a portfolio of
other non-executive roles across Europe.
Bearing in mind that the U.S. is almost entirely
an online authorisation ecosystem and chip and PIN was designed for a
predominantly offline ecosystem,
does it make sense to invest significantly to support offline PIN?
27 n>genuity Fall 2015 www.tsys.com 28
The digital currency and blockchain ecosystem is
quickly approaching the billion-dollar milestone for
venture capital. With daily Bitcoin transaction volumes
recently reaching a record of 215,000 and the market
cap creeping back more than $4 billion for the first
time since last spring, the second half of 2015 looks
promising for Bitcoin and the entire crypto-community.
The Leaders in the Crypto-Currency Horserace Who is getting funded in crypto as VCs pony up?
by> rob wells
29 n>genuity Fall 2015 www.tsys.com 30
institutional-grade platform to buy and sell bitcoin. In early May of this year, they raised $25 million in series-A capital from Blockchain Capital, James Pallotta, Raptor Capital Management, Jay W. Jordan II, Liberty City Ventures, Solon Mack Capital, and RRE Ventures.
In announcing the funding round, itBit simultaneously announced that they were the first bitcoin exchange to be granted a trust charter by the New York Department of Financial Services (NYFDS). That means customers from all 50 states can trade on the itBit platform. Additionally, they’ve part-nered with a U.S. FDIC-insured banking institution to be able to offer insurance on fiat balances of U.S. clients, and have added three new board members:
former Sen. Bill Bradley, former FDIC Chairman Sheila C. Bair and former FASB Chairman Robert H. Herz.
Ripple Labs: challenging BitcoinIn May 2015, Ripple, a decentralized and open-source global payment net-work — and alternative to Bitcoin and the blockchain — raised $28 million in series-A capital. The Ripple protocol enables free and instant payments to merchants, consumers and developers with no chargebacks and in any cur-rency — including dollars, yen, euros, and even bitcoin. The round included U.S. Futures, CME Group, Seagate Technology, AME Cloud Ventures, IDG Capital, ChinaRock Capital Management, China Growth Capital, Wicklow Capital, Bitcoin Opportunity
Corp., Core Innovation Capital, Route 66 Ventures, RRE Ventures, Vast Ventures and Venture 51. This round brought the San Francisco-based crypto-company’s total funding to $34.4 million, according to Crunchbase.
The race is onThe VCs have spoken, and they believe in Bitcoin, the blockchain, and the other technology that powers it all. Chips are on the table as we approach $1 billion in funding. That money is in the pockets of five U.S.-based companies that have been charged to go out into the world, and bring the crypto-economy to life.
Since last year’s Money20/20 confer-ence, we’ve seen approximately 140 investors put $442.5 million into 47 companies from 14 different countries. More than 90 percent of that comes from five funding rounds by 36 inves-tors into five companies, all located in the United States. In that list of 36 investors we see not only the usual Bitcoin enthusiasts like Andreessen and Union Square, but also the likes of Goldman Sachs, the New York Stock Exchange (NYSE), BBVA and USAA.
Below we’ve chronologically outlined the five largest funding rounds since last year’s Money20/20, and what those companies are doing to create the crypto-economy of the future.
Coinbase: exploring compliance framework Coinbase is a bitcoin wallet and plat-form for merchants and consumers. The San Francisco-based company raised $75 million in Series C funding in January 2015, which at the time was the largest funding round ever. The company’s total funding to date is $106 million, with investors including NYSE, USAA, BBVA, Union Square Ventures, Andreessen Horowitz and Reinventure.
Led by Fred Erhsam and Brian Armstrong, Coinbase has distinguished itself as one of the most trusted brands in the global Bitcoin ecosystem. Currently, they integrate with bank accounts in 26 countries and have 2.4 million users, 3.1 million wallet downloads and 40,000 merchants
on board. They’ve also integrated with more than 7,000 developer apps, making them the most popular Bitcoin platform on the market.
21 Inc.: embedded miningOn March 10, 2015, Bitcoin and tech giants came together for what is cur-rently the largest funding round in the history of the crypto-currency space. Peter Thiel, Qualcomm Ventures, Cisco Systems, Data Collective, Khosla Ventures, Yuan Capital, Pantera Capital, RRE Ventures and Andreessen Horowitz invested $116 million in San Francisco-based 21 Inc., according to CoinDesk. Led by CEO Balaji Srinivasan, a former partner at Andreessen Horowitz, 21 Inc. and team have developed a Bitcoin mining chip called “BitShare” and an accompanying technology stack. According to a blog post by Srinivasan, “The 21 BitShare can be embedded into an Internet-connected device as a standalone chip or integrated into an existing chipset as a block of IP to generate a continuous stream of digital currency for use in a wide variety of applications.” The team sees embedded mining as a gateway to mass adoption through mobile micropayments, decen-tralized device authentication, devices that can pay for associated services and Bitcoin-subsidized devices for developing countries.
While we have limited information on 21 Inc., it’s the most anticipated crypto-currency startup around, considering its partnerships with Qualcomm and
Cisco. And with $116 million in the bank, its roadmap seems viable.
Circle: simplifying consumer experiencesIn their own words, Boston-based Circle Internet Financial is a consumer finance company focused on transforming the world economy with secure, simple and less costly technology for stor-ing and using money. Founded in 2013 by legendary Internet entrepreneurs Jeremy Allaire and Sean Neville, Circle raised $50 million in series-C funding in April 2015. Investors included Goldman Sachs, Breyer Capital, General Catalyst Partners, Accel Partners and China-based IDG Capital.
While having Goldman get into the game was exciting, having IDG Capital will give Circle a strategic partner for entering what is arguably the most complex yet lucrative bitcoin market.
In addition to starting what will certain-ly be a drawn-out process of entering the Chinese market, Circle will use their capital to focus on building a superior mobile app. Since the funding round, Allaire and team have turned on the unique “Dollar Feature,” which allows users to hold money in dollars or bit-coin, making the currencies seamlessly interchangeable.
itBit: new standards for complianceBased in New York City, itBit was found-ed in 2012 by CEO Charles Cascarilla and is a global exchange offering investors (institutional and retail) an
The VCs have spoken, and they believe in bitcoin,
the blockchain, and the other technology that
powers it all.
About the Author
Rob Wells is marketing director and resident bitcoin enthusiast at Money20/20. Rob brings a background in
marketing and hospitality, along with an MBA, to his third straight year at Money20/20.
31 n>genuity Fall 2015 www.tsys.com 32
Mention three-dimensional (3D) printing to any of your colleagues and most
will know exactly what you are talking about. Dig a little deeper and you’ll find
some futurologists predicting that 3D printing will herald a seismic shift in
manufacturing, supply chain logistics and consumerism.
3D printing has been around for more than 30 years, and the majority of its existence has been hidden away
in the depths of specialised workshops and research laboratories.
by> mark beresford
3D Printing and its Implications for RetailersIt’s more than cool technology — it’s a game-changer
Over the last few months Edgar, Dunn
& Company (EDC) has been talking
with retailers to understand their per-
spective and the business implications
of technological advancements in 3D
printing. We’ve determined that 3D
printing will lead to changes in
consumer power, personalisation, the
protection of intellectual property,
supply chains, payment processing
and the traditional infrastructures
associated with manufacturing.
A hidden history and bright future3D printing has been around for more
than 30 years, and the majority of its
existence has been hidden away in the
depths of specialised workshops and
research laboratories. Its application
has mainly focused on specialised
component manufacturing or rapid
prototyping — ranging from the
manufacturing of aircraft to Formula
1 racing cars. In the next few years
almost every consumer in the
developed countries will be directly
or indirectly impacted by the 3D
printing revolution.
A retailer’s supply chain has tradition-
ally been built around warehousing and
transporting products from the point
of manufacture. 3D printing allows
retailers to hugely reduce the carbon
footprint associated with production
and distribution.
3D scanning, 3D modeling and 3D print-
ing are all accessible technologies that
will be used to improve the consumer
experience, and omni-channel retailing
will be coupled with a plethora of smart
Internet-enabled devices. The “click-
and-deliver” retailing model commonly
seen today will evolve into something
more like “click-personalise-and-
deliver,” allowing consumers to
purchase products as they appear in
television shows or on Internet-enabled
advertising billboards.
Major consumer empowermentThe ability to print — or more correctly,
to “manufacture” — close to where
the design was created is one step
toward “distributed manufacturing,”
which allows decentralized and geo-
graphically independent distributed
production of products and compo-
nents. In the future, everyone with
access to the Internet will have
the ability to create, design and
manufacture almost anything: jewelry,
crockery, a pair of shoes, furniture or
even spare components for your car.
Today, it is possible to print a fully
functioning penknife using high-
33 n>genuity Fall 2015 www.tsys.com 34
resolution 3D printers. Victorinox, the
makers of Swiss Army knives, must see
3D printing as a threat. On the other
hand, Lego, one of the oldest and most
famous toy brands, has embraced
3D printing as an opportunity to
reach a wider audience that wishes to
personalise their Lego building blocks.
The opposite of globalisationGlobalisation has been seen as the
economic unification or joining
together of the world’s economies. 3D
printing is the opposite to globalisation.
This is an idea of localisation involving
local producers selling to consumers
who live in the same area.
You could be looking for a spare part
for your dishwasher — for example, it
could be manufactured at your local
hardware store. This would be a
dramatic difference from the same
component being manufactured and
transported around the world to be
stored in a distribution centre until the
time came when it would be sent to
each of the branch stores.
In such a model, inventory is main-
tained according to the demand and
supply, which in turn make up a vast
network of supply chain logistics. 3D
printing will provide the opportunity
to reverse globalisation and nurture
a greater degree of customisation,
individualism and creativity.
Intellectual property issuesThe proliferation of 3D printing also
creates complex questions about
intellectual property rights (IPR).
Common types of IPR include copy-
right, patents, industrial design rights
and the rights that protect trademarks.
The potential infringement of IPR
could be a significant stumbling block
to growth of the fledgling 3D printing
industry. Why, for example, couldn’t
consumers obtain the blueprint for the
desk lamp designed by Zaha Hadid, the
acclaimed Iraqi-British architect, and
have it printed at a fraction of its price
tag? The designer will most certainly
not receive any royalties, and unauthor-
ised commercial production of patented
products by 3D printing may constitute
an act of patent infringement.
More ways to shop and payWe have already seen the importance
to retailers of shoppers embracing
multiple channels, and we believe that
retailers are currently standing at the
crossroads of a substantial change in
how consumers pay. The genesis of
this change has been spurred by the
use of the Internet, cloud computing,
e-commerce and the rapid consumer
adoption of smart devices.
Payment is at the heart of the retailer’s
DNA, but retailers must take steps to
better understand customers’ high
expectations for 3D printing. Getting
the payment process wrong or even
making it slightly clumsy could turn
customers off in droves.
With the new 3D printing paradigm,
it is likely that there will be multiple,
yet smaller, payment transactions
that must take place to allow the
consumer to purchase a single product.
In the future, the retailer will have the
opportunity to take centre stage and
manage these smaller payments on
behalf of the consumer and the
different stakeholders in the new
“Additive Manufacturing” value chain.
With the advent of 3D printing,
consumers have options — they could
buy a design online and print at home
or at a 3D print shop, or they could
design at home and print at a 3D
print shop. The retailer will likely
act as the broker and offer multiple
pricing options for the same product
depending on the sourcing and
printing options.
Payment processing must be flexible
to take into account the retailer’s
evolving point of interaction, which will
be channel-agnostic. Equally, retailers
must strive to better understand the
customer journey, from pre-payment
to post-payment, with and without 3D
printing as part of that journey.
allowing consumers to purchase products as they appear in
television shows or on Internet-enabled advertising billboards.
The “click-and-deliver” retailing model commonly
seen today will evolve into something more like “click-personalise-and-deliver,”
About the Author
Mark Beresford is a director located in the London office of Edgar, Dunn & Company (EDC). Before joining EDC,
Mark was a program director and client engagement manager with significant experience in strategic business
planning, product development, business process improvement and service delivery gained on several long and
short-term assignments in a variety of blue chip organizations.
35 n>genuity Fall 2015 www.tsys.com 36
No matter how you slice it, encryption is a requirement for true transaction security — and a very good one at that. It has become such an ingrained part of payment security that, as early as 2012, Mercator Advisory Group research suggested that some acquirers were already calling for point-to-point encryption (P2PE) as a “standard” feature of new POS solutions.
Today, P2PE solutions typically come in two flavors: PCI certified, or not. Non PCI-certified encryption algorithms aren’t necessarily less secure, but they haven’t gone through the additional rigorous checks for vulnerabilities that PCI-certified algorithms have. Some POS vendors, like CreditCall, develop their own encryption algorithms and submit them for PCI certification, while other vendors like First Data and TSYS offer a number of both in-house and third-party-developed encryption solutions.
But encryption is an old technology, albeit a good one, which likely explains why there has been very little true innovation in transmission-level security in the past decade. Tokenization is the most notable exception — and that has evolved beyond security. Companies like MasterCard, Synchrony and Citi Retail are doing some very interesting things with tokens that integrate with Apple Pay and provide merchants with additional value from a CRM and loyalty standpoint.
While transmission and storage-level security appear to be enduring — if not exactly profitable — solutions, they aren’t innovative and don’t quite capture the headlines that some new device-level solutions do. Whether that innovation is truly original — or simply a variation on a theme — is still to be seen.
Tokenization and encryption are two solutions that can considerably reduce data theft risk during transit or in storage, but neither of those solutions addresses fraud or provides a secure method of authenticating the originator of the transaction.
The sheer scale of the digital financial footprint hinders standard security efforts, especially with regard to mobile applications. An IOActive Labs’ review of the top 40 mobile banking apps in January of 2014 showed that while 60 percent supported transmission-level security using SSL, as many as 70 percent did not require dual-factor authentication prior to initiating a financial transaction.
Despite the current state of authentication, every financial transaction should begin with user authentication. Is the person initiating and completing the financial transaction who he or she says he is? And is that person authorized to make the transaction?
The watermark for validating a person’s identity has long been the idea of three-factor authentication: something you know; something you have; and something you are. For financial transactions, the industry has loosely standardized two-factor screening as being adequate to authenticate identity.
But as more of our banking activities and financial transactions move online, the problem isn’t a lack of technology necessary to authenticate a user at the point of transaction. The problem is, instead, in the user experience and creating a nearly seamless authentication process that can be used across applications, experiences and devices — without having to remember a library of passwords or maintenance of duplicate versions of physical and digital payment methods.
Securing financial transactionsThe process of securely completing a financial transaction, whether online or offline, is a complex one requiring a number of solutions:
1. Device-level security — or security on the computer/mobile device where the transaction originates
2. Transmission security, which secures the data as it travels from the point of origin to its final storage
3. Secure storage of financial and personal data
Of the three, transmission and storage security are the simplest to solve and have, therefore, benefited the most from recent advances in encryption and tokenization.
Going Beyond the Status Quo to Secure Financial Transactions And why every payment should begin with user authentication
The financial services industry is flush with investments in companies looking
for easier ways to move money domestically and internationally. This “open
borders” concept brings with it concerns around security — not just for issuers
or data-storing merchants, but for every user submitting personal information
as part of a financial transaction, whether via a mobile device, a fixed unit
such as desktop computer or even a point-of-sale tablet.
by> chris souther
About the Author
A near-Atlanta native, Chris Souther spent the early 90s in the U.S. Air Force, then as a civilian network
engineer before returning to school and launching his marketing communications career. Since then,
Chris has worked with industry pioneers such as Internet Security Systems, IBM and Verifone. Chris
is now the content director for Money20/20 U.S.
37 n>genuity Fall 2015 www.tsys.com 38
The Next Great Payments Opportunity: IntegrationMaking payments just one of many features at the point of sale
Investopedia defines a “commodity” as: “A basic good used in
commerce that is interchangeable with other commodities of the
same type. The quality of a given commodity may differ slightly,
but it is essentially uniform across producers.”
by> rick oglesby
Some would argue electronic payment processing has been a commodity since its inception, but it hasn’t always been used as a raw material in the production of other products. Now, however, the fastest growing processors are the ones that facilitate the use of payments as an input, completing the commoditiza-tion cycle and creating the next great payments opportunities.
Roots: the standardization of paymentsTwo associations of banks created Visa and MasterCard in order to enable financial institutions to offer payment instruments that could be accepted at any merchant, anywhere
in the world. To do so, they created:
¬ standardized authorization;
¬ clearing, and settlement frame-works that they could use to offer payment acceptance to merchants in a way that provided global coverage; and
¬ interoperability to bankcard issuers.
This intentional commoditization of payments created a huge opportunity — it enabled banks to sell a standard-ized payment acceptance solution to tens of millions of merchants around the world. The opportunity was so large that the banks and payment brands couldn’t realize it on their own, so they aligned with payment acceptance technology firms
39 n>genuity Fall 2015 www.tsys.com 40
(processors) and distribution firms (ISOs) to create global networks of technology and distribution partnerships that could tap the worldwide opportunity. All experienced explosive growth and participated in the many trillions of dollars in transaction volume that followed.
The quest for payment reinvention? All good things must come to an end, however, as has the age of explosive growth in the payments industry. The market has become saturated, leading to a queue of payment sales-people waiting at the door of every merchant, all with offers of lower and lower prices. ISOs and acquirers are almost universally seeking to re-invent themselves, complaining of excessive competition, the inability to differentiate themselves and constant pricing compression.
There is a group of providers, however, that has already reinvented payments.
Integrated software vendors (ISVs) have been using payments as an input into the payment systems for decades, focusing primarily on the largest of merchants. They offer
payment processing as just one of many features within a software package that is designed to meet a wide variety of the payment and non-payment needs of specifically targeted merchant categories.
Over time, cloud computing has reduced the cost of software delivery, making integrated payment solutions more accessible to smaller merchants, and smaller merchants are buying. Thousands of new ISVs are now flooding the market seeking to offer specialized solutions to at least 1,300 merchant verticals. The few payment companies that specialize in helping ISVs include payments in their applications, such as Accelerated Payment Technologies, Element Payment Services, PayPros, and Mercury Payment Systems, were growing at a rate that outpaced the rest of the acquiring industry by a multiple of three until they were swallowed up by Vantiv and Global Payments.
Other integrated payment firms such as Stripe and Braintree continue to be some of the fastest-growing firms in payments, and the growth rate of these firms far outpaces the growth of payments overall, meaning a significant volume shift
from non-integrated to integrated solutions is underway. Integrated software vendors and the payments companies that enable them clearly represent the future of merchant services.
Necessary narrowing of focus on merchantsThis trend represents the next great opportunity for ISOs, ISVs, value-added-resellers (VARs), acquirers, processors and payments technology suppliers. Merchants are thirsty for specialized solutions that solve the problems of their specific businesses. The cloud, the Internet, the mobile device and the app-store provide platforms for the delivery of special-ized solutions in a cost-effective way, and the worldwide explosion of ISVs means that companies are lining up to tap the opportunity.
Most seek partners to help them distribute and monetize their prod-ucts. The payments companies that have been serving those needs are already growing explosively, yet the market is still largely untapped.
SMBs on the horizonThe stars are aligning to create the next great opportunity in merchant services: integrated payments for
the small to medium-sized merchant. Tapping into this opportunity requires an approach that is entirely distinct from legacy acquiring, processing, distribution and technology business models.
The approach for each firm depends on its ability to specialize in a specific merchant segment, its distribution model, its distribution scale and its software development capabilities. By assessing its capabilities across these dimensions, each firm can select an approach to unlock participation in the next wave of explosive growth.
And those that don’t adapt will be left behind.
About the Author
Rick Oglesby heads up the payments research division at the Double Diamond Group. He is a respected industry
veteran and research professional with more than 20 years of industry knowledge and solid research methodology
experience, and he specializes in merchant acquiring, new product development, product management, and
emerging payments strategies. Rick is a recognized thought leader in the acquiring and mobile payments spaces.
He is respected as an industry expert that has presented at numerous events, including Money20/20, ETA, Mobile
Contactless Innovations, EPCOR and TAG Fintech.
The market has become saturated,
leading to a queue of payment salespeople waiting
at the door of every merchant, all with offers of
lower and lower prices.
Now, however, the fastest growing processors
are the ones that facilitate the use of payments as an input,
completing the commoditization cycle and creating the next
great payments opportunities.
41 n>genuity Fall 2015 www.tsys.com 42
As the market presented new opportunities, professionals
who had been at traditional lenders left to start or join new
companies. Additionally, financial services companies that
hadn’t provided credit saw the opportunity and began
offering credit services. Market changes also presented
opportunities to use new data and analytical methods.
From bankers to entrepreneurs
One strong example of this movement is MPOWER Financing,
an alternative lender that provides loans to students left
out of traditional banking options. MPOWER’s CEO and
co-founder, Emmanuel Smadja, began his career at
Capital One. Several years later, he saw an opportunity to
extend credit to an untapped segment of the population:
International students at top U.S. institutions.
“Traditional lending is heavily anchored on FICO. FICO is a
good metric if you’re looking at someone who’s middle-aged
and financially active, because you have years of data to rely
on for all the accounts this person holds. Yet, FICO leaves out
younger people and falls short when assessing people going
through a major life change — like obtaining an advanced
degree. At MPOWER, we go beyond the FICO score and
look at dozens of academic and professional variables to
underwrite undergraduate and graduate students.”
Kevin Brown, vice president of marketing and product
for Credibly, spent more than eight years at Citi. Brown
described Credibly as “an emerging fintech platform
leveraging data science and technology to serve small
and medium businesses to deliver the most affordable
and right-sized capital.”
While both Brown and Smadja served credit markets as
parts of large banks, leaving these institutions changed their
perspectives. According to Smadja, “The biggest change in
my perspective of credit since my banking days is that I no
longer view credit-worthiness as a historical metric; I look
at it as a trajectory. Someone’s credit-worthiness should not
only encompass historical data, but also future data.”
From alt payment to alt lending
The growth of alternative lenders attracted the attention
of other financial providers.
Rising from the Ashes, How the Credit Industry Transformed Post-CrashA revolution in lending and credit analysis
The financial crisis of 2008 shattered institutions that were the bedrock
of finance. Amongst the chaos and uncertainty, banks, the traditional
providers of credit and lending, pulled back. Concurrently, the market
need for credit increased.
by> sanjib kalita
The increase in types of lenders
and borrowing situations has altered
perspectives on data and infrastructure
that have remained relatively
static for decades.
43 n>genuity Fall 2015 www.tsys.com 44
According to Sebastiao, “Most of the world’s data has been
created in the last two years, and within this new era of the
Internet of Things, the mobile-enabled consumer demands
an instant service delivery that is one-click simple. Yet,
existing fraud systems were built using technology and
science from the 1990s. So we built a risk platform — using
artificially intelligent machine learning — that captures big
data streams from non-traditional sources.”
While many other new entrants in the alternative lending
space have chosen to compete with the established industry,
Feedzai has chosen to partner with it in order to improve
credit prediction capabilities for the existing market. This
strategy can be challenging, especially in a conservative
industry such as financial services.
When asked about receptivity by the industry, Sebastiao
responded, “It’s been very positive. Last year we saw a
300-percent year-over-year growth, and our customers
include the world’s largest processor, a top-five bank, a
top-three acquirer and a top-three telecommunications
company, amongst others.”
Future transformations
Disruptions in the credit markets have led to transformations
at personal, business and infrastructure levels, and these
changes will accelerate.
According to Sebastiao, “We will see the machine-learning
science used by Google, Amazon and Netflix become more
widely adopted within the financial industry to make the
application, underwriting and servicing process easier
and safer. Startups like Upstart and Driverup are creating
lending marketplaces that rely on non-traditional credit-
history data.”
New entrants into the lending space will also be able to use
existing data and infrastructure in new ways. Smadja cited
an example. “One of the companies we admire, LendStreet,
uses data from collections agencies to single out the most
responsible consumers (those who’ve been making timely
payments for several months) and provide them with a fresh
financial start and the opportunity to build their credit.”
Perhaps that is a key transformation and an opportunity
to build or rebuild credit through collaboration. The
invention of credit has empowered both businesses and
consumers to lead better lives and maintain stability
through the waves of life.
One of the early disruptors, and now an industry leader in
online payments, PayPal, decided to enter the small and
medium businesses (SMBs) lending market in 2013. Darrell
Esch, vice president of SMB lending for PayPal, commented:
“Since the program launched in September of 2013, PayPal
Working Capital has provided more than $500 million in
capital to more than 40,000 SMBs.”
PayPal’s relationship to SMB customers is a critical
piece of the lending business. According to Esch, “PayPal
Working Capital is offered exclusively to PayPal business
customers with strong PayPal sales histories. Eligibility is
based on PayPal sales history, not a business or personal
credit score.”
Another payments disruptor in the SMB financing space
is Square. Square’s introduction of mobile point-of-sale
(POS) systems expanded the types of merchants accepting
credit cards by dramatically simplifying the process. Square
appears to be having a similar impact with Square Capital.
According to Faryl Ury, product communications head at
Square, “With Square Capital there is no application process,
and businesses get their money as soon as the next
business day. For example: Square might reach out to a
business and offer them $10,000, which they’d get as soon
as the next business day. In return, Square would get
$11,300 of their future card sales.”
It is interesting to note that both PayPal and Square use a
deeper understanding of their customers to provide SMB
financing with easier processes, faster access to capital
and more flexible payment terms.
From rocket science to data science
The increase in types of lenders and borrowing situations
has altered perspectives on data and infrastructure that have
remained relatively static for decades. The plethora of data
and precise calculations needed have pushed credit analytics
toward the frontiers of data science, drawing new entrants to
the credit space as well.
Nuno Sebastiao, founder & CEO, Feedzai, previously
led the development of the European Space Agency
Satellite Simulation Infrastructure. This outsider’s
perspective helped Sebastiao create something beyond
the industry status quo.
About the Author
Sanjib Kalita is chief marketing officer for Money20/20, the largest global event focused on payments and financial
services innovation. A fintech leader for almost 15 years, he has worked for large organizations like Google,
Intel and Citi. He splits his time between Northern Virginia and New York City.
The invention of credit has empowered both
businesses and consumers to lead better lives
and maintain stability through the waves of life.
45 n>genuity Fall 2015 www.tsys.com 46
You’ve grown Money20/20 from a startup to a four-day sell-out conference with more than 10,000 attendees, bringing together almost all of the influential names in the industry. What’s been the formula for success?
We’re living in a period of widespread and disruptive innovation with fundamental shifts in consumer behav-ior. Money20/20 was the first platform to articulate that payments and financial services going forward will be defined more by these types of changes than the more traditional migration of paper-intensive payments to efficient electronic systems.
Once we did that, we spent three years executing the heck out of that thesis to become more than just an event — we became a key part of the fabric of the ecosystem. And that meant primarily a grassroots effort to build an industry-wide network effect. The need for Money20/20 seems obvious today, but it was groundbreaking when Jonathan Weiner and I first brought it to market in mid-2011.
You talk a lot about payments receding into the background as part of a larger trend — commerce. Can you share how this has happened and why it has changed?
As consumer experiences move from analog to digital, payments will inevitably move more into the back-ground as a seamless part of those experiences. It might not seem like a big deal to pull out a plastic card to pay — and that’s the prevailing industry sentiment — but just use Way2Ride in a New York City cab once and you’ll immediately realize how antiquated and inconvenient physical cards really are. It’s now one of my favorite apps, and the only way I pay when I’m in a cab. In-app buying, paying for dinner without having to wait for the check, and other use cases really illustrate how payments can be far less frictional when integrated into the background.
How long before we really start to see measurable change in payments based on technologies like mobile?
It’s going to be a while. We’re not talking about the emergence of a few new specialty payment products that exist in the long tail of the demand curve, but a monumental shift as payments go from being based on a hard-wired world to a wireless one. That’s going to take a substantial amount of innovation, trial and error, development with the marketplace and significant industry realignment. It’s also going to be dependent on the ongoing shifts in consumer behavior and uptake.
60 Seconds with Anil Aggarwal A founder of Money20/20 and career entrepreneur shares some personal and professional thoughts
It continues to be an exciting period of time, but there’s a long road ahead.
You’ve grown the Money 20/20 conference exponentially year over year and you’ve now expanded overseas. As a career entrepreneur and innovator — what’s next for you personally?
I’m working on three things. First is my ongoing support of Money20/20, and I’m especially thrilled about Money20/20 Europe. It’s coming together unbelievably well.
Second, I’m enjoying spending time as a Venture Partner at Oak HC/FT, a $500 million venture capital fund, looking at interesting fintech deals.
And, finally, I’m launching a new event called Shoptalk, which will take place on May 16-18, 2016 at the Aria in Las Vegas. Shoptalk is designed to be the leading event for next-generation commerce — Shoptalk is to commerce what Money20/20 is to payments and financial services. We’ve built an amazing team for Shoptalk and raised $2 million last month to build a platform that we think will be invaluable to the industry.
payments profiles
About the Author
Anil D. Aggarwal is the chairman & CEO of Money20/20. He previously started two emerging payments
processors — TxVia, acquired by Google in 2012, and Clarity Payment Solutions, acquired by TSYS in 2004.
He has raised over $75 million in venture capital from investors that include Oak Investment Partners and Bain
Capital Ventures. Throughout his career, Anil has been committed to industry development initiatives, including
founding the Network Branded Prepaid Card Association (NBPCA), a leading nonprofit trade group.
47 n>genuity Fall 2015 www.tsys.com 48
As Congress returns to D.C. for the last big legislative push of the year, there are only a handful of weeks left to advance or complete work on legisla-tion before year-end. Additionally, with the holiday season rapidly approaching, the migration to chip cards is on every-one’s mind. It is a good time to take a break and examine what to expect from Washington this fall.
CybersecurityIn legislation, no issue is more important than protecting consumers from cyber-crimes. Government affairs departments in the payments industry are working to get Congress to pass two pieces of leg-islation — data breach notification and information sharing on cyber-threats.
If a data breach occurs now, companies must follow a convoluted series of 47 different state laws to notify their cus-tomers. The payments industry — along with retailers and other stakeholders — continues to press Congress to create one national standard for breach notifi-cation. Five bills have been introduced to create this national standard.
In terms of sharing information about cyber-threats, the payments industry is on the front line of the war on cyber-crimes. We often see individual data points that form a pattern of a cyber-crime. Currently, a company with such information is prohibited from sharing it.
Allowing companies and the government to voluntarily share information about cyber-threats will strengthen our ability to monitor, detect, contain and prevent cyber-crimes. The payments industry strongly supports removing restrictions and thereby allowing companies and the government to share information about cyber-threats. The House has passed two bills in this area and the Senate bill is awaiting floor time.
The shift to chip cardsOctober 1 was the first day of the chip card liability shift, and all the players in the payments industry had been working hard to prepare for this day. Chip cards are being sent to customers, merchants are upgrading their point-of-sale termi-nals, and processors have adapted their systems.
The payments industry has committed a large amount of resources to make the shift, and Congress is getting into the act as well. The payments industry is providing regular briefings to Congress and federal regulators on what chip cards are — and what they are not. These briefings focus on:
¬ The type of fraud chip cards prevent — lost or stolen card fraud;
¬ How the chip works — creating a special one-time use code for each transaction;
¬ What it means to consumers — no liability for fraud; and
¬ How chip cards fit in with other technology like tokenization and encryption.
As the business side of the industry is preparing for the shift, lobbyists are hard at work in Washington briefing policymakers on what the shift means to them and their constituents. And as Congress grapples with legislation, the federal regulators are hard at work thinking about how the new world of payments fits into the existing regulatory framework — and if any new regulations are needed.
Prepaid cards The Consumer Financial Protection Bureau (CFPB) released an 870-page proposal to regulate general reloadable prepaid cards. The proposal would create heavy regulatory burdens on mission-critical features of prepaid
cards — including overdraft — and create confusion for consumers due to disclosure requirements. The proposal also attempts to regulate peer-to-peer lending, mobile transactions and Bitcoin.
The payments industry extolls the many virtues of prepaid cards — like ease of use, low fees, and convenience in distributing payroll, student funds and government benefits. The industry continues to express strong concerns regarding the restrictions proposed by the CFPB.
Big dataPopular topics among regulators are big data and its use by the business community to slice and dice informa-tion. Big data, of course, refers to the use of information about one person or a group of people to enable the collector to mine the data for specific business purposes.
The business community uses big data to target specific product offerings, to learn more about what consumers want, and to reduce fraud. But regula-tors worry that big data could be used for more nefarious purposes. Given the newness of the concept, the payments industry urges regulators to go slow and not rush to regulate.
As the last months of the year are upon us, Congress and regulators are focusing on myriad issues facing the payments industry. It is important for industry executives to have their voice heard to ensure that premature or overreaching regulations do not interfere with the industry’s efforts to innovate and deliver better products and services to consumers.
policymakers at work
A View From Washington Payments regulations and legislative news from Capitol Hill
by> scott talbott
About the Author
Scott Talbott, J.D., C.P.A., is senior vice president of government affairs at the Electronic Transactions Association.
He is an experienced policy advocate and communicator with two decades of experience in Washington. Talbott
has represented the largest financial services firms in the country before Congress and federal regulators, most
notably during the fiscal crisis. He is also an expert on communication, appearing regularly on national and
international media. He has been called the voice of the financial services industry and one of the most
recognizable faces in the industry.
49 n>genuity Fall 2015 www.tsys.com 50
Why it’s Time to Take Ownership of Your Customers’ Financial Well-BeingCollaboration and concern are key for product development in fintech
We all know happy customers make for good
business. But what makes for a happy customer?
by> kimberly gartner
A happy customer has access to high-quality financial products that empower her to achieve her financial goals. She trusts her provider and recognizes the role that institutions play in assisting her to achieve strong financial health, meaning her day-to-day financial system functions well — and increases the likelihood of financial resilience and opportunity.
In the same way food manufacturers influence an individual’s physical health, so too do financial service providers impact consumers’ financial well-being. Providers can assist consumers to achieve strong financial health by offering high-quality products and services that can help consumers make better financial decisions, retain greater control over their money, and plan for the future.
An American challengeAcross the country, consumers lack robust financial health. Fifty-seven percent of American adults — approximately 138 million — are struggling financially, according to a new national study on consumer financial health from my colleagues at the Center for Financial Services Innovation. Companies can build engagement and loyalty by ensuring that products help consumers adopt positive financial behaviors.
Our research indicates that the financial challenges facing so many millions of Americans are not exclusively tied to income but also to habits. Consequently, well-designed products that support and encourage beneficial financial behaviors can go a long way toward improving an individual’s economic stability and mobility.
Holding income and other demographic and behavioral variables constant, our research reveals consumers who plan ahead for large, irregular expenses are ten times as likely to be in a financially healthy segment as those who do not, and those who have a planned savings habit are four times as likely to be in a financially healthy segment as those who do not.
Despite its significance, most financial service providers do not gather data on customers’ financial health. Now is the time to change that.
perspectives in payments
All about informationFor most providers, gathering data on customers’ financial health should be relatively easy, as many providers already have systems in place to survey customers, regardless of whether those clients are consumers or other businesses. It’s simply a matter of leveraging that existing infrastructure to gather a few critical pieces of new data to understand and measure consumers’ financial health.
Armed with an understanding of customers’ overall financial position, providers will then be much better positioned to help clients understand the value of their services. Additionally, providers will have the data to demonstrate, in real time, how products and services are benefitting customers.
For providers who work directly with consumers, the easiest way to start is by utilizing the different customer touch points to survey clients. While there are numerous useful questions, a good starting point is to ask at least these three:
1. Does your household plan ahead to make sure you have the money to pay for large, irregular expenses (for example, bills that are not due each month, such as insurance, property taxes and car registration)?
2. Which one of the following statements comes closest to describing your savings habits? (a) Don’t save, spend more than income (b) Don’t save, spend as much as income (c) Save whatever is leftover at the end of the month
(no savings plan) (d) Save one family member’s income, spend the other’s (e) Spend regular income, save other income (f) Save regularly by putting money aside each month
3. When you think about saving for the future, which of these time frames is most important to you?
(a) Next few weeks (b) Next few months (c) Next year (d) Next few years (e) Next 5-10 years (f) Longer than 10 years
It’s not difficultFor technology providers and other business-to-business operations, consider creating a “customer satisfaction toolkit” that enables clients to ask their customers the same questions.
Consumers want to be financially healthy, and soon they will begin demanding that financial service providers partner with them to achieve that goal. The writing is on the wall — just look at the rapid transformation currently underway around physical health.
Consumers are embracing wearable technologies that provide real-time data to assist them in making positive decisions. They are purchasing millions of mobile apps to track calories, exercise, sleep, water intake, and anything else that affects physical well-being, again with an eye to modifying habits to improve outcomes. They are petitioning food manufacturers to provide healthier options. Clearly, they want to be empowered to make good choices.
Painting the picture for consumer financial healthProviders of prepaid products have been leading the financial services industry in giving consumers the information they need to build financial health, including real-time balances and spending alerts. Inevitably, more types of financial service providers will soon be faced with equivalent consumer expectations.
Companies can help themselves to anticipate those demands by surveying customers to better understand both their overall financial health and also exploring product features and functions that can most effectively help them to save and plan.
By doing so, providers can best position themselves to capitalize on the many business opportunities such demands will inevitably create.
About the Author
Kimberly Gartner is a senior vice president at
the Center for Financial Services Innovation
(CFSI). CFSI is the authority on consumer
financial health, leading a network of committed
financial services innovators to build better
consumer products and practices. Kimberly
brings her deep knowledge of consumers,
understanding of the financial services
marketplace, and vision for financial health
to spur people and companies to action.
Our research indicates that the financial challenges facing
so many millions of Americans are not exclusively tied to
income but also to habits.
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