jha corporate template - bigtencu.orgemv: transitional fraud targets while big merchants are well on...

Future FreakTechs Transforming Financial Services

Lee Wetherington, AAPDirector of Strategic Insight

Jack Henry & Associates, Inc.®

@leewetherington

Lee WetheringtonDirector of Strategic Insight

• Develops actionable insight and strategy

for the financial services industry at large

• Delivers keynotes nationwide

• Technology Faculty Chair for Southwest

CUNA Management School

• Authors articles for industry trades

• Degrees in Economics and English

from Duke University

• Accredited ACH Professional (AAP)

Presenter

@leewetherington

Agenda

• Freaking Here & Now

• The Big News

• Future Freaks

• Loans; Mobile; Fraud; Authentication; Brains

• How to Get Your Freak On

• 5 Steps Forward for CUs

Why are FIs spending more on consumer tech?

…and on mobile banking?

Because digital banking is exploding.

…and why is

digital exploding?

“Good self-service beats

great personal service.”--David Peterson, i7Strategies

1. Consumers access finances across multiple devices

and expect consistent features and data

2. CUs now choose solutions that deliver best consumer

self-service and unified support

3. Consumer experience drives everything going forward

State of the Industry

Consumers expect consistency across devices

Sequential device use requires cross-channel

Digital CIF Digital CIF

• The modern web addresses the full spectrum of

devices, including those that are not iOS and Android.

• Examples:

• Kindle Fire

• Samsung NOOK

• Windows Surface

• Windows Phones

• Chromebook

• Sony Playstation4

• Xbox One

• Nintendo Wii U

Consumers access their finances everywhere

Evolution of Digital Banking

Multi-Channel

Cross-Channel

Omni-Channel

80% of online adults own a smartphone

Gen Y Income > Gen X Income by 2020

Personal income by demographic segment (2010-2025)

SOURCE: Javelin Strategy & Research; “The Three Costliest Myths About Gen Y”; May 2014

Marketshare of Total Assets: CUs & Banks

Loan Freaks

The Skinny on Small-Biz Lending

• “$300 billion small-business lending market has an

estimated unmet demand of around $80 billion to

$120 billion because traditional lenders are ignoring the

sector.”

• “Traditional lenders are reluctant to lend to small

businesses because of the difficulty in assessing their

credit worthiness in a uniform manner.”

• “50% of FI members rejected for a loan never return

to the FI.”

SOURCE: http://www.valuewalk.com/2015/01/ondeck-capital-ondk-btig/

Small Biz Loan Approval Rates

Source: National Federation for Independent Businesses (NFIB). NFIB recognizes the following entities as the resources for data contained in their charts: Small Business Lending Index, Biz2Credit, January 2014; 2013CF The Crowdfunding Industry Report, Massolution; “Retail Businesses That Try Crowdfunding Face Some Skepticism,” New York Times, February 2014; “Can’t Get a Bank Loan? The Alternatives Are Expanding,” New York Times, March 2014

New Wave of Alternative Lenders

• Small Business Alternative Lenders

• Behalf https://beta.behalf.com/

• Fundbox https://fundbox.com/

• Loanz https://www.loanz.com/

• Consumer Alternative Lenders

• Lenda https://www.lenda.com/

• Vouch https://vouch.com/

• Earnest https://www.meetearnest.com/

Harness the Alternative Lender Marketplace?

Other Big News

Mobile Freaks

Apple Pay vs. LoopPay: Merchant Acceptance

Apple Pay vs. LoopPay: Card Eligibility

Apple Pay vs. LoopPay: Smartphone Coverage

Fraud Freaks

Click to edit Master title style

Identity Fraud: Fewer Victims, Less Losses

Overall Measures of the Impact of Identity Fraud, 2009–2014

SOURCE: Javelin Strategy & Research 2015 Identity Fraud Report; March 2015

U.S. accounts for 25%

of global card volume

and 50% of card fraud…

because we rely on

magnetic stripes and

signatures in cursive.

41 SOURCE: Federal Reserve Payments Study; Summary of Findings; Dave Beck; 05/22/14

42 SOURCE: Federal Reserve Payments Study; Summary of Findings; Dave Beck; 05/22/14

Post-EMV Credit Card Fraud Projections

CNP Fraud Forecast: 2018

CNP FRAUD WILL BE

POS CARD FRAUD BY

CNP FRAUD WILL HAVE A CONSISTENT YET DRAMATIC GROWTH

SOURCE: Javelin Strategy & Research; “Fixing CNP Fraud: Solutions for a Pre- and Post-EMV U.S. Market; October 2014

CNP Forecast: 4 Things to Know

CNP FRAUD VOLUMES HAVE GROWN IN TANDEM WITH LEGITIMATE VOLUME IN BOTH THE US AND OVERSEAS.

US CNP FRAUD IS ALREADY TREMENDOUS (LIKE TURNING A BATTLESHIP)

RISK-BASED AUTHENTICATION AND IMPROVED DATA ANALYTICS WILL KEEP THE SHORT-TERM LOSSES FROM GETTING OUT OF HAND.

FRAUDSTERS WILL HAVE PLENTY OF POS OPPORTUNITIES OVER A

4 YEAR PERIOD, MITIGATING ANY CHANCE OF AN OVERNIGHT SHIFT TO CNP.

EMV: What We’ve Learned from Others

EMV: Transitional Fraud Targets

WHILE BIG MERCHANTS ARE WELL ON THEIR WAY, FRAUDSTERS WILL STILL HAVE TARGETS.

SMALL MERCHANTS AND UNATTENDED TERMINALS WILL REMAIN VULNERABLE

ATMSSMALL MERCHANTS

GAS PUMPS

SMALL ISSUERS

odds: 1/3 odds: 1/3 odds: 1/3

odds: 1/3 odds: 2/3

So, should you

choose door #3?

odds: 1/3 odds: 2/3

During the EMV transition,

the probability of fraud will

concentrate among the

last to migrate.

odds: 1/3 odds: 1/3 odds: 1/3

Counterfeit Card Fraud Probability

odds: 0 odds: 1/2 odds: 1/2

odds: 0 odds: 0 odds: 100%

A Holistic Approach: Fighting CNP Fraud

ANALYTICS

BEHAVIORMETRICS

member- DEFINED CONTROLS

AUTHENTICATION

DRIVING DOWN CNP FRAUD WILL REQUIRE A COMPREHENSIVE STRATEGY

Member-Defined Controls for Cards

Detect Breaches Early with Big Data

• Transitional concentrations of fraud on weakest links

and last to the party

• Debit Cards

• Smaller Merchants

• Get ready: tokenization ain’t free (see MasterCard)

• Signatures are meaningless…and we’re transitioning to,

you guessed it, Chip & Signature EMV

• The learning curve for consumers

• Dip and leave vs. dip and yank (gas pump)

EMV Challenges

Authentication

Freaks

Signatures are worthless!

So, guess how

we’re securing

card payments

next year?!

EMV Chip & Quill!!!

User Names & Passwords Are Done

Half of Consumers Recycle Passwords

Number of Accounts for Which Consumers Use the Same Password

0% 10% 20% 30% 40% 50% 60%

More than ten

Six through ten

Percent of consumersOctober 2013, n = 5,521

More Accounts, Fewer Passwords

Ratio of Passwords to Online Accounts Owned

1 to 10 online accounts 11 to 20 online accounts More than 20 online accounts

October 2013, n varies 490 to 4,249Base: Consumers by number of online accounts owned.

Q60: How many separate online accounts would you estimate currently belong to you?Q62: About how many separate passwords do you use to access your various internet accounts? --mean

So, guess how

the new Visa

Checkout is

secured?!

Visa Checkout

Behavior

Freaks

Freaky Freaks

Why are we so

distracted?

Myelin

Generation Y

Gen Y Woes

• First to have lower standard of living than their

parents’ generation

• First to have higher student loan debt, poverty and

unemployment than their two immediate predecessor

generations had at the same age

• 60% “young Gen Yers” (21-26), and 50% of older Gen

Yers” (27-34) say they have an “impulse purchase”

problem.

• Nearly half of all Gen Y consumers looking to switch FIs

want their next FI to offer PFM tools

SOURCE: Pew Research; June 2014

So what’s the

answer to the

impulse problem?

Real-time

feedback

loops?

A third of US consumers

who have owned an

activity tracker stopped

using it within six months.Endeavour Partners, July 2014

So how to help

those immune to

feedback loops?

(because their brains aren’t fully mature yet)

Opt-outs and automation.

Automated savings?

Marketing

Freaks

Activity Based Marketing Marketing within the context

of an activity being performedby a member or prospect.

Perpetual Loan Approval

Wearable

Freaks

So, how should you

get your freak on?

5 Steps Forward: CUs Must…

1. Master their data, so that they can use it to…

2. Serve personalized, relevant ads for the CU’s products and services across all channels consistently and in context.

3. Expedite member’s acquisition of CU’s products and services when they choose (without data re-entry).

4. Curate “partners” who may use CU’s ad engines to serve members with relevant ads that can be one-clicked to acquire.

5. Earn ad fee income wearing a white hat.

Lee Wetherington, AAP

lwetherington@jackhenry.com

http://discover.profitstars.com/leewetherington

@leewetherington

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

jha corporate template - bigtencu.orgemv: transitional fraud targets while big merchants are well on...

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