innovation in payments - how do we stay ahead in the ever changing world of compliance?
DESCRIPTION
Innovation and compliance are generally two things that clash in the payments industry. But, organizations that reconcile these differences frequently succeed. Dave Eason, CEO of Berkeley Payments Solution, discusses the "innovator's dilemma" and how to successfully implement innovation without losing sight of compliance responsibilities.TRANSCRIPT
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
Innovation in PaymentsHow do we stay ahead in the
ever-changing world of compliance?
May 28th 2014Payments Compliance in Canada
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
Can Canada’s $4 Billion Employee Incentive Industry Boost Corporate Profits?
Dave EasonCEOBerkeley Payment Solutions
Canada’s largest provider of prepaid management services to financial institutions.
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
AGENDA1. Innovation as the driver of market share
2. Challenge of increasing payment compliance
3. Implications of compliance on innovation
4. Requirements and options available for ongoing payment innovation
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
PAYMENT INNOVATIONThe Innovator’s Dilemma
Should we invest to strengthen our position in the most profitable areas of our business? (Sustaining Innovations)
OR Should we invest to protect our least profitable and most price sensitive clients? (Disruptive Technology)
Source, Christensen and Raynor, 2003
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
NEW INNOVATIONS IN PAYMENTBoth sustaining and disruptive innovations are a must to gain market share.
BitcoinVISA MONEY TRANSFER
MASTERCARD ELEVATEMOBILE BANKING
GOOGLE WALLETNFC TECHNOLOGY RETAIL MOBILE “TAP & PAY”
DWOLLA
PREPAID INSURANCE
SQUARE
PAYPASS
FACEBOOK BANK
COMPLICATION
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
Ever increasing regulatory efforts and requirements is a new reality.The Basel I agreement of 1988 was 30 pages long; Basel II in 2004 logged in at 347; Basel III is 616
The Dodd-Frank law is estimated that the rulemaking could ultimately amount to 30,000 pages
Canadian Payments Act, Bank Act, Payments Clearing & Settlement Act, Provincial credit union acts, Bills of Exchange Act, Money Laundering and Terrorist Financing Act, United Nations Act, Special Economic Measures Act, Provincial Electronic Transactions Act, Electronic Commerce Act, Criminal Code of Canada, PIPEDA, PCI DSS
New Prepaid Payment Products Regulations went into effect May 1st 2014
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
Source: Cost of Compliance Survey 2013, Thomson Reuters http://accelus.thomsonreuters.com/sites/default/files/GRC00186.pdf
CHALLENGE FOR RESOURCESCompliance costs are increasing
Over 2/3 of the organizations surveyed expect compliance team budgets will increase.
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
COMPLIANCE VERSUS INNOVATION
COMPLIANCE INNOVATION
Create a culture of compliance Create a culture of trial and error; Not to avoid mistakes
Strict adherence to process and policy Loose experimentation and learning
Structured systems and process for risk mitigation
Free form flow of ideas that encourages risk
Required by governments Encouraged by enterprise
Provides guidelines Creates new revenue streams
Many ways compliance is juxtaposed against successful innovation
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36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
FINANCIAL INSTITUTION CHALLENGESVery, very challenging• Current payment business is always more profitable (today)
and requires strict adherence to compliance
• FI’s value chain is inherently tied to your current business model
• FI’s people, culture, values, systems etc. are all tied to the existing model
“My money is safe”
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
TYPICAL INNOVATION MISTAKES• Call for payment innovation, but then “who else is doing
this?” before committing to a new idea
• Set our business case hurdles too high
• Failure and fault are inseparable in most compliance driven organizations
– Admitting failure means taking the blame
• Apply financial measures incorrectly, or at least without understanding consequences on payment innovation
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
REQUIREMENTS FOR INNOVATION• Creating a learning culture and psychological safety
“shares, forgives and celebrates”
• Design experiments in small chunks so you can learn quickly without spending too much money.
• Design experiments to learn one variable at a time
• Detect failures early
“Fail often in order to succeed sooner”- IDEO
Source, McGrath 2011
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
INNOVATION IMPLEMENTATION1. Determine the nature of payment innovation investment
– Sustainable, Disruptive or both
2. Assess the organization’s ability to effectively embrace a culture of innovation
3. Select innovation options
– Develop in-house
– Outsource or partner with 3rd parties for innovation
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
IN-HOUSE INNOVATIONPros
• Potential lower overall cost • Potential to build an
ongoing culture• Greater oversight and
control
Cons
• Difficult to establish disruptive innovation as a payment incumbent• Challenges of resourcing in a
compliance culture• Challenge to hedge against all
new innovation
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
OUTSOURCE OR PARTNERSHIP INNOVATION
Pros
• Does not require operational costs• Cherry pick the
innovations after demonstrated success• Greater ability to adopt
disruptive technology
Cons
• Cost premium for proven payment innovation• Challenge of direct alignment
with objectives• Potential for difficulty to bring
in-house.
36 Toronto Street, Suite 1120, Toronto / 416.642.6924 / berkeleypayment.com
SUMMARY1. Building market share in payments requires increasing
attention to both innovation and compliance.
2. An organizational culture of compliance AND innovation are at odds.
3. Organizations must determine how to ensure innovation while allocating more resources and attention to compliance.
4. Organizations must decide what type of innovation to pursue and implement a strategy to remain relevant.