jha corporate template€¦ · • short-term loans (3-24 months) • borrowers are acquired...
TRANSCRIPT
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Future FreakTechs Transforming Financial Services
1
Lee Wetherington, AAPDirector of Strategic Insight
Jack Henry & Associates, Inc.®
@leewetherington
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Lee WetheringtonDirector of Strategic Insight
• Develops actionable insight and strategy
for the financial services industry at large
• Delivers keynotes nationwide
• Technology Faculty Chair for several
graduate schools of banking
• Authors articles for industry trades
• Degrees in Economics and English
from Duke University
• Accredited ACH Professional (AAP)
Presenter
@leewetherington
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Agenda
• Freaking Here & Now
• My 2 Young Freaks
• The 3 M’s: MST, Myelin & Monty Hall
• Future Freaks
• Loans; Mobile; Biometrics; Behavior; Web
• How to Get Your Freak On
• 5 Steps Forward for Banks
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
New cardholders
New mobile bankers
New mobile wallet ownersLiam & Ethan Wetherington
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
…but their bank
doesn’t offer
any of that.
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Here & Now
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Magnetic Secure
Transmission
(MST)
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
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Apple Pay vs. LoopPay: Merchant Acceptance
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
11
Apple Pay vs. LoopPay: Card Eligibility
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
12
Apple Pay vs. LoopPay: Smartphone Coverage
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Myelin
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Neuro Science 101: 3 Questions
1. What organ in your body is the last to mature?
• A: The brain
2. When does that organ fully mature?
• A: Late 20’s, early 30’s
3. In what order does it mature?
• A: From the back to the front
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What does this
mean for Gen Y?
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
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% of 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
17
SOURCE: Pew Research; June 2014
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Gen Y Surpasses Gen X in Income by 2020
Personal income by demographic segment (2010-2025)
SOURCE: Javelin Strategy & Research; “The Three Costliest Myths About Gen Y”; May 2014
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Motivational PFM for Gen Y
SO
UR
CE
: Javelin
Str
ate
gy &
Researc
h;
“Managin
g M
oney in
the ‘M
obile
-First’ E
ra:
A B
lueprin
t fo
r O
n-t
he-G
o P
ers
onal F
inance M
anagem
ent”
; June 2
014
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Better Choices, Fraud Protection
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Gen Y Financial Goals
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Gen Y Financial Concerns
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Gen Y Churn Risk is High
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Threat: Alternative Banking
SOURCE: Accenture
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iTunes Precursor to Prepaid Wallet?
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Ethan and Liam now receive
allowance on prepaid cards.
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The Boys’ New Allowance Card
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…also comes with a mobile app.
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
The Monty Hall
Problem
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U.S. accounts for 25%
of global card volume
and 50% of card fraud…
because we rely on
magnetic stripes and
signatures in cursive.
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Signatures are worthless!
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
So, guess how we’re
securing credit card
payments this year?!
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EMV Chip & Quill!!!
37
+
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CNP Fraud Forecast: 2018
38
CNP FRAUD WILL BE
POS CARD FRAUD BY
2018
CNP FRAUD WILL HAVE A CONSISTENT YET DRAMATIC GROWTH
4X
SOURCE: Javelin Strategy & Research; “Fixing CNP Fraud: Solutions for a Pre- and Post-EMV U.S. Market; October 2014
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Post-EMV Card-Not-Present (CNP) Fraud Explodes
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Post-EMV Credit Card Fraud Projections
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EMV: Transitional Fraud Targets
41
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
SOURCE: Javelin Strategy & Research; “Fixing CNP Fraud: Solutions for a Pre- and Post-EMV U.S. Market; October 2014
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odds: 1/3 odds: 2/3
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So, should you
choose door #3?
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During the EMV transition,
the probability of fraud
will concentrate among
the last to migrate.
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odds: 0 odds: 0 odds: 100%
Counterfeit Card Fraud Probability
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Over Half of U.S. POS Terminals Will Be EMV
Compliant by EOY 2015
Percentage and Number of Total U.S. EMV POS Terminals, 2014–2018
SOURCE: Javelin Strategy & Research; “Mobile Wallets 2014:
How Apple Pay Changes Everything”; Webinar; 10/22/14
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SOURCE: Javelin Strategy & Research; “Mobile Wallets Analysis and Strategy:
How the Game Changes with Apple Pay”; October 2014
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Why Apple Pay Matters…
cards on file globally
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• Good News
• Reinforces issuer’s card franchises
• Apple not going after issuers’ payments data
• Adds security and reduces card fraud risk/liability
• Bad News
• New fees that issuers must pay Apple
• New player in already crowded field of card stakeholders
(from 4-party to 5-party)
• Increases urgency for financial institutions to remain relevant
in the convergence of payments/banking/ shopping
Apple Pay: Good News and Bad
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Apple Pay: Shift from Debit to Credit?
SOURCE: Celent: “Apple Enters Payments: Is Apple Pay the Answer for Mobile Payments?”
Celent Webinar; 20 October 2014
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• 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)
52
EMV Challenges
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Si prega di lasciare la vostra
carta nella macchina, stupido
Americano!--Cameriere Arrabbiato
Please leave your card in the
machine, handsome man!--Angry Italian Waiter
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A Holistic Approach: Fighting CNP Fraud
54
ANALYTICS
BEHAVIORMETRICS
CUSTOMER- DEFINED CONTROLS
AUTHENTICATION
DRIVING DOWN CNP FRAUD WILL REQUIRE A COMPREHENSIVE STRATEGY
SOURCE: Javelin Strategy & Research; “Fixing CNP Fraud: Solutions for a Pre- and Post-EMV U.S. Market; October 2014
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Customer-Defined Controls for Cards
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Detect Breaches Early with Big Data
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Loan Freaks
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
• IPO on 12/10/14 raised $834M
• P2P business model
• Loans range from $15k -
$300k (majority of loans: $15k
- $100k)
• Risk-based pricing, 10 grades
• Rates from 6% to 30%
• Terms range from 1 to 5 years
• Over $4B in loans to date
• Year over Year Q314 - 118%
• May 5, 2014…Lending Club
Teams Up with Union Bank
• Until LendingClub partnered
with Union Bank, they have
publicly worked with very small
community banks.
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
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 bank customers rejected for a loan never return
to the bank.”
SOURCE: http://www.valuewalk.com/2015/01/ondeck-capital-ondk-btig/
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
The Alternative Lending Threat
• Alternative lenders are eroding loan volume.
• Even quality borrowers are choosing alternative
methods because they’re faster and easier.
• They’ll choose them even though they cost more.
• When turned down, if applicants come back to
traditional financing, they’ll do it with another
financial institution.
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Alternative Lending
• SMB alternative lending is a $4B industry and growing
10–20% annually.
Source: National Federation for Independent Businesses (NFIB)
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
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
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Alternative Funding Providers
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
• IPO on 12/16/15 raised $200M
• Provides SMBs working capital/loans
• March 6, 2014…OnDeck Raises $77M From Tiger Global To Loan SMBs Working Capital
• This brings a total of $180 million in equity and over $300 million in debt financing, led by Goldman, Deutsche and Key Bank.
• Average loan size is $40K to $250K
• Short-term loans (3-24 months)
• Borrowers are acquired through many channels – direct acquisition (direct mail, TV, radio, online), brokers and strategic partners.
• Member, ProfitStars Lending Network• May 6, 2014…BBVA Compass Teams
with OnDeck to Bolster Bank's Small Business Offerings
• May 8, 2014…Why BBVA Compass Is Sending Customers to an Online Rival
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
• Offers merchants working
capital
• Loans range from $500 to
$100K
• 6 month terms
• Fees are 1% - 13.5% of
loan amount the first 2
months and 1% for each of
the remaining 4 months
• December 5, 2013…Kabbage
Adds Square Transactional Data
to its Credit Decisioning Process
• April 9, 2014…Kabbage Raises
$270 Million Credit Line as
Online Business Lending Grows
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Offensive Strategies for Banks
• Allow businesses to get pre-approved online
easily with multiple options.
• Promote a wide variety of financing solutions that
can be found through the bank even if the bank
turns down loan.
• Leverage creative alternative programs which
cater to small business borrowing needs.
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Harness the Alternative Lender Market?
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Mobile Freaks
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Activity Based Marketing Marketing within the context
of an activity being performedby a customer or prospect.
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Perpetual Loan Approval
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Beacons will transform the
in-store shopping experience
and shake up the mobile
payment tech wars.
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Biometric Freaks
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Biometrics are
boosting perception
of mobile security.
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Fingerprint scan is 3-to-1
most preferred form of
biometric authentication
among consumers.
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Sign In With A Sarcastic Gesture?
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Behavior
Freaks
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Wearable
Freaks
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Web Freaks
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
• ICANN opens “.bank” domains for registration
• Plus 2000 more: directory at https://gtldresult.icann.org
• fTLD Registry Services, LLC
• ICANN granted fTLD the right to operate .BANK on September 25, 2014 and facilitate secure/vetted registration of .bank domains
• .bank domains will help prevent redirects to fake bank websites, make it more difficult to spoof emails from a .bank website, and provide a higher level of encryption
• https://www.ftld.com/
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.bank Domains Available: Get Ready to Grab!
SOURCE: http://thefinancialbrand.com/42264/aba-dot-bank-website-domains/
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
• May 2015 (Sunrise Period)
• Banks that have registered trademarks should register with
ICANN’s Trademark Clearinghouse prior to May 1, 2015.
• If you own a registered trademark, you may register the
trademark with ICANN’s Trademark Clearinghouse and
apply for the .bank version of that domain name during the
Sunrise Period before general availability.
• June 2015 (General Availability)
• .bank domains will be available to the wider banking
community on June 1, 2015, following the Sunrise Period.
• For more info: http://www.aba.com/dotbank
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What to Do When? .bank Domains
SOURCE: http://thefinancialbrand.com/42264/aba-dot-bank-website-domains/
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
• .loan
• .loans
• .credit
• .pay
• .financial
• .creditcard
• .mortgage
• .insurance
• .money
• .cash
• .finance
• .banque
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Other Domains On the Horizon
SOURCE: http://thefinancialbrand.com/42264/aba-dot-bank-website-domains/
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
So, how should you
get your freak on?
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
5 Steps Forward: Banks Must…
1. Master their data, so that they can use it to…
2. Serve personalized, relevant ads for the bank’s products and services across all channels consistently and in context.
3. Expedite customer’s acquisition of bank’s products and services when they choose (without data re-entry).
4. Curate “partners” who may use bank’s ad engines to serve customers with relevant ads that can be one-clicked to acquire.
5. Earn ad fee income wearing a white hat.
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© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Lee Wetherington, AAP
http://discover.profitstars.com/leewetherington
@leewetherington
http://www.linkedin.com/in/leewetherington