- Play catch up with other countries by adopting EMV
- Adopt mobile payments at the POS as well as online while transforming the store shopping experience
This blog was published in Finextra. After recent high profile data breaches in retailers such as Target, some have resorted to EMV at the POS for security. This blog analyzes the pros and cons in the alternatives for payment security in USA:
Big data, cloud, social media, predictive analytics, mobility - more technology carts that have been added to the "digitization" roller coaster that is still in service with old carts such as e-commerce, online, and m-commerce. How do you maximize ROI and monetization impact of these digitization trends? The answer seems to depend very much on the industry you operate in as digital adoption by different industries is influenced by various factors such as consumer preferences, intensity of competition, physical vs virtual nature of goods and services being exchanged, financial impact of business process optimization, etc. For example, consumer experience is more important for virtual goods such as online music whereas merchandising and supply chain automation are crucial for grocery stores.
Here I will attempt to focus on cloud adoption considerations and how companies can maximize their ROI from cloud. It seems the key is in getting back to the basics on objectives - which are the key business process optimization levers that impact your company's top and bottom lines the most. Is it transforming the customer experience in the front-end and channel integration? Is it supply chain automation? Is it some other automation? or a combination of those? Only after knowing the answer to these questions can companies try to apply the benefits promised by the cloud - time to market, self service and cost reduction, automation, capacity on demand, etc. and decide on the right application areas for cloud introduction. Although privacy and regulatory considerations have an impact on cloud adoption, they can't be looked at from a macro perspective. By decomposing data and separating identifiable and non identifiable data elements, even a bank such as ANZ (Australia New Zealand) has been able to use public cloud for speed to market efficiency (source: Bank and Systems Technology magazine, Nov 2013).
With increasing adoption rates for mobile banking and millennials becoming banking consumers, discussions around real time banking are picking up momentum. Big banks that have supported real time banking for private clients are taking about extending it to mobile banking customers and small banks are introducing them as well (e.g. Independent Bancshares). The instant gratification millennials have derived from their hi-tech gadgets is natural to extend into their expectations from banks. They deposit funds; they want to be able to use them right away. They don't care to understand or sympathize with the banking system that takes a few days to clear checks. I have had discussions with customers as early as 2009 around real time clearing and settlements and our conclusion was that back offices were not ready for this level of automation and the business case was marginal.
The landscape has changed quite a bit recently. Mobile banking consumers will want access instant access to funds. Also tightening of the regulatory noose around banks' necks has created a desire to create alternate venues to raise fee revenue. Real time banking presents a perfect opportunity for banks that can allow consumers to access "float" funds by updating their deposit balance and other internal systems instantaneously without waiting for inter bank transfers and clearinghouses. Should funds deposited not clear, they can always levy charges for accessing funds using uncleared "float" balances!
Image source: lendingclub.com
American banker published a nice multi-part article on why payday lending remains expensive for the consumer. Read article
The aspect that interests me which the article does not cover is that mobile payments can revolutionize this market servicing consumers who are badly in need of financial help. Traditional players keep interest charges high banking on the consumer's immediate need for cash and inability to compare alternative offers. Many new entrants try to bring down interest rates.
However, as the article explains, price is only one dimension in this market. Mobile payments can not only help bring down pricing by making more bids available to the consumer, they can also improve friendliness and convenience - other factors that drive consumers of payday lending to the traditional players. Fear of rejection is the only aspect that mobile payments cannot do much about; the onus is on the consumer to build their reputation by repaying the loans on time and building a good reputation and track record to bring down the cost of financing.
Various industries such as banking and financial services, consumer electronics, telecom carriers, and retailers are all seeking ways to capitalize on mobile shopping and mWallets that put the consumer’s wallet into their mobile phone itself. Mobile POS attempts to transform the shopping experience for the consumer through varying levels of transformation of the consumer’s shopping and checkout experience. One flavor of mobile POS promises to put the mWallet in the mobile phone itself and allow the phone to communicate to the POS terminal using NFC (Near Field Communications) in a secure manner. However, mobile POS is complicated due to several factors:
Alternate forms of mobile POS promise hosted mWallets where it is not necessary to store the valet in the phone and so there is no need to upgrade POS terminals with NFC. This is a big relief to everyone; however, such transactions can be subjected to higher interchange fees if they are considered to be of “CNP (Card Not Present) type. EMV (Europay, Mastercard, and Visa), a standard that is popular in Europe and has enhanced security features to prevent fraud in transactions is another distraction that is clouding the picture. Should merchants migrate to EMV compliant POS terminals or NFC compliant terminals or something else or nothing at all (if they leverage hosted wallet models to complete the checkout process)?
Although enabling technologies for mobile POS are mature and several field trials have been successful, multiple parties with interests that don’t necessarily match, multiple standards, and interchange fee related regulations and ROI challenges are but some of the reasons that will keep everyone guessing on the date when mobile POS will become real.
Recently, I had the opportunity to listen to Prof. Christensen of Harvard Business School when he spoke about the use of theories to predict future outcomes as opposed to statistical analysis of data from the past and using to predict future trends. The professor used his jobs theory to explain his study on how consumers were buying and using milk shake during mornings and evenings. The argument is convincing; however, there are no clear-cut rules to decide which theories are proven and which are not. It seems theories must have been broken a few times and tested in multiple domains and modified as needed to be called “proven”.
Leaving the challenges in testing theories aside, applying the jobs theory to mobile payments and retail banking does lead to new insights on why and how consumers will adopt mobile payments and retail banking products in the future. This could affect how financial institutions plan their products in the future.
Another area where theories might help predict future - use of disruption theory to understand how non traditional financial service providers might disrupt traditional banking services in tapping the unbanked and underbanked population growing at a rapid pace around the world. I read in a report from Deloitte (Banking the Unbanked, 2012) that there are about 2.5 Billion unbanked and underbanked consumers in the world. Interesting item most of these people possess - a cell phone; sky is the limit for innovations in mobile payment services for this segment.
One area to watch though - criminals are likely to tap into payment services for unbanked an underbanked to escape the scrutiny over remittances through banking channels. So over time, Governments are bound to come up with simplified but effective anti-money laundering and other policies to prevent fraud and illegal activities through prepaid and mobile channels.
I am a Management Consultant in Banking and Financial Services. Check out my "home" and "about" pages for more details.