Reimagining Trust and Mutual Finance

Transcription

1 Reimagining Trust and Mutual Finance

2 Today consumers have a diverse selection of options to move, store, and keep track of monetary value. Mobile payments, online banking, personal financial management apps and cryptocurrencies such as Bitcoin are redefining the ways in which consumers manage their finances. Decentralized networks are revolutionizing money, banking, and finance in much the same way social media sites like Facebook revolutionized computing, commerce, advertising, and mass media. Every aspect of how individuals and businesses manage, spend and borrow money is undergoing a fundamental and transformational shift. At the heart of this change is the evolution of payments and financial services based on disruptive innovations in commerce at the intersection of key macro trends that include mobile, retail, marketing services, data and technology. DECENTRALIZED NETWORKS Decentralized payment networks are open looped, multi channeled systems that facilitate the movement of monetary value through social experiences and connectivity. 2

3 Components of Change Banks and credit unions have begun providing check imaging and deposit capabilities through consumers mobile phones as well as access to other financial services such as: fund transfer Fund transfer Loyalty cards Account information Coupons Rewards programs account information Technological innovations built on top of existing payment rails are transacting value and facilitating payment exchanges: check imaging loyalty cards Mobile point of sale Online payment Peer-to-peer money transfer services rewards programs coupons The United States fosters a diverse payments ecosystem: not only cash, credit, debit, and ACH, but also airline miles, loyalty points, and other coupon-like tokens that can be exchanged within limited circuits for goods and services. Each of these systems and circuits creates a community. 3

4 Emerging mobile wallets allow smartphone users to: Access multiple accounts Transfer funds from multiple cards Pay and split bills Give gifts Receive targeted deals and rewards 87% of the adult population in the United States has a mobile phone Electronic payments have become increasingly prevalent. Much of this is being driven by mobile phones and rates of mobile phone ownership: Four out of five noncash payments in the U.S. are electronic. According to the U.S. Federal Reserve, 87% of the adult population in the United States has a mobile phone, 61% of which are smartphones. 61% of which are smartphones Sources: Board of Governors of the Federal Reserve System, "Consumers and Mobile Financial Services." The Pew Research Center reports a 91% mobile ownership rate in the U.S. (available here: 30% 20% USE OF MOBILE BANKING 17% of respondents used scanning, tapping, swiping, or checking in at point of sale 10% 0% % of smartphone users had used mobile banking 4

5 individuals born between Young Adults Love Mobile 62% of smartphone users have at least tried mobile banking and a vast majority (90%) use online banking. Of all industries, banking is at the highest risk of disruption 71% would rather go to dentist than listen to a bank 53% do not think their bank offers a substantial difference from other banks 1 in 3 are open to switching banks in the next 90 days A third believe they will not need a bank at all 68% say that in 5 years, the way we access money will be different and 70% say that the way we pay for things will be different THE MILLENIAL INDEX A survey of 10,000 individuals born between , found that of all industries, banking is at the highest risk of disruption.** Financial institutions are becoming less and less popular with millenials. While many millenials have yet to engage with financial institutions to undertake larger investments such as mortgages, these underlying attitudes are concerning for the entire banking industry. Millenials' attitudes and preferences are signaling a desire to steer away from traditional banking institutions. Among year olds the mobile phone is just as important as their car and deodorant, and more important than a computer, television, microwave, or coffee. 62% of smartphone users have at least tried mobile banking and a vast majority (90%) use online banking.* Sources: * Bank of America,"Trends in Consumer Mobility Report." 2014; **Scratch Viacom, "The Millennial Disruption Index," 2013, available here: ruptionindex.com/ 5

6 Industry Disruption The payments and financial services industries have witnessed increased competition from both Silicon Valley-style start ups and major tech companies to attract customers to novel mobile and digital technologies. DISRUPTOR OR PARTNER HEARTLAND FIS VANTIV GOOGLE FIRST DATA PROCESSORS TSYS AMERICAN EXPRESS APPLE VISA BIG 4 TECH PLAYERS NETWORKS AMAZON MASTERCARD BANKS & CREDIT UNIONS FACEBOOK DISCOVER 6

7 In the short run there will be an emerging point of contention between those seeking to use existing "rails" of the established brands and those seeking to leverage telecommunication "pipes" for payment processing. Industry experts anticipate mobile payment transaction volumes exceeding internet transaction volumes within five years. $60B PROJ E CTED MOBILE PAYMENT TRANSACTIONS According to one research firm, mobile payment transactions in the U.S. will exceed $2.5 billion in 2014 and will total nearly $60 billion by the end of For merchants, mobile payments can lead to lower transaction costs. Mobile payments are gradually picking up steam, given momentum by Apple Pay and terminal upgrades at the point of sale (POS). Aside from the ability to pay for goods and services, mobile payments create opportuntiies for: Discounts/coupons based on usage of mobile device Elimination of checkout thanks to mobile scanning technologies Tracking of spending habits Product release notifications Rewards points Storing of receipts in a secure database $50B $40B $30B $20B $10B Source: Lingjiao Mo, "Banks' Monopoly May Be Ending as Google, Facebook Enter Payments Market," Medill Reports, June 11, 2014, available here: $0B

8 The Cambrian Explosion The dramatic expansion in the variety of available options for transferring and storing monetary value and facilitating economic transactions is known as a Cambrian Explosion in payments. While payments is often seen as a staid, conservative, and mostly unheralded sector, today, as we have already shown, a range of new entrants some emboldened by the global financial crisis, others taking advantage of new technologies are seeking both to challenge and sometimes to build on top of existing payment infrastructures. On the forefront of this rapid expansion and revolution has been mobile point of sale payments, which have been generating significant investment throughout the payments industry. This includes new devices and software systems for retailers, which facilitate the acceptance of new and old payment channels, and new mobile applications for consumers. Mobile wallets gather and store consumers' payment information and allow consumers to transact at the point of sale. Mobile wallets have been hailed for their ability to create convenience at checkout and connect retailers, consumers and, payment processors. But with competing solutions and technologies, it's still too early to identify winners mobile wallet projects completed 8

9 Mobile wallets have been slow to gain widespread adoption. Consumers are expressing concerns related to security and privacy, consumer protections, and lack of incentives. Moreover, the confusing state of the field does little to help consumers decide on their ideal mobile wallet solution. There is no clear choice among the many the many technologies currently available. Many point of sale terminals are yet to be upgraded to accept mobile wallets. Merchants are experiencing challenges with modifying hardware and software. Many are still unsure of the long-term return on investment associated with accepting contactless payments. There is also a skepticism over the potential to disintermediate existing payment rails, and not only or even primarily the ACH, but also the card networks, which have historically relied on fees to generate revenue. New technologies may be linked to new intermediaries or new service providers which have not been traditionally involved in payments. Consumers are expressing concerns related to excess of options, security and privacy, lack of incentives, and consumer protections. to-date there has been very little uptake of mobile payment options, especially outside of technology industry hotbeds like the San Francisco Bay Area 72% 66% 59% 57% 52% 48% 36% Network Providers i.e., Visa, MasterCard, & Amex Emerging Payment Providers i.e., PayPal Established Retail Bank i.e., JP Morgan, USBancorp, TD & RBC Larger Tech Companies i.e., Apple, Google, Amazon Large Merchant/ Retailer i.e., BestBuy, Walmart, Target Large Telco Provider i.e., U.S. Verizon, AT&T, & Sprint Canada TELUS, Rogers & Bell Tech Start-Ups i.e., Square 9

10 The Fed's survey reveals that 76% of mobile payment non-users say their primary reason for not using mobile payments is because its easier to pay with cash or cards. 63% of non-users cite concerns about security as a significant reason for not using mobile payments while 44% lack trust in technology. Such differential protections are even more confusing when it comes to the regulation of uses of consumer data. Until these concerns are addressed, mobile payments adoption promises to remain limited. The Fed, the FTC, and the Consumers Union have all suggested the importance of clarifying consumer protections rules and best practices. For instance, while legal frameworks supervising and governing the activities of banks already exist are subject to oversight from the Consumer Financial Protections Bureau, legal protections may change depending on the payment source used to fund the mobile payment and the actors involved in the transaction. NON-USERS OF MOBILE WALLETS 76% say it s easier to pay with cash or cards 63% cite concerns about security 44% lack trust in technology 10

11 The Sharing Economy The "sharing economy" or "collaborative consumption" turns the already existing, but often unused assets of one group of users into goods and services that can be purchased-or more accurately, rented-by another. Many sharing economy start-ups see themselves as part of an ongoing transformation, as "social" alternatives to 20th-century economic models that are quickly becoming obsolete. Leading companies in the "sharing economy" include: For many people, then, the idea of the sharing economy opens up debate about what should orient economic activity, re-introducing "the social" as a way of organizing and orienting the economy. The sharing economy is helping to rebuild the infrastructures of money. These platforms emphasize trust and convenience. Some common characteristics include: The creation of a peer-to-peer distributed network or the use of the image of such decentralization to describe models of economic exchange and monetary transaction The use of a notional unit of account that measures "trust," or some other attempt to codify "reputation", like stars CONVENIENCE TRUST 11

12 Credit Union Impact New entrants in the payments ecosystem are challenging the dominance of card networks and offering new rails for payment. They are creating new "communities." It will be critical to monitor the evolution of payment platforms in the coming years. Payment systems built in the name of community, such as PayPal, are often perceived as credit unions' "evil twin." These systems may prevent new publics from coming into being. They are a combination of interconnection and community alongside autonomy. Publics are communities, but they are also political actors--not just a collection of individuals, but an interest group, mediated by its own material technologies of communication and interaction and gathering around a particular matter of concern. This poses the potential for conflict. A focus on publics, that is, underscores politics and questions. New mobile payment technologies and the sharing economy often entail semi-closed and privatized communities: walled gardens of payment and consumption access which is gated or otherwise restricted. These closed payment communities seek to provide the means for the circulation of value within a specific, circumscribed, and bounded social domain (e.g. PayPal, Uber, and Starbucks). 12

13 Mobile payments and the sharing economy provoke questions not only about how different kinds of consumers are fostered through participation in different systems of payment, but also about the intersection between financial transactions and the communities they create, that is, publics and payments. Credit unions are well positioned to respond to changes in payment technologies and commercial applications. Credit unions emerged from communities of workers, devised credit and payment systems for them, and then built publics on top of those infrastructures. Credit unions should find it relatively seamless to collaborate with finance and tech start-ups because: They are especially well situated to respond to consumer doubts about large banks and finance As registered financial institutions, credit unions are already compliant with consumer protections laws, and prudential regulations, and possess established relationships with regulators They excel in localism, community focus, and commitment to exceptional customer service Credit unions can be a key resource for new payment entrants and as a result benefit from innovations in mobile finance, online banking, and peer-to-peer accounting payment infrastructures. 13