THINK Week in Review: The “Payments” Edition

376 is the number of times each year that the average US citizen makes a non-cash purchase. No financial product is used as frequently or as widely as those facilitating payment – but how exactly are these purchases being paid for? Gone are the days when customers need to carry around wads of cash, limiting their purchasing power at a given moment, and creating serious risks of theft. Waves of innovation from merchant charge cards, to the modern credit card, and now mobile payment solutions like ApplePay have made the act of paying seamless and secure for customers. And innovation seems to advance quicker each and every day: Top 10 Trends impacting the future of Payments. Based on a survey of 1,500 consumers in the United States and Canada, Accenture analyzed consumer banking and payments trends and the likelihood to embrace future payment technologies. In their report, “10 Mega Trends Driving the Future of Payments,” Accenture identified the key drivers of change in the payments industry in the near- and long-term. Each of these trends need to be anticipated and understood by banks and credit unions wanting to meet the lifestyle needs of consumers. Some interesting findings:
  • Generation Z will be 40% of US consumers by 2020. 70% of them use mobile banking apps daily, 68% want instant P2P payments. 20% visit their branch weekly. Why? Money trouble, trying to access it through the ATM.
  • Open Banking? Yes, please. 60% of Millennial and Gen Z consumers are willing to share their bank credentials with third parties.
  • Younger consumers demand exceptional digital payments experiences and want to be compensated with targeted rewards.
  • The importance of rewards as a competitive differentiator has never been greater, with 48% of consumers being willing to switch their primary card to receive higher value for purchases and 42% willing to switch for a large up-front bonus.
  • 63% of consumers said they use a debit card for payment at least weekly, up from 53% in 2014, while cash usage remained stable at 66%. Mobile wallet usage was flat in all areas, except for retailer apps, which increased 4% over the past year, from 16% in 2016 to 20% in 2017. All other mobile wallet app usage remained flat at around 14%, with no distinct preference between types of wallets – whether provided by credit card companies, tech giants or traditional banks.
Read the whole report. Very insightful. How financial institutions can capitalize on the emotions of money.  Cognizant study analyzes our emotions about money. Summarized findings:
  • Banks are developing strong artificial intelligence capabilities but would be wise to gain a deeper understanding of true human behavior.
  • Consumers experience money in one of two different ways: Fast money is engaged with on a regular basis in ways like paying bills, withdrawing funds or paying daily expenses. Fast money transactions are mostly digital ones.
  • Slow money is more complex. Pensions, insurance and investments have a distant future purpose, with their primary immediate value in peace of mind.
  • Consumers have eight primary emotions related to fast and slow money, three with fast and five with slow. As an example, with borrowed money, the emotion associated is guilt that we need to borrow, even if the borrowing is for a good purpose.
  • Purposeful money is devoted to retirement and education funds, or for the trip of a lifetime. People feel distant or have complex emotional experiences with it. Experimental money we use for angel investments or the stock market excites us, emergency funds provide peace of mind and productive stocks and bonds make us feel responsible.
  • Fast money comes in three forms – tangible, auto-pay and sustenance. Tangible items such as art, real estate and collectables provide security while auto-pay expenses are regular deductions generating feelings of ambivalence and hostility.
  • The final one affects us the most. We need sustenance money to pay everyday expenses, write checks or pay off credit cards. People are on tight budgets and they are not getting the information required to optimize their sustenance money. There are opportunities for banks to make comparisons of expenses. Banks could do more to provide much better advice to make sure people have the right information to be making decisions.”
  • Most of the automation has been with fast money, so the bulk of the technological improvement can come with slow, by linking emotion to artificial intelligence. There is a need for banks to tie in fast money to slow money where the needs are not digitized. Yet there are many synergies if it is done well. It increases loyalty.
  • When trying to identify the right investment products, if banks understand the emotions consumers experience they can identify the right types of analytics to assess those needs. While old models relied on net worth or socioeconomic data, the next level involves understanding the behavioral and emotional aspects. Models can incorporate different risk factors and perspectives.
The distinction between slow and fast money makes a lot of sense and should help innovating aligned with the emotional needs of the consumers. Innovate, Acquire, or Die: What the near future holds for banks and Fintech startups: “Antonio Simoes, HSBC’s UK and Europe boss said last year he believed problems in banking would be fixed by 2020, but it would take much longer before customer trust was regained due to continuing scandals within the financial sector. However as consumers increasingly move towards reliable, affordable and ethical new Fintech startups, banks that don’t begin to partner with and acquire Fintech technology and innovation teams soon will die. Fintech innovations hold an appeal for Millennials, and with the global reach and bulging bank balances of retail banks, their adoption could lead to a more efficient, affordable and transparent financial sector overall.” America’s Retail Apocalypse is really just beginning. “The coming wave of risky retail debt maturities doesn’t take into account that companies currently considered stable by ratings agencies also have loads of borrowings. Just among the eight publicly-traded department stores, there is about $24 billion in debt, and only two of those—Sears Holdings Corp. and Bon-Ton Stores Inc.—are rated distressed by Moody’s.” “A pall has been cast on retail,” said Charlie O’Shea, a retail analyst for Moody’s. “A day of reckoning is coming.” Major trouble ahead for Riverside County, the IE, Phoenix, Denver, Kansas City, St. Louis and Pittsburgh. And, that’s not even all when it comes to Retail: No Storefront? No Problem: Future Retail maybe unattended. ““We’re starting to see the demise of foot traffic and interactions in a physical environment,” Herbert said in a recent interview with Karen Webster. “Unattended retail is going to go through a dramatic change.” Uniqlo is just the beginning, if you ask Herbert. He envisions an enterprise platform for anyone who wants to run a retail business remotely, enabling those entrepreneurs to simply plug and play, with logistics such as payments, loyalty programs, interactive advertising and location-based offers all handled by the platform.” Three clear signs your Digital Transformation isn’t transformational. “If you find, to your surprise, that you are leading not a transformation, but a continuous improvement project, you aren’t alone, and you can adapt. Companies must always be improving to maintain a competitive edge, but when a transformational technology arrives, they must also transform themselves and how they create value. Spend the time to explore how your industry is changing and how you can make use of new business models, and then shift your money to invest in the right people and assets to make it happen. In a world of digital transformation wannabes, be the real deal.” Why Nerds and Nurses are taking over the US economy. “Manufacturing will fall. Retail will wobble. Automation will inch along but stay off the roads, for now. The rich will keep getting richer. And more and more of the country will be paid to take care of old people. That is the future of the labor market, according to the latest 10-year forecast from the Bureau of Labor Statistics. These 10-year forecasts—the products of two years’ work from about 25 economists at the BLS —document the government’s best assessment of the fastest and slowest growing jobs of the future. On the decline are automatable work, like typists, and occupations threatened by changing consumer behavior, like clothing store cashiers, as more people shop online.”