Direct Mobile Payments Systems Cutting FIs Out Of The Loop
August 24, 2016 7:58 PM
LAS VEGAS Why do the big banks have relationships with two out of three Americans? One analyst claims it's primarily because credit unions aren't speaking the right language.
"In our industry there is a lot of change happening," said Dave DeFazio, partner with Strategy Corp., speaking during the recent 39th Directors and CEOs Leadership Convention at Caesars Palace. "Most agree credit unions need to be more appealing to younger people, and many assume mobile services are important. If you were planning to build a branch in France, you would want to learn some French. Therefore, if you want to speak with millennials, you need to learn their language."
The four most popular social networks are Facebook, Twitter, Instagram and Snapchat. DeFazio calls these four "The Big Stream" and said they "dominate" the time people spend on their smart phones.
DeFazio discussed many of the most successful online payment apps, starting with Simple an app-only, online, digital bank. A few years ago Simple was purchased by BBVA for more than $100 million, despite having only a small customer base.
"Simple reimagines everyday banking tasks by studying how people consume information," DeFazio said. "Simple has highjacked the hashtag. It allows people to categorize their expenses, such as '#biz.'"
BBVA noticed what Simple was doing, and bought it, DeFazio said, adding, "Big banks are going to continue to gain relationships through mobile offerings. Many are embracing robosavers, which offer automated financial advice."
One example of a robosaver is Digit. A user attaches his or her bank account to the Digit app, which studies spending patterns and then automatically places money into an FDIC-insured savings account.
"Credit unions need to respond by creating algorithms to help people with their savings plan," he said.
Starbucks is the most successful digital payments company in the world, DeFazio declared, noting 24% of transactions in Starbucks stores are happening on mobile devices. "No other company is even close. The big banks are copying the standards Starbucks is using. Customers can order ahead, which now consists of 10% of transactions at peak times."
DeFazio used the Starbucks app on his phone to purchase a coffee at the nearest store. "This, to me, is one of the biggest threats to our industry," he warned. "I never reach for my wallet in Starbucks. They have made us an afterthought in the transaction."
Uber is another example of the disappearing payment, said DeFazio. As more and more companies are a direct part of the transaction, and consumers stop reaching for their wallets, "it is another threat to this industry."
While many know Uber has disrupted the taxi industry, DeFazio pointed out the company now allows people to book a ride as business or personal, and then prepare expense reports for business users. Uber automatically connects to the person's expense app, meaning the user does not handle receipts. "Think about connecting your credit union app with expense management apps. This is something the big banks are going to copy," he urged.
"The Internet of Things" is a term coined to describe the many everyday devices that are connected to the Internet TVs, refrigerators, cars, smart watches and more. DeFazio said companies are coming up with ways to leverage this connection.
"Amazon is experimenting with large consumer goods manufacturers on Amazon Dash. The Amazon Energizer button allows people to order batteries by pushing a single button. Again, this is a threat, because there is no credit union debit card involved, simply a direct connection between the consumer and Amazon."
Venmo is a social payments app, and it has become the "definitive P2P transfer mechanism of the millennial age," DeFazio asserted. Venmo can be used to make payments, but it also has social element. Millennials think of it as a way to see and be seen. They can even use Venmo to request payments from other users. DeFazio calls Venmo "PayPal's secret weapon."
DeFazio offered a challenge to credit unions: "If we are going to prosper, you have to be a digital leader. You must be aware of these apps and age is not an excuse. If you have a smartphone, there is no excuse."
Rick Metsger, chariman of the National Credit Union Administration, also spoke during the conference. Discussing the benefits of NCUA's Exam Flexibility Initiative, Metsger told attendees the reduced exam schedule next year will benefit CUs and NCUA alike.
According to Metsger, the first step to improving the exam process was to remove the calendar year requirement, which was causing unnecessary backlogs each December. Another new development on the way, he said, is that credit unions seeking to change their charter or add a SEG will be able to track those online.
"There are challenges ahead, as you know, because you face them in your personal life," Metsger said. "NCUA is working to upgrade how we deal with credit union information in our secure portal. Thieves are not just targeting Bank of America, they are targeting smaller institutions because they feel protections are lower. We are very, very concerned about cybersecurity. We are the only financial regulator that does not have third-party oversight. We want to know what is going on, and that is where I need your support. Make sure your third-parties are protecting your information and your members' information."
