AUSTIN, Tex. — Facebook, Apple, Amazon, Netflix and Google garner so much attention that they have their own collective shorthand, FAANG. But at American Banker’s Digital Banking conference this week, a mostly different set of companies were top of mind: Call them SASA, or Starbucks, Amazon, Sears and Acorns.
There was indeed a Starbucks helpfully located at the foot of the Austin Hilton for anyone needing their daily Venti Cappuccino. And one fintech demo cheekily teased the audience’s addiction to the Seattle coffee giant when the presenter asked an Alexa device how much he had spent there in the past month: Over $200, the AI curtly noted, “More than you should have.”
But caffeine runs weren’t prompting the broader discussion; rather how Starbucks has become a runaway success in the payments business. More than 40% of the 55 million U.S. smartphone users will have made an in-store mobile payment through Starbucks’s app, and that just over 23 million consumers over the age of 14 will use the Starbucks app to make a point-of-sale purchase at least once every six months, according to Gavin Michael, head of technology for Citigroup's Global Consumer Bank, citing data from research firm eMarketer.
Despite the argument that measuring the use of Starbucks’s app against Apple Pay is not a very good comparison, since they are aiming for different goals, the figures were points of debate.
“While everyone was worrying about fintechs, Starbucks became a leader in mobile payments,” said David Gilvin, a partner and practice leader in the IBM Financial Services Consulting Practice. “They just set about making a convenient way to pay for coffee, now they have a whole business and operating model.”
The stumbling-into-payments innovation theme was reinforced by an earlier presentation by Venmo co-founder Iqram Magdon-Ismail who explained the payments platform was borne out of a desire to remove the awkwardness from paying friends back.
Did the success of Starbucks’ payments app constitute a lesson for banks? David Schiff, a principal at PwC with a focus on digital transformation, saw one.
“Starbucks wasn’t doing it to become a payments player, it was because payments were an impediment to providing a service,” Schiff said. “They were trying to get the friction out of that. It is a lesson and a threat to banks. How do they enter contextual commerce without becoming an added step?”
The threat is not only in losing out on such opportunities, he explained, but also new channels that will create new fraud risks that a bank will have to be vigilant about.
The lesson, he said, is how Starbucks came to the idea based on studying the motive behind customer behavior — customers were using gift cards to pay for coffee.
“They took enough customer insights, saw a pain point and created a solution. So banks have to pay attention to customers’ behavior," Schiff said. "They have to understand nobody goes to buy to mortgage or a student loan — they are trying to buy a house or go to college.”
The fall of Sears
But it wasn't just Starbucks on people's minds.
Moven founder Brett King tweeted a video clip featuring a 60 Minutes segment from the 1999 on Amazon that even then had a comparison between the ecommerce retailer and Sears. (Amazon was worth 20% more than Sears at the time.)
If you’re an incumbent bank saying that #Fintech’s and TechFin doesn’t have the market share of the big banks, just remember what analysts said about @Amazon vs @Sears a few years ago via @60Minutes pic.twitter.com/JM4eQ1dlFx
— Brett King (@BrettKing) June 4, 2018
Schiff and others noted how fortunes have changed, noting that Amazon’s continued growth is now reportedly leading it into the home insurance market, while Sears appears trapped in a death spiral, having closed nearly 400 stores in the past 12 months.
Schiff waxed poetic about the old Sears catalogues, those glossy volumes of retail delight that once were the guide for every child’s Christmas wish list. “That was the original Amazon,” he said.
But are there future Sears lurking in the banking industry?
“There is risk across the spectrum," Schiff said. "At the top end, the big players run the risk of focusing so much on gaining efficiency through their scale that they will commoditize banking. Amazon is not better because they sell better products, they layer intelligence associated with interactions. And smaller players run the risk of not being able to create enough value out of their relationships with customers.”
But those banks recognize the danger, he added, and are taking steps to create new models, seek partnerships and new technology to get back an edge against disruption.
It was impossible to answer if banking would see a similar Sears-Amazon scenario play out, said Dominic Venturo, chief innovation officer for U.S. Bank, who gave his own presentation on how a fully online world will force banks to change the way they think about channels to reach customers.
“Ignore what’s happening in other industries at your peril,” he said, with a caveat. “It’s instructive to look at other industries, but also dangerous. What plays out in one industry may not play out that way here. But I’m not saying it’s impossible.”
How best, then, can banks prepare for an outside threat from big tech?
“The running of these businesses is all about how to stay relevant to the customer," Venturo said. “U.S. Bank looks different today to the customer than we did 10 years ago.”
One change, he said, was the banking industry was thinking more deeply about intent, noticeable in the amount of time spent at the conference discussing the ramifications of broadly applying artificial intelligence.
“The banking industry used to be very focused on creating a product and selling the product, and if you could get one person to use two products, even better,” Venturo said. “Solving customer problems wasn’t a normal part of the conversation.”
“You have to wake up worried every day about competition and worried about what are they doing next,” he added. “You don’t get to take a month off. Organizationally speaking, you have to be relentless every day with the customer in the lens, and ask, ‘How can I make life better, how can I add value?’”
Venturo acknowledged the churn of competition in the space as banks attempt to engage in holistic digital transformation, hoping to lock down their existing base of young clients and keep them from bleeding out to hungry fintechs.
The rise of Acorns
It was evident in the triumphant barrage of figures Acorns Chief Operating Officer Manning Field dropped on the audience. The microsavings app just rolled out a debit card called Spend and opened up 50,000 checking accounts in two days, he said.
The app now counts 3.5 million accounts; there are 500,000 unique monthly visitors to its internal financial education content; the average client is finding $384 a year in spare change to save and logs into their account 19 times a month; it is opening between 150,000 to 200,000 investment accounts monthly; and 68% of customers are millennials across the country.
“Acorns is awesome, my younger colleagues introduced me. I’m 47 and I’m totally hooked,” said IBM’s Gilvin. “They have a more diverse demographic than I think most people would assume. It’s innovative, a little bit grassroots, easy, a great experience.
“And they are adding a debit card. They are building on it — I don’t have to take all the customers, just the best ones, the ones that matter to me. Obviously they are going after a demographic that appreciates their business model.”
Venturo said a battle between fintechs and banks over demographics wasn’t apparent yet.
“What does winning mean? There are some 100 million adults in the country. Does winning mean having more than X percent of that market? That’s tough to accomplish. It’s a very large, very diverse and complex market.”