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Seriously, the future of payments?

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There’s a memory I have gone over and over in my mind for a few months, which I can’t seem to shake.  Speaking at a conference last year on payments and trends in mobile banking for younger people, I found the late afternoon energy level a bit low and watched as everyone started checking their email and shuffling through papers – so I decided to lighten the mood.  To my surprise, when I announced that my bank was launching the first-ever tongue-based payments product in the world, because our market research indicated that our customers really wanted to stop paying with plastic cards or their phones, and preferred something tongue-based….

…A few moments passed, and a few laughs eeked out, and I sighed and continued with the panel.

It’s been an amazing thing to see how much we all speak about “payments disruption” at conferences or online in forums and blogs and magazines.  Fresh, young fintech start-ups promise to bring banking and payments into the modern era, to reach millennials and shift the balance of power away from dusty banks and major payment schemes desperate to find a new home in the payments value chain.  Truth-be-told, it is happening, and sometimes quite dramatically.  It is true that that branch banking is becoming passé, that millennials often prefer to transfer money via Venmo or Square Cash, that paper checks are going the way of the dodo.

However, payments are hard.  Especially in the United States.  We have limited and antiquated electronic transfer mechanisms, archaic reversal and NSF alerting logic, rely on paper checks as a normal payment token, and not an exception case.  Fraud is rampant, and consumer appetite for risk-avoidance is just catching up with Europe and Asia, finally bringing an end to things like the quaint magstripe.

However many scores of articles emerge that sound enlightening on topics like how the youth want  “invisible payments”, ease-of-payments and alerting services, PFM and aggregators, social payments – there are still fundamental trusts about payments that span the generations, and that I think are often forgotten by some.  Just my opinion, of course, but here are a few key sanity checks that that I have learned and tried to keep in mind over the years:

1. Friction is essential

While we all hate friction, completely invisible/frictionless payments are not desired by anyone, even fraudsters. It’s a customer’s hard-earned money, and they want some (albeit small) friction in order to access it.  The only way fraudsters can skim off the system is that they have figured out how to access a customer’s funds in spite of that friction.

2. Transparency is critical

When customers do ask for less friction, they expect more -transparency- and insight into their payments. Awareness of what is going on with one’s money is power, and control.  And comfort.  It leads to financial literacy and encourages savings habits.  For banks and payments providers, it leads to loyalty, allows banks to sell more products, and engenders trust.  When launching mobile banking and payments across Africa, we learned that transparency as to where funds were and when, in the palm of customers’ hands, encouraged savings behavior by leaps and bounds.  Customers knowing that they had access to their funds without queueing for hours in a bank tended to leave more money in their savings account, knowing they could access it whenever they wanted to.  There are some amazing examples of FI transparency in the US today, ranging from Vanguard to Mint.com, and even our own BankMobile (shameless plug, but I really believe it to be a good example).

3. We need to take security seriously

Although the -perception- of security is as important as -actual- security at times, if FIs don’t take security and privacy far more seriously than they think they should be right now, they will meet with disaster. In the increasingly connected and real-time world, there is no such thing as luck.  In true one-two-punch style, this reality is hitting non-FIs even harder (Target, Experian, Sony, and is a huge and ever-increasing pit, into which customers’ personal information is falling, which is increasingly responsible for direct financial fraud.  I foresee soon that the people who have not been seriously affected by this type of fraud will be few and far between.  (Note, if you really want to not sleep at night check out the excellent blog at http://krebsonsecurity.com, it is frankly, harrowing.)

4. Banks should innovate to stay relevant

As young or hip as some of our customers are, they still want a reliable, trustworthy party to handle their money. Banks are stuffy, they are old news – we know that.  But, would I allow Snapchat to administer my paycheck, or would I want Starbucks to hold and manage my savings?  Perhaps I am older than I think I am, but I firmly believe that banks don’t have to be committed to old business models, or change completely to differentiate.  Maybe there is a middle path.  A place where we can have our cake and eat it too.

Want to know more about the future of payments? Dan Armstrong, Chief Digital Officer of BankMobile, will be presenting on the topic of Wallet Wars, How winning wallets could recreate the Uber experience by making payments invisible, at the  All Payments Expo in New Orleans, March 21–26, 2016.

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