Last week’s Money 20/20 conference in Las Vegas proved that it remains one of the best conferences for banks that are serious about innovation, particularly as it revolves around payments. The conference is big, the hallways are endless, everybody and their granddaughter is a speaker, the expo hall is ginormous, and the whole conference is almost unwieldy. However, despite these flaws, Money 20/20 is still a gathering that shapes our financial future. While the Libra folks were noticeably quiet and the regulators seemed less involved, there was still lots of action. We attended and captured the four biggest trends that we thought were significant to help with your bank’s strategic planning plus we share our dozen our so lessons that we learned from this year's Money 20/20 conference.
Blurred Banking Lines
The most prominent trend was one that has been evident for the past ten years, and that is the push from technology-fueled companies deeper into banking. While Apple announced its game-changing credit card last year, this year, we saw a variety of heavyweights announce their banking products. While it is true that these firms have partnered with banks or financial services companies to deliver their products, keep in mind that most of these products are white-labeled, so the bank is getting stuck with the least attractive part of the process. The brand and customer are what is important, and banks in this arena are getting pushed aside.
For starters, Uber launch “Uber Money,” which is their “financial unit.” Uber will now come out with its digital wallet (Uber Wallet), where consumers can see their reward credits, ride-hailing usage, transactions, and stored funds balance. Uber also restructured its credit card and driver debit accounts to make them more seamless.
Amazon also announced a shocker that they would be allowing customers to pay their utilities bills online and through Alexa. Amazon partnered with Paymentus and plans to cover about 95% of the U.S. by the end of next year. In terms of payments, this announcement was big as commercial disbursements is one of the most profitable subsectors within payments.
While we are not sure what type of marketing share Uber and Amazon will achieve, with over 200 million installed customers, even at a 10% penetration, banks have just lost a material number of customer transactions that will not be using their debit cards or bill payment services. Of course, this is just a start, look for other major companies to expand with similar tactics while Apple, Facebook, Uber, and Amazon push deeper into banking.
Banking-as-a-Service (BaaS) Goes Mainstream
If you read the above trend and said to yourself – “Well, that is great, but what can I do about it?” The answer is plenty.
Maybe you want to do nothing about it, but maybe you do. If you do, you can follow the lead of other community banks like The Bancorp, Sutton Bank, Radius Bank, Sunrise Banks, Celtic Bank, Commercial Bank of California, Cross River, Evolve and many others. These banks have strategically turned themselves into a banking-as-service platform and have started a trend.
To that end, we have spoken with more than 100 banks that are also thinking about pursuing such efforts, which is why Banking-as-a-Service was also all the buzz at Money 20/20.
Regardless of what you strategically choose to do, your bank will have to become adept at managing application program interface (API) connections to allow your bank to easily get and give information without having to customize every integration. Most likely, you engage your core every time you need a connection that is untenable in the long run because of the time and cost. It is far better to have an “integration layer” that allows your bank to easily connect to applications like, Identity verification, payments, digital account opening, cash management services, and the list goes on. Building, managing, controlling API development takes a focused effort. Every small business will need to integrate with its bank at some level in the near future, and your bank will be left behind without these capabilities.
At Money 20/20, Walmart announced that it would partner with Green Dot Bank on TailFin Labs, an accelerator that will focus on developing "innovative products, services, and technologies" in retail. This will be powered by Green Dots’ integration layer (which also powers Uber Money), which is robust enough to qualify as a BaaS platform.
Chase, BBVA, Wells, US Bank, Monzo, N26, Chime, Varo Money all were active at Money 20/20 cutting BaaS deals, and while today it’s the Amazon and Walmarts of the world, tomorrow it will be your local retailer.
More than in year’s past, everyone was talking about cannabis banking. The main talk was around how the industry was set to go from a select few banks and credit unions that specialize in cannabis banking to more mainstream. The bipartisan SAFE Banking Act that is currently in the Senate created the foundation for many banks to feel confident to start building deposit gathering, payments, and lending into their strategic plan. As such, with $14B of deposits up for grabs, many banks discussed how and when they plan to enter the market once cannabis banking becomes decriminalized.
Verification and Some Scary Statistics
The fourth major theme of Money 20/20 was over verification and validation. The goal is to answer three questions – Is the person you think that is on the other end of the transaction a person you want to bank, do they have “good funds” and is that person you want to bank with good funds on the other side of that device? Each of those three questions needs to be addressed in different ways, which comes down to a combination of identity verification and access control.
Recognizing that our industry needs to step up their game, the buzz this year was how banks need to address these questions with an adaptive approach that uses multi-factor identification, behavioral verification, and predictive oversight based on machine learning. The concept is to adjust the methodology to the risk and make passwords a much smaller part of the authentication chain by putting more weight on behavior tied to the mobile phone. The phone offers an additional ID, the ability to tokenize your identity, the ability to validate your transaction with biometrics (face/fingerprint) plus draw from a behavioral layer.
In case you are looking for motivation to help your bank with a new verification and validation framework, consider this set of scary stats that Mastercard dropped on the audience – the Company stops 700,000 attacks…PER HOUR; it sees 35% of all web traffic as fraudulent (to include account opening), and 49% of all their login attempts are fraudulent. Those statistics should give every bank pause.
The Rest of the Conference
Of course, AI, cyber currency, making it easier for the customer and fintech partnerships, all remained prominent. Like in years past, there was still lots of talk about financial wellness, financial education, doing more to help the underbanked, and creating an amazing customer experience using data combined with personalization. However, among the common, there was a phalanx of uncommon tidbits that we picked up:
- Nouriel Roubini put forward his thesis of how the next financial crisis will be caused by overleveraged corporations instead of the overleveraged consumer.
- AI, fueled by big data, is likely biased against women.
- Banks should consider financial advocacy before pushing financial literacy.
- Banks need to not only get omni-channel delivery right; banks need to give customers the ability to concurrently cross-platforms. Consumers want to be able to open up the deposit account online and take a picture of their driver’s license with their phone and get it into the deposit application without emailing it to themselves - Think about that level of complexity.
- Chat banking is becoming a thing.
- Financial rebundling is still going strong.
- Account takeover, synthetic ID, application fraud, and payment transfer fraud will continue to grow by double digits. Social media will continue to fuel this trend as it has become a badge of honor to conduct financial scams. Consider Teejayx6 has made a whole career rapping about how ripping off banks.
- The card networks and wires are fading – ACH and real-time processing is on the rise.
- Payment terminals will start to fade and be replaced by software within point-of-sale terminals
- All banks are scrambling to figure out how to deal with data privacy and management as it relates to CCPA/GDPR. It is likely that you put time and money into collecting and analyzing data. You might even have started to personalize the customer experience. Now, what are you going to do when the customer requests their data back, wants you to stop collecting data on them and wants you to destroy all the data that you worked so hard to gather.
- Ask a millennial if they prefer gold or Bitcoin, they will likely choose Bitcoin.
If you only attend one banking conference a year and your goal is to peer into the future of banking, Money 20/20 should be your first consideration. Hopefully, we will see you there next year. Until then, hopefully, this recap will stoke your innovation fires.
Submitted by Chris Nichols on November 07, 2019