Money 20/20: Betting on Black
by Josh Wendroff, Chief Strategy & Marketing Officer
The CheckAlt team just returned from the Money 20/20 Conference. With more than 7000 attendees, many being payment industry executives, it was a valuable and fascinating show. Perhaps it was the Las Vegas setting, but I did notice a dichotomy in the people that I spoke with at the show – the gamblers vs. the play-it-safe crowd.
There were quite a few really interesting new technologies there, some of which were first introduced at the show. These included many Bitcoin-related innovations, the cool POS system from the guys at Poynt, even a mobile payment software that works via sound (and no, it wasn’t Clinkle – this one seemed to actually work). So there was a lot of speculation around which technologies would gain traction and see rapid adoption, who was going to be acquired by a larger player, which technologies were just features vs. something upon which you could build an entire company, etc. For many in attendance, this guessing game was the point of the show. Pick a winner and place your bet. Let it ride on some of the longer odds and the big payoff associated with it.
Then there were those who were playing it safe. These are the guys who would bet on red or black at the roulette wheel, rather than place bets directly on the numbers. Sure, you don’t win as much, but your risk of losing is tempered as well. These guys weren’t there to find the next big thing, they were looking for incremental, efficiency improvements to existing processes. While perhaps not as sexy, they want ways to make what they do better/faster/cheaper today, here and now. The advantage of having this goal is immediate gratification – no waiting to see how things shake out, no market machinations required for your bet to pay off. It’s simple and straightforward, with a clear benefit and measurable, known outcome.
It’s the Play-It-Safe crowd that really made the show worthwhile for me. It’s always fun to speculate and play out different scenarios in your head, but the feeling of handing someone a clear, immediate win is very satisfying. For example, at a show populated almost entirely by people from payment companies, CheckAlt had a lot to talk about. Our eChecks enable payment platforms, developers and merchants to be able to accept Check 21-based eChecks via their desktop or mobile site or application. This is a clear win for most of these guys, since our eChecks are as easy for the customer to use as ACH (you just enter your routing and account info), but clear like paper which usually means next day availability.
And as Barclay’s notes in their research note, “Money 20/20: Top Ten Takeaways”:
“While the technology for real-time ACH exists, there is no timeline for widespread bank adoption, as little progress has been made in terms of coordination and orchestration.”
Check 21-based eChecks are faster than ACH, and available today. Additionally, since the transaction appears with a check image on the customer’s statement, it is much more customer friendly than the alphanumeric string that an ACH produces. Best of all, the cost is usually the same or less than ACH.
Given these advantages, it didn’t take much for many of the individuals I spoke with to do the math in their head and see this as an easy win. And I love that point in the conversation with a random person at a show, where they flip from mildly skeptical to intently interested, when they can not only understand but quantify the value that a solution brings to them personally.
Overall, Money 20/20 was a great success for the CheckAlt team and hopefully for everyone else that attended as well. And while I’ll be intently watching those cool new technologies as they evolve over the coming months and years, there are bets on black that are paying off right now.
From Pelt to Smartphone: The Rise of the Payment Device
There still seems to be much confusion within the industry about the semantics of payments, specifically “payment method” vs. “payment channel”. While the distinction may appear clear on the surface, the confusion may point to a bigger shift in how consumers pay, and what this means for the industry going forward.
You have probably seen lots of charts and research that point out trends in “multichannel” or “omnichannel” payments, or predict how consumers will pay in the future. In these charts, how many times have you seen “mobile” listed right alongside “credit card,” “debit,” and good old “paper check”? Or perhaps you’ve heard “ACH” mentioned in the same breath as “walk-in payments”? You may be so used to it, that it might not even seem strange to conflate “mobile” and “credit card”. Yet the distinction between the two, or lack thereof, may hold some insight into the future of payments.
First, let’s define “method” vs. “channel”. Your method of payment is the instrument used to convey value. This may be cash, credit card, debit card, eCheck, etc. The channel is your means of conducting a transaction, such as “online”, “mobile”, “IVR”, “walk-in”, etc. There was a time when you really only had a single main payment channel, with a few payment methods. You would walk to the nearest trading post, hand over some pelts, take your goods and complete your transaction. “Walk-in” was your channel and “animal pelts” was your payment method.
The confusion really seems to start as the intrinsic value of the payment method itself gets removed from the equation. When you’re paying via pelt, the pelt itself is worth something to the other party, so you hand over the pelt as payment. When we move to paper money, it gets a little more complicated, but you’re still handing over the physical paper or coin, which the other party can use as if it has intrinsic value. But then we get to credit and credit cards. At this point, the card itself has no value, it is the data stored on the card that contains value. Here’s where things can get tricky.
When you pay by card, there is no physical payment exchanged at the point of sale. You hand a card over, the data from that card is captured, and the card is handed back to you. Since there is no actual exchange of a physical payment device, like pelts or even cash, there can be many different physical forms used to transfer that credit card data. As the rise of catalogs, shop-by-phone, and eventually the internet proved, the plastic card was a convenient means for carrying around that data, but was not entirely necessary.
Fast forward to today, when you can easily store your credit card or bank information on your smartphone. When you walk into a coffee shop and use the data from a stored value card that resides virtually on your phone to purchase a Pumpkin Spice Latte, what is the method and what is the channel in this equation? The stored value card is considered like cash, but the purchase was made from your mobile device, which you used at a physical walk-up terminal. However, that same smartphone can also be the channel, as you can easily have ordered and paid for your drink before you even arrived at the coffee shop using credit card information that you already have stored on your phone. You can see why there’s confusion!
So what’s the point? What does it matter if the lines between method and channel are blurred? Mobile wallets, including the newly introduced ApplePay, offer a good example of why this matters. These mobile wallets have the ability to store multiple cards and payment accounts on the device, and make switching between them simple (and in some cases, automatic). I can use my credit card for one purchase, my debit card for another, with no additional effort, trouble or devices necessary. This approach further divorces me from the payment method (credit card, debit card) and associates these purchases with the payment device (my smartphone) instead.
This payment device primacy over payment method reveals threats as well as opportunities. If you’re a card issuer, and your card is relegated to being just one of ten cards in a mobile wallet, how do you drive usage? Loyalty programs have worked in the past, but every card has a loyalty program. What happens when ApplePay introduces its own loyalty program? How do you differentiate and compete?
For merchants, this may represent an opportunity. Whereas previously a customer might have paid using the plastic credit card in their wallet because they didn’t have any cash, now they have every non-cash payment method available right in their phone. For savvy merchants this means you can actively drive customers towards less expensive payment methods. Why give a 5% or 3% or 2.5% cut to the credit card company if you can push your users towards something like Check 21-based eChecks (electronic payments that clear like paper checks), which represent one of the cheapest non-cash payment methods? When the device subsumes both the payment channel and method, merchants have the power to drive customers to cheaper, more efficient payment vehicles.
Many merchants are already actively pushing consumers to eChecks and other payment methods that cost less to process, and are trying both carrot (additional discounts, loyalty programs) and sticks (extra fees) to change customer behavior in ways that will greatly improve the cost and efficiency of their payment processing. How consumers, merchants, payment providers and new technology entrants will react to these changes is still yet to fully unfold, but we may be standing on the edge of a sea change in payment transactions.
FOR WHOM THE CREDIT UNION BELL TOLLS
FOR WHOM THE CREDIT UNION BELL TOLLS
By Shai Stern, co-chairman and CEO, CheckAlt
Credit unions are seeing solid, sustained growth. According to the Inc. magazine, “[C]redit union loan growth in 2013 was the highest it’s been in the last 5 years, growing 7.3% year over year, with credit unions surpassing 100 million members. Credit union’s growth–in members, loans, and deposits–has been constant even during the financial crisis, possibly in response to grassroots movements to support credit unions.”
However, there is a long term threat to the continued relevance of credit unions. The rapid intrusion of non-bank entities such as technology companies and large retailers into areas that had been the exclusive domain of banks, credit unions and financial services organizations, such as payments and lending, represents a true threat to the perceived value that credit unions deliver to their members. These new players are eating away at the edges, leaving many credit unions with a smaller set of core services to offer at a time when revenues are getting tighter and tighter.
However, even the smallest of credit unions do not need to cede ground in the areas where they are the most logical and trusted partners, particularly in serving their business members. The same conditions that allow technology companies to develop mobile lending applications and retailers to offer new POS payment methods are enabling credit unions to expand the services that they offer their business members. With the ability to quickly and easily deploy web and mobile applications, and move much of the infrastructure requirements to the cloud, credit unions have the chance to maintain their central role in serving business members.
Leveraging their relationships, lines of credits, security and trust, credit unions have the ability to offer a wide array of products to help their business members conduct transactions quickly, easily and inexpensively. For example, smaller businesses are often saddled with high interchange fees, but pay those fees because they feel they need to be able to accept credit cards from their customers. While this is true, research has shown that customers can be steered towards other payment methods if those methods are quick and easy for the customer.
Take eChecks, for example. By utilizing Check 21, business can accept payments at a fraction of the cost of a credit card payment. Plus, eChecks can often clear the same day, for quicker availability. And with simple APIs and hosted environments, it is easy for credit unions to offer these services and easy for their business members to implement them.
Credit unions have been the source for financial services and advice, but they are in danger of disintermediation. However, by offering complementary products and services, they can deliver additional value to their business members while building tighter relationships and new revenue streams.