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Future FreakTechs Transforming Financial Services
1
Lee Wetherington, AAPDirector of Strategic Insight
Jack Henry & Associates, Inc.®
@leewetherington
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Lee WetheringtonDirector of Strategic Insight
• Develops actionable insight and strategy
for the financial services industry at large
• Delivers keynotes nationwide
• Technology Faculty Chair for Southwest
CUNA Management School
• Authors articles for industry trades
• Degrees in Economics and English
from Duke University
• Accredited ACH Professional (AAP)
Presenter
@leewetherington
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Agenda
• Freaking Here & Now
• The Big News
• Future Freaks
• Loans; Mobile; Fraud; Authentication; Brains
• How to Get Your Freak On
• 5 Steps Forward for CUs
4
Why are FIs spending more on consumer tech?
5
…and on mobile banking?
6
Because digital banking is exploding.
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
…and why is
digital exploding?
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
“Good self-service beats
great personal service.”--David Peterson, i7Strategies
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
1. Consumers access finances across multiple devices
and expect consistent features and data
2. CUs now choose solutions that deliver best consumer
self-service and unified support
3. Consumer experience drives everything going forward
9
State of the Industry
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
10
Consumers expect consistency across devices
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
11
Sequential device use requires cross-channel
Digital CIF Digital CIF
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
• The modern web addresses the full spectrum of
devices, including those that are not iOS and Android.
• Examples:
• Kindle Fire
• Samsung NOOK
• Windows Surface
• Windows Phones
• Chromebook
• Sony Playstation4
• Xbox One
• Nintendo Wii U
12
Consumers access their finances everywhere
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Evolution of Digital Banking
Multi-Channel
Cross-Channel
Omni-Channel
13
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
16
80% of online adults own a smartphone
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Gen Y Income > Gen X Income by 2020
Personal income by demographic segment (2010-2025)
SOURCE: Javelin Strategy & Research; “The Three Costliest Myths About Gen Y”; May 2014
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
19
Marketshare of Total Assets: CUs & Banks
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Loan Freaks
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
The Skinny on Small-Biz Lending
• “$300 billion small-business lending market has an
estimated unmet demand of around $80 billion to
$120 billion because traditional lenders are ignoring the
sector.”
• “Traditional lenders are reluctant to lend to small
businesses because of the difficulty in assessing their
credit worthiness in a uniform manner.”
• “50% of FI members rejected for a loan never return
to the FI.”
SOURCE: http://www.valuewalk.com/2015/01/ondeck-capital-ondk-btig/
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Small Biz Loan Approval Rates
Source: National Federation for Independent Businesses (NFIB). NFIB recognizes the following entities as the resources for data contained in their charts: Small Business Lending Index, Biz2Credit, January 2014; 2013CF The Crowdfunding Industry Report, Massolution; “Retail Businesses That Try Crowdfunding Face Some Skepticism,” New York Times, February 2014; “Can’t Get a Bank Loan? The Alternatives Are Expanding,” New York Times, March 2014
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
New Wave of Alternative Lenders
• Small Business Alternative Lenders
• Behalf https://beta.behalf.com/
• Fundbox https://fundbox.com/
• Loanz https://www.loanz.com/
• Consumer Alternative Lenders
• Lenda https://www.lenda.com/
• Vouch https://vouch.com/
• Earnest https://www.meetearnest.com/
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Harness the Alternative Lender Marketplace?
FI
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Other Big News
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Mobile Freaks
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
32
Apple Pay vs. LoopPay: Merchant Acceptance
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
33
Apple Pay vs. LoopPay: Card Eligibility
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
34
Apple Pay vs. LoopPay: Smartphone Coverage
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
36
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Fraud Freaks
38
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Click to edit Master title style
Identity Fraud: Fewer Victims, Less Losses
Overall Measures of the Impact of Identity Fraud, 2009–2014
39
SOURCE: Javelin Strategy & Research 2015 Identity Fraud Report; March 2015
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
U.S. accounts for 25%
of global card volume
and 50% of card fraud…
because we rely on
magnetic stripes and
signatures in cursive.
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
41 SOURCE: Federal Reserve Payments Study; Summary of Findings; Dave Beck; 05/22/14
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
42 SOURCE: Federal Reserve Payments Study; Summary of Findings; Dave Beck; 05/22/14
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
43
Post-EMV Credit Card Fraud Projections
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
CNP Fraud Forecast: 2018
CNP FRAUD WILL BE
POS CARD FRAUD BY
2018
CNP FRAUD WILL HAVE A CONSISTENT YET DRAMATIC GROWTH
4X
SOURCE: Javelin Strategy & Research; “Fixing CNP Fraud: Solutions for a Pre- and Post-EMV U.S. Market; October 2014
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
CNP Forecast: 4 Things to Know
CNP FRAUD VOLUMES HAVE GROWN IN TANDEM WITH LEGITIMATE VOLUME IN BOTH THE US AND OVERSEAS.
US CNP FRAUD IS ALREADY TREMENDOUS (LIKE TURNING A BATTLESHIP)
RISK-BASED AUTHENTICATION AND IMPROVED DATA ANALYTICS WILL KEEP THE SHORT-TERM LOSSES FROM GETTING OUT OF HAND.
FRAUDSTERS WILL HAVE PLENTY OF POS OPPORTUNITIES OVER A
4 YEAR PERIOD, MITIGATING ANY CHANCE OF AN OVERNIGHT SHIFT TO CNP.
SOURCE: Javelin Strategy & Research; “Fixing CNP Fraud: Solutions for a Pre- and Post-EMV U.S. Market; October 2014
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
EMV: What We’ve Learned from Others
SOURCE: Javelin Strategy & Research; “Fixing CNP Fraud: Solutions for a Pre- and Post-EMV U.S. Market; October 2014
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
EMV: Transitional Fraud Targets
WHILE BIG MERCHANTS ARE WELL ON THEIR WAY, FRAUDSTERS WILL STILL HAVE TARGETS.
SMALL MERCHANTS AND UNATTENDED TERMINALS WILL REMAIN VULNERABLE
ATMSSMALL MERCHANTS
GAS PUMPS
SOURCE: Javelin Strategy & Research; “Fixing CNP Fraud: Solutions for a Pre- and Post-EMV U.S. Market; October 2014
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
SMALL ISSUERS
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
49
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
50
odds: 1/3 odds: 1/3 odds: 1/3
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
51
odds: 1/3 odds: 2/3
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
So, should you
choose door #3?
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
53
odds: 1/3 odds: 2/3
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
During the EMV transition,
the probability of fraud will
concentrate among the
last to migrate.
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
55
odds: 1/3 odds: 1/3 odds: 1/3
Counterfeit Card Fraud Probability
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
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odds: 0 odds: 1/2 odds: 1/2
Counterfeit Card Fraud Probability
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
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odds: 0 odds: 0 odds: 100%
Counterfeit Card Fraud Probability
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
A Holistic Approach: Fighting CNP Fraud
58
ANALYTICS
BEHAVIORMETRICS
member- DEFINED CONTROLS
AUTHENTICATION
DRIVING DOWN CNP FRAUD WILL REQUIRE A COMPREHENSIVE STRATEGY
SOURCE: Javelin Strategy & Research; “Fixing CNP Fraud: Solutions for a Pre- and Post-EMV U.S. Market; October 2014
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
59
Member-Defined Controls for Cards
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
60
© 2014 Jack Henry & Associates, Inc. All Rights Reserved61
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Detect Breaches Early with Big Data
62
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
• Transitional concentrations of fraud on weakest links
and last to the party
• Debit Cards
• Smaller Merchants
• Get ready: tokenization ain’t free (see MasterCard)
• Signatures are meaningless…and we’re transitioning to,
you guessed it, Chip & Signature EMV
• The learning curve for consumers
• Dip and leave vs. dip and yank (gas pump)
63
EMV Challenges
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Authentication
Freaks
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Signatures are worthless!
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
So, guess how
we’re securing
card payments
next year?!
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
EMV Chip & Quill!!!
67
+
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
User Names & Passwords Are Done
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Click to edit Master title style
Half of Consumers Recycle Passwords
Number of Accounts for Which Consumers Use the Same Password
SO
UR
CE
: Ja
ve
lin S
tra
teg
y &
Rese
arc
h 2
01
4 Id
en
tity
Fra
ud
Rep
ort
; F
eb
rua
ry 2
01
4
5%
10%
7%
5%
9%
14%
51%
0% 10% 20% 30% 40% 50% 60%
More than ten
Six through ten
Five
Four
Three
Two
One
Percent of consumersOctober 2013, n = 5,521
Base: Consumers with online accounts.© 2014 Javelin Strategy & ResearchQ61: For how many of your online accounts do you use the same password?
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Click to edit Master title style
More Accounts, Fewer Passwords
Ratio of Passwords to Online Accounts Owned
0.78
0.50
0.35
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1 to 10 online accounts 11 to 20 online accounts More than 20 online accounts
Nu
mb
er o
f p
assw
ord
s fo
r ea
ch a
cco
unt
ow
ned
October 2013, n varies 490 to 4,249Base: Consumers by number of online accounts owned.
© 2014 Javelin Strategy & Research
Q60: How many separate online accounts would you estimate currently belong to you?Q62: About how many separate passwords do you use to access your various internet accounts? --mean
SO
UR
CE
: Ja
ve
lin S
tra
teg
y &
Rese
arc
h 2
01
4 Id
en
tity
Fra
ud
Rep
ort
; F
eb
rua
ry 2
01
4
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
So, guess how
the new Visa
Checkout is
secured?!
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
72
Visa Checkout
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Behavior
Freaks
73
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
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© 2014 Jack Henry & Associates, Inc. All Rights Reserved
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© 2014 Jack Henry & Associates, Inc. All Rights Reserved
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© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Freaky Freaks
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Why are we so
distracted?
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Myelin
80
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
81
Generation Y
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Gen Y Woes
• First to have lower standard of living than their
parents’ generation
• First to have higher student loan debt, poverty and
unemployment than their two immediate predecessor
generations had at the same age
• 60% “young Gen Yers” (21-26), and 50% of older Gen
Yers” (27-34) say they have an “impulse purchase”
problem.
• Nearly half of all Gen Y consumers looking to switch FIs
want their next FI to offer PFM tools
82
SOURCE: Pew Research; June 2014
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
So what’s the
answer to the
impulse problem?
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
84
Real-time
feedback
loops?
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
A third of US consumers
who have owned an
activity tracker stopped
using it within six months.Endeavour Partners, July 2014
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
So how to help
those immune to
feedback loops?
(because their brains aren’t fully mature yet)
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
Opt-outs and automation.
© 2015 Jack Henry & Associates, Inc. All Rights Reserved
90
Automated savings?
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Marketing
Freaks
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© 2014 Jack Henry & Associates, Inc. All Rights Reserved
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Activity Based Marketing Marketing within the context
of an activity being performedby a member or prospect.
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Perpetual Loan Approval
95
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
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© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Wearable
Freaks
97
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
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© 2014 Jack Henry & Associates, Inc. All Rights Reserved
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
So, how should you
get your freak on?
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
5 Steps Forward: CUs Must…
1. Master their data, so that they can use it to…
2. Serve personalized, relevant ads for the CU’s products and services across all channels consistently and in context.
3. Expedite member’s acquisition of CU’s products and services when they choose (without data re-entry).
4. Curate “partners” who may use CU’s ad engines to serve members with relevant ads that can be one-clicked to acquire.
5. Earn ad fee income wearing a white hat.
102
© 2014 Jack Henry & Associates, Inc. All Rights Reserved
Lee Wetherington, AAP
http://discover.profitstars.com/leewetherington
@leewetherington
http://www.linkedin.com/in/leewetherington