PayPal, Visa and MasterCard Collaborate – For Now.

In a turn of events that demonstrates how rapidly the financial payments market is evolving, Visa and MasterCard have both entered into separate deals with PayPal. (ref 1 and 2 below)

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Image courtesy

It was puzzling. Didn’t PayPal already accept both Visa and MasterCard? Yes it did, but the growth of PayPal (and now Stripe), also posed a very real risk of dis-intermediation of the card networks we both love and hate (depending on if you’re a consumer or merchant). PayPal had been promoting the use of direct bank transfers (ACH) to users by encouraging them to enroll their bank accounts for payments. That meant that while it allowed free payment transfers to friends and family, it also saved on fees when the same source of funds was used to pay merchants.

This rising trend caused a problem for the networks. The solution they came up with was to:

  1. Get PayPal to not encourage users to use bank accounts as source of funds
  2. Allow PayPal access to their mobile payment wallets

PayPal may lose a little margin on its online transactions, but it now has a real chance at speeding up adoption of physical payments, an area where PayPal was clearly lagging behind.

Why did the consumers sign up for direct bank payments when they stand lose their credit card reward points? Its simple – PayPal charged almost a 2.9% fee for payments to friends and family. So it was beneficial to set up a bank account for the payment where PayPal would charge zero fees. With that major hurdle cleared, PayPal was obviously seeing the cheaper payment sources being used for goods and services as well.

PayPal, and now Stripe, Authorize.net and many others, have created a nice position for themselves in the online, small business payments world. It was a pain area that wasn’t addressed by banks and the card networks for a long time (and still isn’t). So it was just a matter of time that their intimacy with the customer had to threaten the underlying, commoditized service provider (the card networks). And if PayPal decides to become a bank (or ties up with a bank like Simple and Moven did), that’ll spell trouble for banks as well.

All said and done, I see this as an agreement born out of convenience, and with a focus on short terms gains and survival. We can expect big changes soon, at least from the networks. But with the rise of Dwolla, PayPal should be on its toes too.

Ref 1: PayPal and Visa ink partnership agreement

Ref 2: PayPal Strikes Deal with MasterCard to Allow Payments in Stores

 

Pokemon Go beyond the initial rush?

pokemon-1555036_1280Timing is everything. Brands and businesses worldwide were quick to cash in on the Pokemon Go launch mania. Businesses jumped in with all kinds of promotions and offers as millions of people took to the streets hunting Pokemon on their mobile phones (I did too). For the most part, the promotional tactics for customer engagement by businesses can be categorized as:

  1. The lucky ones – some businesses were just plain lucky that their locations became part of the predefined Pokestops (where players come to collect virtual goodies) or Gyms (where players pit their Pokemons in battle). If you could handle the additional but distracted foot traffic, then you have the games inherent features working to your advantage. You can set up Lures for a few dollars and can make your location a hot bed of Pokemons to catch, or you could create specific promotions around the Pokemon battles if you are a gym. The possibilities for creating awesome customer engagement are endless and all that’s left is to tie these events to products and services.
  2. The not-so-lucky ones – Then we have the unlucky ones who got left out from the initial list of locations for Pokestops and Gyms. (these locations were pulled from another game and imported into Pokemon Go). These businesses who did not fall in a designated Pokestop or Gym area are relegated to running promotions the old way and hoping to catch some of the glitter associated with the hot new game. For example, Uber launched a promotion where you get free Uber rides if you catch a certain number of Pokemons in a given time. Other retailers launched similar promotions and invested in Lures at Pokestops nearby to try to get foot traffic in, and to get some brand recognition going. Still others launched offers where gamers can post pictures of Pokemon captured in their locations, while others launched Pokecrawls with series of stops to enjoy discounted drinks, catch Pokemons and meet other people. However, all said and done these customer engagement efforts didn’t really need to leverage Pokemon Go specifically. The only reason to do so was the novelty of it all. And that’s going to fade after a while.

As the novelty of the game wears off, what can the second category of businesses do to tap into this and other such developments sure to come up in the future? While its important for these brands to find a way to drive customer engagement, it’s also effort probably well spent. Thinking about this problem will help them become readier to tap into the next such launch, and perhaps create recurring events to celebrate what gamers – their customers – love. Moreover, the issues of the predetermined locations were specific to Pokemon Go so they will not always be hurdles. In the mobile and social world, its probably good to come up the hard way.

Image courtesy: https://pixabay.com/en/pokemon-pokemon-go-pikachu-pokeball-1555036/

 

Building the Future of the API Economy

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The impact of API economy is across all industries. Because APIs by their very definition are supposed to promote interaction and dialog across multiple companies, often in different industries.

In my article on American Banker Don’t Give Away The Store When Enabling APIs, I brought out the focus on ensuring that banks maintain their customer experience front end, while allowing additional channels for growth. For example, allowing travel sites, Facebook and retailers to access the bank’s services were examples which if taken too far with potential competitors could result in commoditization and loss of value (as the service providers are hidden as utility providers).

APIs are the future in today’s connected world. In this new post on American Banker titled 3 Steps to API Success, I tried to provide a simple framework to guide the development of Bank APIs with those customer experience principles in mind. Essentially, apart from going to market rapidly by opening up new channels, it is important to start building a sticky and value-adding customer experience by focusing on projecting the bank’s brand, not just the utility service itself.

The 3 steps in the framework sort of follow a road-map because they increase in complexity of course. Also read the full article on American Banker.

  1. Fill in the gaps in our customer journeys: Like any business, we often fulfill our end of the bargain, while leaving the remaining customer needs to the other players in the industry.  However, in this rapidly innovating world, the most important use cases for API banking will be driven by 3rd party applications that help customers accomplish the objectives that ultimately matter. Otherwise, this gap will be filled quickly by someone else. For example, banks provide a bank account but the space is rife with innovations around P2P payments and check sharing, spending pattern analysis, savings goals and calculators etc. Examples abound for small businesses, as well as commercial banking. Perhaps the first step could be to address these end to end journeys by enabling a 3rd party ecosystem around APIs developed for these purposes. These applications meets the objectives of low cost services provided to niche customer bases. These innovations often failed the “business case criteria” for in-house development. But they help the bank establish its brand by creating an umbrella ecosystem that is similar to how enterprise technology providers create their partner ecosystem.
  2. Moving towards an App Ecosystem model: The next level of the API model will go beyond exposing APIs to third parties towards building controlled environments where discovery, adoption, experimentation and payments will be seamless. Fidor and Mondo are 2 European banks that have laid the foundation of this model. Powered by 3rd party innovation and supported by customer experience experts from the bank, this app model brings a much tighter integration of the banks offerings and aligns them with the customers. Such a model reduces the go to market friction for partners (e.g. advertising, or fulfillment). It also ensures that the bank can market the entire package of services to customers and create conversations around their end to end needs, instead of negotiating on product features and price.
  3. Becoming a connector of value: The ultimate goal is not just to provide a service, but to anticipate customer needs, and ensure they are receiving the assistance they need as they make financial decisions. Over the years, banking has evolved naturally (like any service) from being a custodian of money, to being an agent that helps (or can help) make the right financial decisions. The API model now provides banks the right tools to make this mission come true. For example, helping the customers maintain the right balances for their upcoming payments, their IRA contributions, or just sticking  to a monthly budget for various categories of spend. As customers utilize the banks services (or the apps), this ecosystem will tend to grow stronger. In summary, for the first time, banks will be able to connect the different use cases and bring singular focus on the overall customer objectives. For example, Citi’s Price Rewind program tries to do this but relies on customer signups instead to gain access to transaction data and customer context. The Bill Payment service comes close but it needs to be integrated with the rest of the bank’s ecosystems.

Connecting individual value propositions by creating overarching customer identities and helping customers with proactive advice is what will differentiate one banking API platform from the other. And for this to take off, banks must take steps to make customers aware of the new capabilities, clarify each value proposition from the customer’s perspective, and on-board customers quickly and comprehensively. Such a model will obviously be based on ensuring privacy through various opt-in mechanisms. In summary, working backward from the customer motivations and experiences in the digital economy is key to innovate and maintain relevance.

Read more on American Banker at 3 Steps to API Success. Your thoughts and suggestions are welcome. Image taken from https://pixabay.com/en/users/geralt-9301/

 

Practical, simple steps to banking customer engagement N.0

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A recent report on The Disruption of Banking by The Economist highlighted that more than half of the banks are either ignoring the Fintech trend, or talking but not doing anything about it. In 2016, we are now seeing banks finally starting to tackle the emerging trends by partnering on many fronts, utilizing application program interfaces (APIs) and experimenting with innovations such as blockchain.

In this article on BAI Banking Strategies, I highlighted how customer engagement is proving to be elusive and what steps can be taken to overcome the challenges. The biggest challenge today is the defragmentation of the customer engagement front end. Banks need to be at the forefront, but are increasingly at the back end fulfilling transactions. They must take practical, simple steps to banking customer engagement, and possibly sidestep the traditional digital transformation journey as they grapple with customer engagement in today’s fast changing world.

First, omni-channel capabilities need to be looked at as a combination of capabilities and channels that are coming together to make magic. However, most reports and surveys out there ignore this and focus on “channel capabilities” – important but not enough. Instead of asking the question about which features must be made available to customers on which channel, we should be thinking of moving a customer along to the next step of their overall journey according to their expressed or implied needs. That may be the simplest way to tackle the burning question of contextual customer engagement and experience.The digital transformation agenda is almost too complex to make progress against. The underlying premise should be to create a customer experience that feels responsive and fresh, based on education and focused on the customer’s goals.

Second, the right approach for the future may be to prioritize key customer journeys, make them the top priority and do everything around them in an agile and incremental fashion. The reason is that all bets are off when it comes to the ideal tech architectures of the future even as these customer engagement improvements are needed now, not 12-18 months later. I took the example of a customer who’s logged in and browses credit cards or a mortgage. Try it. You’ll be surprised at what doesn’t happen. This customer journey approach also has the benefits of removing organizational silos and mobilizing everyone around the same overall metrics.

If you’re interested the entire article is on   BAI Banking Strategies.

The Banking API Leapfrog

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In a recent article on American Banker (Don’t Give Away the Store When Enabling APIs), I brought out three best practices for banks to adopt as they think of leveraging the Fintech and Banking API phenomenon.

Even as Banking API are being touted as a must for banks, the common position of argument is from the perspective of emerging companies and Neobanks who are trying to reach the customer in a world that has apparently just opened up. Banks are widely being positioned as too slow, expensive and unwilling to innovate with the customer in mind. While the API trend for open banking cannot be ignored, I’m summarizing the 3 key points of the American Banker article that highlight a 3-pronged approach:

  • A more open ecosystem does need to be created, but banks should be looking to improve, rather than letting the innovation defragment the customer experience. Banks should be looking at the innovations that meet the niche or fringe needs, and also build upon the customer 360, rather than destroy the integrated CX. The App store model that Fidor bank in Germany has initiated is a great way to do that. Citi is embarking on this too.
  • The benefits of Banking API should go both ways. Even as emerging players seek to leverage the bank’s data, the banks should be building a data pipe back into the bank as well. That will help build increased customer context (e.g. transaction detail) which has not been fully available as of now due to regulatory and privacy concerns. Citi’s Price Rewind program is a step in that direction that can be enhanced through such 2 way models with the consent of the customer.
  • Enable rapid innovation by engaging in white-labeled partnerships and perhaps acquisitions to accelerate technology innovation. Banks have been doing white-labeled offers for decades so this is nothing new. Services such as identity monitoring, and online retail marketplaces have existed for years. BBVA’s acquisition of Simple, and their real time payments service based on Dwolla are also examples of the acquisitions and partnership approaches. The key will of course be the pace at which banks can internalize these innovations.

Approaching the new digital world the right way is crucial to be able to maintain the customer front end. Its easy to be dis-intermediated. While being a provider of the banking and payments backbone is a viable option, the real risks may be about missing out on innovative revenue and business models that arising.

Thoughts are welcome. Photo credit: Kay Kim(김기웅) via Foter.com / CC BY

Read the full article on American Banker here...