10 biggest insights from PayThink 2018

Sourcemedia's annual PayThink conference is always productive and informative, and this year's event was no exception. Taking place during the last week of September in Austin, PayThink brought together leaders and innovators, and they weren't shy about sharing their visions for the future of payments — or their gripes about the state of the industry today.

Why mobile never took off
iphone 6s shadowed
An Apple Inc. iPhone 6s smartphone is arranged for a photograph in Hong Kong, China, on Friday, Sept. 25, 2015. The latest models, following last year's hugely popular design overhaul that added bigger screens, may not match the success of previous releases, according to analysts. Photographer: Xaume Olleros/Bloomberg
It seems that every year, at least since Apple Pay launched in 2014, it’s the “year of the mobile wallet.” And each year, like clockwork, the banks end up disappointed in the lack of traction in mobile wallet usage and adoption.

This is despite a steady stream of new entrants in the mobile wallet market — as LG in 2018 — and rebrandings such as Google turning Android Pay into Google Pay. Concurrent with this trend, major holdouts like Costco, CVS and 7-Eleven have committed to supporting NFC mobile wallets.

Despite such great progress being made with merchants and issuers as it relates to mobile wallets, the sobering reality is that these electronic wallets stored on phones are trying to change consumer habits when there is little compelling reason to do so.

“Five or six years ago we thought the physical card would disappear and people would pay with their phone, but that hasn’t happened," said Prashant Sharma, senior vice president of credit cards at CIBC. "What’s driven the slow adoption of mobile wallets [is] while it’s convenient to tap a phone, there’s nothing more to it. It’s as convenient to tap a card, if even more so."

Ultimately, when consumers begin to ask the question of why should they change to mobile when no clear reason exists, it’s because the financial services industry has not created enough value to encourage a shift in payment habits, according to Brian Crist, chief payments council at Uber.

"Are we trying to solve for a wallet that’s been in your pocket for 100 years or are we trying to solve for an easier way to pay?” he asked.
Credit unions balk at joining bank-run Zelle
Jay Tkachuk-Security Service Federal Credit Union2
Some credit unions won't join the bank-operated Zelle P2P network — even as their members demand the service.

Zelle doesn't require a bank or credit union to participate in its network to allow it to receive funds; so even Zelle holdouts will see some activity on their accounts. This allows credit unions to compare members' demand to usage, and to determine whether signing up with Zelle is worth the trade-offs.

"Zelle is a top five bank-owned network, and all the fees go to them," said Jay Tkachuk, vice president of digital services at Security Service Federal Credit Union. "We as a business get nothing except liability and security expense."

Zelle, formerly clearXchange, is owned by the bank-operated Early Warning.

Security Service FCU does not offer Zelle or another P2P option, and it was a decision the organization debated for more than a year, according to Tkachuk. Members have requested Zelle, but the request is far down the list; it doesn't make the top 10, he said.

Randolph-Brooks FCU is in a similar situation, and is monitoring its members' usage of Zelle and Venmo to determine whether it should join the Zelle network.

"We had 50-something Zelle transactions last month," despite not participating in Zelle, said Charlotte Norton, the senior vice president of central operations for Randolph-Brooks. "We watch that constantly and we're trying to understand what our members are doing."

Randolph-Brooks allows its members to transfer funds to one another if they know the other member's account number. Norton admits that's clunkier than asking for the recipient's email address or phone number, as Zelle and Venmo do, but nevertheless a quarter of a million transactions happen this way each month.

Norton recalled talking to a banker who said most of its Zelle transactions showed the same behavior — the payments went from one of the bank's customers to another. If this is a typical use case, Norton said, "I don't want those to go to Zelle because I'll have to pay for them."
What to do when SMS authentication is broken
Verizon phone
A pedestrian checks his mobile phone while walking past a Verizon Wireless store in San Francisco, California, U.S., on Wednesday, April 15, 2015. Verizon Communications Inc. is scheduled to release earnings data on April 21. Photographer: David Paul Morris/Bloomberg
Many companies no longer rely on static passwords alone, and use two-factor authentication to protect consumer accounts. The problem is they're using the same second factor: text messages sent to mobile devices.

The drawback of sending a single-use code via SMS is phone numbers can be spoofed, and cellular accounts can be taken over by savvy scammers. In one recent example, a U.K. woman lost over £8,000, or about $10,600, from her bank account after fraudsters visited a branch of Three, her mobile provider, and persuaded it to transfer her number to a new SIM.

There are multiple ways to address this problem. One is to rely on the carriers themselves to shore up their defenses.

"SMS was primarily built as a communication tool, but it became de facto for second-factor authentication," said Pavan Challa, director of product management at Verizon.

Verizon is working with other carriers on Project Verify, which is designed to "not just use SMS but use your device, use the signals that have been sent to the network … customer information, AI, machine learning and blockchain technology," he said. "We want to build this multifactor authentication into the solution that's going to eliminate most of the fraud that's going to happen today."

Project Verify, which also includes AT&T, T-Mobile and Sprint, was announced earlier in the month and is expected to go live in March 2019 as an app that the carriers preload onto customers' phones.

On the banks' side, other options can complement what the carriers are doing. These methods will become increasingly important as more banks join real-time payment networks.

"Real-time payments comes with real-time fraud," said Eric Woodward, group president of risk solutions for Early Warning, which operates the Zelle payments network.

Since Zelle is meant to be used within a bank's app, it benefits from the security that's built into those apps, including biometric authentication, PIN codes and more. But Zelle's role doesn't stop there.

"We see our customers use everything from voice to fingerprint to facial [to] eyeprints," Woodward said.
Fighting fraud by focusing on the good guys
Dave Excell, founder and CTO of Featurespace
To improve security for card transactions, Featurespace, a U.K.-based security company, focuses on good behavior instead of bad.

"It's a completely different approach to solving fraud," said Dave Excell, founder and CTO of Featurespace, in an interview at PayThink. "Rather than chasing around the fraudster, we're chasing around the good customers."

Featurespace began working with U.S.-based TSYS in 2016, and since their partnership began, the companies have seen a 35% decline in card-not-present fraud for clients on their product worldwide. Featurespace also works with Worldpay, one of its investors.

The system takes in a number of factors including passive habits, such as how a person holds a mobile device or which lane they prefer to shop in at a grocery store.

Featurespace places very little value on SMS passcodes.

"Text is completely broken; you can't rely on that," Excell said. "It's really easy for a fraudster to compromise your mobile number."

A potential drawback of this approach is that the better it is at stopping fraud, the less fraud data the system can observe going forward.

"A fraud that you had there to learn from no longer exists because you actually stopped it, so you've actually got to be careful in terms of how you construct the system," Excell said.

Featurespace's model is designed to keep that in mind, and not let its guard down when fraud starts to disappear. "When you actually start deploying these machine learning solutions, you have to think about the practicalities of once they're live, do they start to bias your data?" Excell said.
Banks have innovation backwards
John Thomas (TD Bank).jpg
John Thomas, head of U.S. payments and data strategy at TD Bank, says banks are approaching innovation the wrong way.

Banks are taking the same steps that successful tech innovators take when approaching a problem, "but they're done in a very, very different order," he said.

Banks typically look at a new technology and try to find a use case for it, Thomas said. Tech innovators look for a problem first, and then take steps to build the right technology to solve it, he said.
Google under the microscope
Steve Klebe (Google)2.jpg
Google is facing scrutiny for the amount of user data it collects, particularly when it comes to payments.

Steve Klebe, who is responsible for business development of Google Pay, said: "Nothing we do isn't under the microscope."

And it's true that Google does know a lot about users based on their payment habits. But it doesn't know everything, and it has a strict privacy policy that limits what it does with the data it can see.

"We do know that you took an Uber ride yesterday, but we don't know where you went," Klebe said. "We know you were in Walgreens yesterday but we don't know what you bought."
More talk about voice payments
Apple Siri user
A customer uses the new iPhone 5 Siri function at a Telstra store on George Street in Sydney, Australia, on Friday, Sept. 21, 2012. Photographer: Ian Waldie/Bloomberg News ***Local Caption***
The potential for voice payments is massive and drawing significant attention from developers. But limited use suggests it's not ready for prime time.

Most activity is consistent with early adopters in limited use cases, as opposed to broad scale voice payments and shopping. Voice payments skew male and most purchases are made through virtual assistant-enabled apps for tasks such as food ordering or ride share services.

Nonetheless, there are optimists who believe mainstream use will come much sooner. “I think voice is the biggest thing coming next,” said Steve Klebe, who is responsible for business development of Google Pay.

While Klebe was notably positive about the voice payments opportunity, he shared a dose of reality on the situation “It is very early, but three years from now we will be saying ‘wow that happened fast.’ I think the mobile use cases are as good as the at-home use cases,” Klebe said.

When U.S. Bank launched skills for Alexa, Google Home and Siri it enabled all three to provide checking account balances, but not the ability to make purchases. The only payment U.S. Bank allows is the ability to pay a U.S. Bank credit card from a U.S. Bank checking account. Similarly, when Synchrony launched its first Alexa skill this Spring it was for bill payments as opposed to shopping.

“Enrichment FCU rolled out Alexa to their members this year and are the first credit union to do it. We wanted to be the first one in our market to offer it as a solution. It was a PR push. We also want to be able to remove as much friction as possible. [We want] Alexa to manage your account, your mortgage, etc.,” said John Merritt, chief information officer at Enrichment Federal Credit Union.
What did MCX get right?
Brian Crist
The Merchant Customer Exchange, a multi-retailer mobile wallet initiative, is often seen as a failure. Brian Crist, chief payments counsel at Uber, says it's actually a lesson.

"It really is important that there is choice and there is diversity out there," he said, warning that the industry should not be dismissive of MCX simply because that initiative dissolved.

"There's still opportunity for ... merchant-led initiatives," Crist said. "Knowing your customer, knowing your users, there's a lot of value you can add there."
A fast lane for faster payments?
Cash drawer
bills and coins in a cash register
As the major banks grapple with the slow and steady implementation of The Clearing House’s Real Time Payments (RTP) system, one organization, Ingo Money, is forging ahead in delivering faster payments for its clients and their customers using the card networks’ push payments rail.

When The Clearing House launched its RTP network in November 2017, it was understood that achieving complete coverage of all U.S. financial institutions by the end of 2020 would be a massive undertaking. Possibly even a stretch goal. Questions of its progress quickly surfaced as banks have been slow to join the network. Additionally, a recent study from Aite Group showed that banks still have a lot of issues to iron out before rolling out real-time payments to their corporate clients.

Ingo Money is tackling these issues issue head-on.

“From our lens it’s a customer differentiator. In the insurance industry you earn the business the day there is a claim, and how you pay it makes the difference," said Lisa McFarland, executive vice president and chief product officer at Ingo Money. "If it takes three days to pay the claim versus instantly, it can completely change the customer experience and perception of the insurance company."
A grassroots effort to go digital
Ziolkowski
As much as the payments industry would love for consumers to decide on their own to give up on cash and checks, executives might have to make the case for digital payments on an individual basis.

Wells Fargo exec Michelle Ziolkowski was fed up with writing checks, but her piano teacher didn't want to go digital.

So Ziolkowski started tracking her check-cashing behavior and found that she sat on the checks for about 21 days before cashing them. This convinced the piano teacher that she should at least try out digital payments through her banking app.

Once it was set up, "She was like, 'hey this is kind of great,'" Ziolkowski said. "And I was like, 'exactly.'"
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