© 2011 the tower group, inc. may not be reproduced by any means without express permission. all...

© 2011 The Tower Group, Inc. May not be reproduced by any means without express permission. All rights reserved.

Top Worldwide Innovations in PaymentsChanging the world one step at a time

Andy SchmidtResearch DirectorCommercial Banking & Payments

October 14, 2011

© 2011 The Tower Group, Inc. 2

Agenda

Innovation Overview Why is it important, and why do we need it in financial services?

Views into Payments innovations by: Service Product Technology


A framework for analyzing markets and disruption

Pace of technology change

Bar

riers

to

entr

y

RAPID

HIGH

LOW

SLOW

Battleships Jets & Sharks

Meteors Fruit Flies


Each segment displays unique dynamics and innovation potential

Jets & Sharks

Aggressive competition among sophisticated players

Fast pace of business demands advanced technology

Incumbents know each other, and their “moves”

Relationships change rapidly; business models less so; insider-based which can be disruptive

Meteors Slowly evolving, with new entrants entering the business

No substantial change beyond price or relationship Incumbents can be surprised by a better

mousetrap

High potential for disruption in relationships and business model; incumbents not positioned to respond quickly

Segment Dynamics Nature of innovation

Battleships Dominated by few large players Pace of the business in general is slow Incumbents seek to maintain status quo

Unlikely; high probability of “sustaining” evolution from incumbents

Fruit Flies Constant experimentation and rapid evolution at the margins

Most liable to be influenced by imports from other industries

Incumbents can contribute to the experimentation as well

Innovation from within and without; constant evolution of business models and shifting client relationships; first-mover advantages are slim


Why is innovation important in financial services?

The basic financial services product set hasn’t changed in nearly a century

Customers (and even regulators) are demanding change

Initiatives like SEPA and Dodd-Frank/Durbin place limits on bank transaction revenue

Parties ranging from alternative payment providers to wireless companies threaten to disintermediate financial institutions


Some guiding thoughts on Innovation

Being first doesn’t mean you’re the smartest

It’s perfectly okay to take someone else’s idea and build on it

Meaningful innovation often happens in small steps

Change is the only constant, so focus is required to sustain forward momentum


Getting to the segment of one

Service Innovations in Payments


Special Needs, Markets, and Hours

Japan(Citibank) Branches are open evenings,

Saturdays, or year-round

New Zealand (ASB Bank) Virtual branch targeted at

Facebook users

Singapore (DBS) Creating a Gen-Y branch

Sweden (Swedbank) “Special Senior Hour” from

10-11 daily


Cards & Services for Women Only

Portugal (Caixa Geral de Depositos) Offering includes credit and

debit cards

South Africa (Standard Bank) Offering includes cash back

on all purchase

Both cards include access to expanded medical insurance Access to life insurance and

discounted medical visits


Cards & Services for Women Only


Card-less ATM Withdrawals

Brazil (Banco do Brasil)

South Africa (ABSA)

US* (PayPal)

Singapore** (Confidential)

Offerings have different use cases ranging from the mundane (paying the gardener) to the urgent (lost/stolen wallet)

Origination paths are identical: SMS message from user

* Announced October 12, 2011 ** In development


Bumping, wallets, and Bitcoins

New Ways to Meet Existing Needs


Bumping Phones to Make Payments

March 2010 – PayPal announces “bump” feature First for Apple, then for

Android

July 2011 – PayPal announces NFC support Allows any transfer of value –

and information – to and from any NFC phones

Source: PayPal


Mobile Wallets – Coming Soon to a Phone Near You

Offerings abound: US (American Express,

Discover, Google, Isis, MasterCard, Square, Visa)

UK (O2, Orange, Vodafone) Denmark (TDC, Telenor,

TeliaSonera, 3Denmark) Singapore (Infocomm

Development Authority, DBS)

Goal is simple – to turn your phone into a “master key” for any payment need

Source: Square


But wait – mobile wallets aren’t just for payments

CardMobili (Portugal) offers a mobile wallet for loyalty and reward cards

Supports all major mobile operating systems

Catalog includes over 2,000 cards from over 30 countries

Company has won multiple industry awards


But wait – mobile wallets aren’t just for payments


Virtual Currencies – replacing paper and coins with bits and bytes

Transactions are often peer to peer without the use of a central authority

Relies upon “the network” to self-police

Concept drives regulators crazy Can’t rely on the network to

stop/filter transactions Proponents claim attention is

just a ploy by banks to impede adoption


Virtual Currencies – replacing paper and coins with bits and bytes


The New Bill Pay: Reverse Remote Deposit Capture (RDC)

Allows users to take a picture of any bill and pay it

Can add recurring payee information or be used forone-time bills

Uses the same optical character recognition and image correction technology as mobile RDC

Currently in pilot, expected to be commercially available by year end

Source: Mitek Systems


Card.io – RDC for cards

Source: card.io website


Gift Cards: Another Way to Use Points

Pilot began in December 2010

Allows Chase customers to convert points into closed-loop gift cards

Follows growing bank interest in creating “gift malls” for mobile clients

Over 20 participating merchants, including CVS, Gap, The Home Depot, Uno

Source: Chase Gift Shelf


Payments You Can Wear

US Bank MasterCard® PayPass™ VITAband® Contactless payment device Emergency contact and

health information

“Wearable” payments already in use in Europe Transit passes and ski lifts are

leading uses

Source: US Bank, VITAband


Location-based offers and mobile coupons – right deal, right place, right time

Singapore (McDonald’s) – application identifies nearest McDonald’s on a map and send coupon to mobile phone

Global (Groupon) – leverages group-buying to deliver significant savings to members


Sample Groupon offer – Singapore


Biometrics – authentication based on something you have

Poland (BPS) – ATMs let customers use their fingers rather than bank cards to identify themselves and access ATM services

US (iCache) – uses fingerprint to make payment and loyalty card data available on a single plastic card for a short period of time


Phones that can both hear and see have no need for NFC

Leveraging the Entire Smartphone


QR Codes and Sound Leverage Existing Smartphone Capabilities

QR (Quick Response) most often used to drive offers or provide information

EasyDo (Japan) adds payment functionality and is widely used

mFoundry (US) markets an application used at Starbucks

eWise payo looking to expand use at POS

Source: TowerGroup


QR Codes and Sound Leverage Existing Smartphone Capabilities (continued)

Sound is being used in stores and beyond Shopkick (US) is used in

stores to push coupons and offers

Zoosh (US) can be used between devices

PayFair (Belgium) sends audio file from phone to POS


Conclusions

Financial services institutions need to innovate to attract and retain customers

The pace of innovation is fastest in the mobile market where users, banks, and application developers explore – and expand – the medium’s capabilities

Gen Y’s demands for mobile capabilities will influence their choice in banks

Even slight improvements in existing offerings can add significant value to target markets


[email protected]

© 2011 the tower group, inc. may not be reproduced by any means without express permission. all...

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