s p r i ng 2016
pay m e n ts i n d u st ry i n s i g h ts j o u r n a l
cover story
A Fragmented
Payments Industry
Many different players,
many different solutions
— and why that means
good things for consumers
Strategies to:
07> Cope with global
interchange reduction
Six tips for profitability
and product strategy
13> Improve your
payments marketing
n outlook for card issuers
A
looking to get digital
41> Meet customers’ needs
in the merchant space
Q&A with TransFirst president
A
and CEO John Shlonsky
plus
09>EMV: Just getting started
or ready to be replaced?
17> Making a positive social
impact with fintech
25> On-demand delivery apps
with one-click checkout
43> Payments regulation
and legislative news
from Capitol Hill
cover story
features
41 3
Payments Profiles
60 Seconds with John Shlonsky
Does Our Industry
Need Defragmenting?
The president and chief executive officer of TransFirst
on meeting customers’ needs in the merchant space
43 As multiple payments
platforms and form factors
emerge, the industry’s
course is uncertain
A View From Washington
Policymakers at Work:
Payments regulations and legislative news from Capitol Hill
45 Perspective in Payments
Interpreting the “F Word” — A Litmus Test for Loyalty
Account teams are often blindsided when a client decides to move on
7
9
Six tips to manage profitability
and product strategy
Mobile payments may be a threat,
but don’t count out EMV
21
25
29
How HCE is changing air travel,
ground transit, hospitality and more
And why a seamless payments
process plays a major role
in success
Focusing on loyalty, customer experience
and exclusivity to win market share
Coping With Interchange
Reduction: A Global Topic
Completely Connected: HCE
and Mobile Potential Beyond
Payments
On-Demand Delivery Apps
With One-Click Checkout
EMV: Just Getting Started
or Ready to Be Replaced?
Five Things American Express
is Getting Right for the Mass
Affluent Market
13
Five Key Ways Cards Issuers
Can Improve Their Marketing
This Year
17
Fintech for Good
Innovators look to make a
social impact
A 2016 outlook from C.E.K. & Partners
33
Cross-Border Payments
Coming of Age
Enabling payments for merchants
looking to sell overseas
37
Digital Banking and Retail Commerce:
A Whole New Ball Game for Fraud
Prevention
Tactics for fraud prevention in an age
of innovation and interconnectivity
n>genuity
Spring 2016
Volume 9, Number 1
n>genuity journal features industry
articles on global payments topics and
is published by TSYS.
®
®
editorial
Editor In Chief: Virginia Ann Holman
Managing Editor: Erin M. Sarris
Editorial Coordinator: Stan Merritt
editorial boa r d
Charles Marc Abbey
Anil Aggarwal
Sean Banks
Deborah Baxley
Carol Coye Benson
Virginia Ann Holman
Kenneth Howes
Steve Mott
Joanne Robinson
Patricia Sahm
Matt Simester
Scott Talbott
Karen Webster
contributing e d itor s
Cyle Mims
Rebecca Stephan
production
Design and Creative Direction:
Laura Champion
Paula Sutton
Illustration:
Kelly Kingman
Printing:
Columbus Productions, Inc.SM
subscribers
To request additional copies, make
comments or request electronic
delivery, contact Stan Merritt
at +1.706.641.6586 or
[email protected].
TSYS Marketing
One TSYS Way
Post Office Box 2567
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contributors
James Cranfield: James Cranfield is a seasoned payments consultant, heading up Insight
Consultancy, an international payments advisory firm with clients across the globe. James’s expertise
lies in the areas of strategy, profit optimization, partnerships and simulation-based learning.
Matt Simester: Matt Simester is Piran Consulting’s Director of Cards & Payments. Prior to this,
he was a Managing Director within a leading payments consulting practice. His expertise covers
payments strategy, partnership development, mobilisation, product development, retail payments and
benchmarking. In addition to working as a consultant, Matt is also an industry practitioner, having
previously been Head of Value Added Services at Barclaycard Business, Managing Director of retail
card issuing business and a founding executive of Barclaycard Partnerships.
Charles Keenan: Charles Keenan has written about payments since joining the American
Banker as a staff reporter in 1997. His work at the American Banker included writing about credit and
debit cards, merchant processing, and bank stocks. He later freelanced for the Banker and industry
publications such as Banking Strategies, Bank Director, Community Banker, and U.S. Banker. He also
writes about investing, insurance and health care, and is based in Los Angeles.
Carolyn Kopf: Carolyn Kopf is the principal and managing partner of C.E.K. & Partners, a brand
and strategic marketing resources firm providing services to brands within the financial services and
payments industries, healthcare, manufacturing and for private equity firms. C.E.K. & Partners offers
deep experience spanning custom research design, brand building, thought leadership and brand
management. C.E.K. & Partners help companies build brands, create meaningful connections and
accelerate business growth. To learn more, visit their website at www.cekpartners.com.
Doug Yeager: Doug Yeager is the CEO of SimplyTapp, the original developer of HCE technology.
Doug co-founded the company in 2011 with a simple vision: to give card issuers access to mobile NFC
payments solutions for their customers through host card emulation (HCE) technology. To learn more,
visit www.simplytapp.com.
Samuel Murrant: Samuel Murrant is an analyst, consumer payments with Verdict Financial.
Having taken a roundabout path to consumer payments — having first studied biology — Sam has a
unique approach to analyzing the payments market, viewing competitors through the lens of natural
selection. Sam is driven by the need to comprehend the advantages that new developments in fintech
possess and see whether they can survive and grow in the environment in which they are launched.
Sam considers the most important aspect of any payments product or service to be the use-case for
the end-user, and that many financial services providers do not consider this essential angle strongly
enough in their product launches.
So says Neil deGrasse Tyson, world-acclaimed astrophysicist, accentuating the fact that exciting rewards await
those who pursue innovation in payments. We at TSYS® aspire to represent this philosophy — and we hope that
our latest edition of n>genuity journal reflects it.
Our industry is changing more each year, with many new entrants with a wide variety of offerings, channels and
technological requirements. Our cover story delves into this concept of “defragmentation,” or lack of uniform
standards in the industry. The author also explores why this development may not be a bad thing, as it should
result in a more frictionless and efficient end-user experience.
Theresa Jameson: Theresa Jameson is a Senior Analyst in the Consumer Payments team
at Verdict Financial. Her specialties center on emerging mobile payment technologies — such as
NFC, digital wallets, and mobile POS. She has also written extensively on wider payment trends and
opportunities at both the regional and country level. This includes studies on the U.K., Sweden, and
Mexico. Theresa holds an MSc in Finance and Financial Law from the University of London (SOAS),
and has been quoted in the wider media by The Telegraph, Retail Times, Payments Source, and
TIME’s Money.
Another writer in this edition explores the leading-edge world of on-demand delivery apps, again reminding us
John Shlonsky: John Shlonsky is president and chief executive officer for TransFirst. He brings
almost two decades of experience in the financial industry, where he has been responsible for sales,
operations, technology and finance within leading U.S. payment processing and financial services
organizations.
consumer emergence, so another author takes a deep-dive into developments in this area.
Shlonsky joined TransFirst in 2006 as president and chief operating officer. Prior to that, Shlonsky was
president of merchant services for First Data Corporation, where he had responsibility for all business
units, including alliances, as well as Card Services International, TASQ and Concord. Shlonsky earned his
bachelor’s degree in finance from Arizona State University.
regulatory issues in Washington. Finally, in late January, we announced our intent to acquire TransFirst®, a leading
Scott Talbott: Scott Talbott, J.D., C.P.A., is SVP of Government Affairs at the Electronic Transactions
Association. He is an experienced policy advocate and communicator with two decades of experience in
Washington. Talbott has represented the largest financial services firms in the country before Congress
and federal regulators, most notably during the fiscal crisis. He is also an expert on communication,
appearing regularly on national and international media. He has been called the voice of the financial
services industry and one of the most recognizable faces in the industry.
Tom Cates: Tom Cates is founder and CEO of salesEQUITY, the first Client Experience Platform
designed for B2B high-value companies who strive to differentiate themselves from their competition.
Tom brings his experience leading consulting engagements focused on the customer-facing elements
of sales, marketing and customer service functions in a wide variety of industries. Tom has held senior
positions at Mercer Management Consulting, Inc. and IBM. He has contributed to three customer-based
strategy books and is working on a fourth. He also speaks regularly about building Trusted Advisor
relationships and managing customer loyalty. Tom holds a BAE from The Pennsylvania State University
and an MBA from The Wharton School of The University of Pennsylvania, and resides in Acton,
Massachusetts with his family.
© 2016 Total System Services, Inc. All rights reserved worldwide. Total System Services, Inc. and
®
TSYS are federally registered service marks of Total System Services, Inc., in the United States.
SM
n>genuity in action: n>gen is a service mark of Total System Services, Inc., in the United States
and in other countries. Total System Services, Inc., and its affiliates own a number of service marks
that are registered in the United States and in other countries. All other products and company
names are trademarks of their respective companies.
®
For more information, visit our website
at www.ngenuityjournal.com.
“Ever since the Industrial Revolution,
investments in technology have proved to
be reliable engines of economic growth.”
of the crucial importance of consumer needs and wants in technology.
The issue of interchange reduction is a steady concern in our industry, as are mobile payments and their future,
so we have articles in this issue exploring the same. And cross-border payments remain on the forefront of
We also have another look at innovations in combatting fraud and a needed check-in with Scott Talbott on
merchant solutions provider in the U.S., and we are pleased to share CEO John Shlonsky’s thoughts on meeting
customers’ needs in the merchant solutions space.
Things are evolving, and as always, we truly welcome your feedback and thoughts in any regard. Feel free to email
us at [email protected].
We hope you enjoy the read!
Sincerely,
M. Troy Woods
Chairman, President & Chief Executive Officer
TSYS
The information in this document is confidential and proprietary. Reproduction, in part or
whole, is strictly prohibited without written permission from TSYS.
1
n>genuity
Spring 2016
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2
cover story
Does Our Industry Need
Defragmenting?
As multiple payments platforms
and form factors emerge, the
industry’s course is uncertain
by > james cranfield
Our industry has changed, and it almost
appears that there is a paradox developing.
From within, it is easy to see that our
industry has become more fragmented
than ever. However, this isn’t necessarily a
bad thing — and the end user is arguably
getting a more efficient and frictionless
payment experience.
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Spring 2016
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4
In the 1950s, a BankAmericard credit card
transaction would have taken
There are now more parties involved in
the payments space than ever before, and
while many new players fall at the first
hurdle, there are countless others that
have carved their own (often fresh) new
ground. While some of this might relate to
new players specializing in one particular
field, it is also clear that multiple “form
factors” and the breathtaking pace
of innovation are also fueling this
fragmentation.
In the 1950s, a BankAmericard credit
card transaction would have taken a very
different path from that of an Apple Pay
transaction today. It would also have
involved far fewer players aside from
the issuer.
But this was in a pre-Internet, pre-ATM,
plastic card world over which the bank
had total control. Today, the bank cannot
go it alone. But is this fragmentation
good or bad?
Too many mouths to feed?
With the seemingly exponential growth
in the number of stakeholders in the
payments ecosystem comes increased
complexity and new rules of interaction
and engagement. But most importantly
comes a need to share the value generated by payments amongst a larger
community. This “carving up” of the
business case is taking place against a
background of increased regulation and
eroding margins.
When BankAmericard launched in the
1950s, its merchant service fee (MSF) was
6 percent. Compare this with, for example,
a new regime of interchange-plus pricing
and EU credit card interchange capped at
0.3 percent. Of course, volumes are much
greater, and with innovations like contactless and peer-to-peer payments, cash is
being displaced like never before.
5
n>genuity
Spring 2016
a very different path
from that of an Apple Pay transaction today.
Too much choice?
It could be argued that our industry is
going through a phase of over-supply
of solutions. There has been much talk
of convergence in technology, but if
anything we are seeing the opposite
happening with more ways of paying
via different form factors and use of
different providers.
This is being accelerated by the creation
of competing innovation labs in the
industry. Innovation should, of course,
be encouraged, but the implementation
of the resulting technologies could
be carried out in a more collaborative
manner to improve the chances of
consumer adoption and minimize the
confusion associated with a plethora of
new solutions.
Today there are more than 50 fintech
start-ups valued at more than $1 billion
— so called “unicorns.” History shows
us that only a handful of new players
will survive in the long term, as lack of
demand will weed out those technologies
that were designed and pushed by banks
as “solutions looking for problems.”
This Darwinian effect should mean
that in the long term, the industry will
defragment itself.
What about those who thrive
on fragmentation?
But for some players, industry
fragmentation provides an interesting
opportunity. The payment schemes (Visa
and MasterCard) were born out of a need
for connectivity between different players
in different geographies. Their network
and rules provide a platform for interaction between a wide range of players,
both financial and non-financial.
With the growth in numbers and types of
stakeholders in the industry, the schemes’
role becomes increasingly important. We
have seen a number of recent examples
of growing pains in the industry as gaps
develop in the infrastructure and are
immediately exposed by the most
cunning innovators of all — fraudsters.
Data breaches are a good example of
this. As important customer information
is shared amongst a larger group of
organisations, some of whom treat
data with less security than banks
typically do, points of weakness appear
and are exploited.
There is still talk of disintermediation
of the schemes, and this threat will
persist and keep them on their toes
for decades to come. However, the very
same fragmentation that threatens
them protects them too.
Mobile payments have often been cited
as a potential source of disintermediation.
In the early days, it was speculated that
Mobile Network Operators (MNOs) might
have the scale to take on this challenge,
and lately it has been the handset
manufacturers that have threatened
to disrupt.
However, the fragmentation of the
payment solutions and the lack of
dominance by one player could be key
to survival for intermediaries like the
payment schemes.
While Apple and Samsung have considerable weight and their respective iOS
and Android platforms have carved out
a significant piece of payments profits,
neither of these technologies is dominant
in all geographies. As a keen iPhone user,
I was surprised to learn recently that iOS
only has a 15-percent market share in my
home country, Spain. This combined with
the lack of a single Android solution and
the development of separate handset
solutions (Samsung Pay, LG Pay, etc.)
means that the need for interoperability
is still very important.
The need to collaborate and develop
long-term partnerships between old
and new stakeholders is becoming
increasingly obvious, and we are seeing
more of it in the industry. In short, the
payments space is essentially being
socialized. Schemes will elevate
themselves from being intermediaries to
become necessary platform providers.
They will need to quickly recognize the
“friendly fire” startups that use their
infrastructure (Uber, for example) and
distinguish those that are truly disruptive,
and risk disintermediating them.
So where will this end?
It won’t. The pace of innovation will
increase, but the need for global
interoperability will ultimately determine
the survival of many of the new form
factors that are being developed. Some
new players will fail faster than others
have and move on to more compelling
consumer-driven solutions to the benefit
of all. Those solutions that take friction
out of payments will probably thrive best.
About the Author
James Cranfield is a seasoned payments consultant, heading up Insight Consultancy, an international payments
advisory firm with clients across the globe. James’s expertise lies in the areas of strategy, profit optimization,
partnerships and simulation-based learning.
www.tsys.com
6
Coping With Interchange Reduction:
A Global Topic
Six tips to manage profitability and product strategy
by matt s i m est er
It’s no shock that payments regulators talk to each other on a regular
basis. And what happens in one market will certainly be looked at in
other markets. This means that despite individual countries’ initiatives,
interchange regulation and reduction is a global topic.
In Europe, interchange is, in simple terms,
being regulated down to 30 basis points
for credit and 20 for credit. Canada has
capped credit interchange at 1.5 percent.
Australia reduced interchange by almost
50 percent in 2003 and is currently
reviewing further reductions.
have done it by now — right? Without
this acceptance, issuers and banks may
look for income that is not there,
damage customer relationships, or
potentially incur the wrath of the
regulator with value management
strategies that are too aggressive.
Have another look at service
And let’s not forget the Durbin amendment in the U.S., which dropped debit
interchange from 44 cents down to five
basis points plus 21 cents. While credit
in the U.S. remains untouched, retailers
continue to challenge the cost of card
acceptance through the legal system.
Introduce appropriate fees
For example the Co-operative Bank in the
U.K. has launched a credit card balance
transfer offer where even if you are late
or are over-limit on payments, the terms
and conditions are protected. In other
markets, fee waivers for late payments
are becoming the norm. While not direct
income replacement, customer-centric
strategies can increase lifetime value
and lower acquisition costs. However,
it takes a long-term view to build the
business case.
So what are the best practices in managing profitability and product strategy in
these types of environment?
Get smart about other markets
Interchange reductions are happening
globally, and interchange income is likely
to be under pressure for a number of
years. Higher interchange environments
need to look at lower ones and learn
from mitigation strategies using real
case studies.
Accept that income will be less
There is a significant lowering of income
in the move to a lower interchange
environment. Firstly, accept that you
are likely not to replace all the income,
however effective you are. After all, if the
income replacement was easy, you would
It’s been proven in Australia and in other
studies that consumers will pay a fee
for rewards, and in particular, enhanced
earn-rates. Given the argument that interchange funds many rewards programs,
the introduction of a fee is a valid mitigation strategy. In the U.K., the Santander
123 account has been a cash-back product
hit by interchange. The introduction of
a fee to maintain a reasonable level of
earnings was met with some negative
PR sentiment, but attrition rates have
been minimal.
Launch merchant-funded
programs
Retailers should become the banks’
best friends (well, in terms of potential
rewards at least). If the banks can’t
fund rewards, then a relationship either
through a co-brand card or the ability to
earn and burn rewards at retailers is a
valid strategy. The challenge is that there
are only a certain number of retailers
that will enhance true value to merchantfunded rewards programs, so there is
likely to be a foot-race to secure deals.
If rewards become expensive and
beholden to retailers, how do banks
differentiate? There is an opportunity to
tier customer servicing (which can also be
aligned with your fee strategy) to make
products more attractive overall.
Use technology to look at the
margins of profitable products
Near-prime, homemakers, low-income
households, thin credit file segments and
others all become more interesting when
growth is slowed elsewhere or if slightly
higher-risk products might be needed to
replace portfolio income. Social media
scoring, guarantor products and the use
of big data all improve these processes.
Those that work better at the margins of
existing products will be able to replace
some or all of the income lost to
interchange reductions.
About the Author
Matt Simester is Piran Consulting’s Director of Cards & Payments. Prior to this, he was a Managing Director
within a leading payments consulting practice. His expertise covers payments strategy, partnership development,
mobilisation, product development, retail payments and benchmarking. In addition to working as a consultant,
Matt is also an industry practitioner, having previously been Head of Value Added Services at Barclaycard Business,
Managing Director of retail card issuing business and a founding executive of Barclaycard Partnerships.
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8
EMV: Just Getting Started or
Ready to Be Replaced?
Mobile payments may be a threat,
but don’t count out EMV
by > charles k e e na n
When EMV eventually becomes a prominent way to pay at the
point of sale, could its days be short-lived? It might all depend
on how fast mobile payments take hold.
As EMV grows in use, so will mobile
proximity payments. Any terminal
now taking EMV will likely take
other payment types, such as
near-field communication (NFC).
That dovetails nicely with the
trend of more Americans owning
smartphones and more mobile
wallets hitting the market.
“EMV is essentially providing the
excuse that everyone in the market
needs to upgrade their terminals
to pretty much support all new
payment types,” says Alex Johnson,
a senior analyst at Mercator
Advisory Group in Maynard,
Mass. “Now because of EMV,
merchants are accidentally or
unknowingly also upgrading to
NFC in a lot of cases.”
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Spring 2016
Couple that with the upswing in
smartphone ownership: Roughly
three-quarters of U.S. adults own a
smartphone, according to various
industry estimates. Meanwhile,
more wallets have gone live, using
various technologies, at the point
of sale. Android Pay, like Apple Pay,
uses NFC. ChasePay uses QR codes.
Samsung Pay relies on magneticstripe technology. All of these can
work with most new terminals.
Wait and see
In a sense, EMV — short for its
creators Europay, MasterCard, Visa
— is a standard originally written
in the mid-1990s, and was rolled
out in Europe a decade ago. Here
in the United States, the October
2015 deadline to start accepting
EMV at the point of sale served as
a catalyst for issuers to print EMV
credit cards en masse in 2015.
Yet so far, EMV has been slow
to take hold domestically. Most
merchants ignored the data breach
liability shift deadline: For example,
72 percent of mainly small-business
merchants have not adopted EMVcompliant technology, according to
a survey published in December by
Fattmerchant, a merchant service
provider. Meanwhile, EMV debit card
issuance has lagged. The Durbin
Amendment of Dodd Frank calls for
a choice of more than one network
for the routing of a transaction,
making issuance more complicated.
There are also education issues of
sorts. Larger merchants with EMV
capability chose to wait until after
www.tsys.com
10
“Now because of EMV, merchants are
EMV also has led to disappointment
among some consumers who perceive it as
accidentally or unknowingly
slower than a swipe.
also upgrading to NFC in a lot of cases.”
the holidays to begin any training for
employees for educating customers
on using EMV slots in card readers.
The ever-persisting swipe
EMV also has led to disappointment
among some consumers who perceive
it as slower than a swipe. That may
not be the case, but the training of
customers has led to slower lines at
stores paying via EMV.
“There are just ton a problems that
are in its way besides the fact that it’s
not really convenient and is counter
to our behavior as consumers,” says
Jared Isaacman, chief executive
officer of Harbortouch Payments,
a supplier of POS systems based in
Allentown, Pa. “EMV seems like a
placeholder until a far more efficient
and evolved form of payment takes
over — which a lot of us believe
is NFC.”
So while EMV transactions are
actually a half second to three
seconds faster than magnetic
stripe transactions, there’s a
perception that they are less
convenient, adds Matthew Goldman,
chief executive of Wallaby Financial,
a Pasadena, Calif. vendor that helps
consumers maximize credit card
rewards. “Payments are things
you want to disappear into the
background,” he says. “You want
them to work, you want them
to be seamless and you don’t
want to have to think about
them a lot.”
In terms of seamlessness, wearables
are another threat to EMV, Goldman
says. “The wearables experience is
unique,” he notes. “The NFC provides
all of the security and none of the
time issues. You get a token. You
don’t have the wait for the card.
You don’t have to worry about
leaving the card behind.”
With e-wallets, wearables and
phones, the days for plastic cards
are numbered, he predicts. “In 10
years, people will not have physical
cards in their wallets.”
Not so fast
That said, EMV’s slow start might
also be an omen of sorts for
mobile payments. Mobile will face
similar challenges at the point of
sale — like training employees and
gaining customer usage. So those
who think the idea that EMV will be
made obsolete anytime soon might
underestimate the task ahead.
“[This claim] assumes that mobile
is going to hit that tipping point and
that all the devices are NFC- and
EMV-ready,” Riley says. “How will
consumers react to another major
change at the point of sale?”
While mobile may have a fast track
ahead, it’s also important to place
the excitement in context. Mobile
proximity payments are estimated
to grow to $211 billion by 2019, up
from $9 billion in 2015, according
to eMarketer. That’s wild growth,
but it pales in comparison to overall
debit and credit card volume of the
card networks. Visa and MasterCard
accounted alone for $4.3 trillion in
debit and credit payments volume
in 2014, according to company
documents.
side, if you start to see savings for
merchants, that is when you will
see a change.”
So to talk of the death of EMV might
be premature, he says. “To think we’re
just going to make the card go away,
there has got to be something that
will replace it,” Riley says.
To get people to stop using
physical cards, merchants will need
enticements such as lower fees, Riley
notes. ChasePay, for example, has
no network or merchant processing
fees. “If you look at it from a financial
About the Author
Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997.
His work at the American Banker included writing about credit and debit cards, merchant processing, and
bank stocks. He later freelanced for the Banker and industry publications such as Banking Strategies,
Bank Director, Community Banker, and U.S. Banker. He also writes about investing, insurance and health
care, and is based in Los Angeles.
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12
Five Key Ways Cards Issuers Can Improve
Their Marketing This Year
The payments industry, like many other financial segments,
has struggled to connect
with this generation.
A 2016 outlook from C.E.K. & Partners
by > carolyn ko p f
What are the key marketing trends that card issuers and financial
companies overall need to embrace for success?
While financial institutions are trying out many
strategies to engage and delight consumers, digital
marketing is the big focus for many companies. Here
are five key digital marketing trends we’re monitoring.
1.
Capturing revenue from millennials
Millennials are now the largest living generation,
accounting for nearly 80 million Americans. As they
reach their late 20s and 30s, many are starting families
and businesses — depending on credit cards to finance
their evolving lifestyles. Banks have gained a better
understanding of the millennials’ financial goals and
needs. But it’s time to truly understand what offers,
incentives, rewards or tools appeal to them.
The payments industry, like many other financial
segments, has struggled to connect with this
generation. But it is imperative that they do so —
and soon — since as the Baby Boomers age in the
coming years, issuers will find that the bulk of their
cardholders are millennials, whose collective annual
income will be worth trillions of dollars. According to
Sarbjit Nahal of Bank of America Merrill Lynch in a
CNBC interview, “by 2018 [millennials are] going to
overtake the boomers. By 2025, we’re looking at
over $8 trillion worth of annual net income.”
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2.
Keeping up with mobile apps
With eMarketer reporting there are 190 million
U.S. smartphone users, representing 73 percent of
all Internet users, it’s no surprise that mobile-first
responsive Web design is essential for any business.
This is in conjunction with mobile apps, which flourished in 2015, and will continue to do so this year.
Mobile apps used to be just one of many channels
customers could choose, but are now poised to become
the preferred channel. While consumer brands like
Realtor.com or Uber invest in creating the best mobile
experiences, banks must catch up or risk losing consumers’ attention to competitors or even alternate
payments companies such as PayPal’s Venmo.
Banks’ apps must offer basic transactions — like the
ability to check account balances, complete transfers
and make mobile deposits. The apps must evolve to
fully integrate other features like spending trackers or
budgeting tools, photo-enabled bill pay and smartwatch
compatibility. Today it’s assumed that banks will offer
an app — and now it’s about making sure those apps
are on par with consumers’ expectations.
www.tsys.com
14
Mobile apps used to be just one of many channels
customers could choose, but are now poised
to become the preferred channel.
3.
Creating highly interactive content
Brands have increasingly become publishers,
creating entertaining and informational online and offline
content to engage consumers. In 2016, companies will
spend more of their marketing budgets on interactive
content, and financial institutions should follow suit.
Banks must accompany content-rich articles with interactive elements, including easily digestible video clips
or tutorials, calculators, polls or quizzes and interactive
infographics. Leveraging these digital and interactive
features will enable FIs to personalize content and help
deepen customers’ engagement with their brand.
4.
Listening and engaging with social platforms
Whether posting culinary delights from a trendy
new restaurant on Yelp or vacation photos on Instagram,
consumers continue to share their preferences and
opinions on social media. Some banks are taking notice
— and starting to use social media to improve their
marketing and better engage customers. A consumer
banking study by Accenture found that “28% of
consumers use information from social media when
evaluating retail banking services.”
Social listening tools can help financial companies better
understand their customers and prospects. Following
customers’ “pins” on Pinterest, for example, might
reveal aspirations such as home ownership or marriage.
Companies can use this information to develop content
and marketing messages for consumers who use these
sites. Developing engaging social content that is searchable,
specialized and shareable should be a top priority.
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n>genuity
Spring 2016
5.
Getting more personal with big data
While the topic of big data is by no means new,
more companies and brands are using both structured
and unstructured data to create more personalized
marketing initiatives. Most often, companies use data
to target marketing campaigns at sizable customer
segments. More marketers are realizing the power of
data to target consumers on a highly personalized
level — sometimes down to the individual.
Banks have access to unprecedented amounts of data
along with high levels of customer trust. This means that
they hold the unique ability to present the right offers
to the right customers at the most opportune times. For
example, a card issuer can single out cardholders and
present real-time location offers for sweets at a nearby
retailer after a cardholder uses their mobile wallet to
purchase a coffee. Such an offer will be noticed and
perceived at a higher value due to its relevance and
timeliness — more so than offering a discount at the
nearby dental office, which may lead to customers
opting out of communication.
engaging
Developing
social content that is searchable,
specialized and shareable should be
a top priority.
Will 2016 be a digital tipping point?
These are just some of the trends we are monitoring,
but we believe issuers catering to today’s digitally
engaged customer will reach new heights in 2016.
Whether it’s consumers’ rapidly growing adoption of
new technologies like wearable devices or simply
increased dependence on mobile tech in general for
everyday interactions, the payments industry must
catch up. Consumers expect credit card companies
to stay abreast of the latest technology trends, and
those issuers that respond to these changing dynamics
will find an enviable market advantage.
About the Author
Carolyn Kopf is the principal and managing partner
of C.E.K. & Partners, a brand and strategic marketing
resources firm providing services to brands within
the financial services and payments industries,
healthcare, manufacturing and for private equity
firms. C.E.K. & Partners offers deep experience
spanning custom research design, brand building,
thought leadership and brand management. C.E.K.
& Partners help companies build brands, create
meaningful connections and accelerate business
growth. To learn more, visit their website at
www.cekpartners.com.
www.tsys.com
16
Fintech for Good
Innovators look to make a social impact
by > charles k e e na n
The technology sector has come up with all sorts of
solutions for daily life, whether it’s shopping, banking,
video streaming, shazaming, snapchatting, tweeting,
networking, and, of course, dating. But by and large,
fintech has come up short in terms of helping people
with real social needs in payments and finance.
That could be changing. A new class of tech entrepreneurs has emerged to help make payments easier
for consumers with real pain points. Whether it’s food
stamps, child support or cash-flow solutions, these
entrepreneurs are looking not just to make a profit
but also a social impact.
“We know the need is great,” says Sarah Gordon, a vice
president at the Center for Financial Services Innovation
(CFSI), a nonprofit based in Chicago. “The good news is
that America is really rich in technology, innovation and
talent, and we are seeing a whole host of new entrants to
develop tech-driven solutions and help consumers better
manage their finances day to day.”
It’s hard to pin down the actual number of startups
making social change in finance, but supporters such as
CFSI have helped nurture new business models that aim
to do so. We spoke with three companies that are making
a difference.
Child support made easier
SupportPay aims to help divorced and separated parents
manage finances and handle child support for their
children. With its platform — via a website or an app
— parents manage, track and pay child support directly
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n>genuity
Spring 2016
to each other, giving them transparency to help reduce
arguments over finances. SupportPay goes well beyond
state calculators for child support — it helps parents see
miscellaneous expenses, such as baseball gloves, ballet
slippers and piano lessons.
“A lot of money is being exchanged between parents
who don’t live together,” says Sheri Atwood, founder and
chief executive officer of Ittavi Inc., the holding company
for SupportPay. “The world has changed. Families have
changed. Money doesn’t sit in one household.”
Atwood saw the need for a better way to handle child
support after her own divorce. Atwood, who previously
worked as a marketing executive at Symantec, is using
software by salesforce.com for the platform. Parents
decide for themselves how to make payments to each
other — either virtually or using cash.
SupportPay earns revenues by charging $120 to users for
advanced functionality, but the service is free for tracking
expenses, making payments and storing documents for
up to six months. SupportPay now has 16,000 parents,
and in 60 percent of those cases, both parents participate. Atwood next looks to help manage funds for groups
of siblings who take care of their parents. “It’s all around
www.tsys.com
18
A new class of tech entrepreneurs has emerged to help
make payments easier
for consumers with real pain points
Moebs Services, a research firm based in Lake Forest, Ill.
“Unfortunately those fees tend to fall on the people least
able to pay them,” says Tyler Griffen, chief executive
officer and cofounder of Prism.
how you manage finances between family members
when it spans households,” she says. “Technology has
made it possible.”
Streamlining food stamp applications
Easyfoodstamps.com is a mobile-friendly website
that simplifies the food-stamp application process by
reorganizing the initial enrollment form and eliminating
the need to submit paper documents.
When it comes to food stamps, applications are too
onerous, and wait times at offices are too long, says
Jimmy Chen, chief executive of Propel, the company
behind Easy Food Stamps. “It reflects the overall kind of
user experience of applying for food stamps in 2015,” he
says. “It is really a frustrating, discouraging and really
opaque process, and it keeps people from getting the
benefits they need.”
Currently Propel is running a pilot in Philadelphia under
Pennsylvania’s food stamps program. Propel’s website
has a food stamp questionnaire, which can be completed
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n>genuity
Spring 2016
on a smartphone — a process that generally is done on
paper or a desktop computer. Propel’s questionnaire
puts the essential questions up front and lets users know
which questions must be answered (and which do not) in
order to start the application process.
To make money, Propel is looking to partner with grocers
and generate fees when Propel’s users make purchases
in participating stores. The potential is there: There’s
about $160 million worth of unclaimed food stamps in
Philadelphia annually, Chen estimates. Nationally, it’s as
high as $12 billion out of a food stamp budget of about
$70 billion, he notes. “We are pretty confident there is a
big business opportunity that is not being tapped. This is
a lever for growth for us.”
Improving consumers’ cash flows
Prism is an app that looks to alleviate the cash-flow
problems of the majority of Americans by making bill pay
easy, free and transparent. One goal is to save customers
from overdraft fees, which nationwide totaled about $32
billion last year at banks and credit unions, according to
It’s not just low-income people getting into trouble,
Griffen notes, as many people with higher incomes
have higher expenses and are also living paycheck to
paycheck. Griffen and his team found that the pain point
is consumer cash-flow cycles — specifically with bills.
Typically people can receive 11 to 15 bills a month at odd
times, he notes.
One way it plans to make money is by offering short-term
credit to bridge users’ funding gaps. However, Griffen isn’t
out to replace banks. “User-friendly, consumer-focused
companies like ours will provide this elegant layer on
top of the banking system, so we are really on the
consumer side.”
Overall, fintech can make a difference in everyday lives —
and big profits, according to CFSI’s Gordon. “Consumers
spend billions of dollars annually on financial services,”
she says. “There is definitely money to be made. It is
really about creating a product that adds value, has
demand and is sustainable.”
“[Bill due dates are] generally very overwhelming and
very hard to keep track of,” Griffen says. “This is a
constant background source of stress. People don’t quite
know what the situation is. They just know that it’s bad.”
Prism is winning over consumers. The service had 40,000
users in July, generating $14 million in payments volume.
About the Author
Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997. His
work at the American Banker included writing about credit and debit cards, merchant processing, and bank
stocks. He later freelanced for the Banker and industry publications such as Banking Strategies, Bank Director,
Community Banker, and U.S. Banker. He also writes about investing, insurance and health care, and is based in
Los Angeles.
www.tsys.com
20
Completely Connected:
HCE and Mobile Potential
Beyond Payments
How HCE is changing air
travel, ground transit,
hospitality and more
by > doug yeager
We live in a connected world. Our devices are
synced together, and we’re synced to them.
We back up information on a cloud that
doesn’t rain so we can share our pictures
and content everywhere. We pay with our
phones from the palms of our hands while
simultaneously taking a call.
Today’s cloud-based payment
technologies, like host-card emulation (HCE), create a “hub” for mobile
services to elevate connectivity
across industries and applications.
HCE harnesses the near-field
communication (NFC) capabilities
of Android devices to virtually store
card credentials — from credit
and debit card numbers to reward
accounts and ticketing information.
When a consumer taps to pay using
their phone, the contactless terminal
requests the card credentials hosted
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n>genuity
Spring 2016
via the mobile application, which
in turn signals the cloud to authenticate the purchase. The process
works just as an NFC payment
card would (with a phone in place
of the plastic).
Now take this scenario and apply
it to the bank teller’s counter, hotel
room door, airline terminal and
subway turnstile. Mobile payment
technologies like HCE, when coupled
with the cloud give card-issuing
organizations — from financial
institutions to hotels — the ability
to mold their mobile user experience and connect all of the dots
in-between.
What’s different?
Through HCE, card issuers are
able to introduce and operate
their mobile payments experience independently of mobile
network operators and hardware
manufacturers, unlike other
contactless options. Aside from
the NFC-controller-embedded
smartphones that enable cardpresent transactions, card numbers,
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22
Mobile payment technologies like HCE, when coupled with the cloud give card
issuing organizations — from financial institutions to hotels — the ability to
mold their mobile user experience
This form-factor-agnostic quality opens up its potential to a range of services
beyond the realm of payments.
and connect all of the dots in-between.
accounts and security features are
managed through the cloud.
Card issuers can also leverage HCE to
accommodate multiple virtual cards
so users are able to access whichever
account is appropriate for a specific
transaction. Credentials are tokenized
and exchanged within the server by the
virtual secure element.
These randomly-assigned placeholders
heighten security by masking visibility
into real account information. In
addition to providing an extra layer of
protection against identity thieves, a
mobile payments solution managed
through the cloud gives card issuers
full control over their program operations and customer experience and
frees them from hefty negotiations
and contracts with third-party service
providers and device manufacturers.
Furthermore, HCE can work with virtually any NFC-compatible device and
is not limited to a certain type of SIM
card or equipment. This form-factoragnostic quality opens up its potential
to a range of services beyond the realm
of payments.
But what’s the bigger picture?
The right balance of HCE, cloudbased payments and a virtual-secure
element can facilitate a wider array of
mobile transactions and services within
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n>genuity
Spring 2016
one platform — and broaden
the scope of contactless mobile
payments beyond just payments.
same city have different contactless
solutions — if any contactless
solutions at all.
Air travel
Most major airlines offer free apps to
share updates and itinerary information with travelers, but their service is
often limited to convenience. Airline
companies can take flyer engagement a step further through HCE by
offering passengers the ability to make
immediate changes to their flight.
Cell phones demagnetize cards and
render them ineffective, and as a
result, disgruntled customers stop
using services and seek out better
options. A regional, centralized,
cloud-based ticketing solution
would allow cities to provide a more
consistent transit experience for
residents and visitors alike.
This form-factor-agnostic quality opens
up its potential to a range of services
beyond the realm of payments.
Hospitality
Hotels also can streamline guest
interactions and grow their service
offering. Guests could check-in via
the NFC terminal at the front desk,
relay payment information and load
their virtual room key onto their
mobile devices for easier access. With
all of the necessary account details
streamlined through one solution, a
guest could use a personal credit card
for drinks at the bar or a company card
to pay for the stay and loyalty points to
trade for a massage at the spa — not
to mention access to their travel
itinerary to schedule airport
shuttle services.
Using a virtual credit card and rewards
account, travelers can purchase and
house a ticket in-app while simultaneously accruing frequent flyer points
to spend instead of dollars on a future
reservation. They could even take the
in-flight experience one step further by
making updates to seat assignments
or checked bags and payments on
outstanding balances instantly.
Public transit
Tapping a phone against an NFC
terminal unleashes a boarding
credential to authenticate more
than just a ticket to ride. In-app integration like this has potential to replace
today’s numerous, isolated
and spotty ticketing solutions. As
it stands, buses and trains in the
What’s in the way?
Contactless payment technologies like
HCE can shake up the status-quo. It
comes as no surprise that, as a result,
many players in the industry may be
hesitant to embrace it in full force.
But now that Apple and Android
devices alike come NFC-equipped,
the groundwork is laid to change the
contactless landscape. For contactless
to reach its full potential, however, the
right balance of technologies like HCE,
cloud-based payments and a more
secure, virtual element are required
to break free of the traditional barriers
to adoption and for consumers to
see mobile payments beyond
just payments.
About the Author
Doug Yeager is the CEO of SimplyTapp, the original developer of HCE technology. Doug co-founded the company
in 2011 with a simple vision: to give card issuers access to mobile NFC payments solutions for their customers
through host card emulation (HCE) technology. To learn more, visit www.simplytapp.com.
www.tsys.com
24
On-Demand Delivery Apps
With One-Click Checkout
And why a seamless payments
process plays a major role
in success
by > charles k e e na n
From groceries to booze to salon-style blowouts
at home, Americans are increasingly turning
to delivery on demand, using clicks to receive
goods and services at the front door, sometimes
in under an hour. For vendors in the cutthroat
delivery business, success might hinge on
facilitating payments and checkout seamlessly.
Riding the coattails of Amazon’s efforts
to speed up shipment, an entire industry
focused on quick delivery has sprung up,
changing the way people shop, and
altering expectations of when things
can be procured.
“Consumers want everything, everywhere, all the time,” says David Brennan,
professor of marketing at the University
of St. Thomas in St. Paul, Minn. “The
delivery option … makes things go faster
and easier than it ever has been.”
That need for instant gratification has
only intensified. About 22 percent of
digital buyers in North America believe
same-day delivery is important, according to information compiled in November
by eMarketer.com and Bizrate. That’s up
from 18 percent in 2013.
A collaborative effort
For just about any item or service,
there’s an app at the ready. Instacart
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n>genuity
Spring 2016
and Amazon’s Prime Now service
both deliver groceries and other items
from local stores. Apps such as Drizly
and Minibar handle alcohol deliveries.
Munchery and Blue Apron focus on
meals. DoorDash and Postmates
specialize in restaurant delivery and
takeout. Handy sends home cleaners
and handymen to homes. StyleBee offers
up stylist visits for hair blowouts and
makeup applications.
Riding the coattails of Amazon’s efforts
to speed up shipment, an entire industry
focused on quick delivery has sprung
up, changing the way people shop, and
altering expectations of when things can
be procured.
Meanwhile, big players are either entering delivery or ramping up capability.
Uber has rolled out UberRush, turning
drivers into deliverers. For its Prime
members, Amazon Prime Now offers free
delivery in two hours, or $7.99 in one
hour within select cities. Google Express
offers free delivery from major retailers
for $95 a year.
There’s a cultural shift of sorts among
consumers, with startups and established businesses actively seeking out
consumers wanting things on the double.
“What it also does is move it away from
the people who are planners — and well
organized — to the people who are more
impulse-oriented,” Brennan says.
Retailers are also forming partnerships
with delivery services. Target Corp.
announced a deal with Instacart. Google
Express has partnered with name brands
such as Staples, Whole Foods and Guitar
Center. Postmates has struck deals with
local restaurants, signaling that retailers
are key to growth. “That’s a big component as they try to expand their market
share,” says Matthew Wong, a research
analyst at CB Insights, based in New York.
www.tsys.com
26
Riding the coattails of Amazon’s efforts to speed up shipment,
an entire industry focused on quick delivery has sprung up,
changing the way people shop, and altering expectations
of when things can be procured.
Opportunity knocks
Venture capital lines up
Minibar, for example, launched in late
2013 in New York, capitalizing on the
trend of urbanization in the young population and a lack of centralization of liquor
stores. The founders Lara Crystal and
Lindsey Andrews saw that mobile could
serve as a platform to reach the masses.
Minibar doesn’t have a liquor license; it
instead partners with local liquor stores
that do the actual delivering and collects
a fee from stores for referrals.
That kind of growth is what investors
want to see. On-demand companies —
excluding titans Airbnb and Uber — raised
$1.7 billion from venture capitalists in the
first three quarters of 2015, up from $1.1
billion for the same period a year earlier,
according to CB Insights. Lyft raised $530
million in one funding round, Munchery
was at $85 million and organic meal
delivery service Sprig raised $45 million.
“We took a look at the market and
thought it was ripe for opportunity,” says
Crystal, co-founder and co-CEO of Minibar.
“Consumers obviously want to get everything delivered. But they also want to get
things from brands that they love.”
In one area of West Los Angeles, for
instance, consumers have ample choices
in favorite brands from the Minibar app,
such as a $7.49 for a six-pack of Bud
Light, $80 for a Duckhorn Cabernet
Sauvignon, or $500 for a bottle of
Macallan 21-year fine oak scotch.
Delivery is $5 plus tip. No doubt Minibar
customers are liking the convenience:
As of late last year, the startup had
notched double-digit revenue growth
every month over an 18-month period
and expanded to 15 cities.
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n>genuity
Spring 2016
will be cheaper in-store than in-app. Some
app deliveries also have struggled to get
items delivered in a short time window.
“There are issues with that one-hour and
two-hour delivery,” Brennan says. “It’s
feasible, but you can’t disappoint people
on a regular basis because otherwise
they will abandon you.”
Getting checkout done right
Shopping cart abandonment is a big
e-commerce issue. About 36 percent
of all e-commerce sales get left in the
cart, according to a study of 650 websites by PYMNTS.com, commissioned
by BlueSnap. Reasons for abandonment
include too many clicks, not the right
payment type and card declines. The
average site had 5.2 clicks for checkout,
according to report.
That said, there could be some stumbling
blocks to growth ahead. Many consumers
might balk at the delivery fees, which are
not always transparent. With Instacart, for
example, items from an order from Costco
The goal for websites and apps is to get
to an Uber-like, one-click checkout, says
Ralph Dangelmaier, chief executive of
BlueSnap Inc., a global payment gateway
“The funding numbers still reflect that
there is still quite a bit of money going
into the delivery segment,” says Matthew
Wong, a research analyst at CB Insights,
based in New York. “There is still quite a
bit of investor interest.”
provider based in Waltham, Mass. The rise
of wallets such as Apple Pay, Android Pay
and Samsung Pay should help to that end.
“We believe these wallets are the answer
to one-click checkout.”
The goal for websites and apps is to get
to an Uber-like, one-click checkout.
Processors are also working to integrate delivery services with merchants.
UberRush uses First Data Corp.’s Clover
POS solution to offer merchants looking
to tap delivery to expand their own customer bases.
So as consumers get to receive products
faster, less friction will become the norm
as the delivery economy grows. “It just
changes expectations,” Crystal says.
“People expect ease to be a function
of whatever you are selling to them
now, and that definitely includes the
payment process.”
About the Author
Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997. His work
at the American Banker included writing about credit and debit cards, merchant processing, and bank stocks. He later
freelanced for the Banker and industry publications such as Banking Strategies, Bank Director, Community Banker, and
U.S. Banker. He also writes about investing, insurance and health care, and is based in Los Angeles.
www.tsys.com
28
Case Study: Five Things American Express is
Getting Right for the Mass Affluent Market
Focusing on loyalty, customer experience and
exclusivity to win market share
by > samuel m u ran t
American Express is a brand
well-known for providing
high-quality service and
generous rewards to wealthy
clients, and it has leveraged
this image to great effect in
its marketing to reach the
mass affluent.
The defining characteristics of the American Express
customer base are affinity with the brand and aboveaverage card spending. American Express cardholders
tend to have sought out their cards — and to a far
greater extent than holders of Visa, MasterCard or
other scheme-branded cards. When asked about the
most important reasons for choosing their credit card,
15.5 percent of American Express cardholders in the
U.S. stated that “identifying with the brand” was a
major reason for their decision. By contrast, only 8.5
percent of MasterCard cardholders and 7.3 percent
of Visa cardholders stated this.
Here are five things the brand is doing right.
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n>genuity
Spring 2016
#1
A primary relationship
As both a card issuer and a payment scheme,
American Express has control over the features of all
payment cards featuring its branding, as well as complete
control over the fees they charge merchants (unlike banks
issuing Visa or MasterCard-branded cards, which must abide
by the interchange fees set by the card schemes). This status
is both a benefit and a detriment to the company.
Unlike Visa and MasterCard, American Express holds the
primary customer relationship on almost all cards bearing
its branding, and gets all of the revenue and customer data
available from those cards. On the other hand, it also needs
to deal with managing its entire payments ecosystem as well
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30
greater status symbol
Each successive level is a
than the last, and offers more generous
rewards and higher levels of service.
as creating direct customer-facing products and services. The
overall effect of this status is that American Express is a truly
end-to-end service provider for its customers, which highlights
the level of service the company provides.
#2
Exclusivity factor
American Express is widely known for its range of
premium-branded charge cards, which exist in four tiers beginning at the Green card, which charges an annual fee of $95 in
the U.S., then moving up to Gold (annual fee: $195), followed by
Platinum (annual fee: $450), which is the highest tier that can
be applied for directly. Above all of them is the Centurion card,
also known as the Black card (annual fee: $2,500, with a $7,500
“initiation fee”) — an invitation-only card whose full range of
perks are known only to its holders and American Express itself.
The Centurion card is a powerful status symbol, and the fact
that little is known about it aside from the price tag makes
aspiring to own one a major draw to the American Express
brand for ambitious mass affluent customers.
Outside of the ultra-premium Centurion card though, the tiered
system encourages aspiration to the next tier. Each successive
level is a greater status symbol than the last, and offers more
generous rewards and higher levels of service.
#3
Social media ties
American Express makes use of multiple channels
to keep its customers engaging with the brand, with the aim of
making it as easy as possible for cardholders to communicate
their issues directly and have them speedily resolved. It utilizes
social media channels, particularly Twitter and Facebook, as
part of its customer engagement strategy, posting new deals
and offers to its @AmericanExpress Twitter account and
Facebook page.
Each successive level is a greater status symbol than the
last, and offers more generous rewards and higher levels
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n>genuity
Spring 2016
of service. American Express also uses social media for direct
communication with cardholders. Its customer service-related
Twitter account, @AskAmex (which is its U.S.-based customer
service handle; it has other accounts for other regions) is used
to field questions from cardholders in real time during business
hours. Combined with the brand’s advertised 24/7 customerservice department, this contributes to the impression that the
company is not afraid of complaints or difficult requests, and
that there is always someone available to help.
#4
Retention-based loyalty
Focusing solely on financial benefits and rewards
encourages price competition and switching (generally a poor
way to ensure customers remain loyal in the long term) but they
do make a product attractive to an initial applicant. Due to its
higher price point (both on the consumer side and the merchant
side) American Express is capable of offering more to its cardholders than other providers, and the company makes use of
generous introductory offers.
However, in combination with its emphasis on customer service
and engagement, the American Express rewards are some
of the most retention-focused (and therefore ultimately more
valuable to the brand in the long term) in the market. By providing a combination of positive experiences (largely through
direct interactions and customer service) and generous financial
rewards, American Express makes its cardholders feel that they
are valued and that they are getting good value. This prevents
switching accounts to take advantage of introductory deals.
American Express owes much of its success to a deep
understanding of the wants and needs of the mass affluent.
#5
Partnering with merchants
Partnerships are of critical importance in modern
loyalty schemes, and American Express makes heavy use of
merchant partnerships to add extra choice (and therefore
American Express owes much of its success to a
deep understanding of the wants
and needs of the mass affluent.
value) to its point schemes. One of
the most notable recent partnerships
American Express has introduced is a
deal allowing card holders to redeem
Membership Reward points (accrued
at varying rates on regular spending
on American Express cards) directly
at Amazon.co.uk. It uses partnerships
with big-name retailers to provide
additional convenience and value in its
loyalty schemes. By making it possible
for cardholders to spend points as they
would money, the points becomes more
valuable to consumers, since they can be
spent on exactly what those consumers
want to buy.
Know your customers
American Express owes much of its
success to a deep understanding of the
wants and needs of the mass affluent.
It aligns its brand with the values of
aspiration, long-term loyalty, and
customer service, and uses all available
channels to push that message out.
About the Author
Samuel Murrant is an analyst, consumer payments with Verdict Financial. Having taken a roundabout path to
consumer payments — having first studied biology — Sam has a unique approach to analyzing the payments market,
viewing competitors through the lens of natural selection. Sam is driven by the need to comprehend the advantages
that new developments in fintech possess and see whether they can survive and grow in the environment in which
they are launched. Sam considers the most important aspect of any payments product or service to be the use-case
for the end-user, and that many financial services providers do not consider this essential angle strongly enough in
their product launches.
www.tsys.com
32
Cross-Border Payments Coming of Age
Enabling payments for merchants
looking to sell overseas
by > charles kee na n
PreSonus Audio Electronics Inc., an American manufacturer and
developer of music recording equipment and software, recently put in
place the infrastructure needed to start selling its products overseas.
Now recording artists can go to the website and order items like loudspeakers, mixers, and subwoofers from countries such as Germany,
Japan and Australia.
“Everybody is trying to look for more sales opportunities, and
Book. Major American retailers are looking to break into the
more and more the customer is looking to get the products
Chinese market in a big way.
everywhere,” says Jim Boitnott, executive vice president of
product services at PreSonus, based in Baton Rouge, La.
Macy’s Inc., for example, announced in August a joint venture
deal with Fung Retailing Ltd. to begin selling product late this
The company represents how merchants of all types and sizes
year on Alibaba Group’s Tmall Global platform. ShopRunner,
are looking to tap overseas markets by selling direct. “We
an Amazon rival, teamed up last year with Alibaba to sell
will see tremendous growth in the coming years,” says Andre
and ship goods through its network of tens of thousands
Malinowski, global managing director of payment and finan-
of American brands and retailers, such as Neiman Marcus,
cial management services at ModusLink Global Solutions Inc.,
Calvin Klein, Under Armour and Eddie Bauer.
a supply chain and logistics provider based in Waltham, Mass.
With cross-border, it’s a two-way street between China
The U.S. and Europe look far to the East
and the United States. “The world loves American brands,”
Perhaps nowhere excites merchants more than China, which
says Ralph Dangelmaier, chief executive of BlueSnap Inc., a
represents the largest market of all. There were an estimated
global payment gateway provider based in Waltham, Mass.
627 million Internet users in China in 2014, representing 46
“And Americans love deals and trying to buy directly from
percent of the population, according to the CIA World Fact
China websites.”
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n>genuity
Spring 2016
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34
The world loves American brands,
says Ralph Dangelmaier, chief executive of BlueSnap Inc., a global payment
gateway provider based in Waltham, Mass. “And Americans
love deals and trying to buy directly from China websites.”
The
stampede to sell overseas
means all merchants should start thinking
beyond their traditional borders.
Within Europe, cross-border e-commerce is nothing new, but
Dangelmaier says. Every country has its own regulations,
4. Checkout: American merchants have the advantage of
he adds. “Our suggestion is to translate that into the local
now volumes between Europe and elsewhere are soaring,
taxes and duties. Rather than shipping from the home
already having product descriptions in English. The language’s
language to make sure there isn’t a trust issue at the last
according to Ralf Gladis, a founding director of Computop, a
country — regarded by experts as inefficient — having a
international status helps avoid having to translate into
moment,” Gladis says.
global payment service provider based in Bamberg, Germany.
local presence by working with distributors or owning
numerous languages. “That’s one way of covering the world
Many of Computop’s customers worldwide plan to soon start
warehouses goes a long way.
if you don’t have the resources and the time to distinguish
Overall, for merchants, consider cross-border an education of
between French, Italian, Spanish and Chinese,” Gladis says.
sorts. “We are learning,” Boitnott says. “We’re in the process of
trying new things — it’s always a changing environment.”
selling in China, Japan and South Korea, he says.
2. Payment Acceptance: Overseas, being able to accept
But when it comes to checkout and provision of personal data
The stampede to sell overseas means all merchants should
American Express, Discover, MasterCard, Visa and PayPal won’t
and payment information, using the local language is better,
start thinking beyond their traditional borders, Dangelmaier
necessarily suffice. “Have a very strong look at alternative
says. Payment providers such as BlueSnap, Computop, and
payments,” Gladis says. “We still see American retailers
ProPay Inc., a TSYS Inc. subsidiary, are catering to a growing
selling into Europe thinking credit cards and PayPal are good
stable of merchants to help them sell product overseas. “If
enough, and that is something I don’t understand.” In Germany,
you are not planning for cross-border, you are kind of behind,”
for example, many customers use “Open Invoice,” where they
Dangelmaier says.
pay for goods after receiving the products. In China, Alipay
accounts for 48 percent of e-commerce, according to Adyen,
But who’s ready?
a processor based in Amsterdam. “If you want to sell to China
Merchants need to consider a host of logistics and how to
and you are not offering Alipay from Alibaba, you are probably
handle payments. “E-commerce stores are very well estab-
in deep trouble,” Dangelmaier says.
lished in their own region, but when it comes to cross-border
e-commerce, there are all these regulations and jurisdictions,”
3. Collections: Merchants must also consider whether to set up
Malinowski says. “That is where most of them start to trip up.”
as a legal entity in foreign countries, or to allow for a gateway
provider to stand in as a merchant of record. It’s a question
The stampede to sell overseas means all merchants should
of do-it-yourself versus paying someone to do the collecting.
start thinking beyond their traditional borders.
Setting up separate bank accounts in each country will save
a retailer in fees if there’s decent volume — and their own
For merchants pondering tapping overseas markets, payments
company name appears on the statement. But for lower
executives offered some advice to consider:
volumes, it makes more sense to have the processor do the
collecting, Gladis says. “They are going to give you all the
1. Shipping: When it comes to sending goods to customers,
payment methods and send you all the money from different
there’s a whole host of logistical considerations. “Companies
countries,” Gladis reminds. “That is the simple solution. But it
shipping goods must first find a way to get the goods there,”
definitely always is more expensive.”
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n>genuity
Spring 2016
About the Author
Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997. His work at the
American Banker included writing about credit and debit cards, merchant processing, and bank stocks. He later freelanced
for the Banker and industry publications such as Banking Strategies, Bank Director, Community Banker, and U.S. Banker.
He also writes about investing, insurance and health care, and is based in Los Angeles.
www.tsys.com
36
Digital Banking and Retail Commerce:
A Whole New Ball Game for Fraud Prevention
Tactics for fraud prevention in an age of
innovation and interconnectivity
by > theresa ja m eson
Innovation and interconnectivity —
which come with the digitization of
banking and retail — mean the threats
facing the payments ecosystem are
evolving at a breakneck pace. In fact,
this has left every participant in the
payments ecosystem (not just banks)
vulnerable to cyber-criminals.
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n>genuity
Spring 2016
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38
reputation is crucial
A payment provider’s
now more than
ever, as the rules under which companies can be payments service providers are
rapidly changing to no longer include just banks, processors and card schemes.
The recent spate of high-profile data
breaches has shown there is great disparity in the way payment providers and
fraudsters operate. Payment providers
— particularly banks — have traditionally
engaged in reactionary fraud-fighting
strategies due to the operationally large
and bureaucratic nature of these institutions. Fraudsters, on the other hand,
are creative, astute and resilient in their
approach. This has played a key role in
their ability to quickly identify and exploit
an ecosystem’s weakest link.
Digitization and fraud
While there is no doubt digitization is
having a transformative effect on the
availability and accessibility of services,
it is also having a tremendous impact on
consumer behavior — especially postfraud. While the majority of consumers
have taken steps to take greater care
when transacting, a sizable portion of
mobile fraud victims (22 percent), online
banking victims (16 percent) and online
payment victims (13 percent) opted to use
the affected card or account less.
It goes without saying that not only does
reduced card and account use pose a
serious threat to a payment provider’s
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n>genuity
Spring 2016
bottom line, but also to the quality of the
partners it is able to secure to support its
service. A payment provider’s reputation
is crucial now more than ever, as the rules
under which companies can be payments
service providers are rapidly changing to
no longer include just banks, processors
and card schemes.
Consumer attitudes on security
Although there is currently an everexpanding range of technologies (like biometric authentication, tokenization, realtime location analytics and behavioral
analytics) that have the potential to make
transactions safer, be sure not to overlook
consumer behavior and attitudes toward
information security when building fraud
prevention strategies.
A payment provider’s reputation is
crucial now more than ever, as the
rules under which companies can be
payments service providers are rapidly
changing to no longer include just banks,
processors and card schemes.
When compared to the total population,
the proportion of both online and mobile
banking compromise victims who use
social media is greater. What’s more,
there are notably fewer mobile banking
compromise victims who use a different
password for their social media and
email accounts.
Getting consumers involved
Payment providers can look to make their
customers a security partner by empowering them to be active participants in the
fight against fraud. While banks continue
to lead the way in detecting fraud, our
2015 Consumer Payments Insight (CPI)
Survey shows that a significant portion
of consumers (24 percent) are actively
reporting unusual account activity to
their bank. By leveraging and encouraging the active participation of their
customer base, payment providers stand
to strengthen this relationship — a move
that will undoubtedly go some way in
ensuring long-term customer loyalty.
On the consumer education front, Cyber
Streetwise and Barclays’ Digital Eagles
initiatives are good examples of strategies that payment providers can employ.
Cyber Streetwise is a cross-governmental
Payment providers can look to make their customers a security partner by
empowering them to be active
participants in the fight against fraud.
campaign in the U.K. designed to raise
consumer awareness on what constitutes
appropriate online behavior. The program
notably has the backing of a number of
leading banking providers in the U.K.,
including Nationwide, RBS, NatWest,
Barclays and Capital One.
Payment providers can look to make
their customers a security partner
by empowering them to be active
participants in the fight against fraud.
The Digital Eagles program run by
Barclays is a free service aimed at
upskilling the technological abilities
of U.K. consumers (particularly older
generations). Given around 15 percent
of online payment compromise victims
globally are aged 55 and over (as per our
2015 CPI Survey), such a service stands
to have a positive effect on reducing the
susceptibility levels of older consumers
to cyber-attacks and fraudsters when
transacting online.
Payment providers can also look to equip
their customers with technological tools
that empower them to directly tackle
card fraud, both online and at the point
of sale (POS). Advancements in mobile
technology have seen a rise in the number of mobile-based card management
services available. Such services are
designed to enable consumers to lock
and unlock their card accounts based
on their preferences across a number
of parameters — such as purchasing
channel, transaction value, merchant
type, currency and location.
to determine the authenticity of a customer making a transaction — be it online
or at the POS. This tactic minimizes the
potential avenues open to attack and
gives payment providers greater control
and oversight of their systems.
Across the value chain
However, payment providers can look to
lessen their reliance on consumers and
effectively diminish the consumer’s role
in the security value chain by employing a
range of technologies (such as risk-based
and behavioral analytics) that do not
wholly rely on knowledge-driven
customer inputs (such as PINs and
passwords) but work in the background
About the Author
Theresa Jameson is a Senior Analyst in the Consumer Payments team at Verdict Financial. Her specialties center
on emerging mobile payment technologies – such as NFC, digital wallets, and mobile POS. She has also written
extensively on wider payment trends and opportunities at both the regional and country level. This includes
studies on the U.K., Sweden, and Mexico. Theresa holds an MSc in Finance and Financial Law from the University of
London (SOAS), and has been quoted in the wider media by The Telegraph, Retail Times, Payments Source,
and TIME’s Money.
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pay ment profiles
60 Seconds with John Shlonsky
The president and chief executive officer of TransFirst
on meeting customers’ needs in the merchant space
Why is now such an exciting time in payments?
Today’s payment environment is constantly changing, particularly from a
customer’s perspective. It’s our job as payment processing experts to make
sure that we provide secure technology that lets our merchants accept
payments seamlessly, no matter the “next big thing” in technology. If we
can simply do that, we can win every time — now and in the future.
What makes a partner-centric business model distinctive in the
market and how is it positioned for continued growth?
Companies that use this model really have two customers: the partner and the
merchant. We like this model because our partner network provides us access
to a large number of small to mid-sized (SMB) merchants in a scalable and
cost-efficient way. It works well for partners because it lets us speak to their
clients and customers but in their voice and their brand, with marketing
materials, statements and service that’s all focused on supporting them.
The acquiring marketplace has undergone immense change with
lots of disruptors. What are the keys to sustained growth and
long-term viability?
In a dynamic environment like this, there are two important components to
sustaining growth for any industry. First, you must provide product and
solutions that are relevant. Sometimes “shiny objects” are just that, and at
the end of the day they add very little value to helping a business manage
day-to-day operations and growth. Second, you need to provide operational
excellence. You can have the most robust solution on the market, but if you
cannot provide your customers with the service and support they need
when they need it, you’ve lost the game.
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n>genuity
Spring 2016
A technology platform can really make or break
a relationship in this space. What makes for a
best-in-breed platform in today’s world?
A
best-in-breed platform should serve multiple needs
through a single point of access. It’s not just about
processing transactions; it’s about seamlessly delivering
relevant products and business solutions to both partners
and merchants. The ultimate goal is to give both partners
and merchants the ability to rely on a single provider for
many of their business requirements.
What is key to anticipating and meeting customers’
needs in the merchant solutions space?
Y
ou need to know your customer. All merchants are not
created equal, and it’s essential in today’s processing
environment that merchants see payment processing
providers as trusted advisors with the flexibility to
provide targeted “go to market” strategies for specific
business verticals.
L
et’s look at the healthcare industry as an example. Because
of some major changes to the way healthcare practitioners
are reimbursed, it’s become necessary for them to act as de
facto collection agents. They need more than a credit card
processing solution — they need a fully integrated gateway to
help them manage every aspect of the billing and payment
process. Payment processors must provide relevant product
solutions, service and support to those customers in a
meaningful way.
About the Author
John Shlonsky is president and chief executive officer for TransFirst. He brings almost two decades of experience in
the financial industry, where he has been responsible for sales, operations, technology and finance within leading
U.S. payment processing and financial services organizations.
Shlonsky joined TransFirst in 2006 as president and chief operating officer. Prior to that, Shlonsky was president
of merchant services for First Data Corporation, where he had responsibility for all business units, including alliances,
as well as Card Services International, TASQ and Concord. Shlonsky earned his bachelor’s degree in finance from
Arizona State University.
www.tsys.com
42
a v i ew from was h i ngto n
A View From Washington
Payments regulations & legislative
news from Capitol Hill
by > scott talbot t
The 114th Congress is halfway over.
Congress will spend the bulk of this year
preparing for the November elections
where the President, the entire House
of Representatives and one third of the
Senate must stand for re-election.
and eliminate cyber-threats faster —
for quicker responses.
The next horizon
Powerful new cyber-law
With CISA enacted into law, the effort
to strengthen our ability to prevent and
respond to cyber threats continues. The
next bill the payments industry is working on is creating a national standard
for data breach notification. Currently,
if a data breach occurs companies must
follow a patchwork of 47 different state
laws to notify their customers. The payments industry, along with retailers and
others, continue to press Congress to
create one national standard for breach
notification.
Before I delve into what to expect from
the regulators this year, there is one very
important development that occurred
since the last edition. Congress passed
and the President signed into law the
Cyber Information Sharing Act, CISA.
This new law was a major initiative for
the payments industry.
As Congress grapples with data breach
legislation, the payments world continues to roll out new technology from EMV
to tokenization to mobile devices. These
new technologies are exciting, but federal regulators are currently considering
if any new regulations are needed.
With attention focused on polling
numbers, stump speeches, shaking
hands and rubber chicken dinners,
there are only a few bills that have
a chance at becoming law this year.
Federal and state regulators, by contrast,
will be very busy this year trying to work
through their agendas.
It allows companies to share information about cyber threats with the
Department of Homeland Security. The
payments industry is on the front lines
in the battle against cybercrimes, and
we see data points before they become
trends. By allowing us to share this
information, CISA will help identify
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n>genuity
Spring 2016
Regulatory fronts
Federal and State regulators are on the
front line of enforcing existing state laws
and regulatory frameworks. They are
looking at the modern payments world
to enforce existing regulations or write
new regulations, as a source of tax
revenue, and for possible violations of
existing laws. Here are examples of federal and state regulators are looking at
the modern payments world.
Prepaid Cards: Prepaid cards have
exploded as a primary means of payments for millions of Americans. The
Consumer Financial Protection Bureau
(CFPB) is preparing to finalize its proposal to regulate general reloadable
prepaid cards. The proposal is laden with
new regulations, including disclosures
and overdraft. The current proposal
also attempts to regulate certain mobile
transactions. The industry continues to
express strong concerns with the restrictions proposed by the CFPB.
Big Data: Companies are expanding the
types of information they gather to better understand their customers and the
market. The new approach, dubbed “Big
Data” is proving to be useful in providing
more insight into reducing fraud, offering targeted products to customers and
for underwriting purposes. Regulators,
like the Federal Trade Commission (FTC),
have issued warnings about the legal
risks associated with using Big Data.
Given all the benefits, the payments
industry is urging regulators to proceed
with caution in trying to stifle Big Data.
Money Transmitters: The best example
of how state regulators are grappling
with the modern payments world is state
money transmitter laws. State regulators
are trying to reconcile long-standing laws
on who should and who shouldn’t register
as a money transmitter. This has created
potential for payments companies being
asked, incorrectly, to register as a money
transmitter. The industry is working with
state regulators to deepen their understanding of the industry to avoid unnecessary registration of companies as money
transmitters.
Anti-Money Laundering: As the methods
for making a payment proliferate and
become less centralized, the risk of illegal
money laundering increases. Concerned
regulators, like those in the state of New
York, have issued proposed regulations to
require banks and money transmitters to
exercise more controls over payments
to prevent money laundering.
Taxation of Payment Industry: Some
state regulators are looking to the
modern payments industry as source
of tax revenue. In Washington State, for
example, the Department of Revenue
is attempting to treat the merchant
discount as taxable revenue to the
payment processors. The industry is
working with local retailers to oppose
this tax treatment.
US-E Safe Harbor Data Transfers: As
payments and information are moving
around the globe with ease, the United
States and the European Union have
reached an agreement to strengthen the
obligations of companies to protect the
personal data of overseas customers.
Compliance will be overseen by the U.S.
Department of Commerce, the FTC and
the European Data Protection Authorities.
The industry is working to educate federal
and state policymakers about how the
new payments world works, the technology being deployed, how consumers and
tractions are more secure, and how
the payments industry is an ally — not
an adversary — in the fight against
cyber-threats and fraud.
2016 promises to be an interesting year
for participants in the electronic payments industry. While the U.S. Congress
is largely focused on the elections, federal and state regulators are working to
understand our industry and the intersection with existing and potential new regulations. The payments industry must be
ever-vigilant and relentless in education
to advocate on its behalf.
About the Author
Scott Talbott, J.D., C.P.A., is SVP of Government Affairs at the Electronic Transactions Association. He is an experienced
policy advocate and communicator with two decades of experience in Washington. Talbott has represented the largest
financial services firms in the country before Congress and federal regulators, most notably during the fiscal crisis. He is
also an expert on communication, appearing regularly on national and international media. He has been called the voice
of the financial services industry and one of the most recognizable faces in the industry.
www.tsys.com
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p e r spectives in pay m en ts
A Crisis of Culture
A litmus test for loyalty
Identifying the symptoms of organizational dysfunction
For well over a decade, my company has studied what
motivates people to continue business relationships and what
makes them loyal. We’ve found six dimensions that define a
loyal, Trusted Advisor relationship.
The first two dimensions are the “Satisfiers,” which are
considered the “ticket to the game.” These are absolutely
crucial, but service providers get no extra points for doing
these well and they provide no edge on the competition:
by > tom cates
Has the loss of a big client ever surprised you? Likely so.
It’s true, most clients won’t complain before they move on — leaving
account teams no chance to save the relationship. Through research,
I’ve found that there is one word that quite often signals client
defection — but most service providers don’t realize they could be
in trouble when they hear it.
1. Integrity – Are you reliable and trustworthy?
2. Competency – Do you have the skills and capabilities
to deliver on your promise?
Again, it is not enough to satisfy clients. One must
demonstrate more than just integrity and competency in
order to take a client relationship to a higher level. The
remaining dimensions are “Motivators,” which compel
clients to develop more powerful relationships.
3. Recognition – Do I feel valued or am I just another
relationship?
4. Proactivity – Do you look out for me and protect me
from surprises?
5. Savvy – Do you understand my world and help me
to be successful?
6. Chemistry – Do I like working with you?
Developing loyal relationships is a matter of assessing
where you stand with each individual client on these critical
dimensions. This assessment then becomes the foundation
for key account plans. If a client feels neglected in certain
dimensions, it is imperative to make that client feel that their
success is truly the top priority.
So, in short: If a client says the “F word,” treat it as an
opportunity. Dig deeper to glean their true thoughts,
needs and wants. Then take immediate action to save
your relationship by avoiding client defection.
The next time a client uses the “F word,” understand that it could be a
signal of required action to keep that client from walking out the door.
Deciphering hidden meaning
When a client says everything is “fine,” it can often be
translated to: “Everything is not fine, but this relationship
has run its course and I don’t want to invest any more time
in trying to save it.”
One international healthcare provider, for example, found
that 72 percent of clients lost the previous year were either
“satisfied” or “very satisfied” according to the latest customer
satisfaction survey. Simply stated, it is not enough to satisfy
clients — you must make them loyal.
The value of retaining a client over time can be hugely
profitable, as expenses associated with the client decrease and
opportunities for cross-selling, up-selling and referrals increase.
Essentially, the longer you keep a client, the more profitable
they become — and the harder it is for them to break away.
But there are other benefits to be reaped from the client
candor that stems from relationships of loyalty. When asked
about their satisfaction levels, truly loyal clients are likely to
say much more than merely that the relationship is “fine.”
They seek your advice, give you benefit of the doubt, put you
in touch with colleagues and share information to help you.
Loyalty’s direct benefits and substantial value-adds
As one might expect, the benefits of loyal relationships
translate directly into profit. Research indicates that
compared to those clients who typically default to using
the F word in describing business relationships, loyal clients:
> Produce three times the book of business
> Require 41 percent less work
> Stay engaged in the relationship four times longer
These benefits translate into larger profits and a stronger
bottom line (see Figure 1).
Figure 1
The value of sticking around
Price Premium
Referral Value
Cross-Selling
Core Program
Expenses
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n>genuity
Spring 2016
About the Author
Tom Cates is founder and CEO of salesEQUITY, the first Client Experience Platform designed for B2B high-value
companies who strive to differentiate themselves from their competition. Tom brings his experience leading consulting
engagements focused on the customer-facing elements of sales, marketing and customer service functions in a wide
variety of industries. Tom has held senior positions at Mercer Management Consulting, Inc. and IBM. He has contributed
to three customer-based strategy books and is working on a fourth. He also speaks regularly about building Trusted
Advisor relationships and managing customer loyalty. Tom holds a BAE from The Pennsylvania State University and an
MBA from The Wharton School of The University of Pennsylvania, and resides in Acton, Massachusetts with his family.
www.tsys.com
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