Alternative Payments
FICO World 2014
Jason Malo
CEB TowerGroup
© 2014 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Change is headed your way
whether you’re prepared or not.
Emerging technologies like mobile and
contactless payments continue to grow in
adoption and consumers demand more
convenience and more protection.
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What Do Consumers Want?
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WHAT DO CUSTOMERS WANT FROM THEIR BANKS?
Consumers want
transparency, simplicity
and 24/7 secure access
to their finances.
Financial Service Provider Attributes Most Valued By Consumers
Top 3 Attributes n~1600
Price (example: fees/rates)
48.7%
Security and reliability of transactions
41.4%
Convenience of access and hours (example: branches,
online)
Safety of customer savings and investments
33.2%
Competence and helpfulness of employees
26.1%
Ease of products to understand and use
17.2%
Speed and effectiveness of problem resolution
11.8%
Fit of products and services with my lifestyle
11.8%
Guidance on how to better manage my finances
9.2%
Unsure
9.2%
Guidance on purchasing products or services
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15.5%
Simplicity and ease of purchase process
Guidance on how to best use my financial products or
services
Security
39.4%
8.0%
6.1%
Source: 2014 Unisys Security Index, N=1,005
Ease of
Use
MOBILE MUST EVOLVE INTO A BUYING CHANNEL
Financial institutions and
payment providers must
transition users from
shopping to buying in
order to drive revenue
Would you Like to Use your Mobile Phone for the Following Purposes?
Respondents Could Select Multiple Answers
None of the above
41%
To compare prices
39%
To receive discount offers & coupons
27%
To receive location-based offers
26%
As a membership card
23%
To buy things at POS
22%
Store gift cards, loyalty/rewards points
21%
Purchase event tickets
18%
Purchase bus/train/subway tickets
17%
As a key to enter the house
17%
As a form of photo ID
No answer
16%
1%
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Source: US Federal Reserve
IDENTITY THEFT TOPS LIST OF CONSUMER FEARS
Greatest concerns for
consumers relate to the
security of their finances
and personal information.
How concerned are you about the following risks?
Respondents answering “extremely” or “very” concerned
Other people obtaining and using your credit or
debit card details
59%
Unauthorized access to or misuse of your
personal information
57%
The U.S.'s national security in relation to war or
terrorism
47%
The security of shopping or banking online
37%
Computer security in relation to viruses or
unsolicited emails
36%
A serious health epidemic occurring in the U.S.
Ability to meet essential financial obligations
Overall personal safety over the next six months
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34%
30%
25%
Source: 2014 Unisys Security Index, N=1,005
MOBILE USERS CARE ABOUT PAYMENTS & SECURITY
Most Desired Mobile Banking Features by Segment
“Unusual account activity
alerts” rely on mature,
transaction fraud evaluation
processes.
Real-time alerts on unusual account activity
Alerts must include an
opportunity for customers to
respond if necessary, but not
drive contact center costs
Liberal
Users

Ardent
Affluents

Aspiring
Bloomers
Real-time mobile alerts for
unusual account activity is
more important than
remote deposit capture
10%
Reward points just like in debit/credit card…
N=59
11%
Remote Check Deposit
Making payments using smartphones
16%
N=51
8%
Real-time alerts on unusual account activity
11%
Remote Check Deposit
14%
Making payments using smartphones
N=122
10%
Remote Check Deposit
12%
Cautious
Seniors
Real-time alerts on unusual account activity
Making payments using smartphones
Remote Check Deposit
14%
N=64
10%
13%
Real-time alerts on unusual account activity
Source: Segment Based Strategies for Mobile Banking, Cognizant, April 2014, N = 296
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18%
What are “Alternative Payments”
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THE EVOLUTION OF PAYMENTS TECHNOLOGY
Card Transaction Forms
1955
2014
Paper Card Stock
Embossed Card
Magnetic Stripe
Chip Card
Mobile/NFC
Data Transcription
Impress Card Information
Stream of Data
Real-Time Validation
Device Integration
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© 2014 Fair Isaac Corporation. Confidential.
MAJOR 2014 EVENTS (THROUGH OCTOBER)
Competitive Landscape
Product Features
Data Security
Non-Financial Players are
entering the market
CFPB Transparency Warnings
Major Data Breaches

Revolving Debt

Digital Prepaid
Threats
Increasing use of Internet
Cards
Partnerships with Tech
Companies
Opportunities
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
+50% of total market
Evolving Security Technology

EMV Rollout in United States

Biometrics — enabled smart
devices
HOW DO WE ASSESS ALTERNATIVE PAYMENTS?
Although seemingly
impossible to predict
what will take hold with
consumers, we can
assess the capability of
solutions.
Attributes of a Best-in-Class Mobile Wallet/Payments Application
Card Storage
• Store any credit or debit card
regardless of issuer
• Store gift cards, rewards cards,
loyalty cards
• Enable flexible card
management
POS Payments
• Accepted at a variety of
merchants
• Quick and easy to access
• QR, NFC, etc.
Merchant Network
Market Ready
Non-POS Transaction
•
•
•
•
P2P
ACH
Bill pay
Cardless ATM withdrawal
Loyalty Program
• Network of national merchants
• Network of local merchants
• Flexibility to allow FIs to add
merchants
• Flexible rewards system: e.g.
points based, per-dollar,
percentage, amount spend, etc.
• Merchant-funded rewards
• Financial Discounts
Up & Coming
Needs
Development
Non Existent
Coupons/Discounts
• Targeted offering based on
customer and transaction data
• Joint marketing campaigns
• Location-based offers
Wallet Data
• Data on customer wallet usage –
including issuer and non-issuer
cards
• Benchmarking and network
statistics
• Segmentation analysis
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Data Security
• Meet regulatory standards
• Business continuity plan
• Balance between security and
convenience / access
• Remote wipe or lock
PAYPAL
PayPal could be viewed
as the original alternative
payment. With its recent
spinoff from eBay,
evolving partnerships,
and significant customer
base, there are a lot of
open roads.
Attributes of a Best-in-Class Mobile Wallet/Payments Application
Card Storage
POS Payments*
Merchant Network
Loyalty Program
Coupons/Discounts
Wallet Data
P2P
Transaction Volumes (in millions USD)
Market Ready
Up & Coming
$700
$468
Needs
Development
$314
$194
Non Existent
$59
$81
$105
$141
Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2012 Q1 2014 Q2 2014 Q3 2014
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Non-POS Transaction
Data Security
POS Payment
Partners
Challenges
• *Low POS customer adoption
• Lower penetration in younger
user segments
• Expanding P2P success from
Venmo acquisition to POS
payments traction
STARBUCKS MOBILE APP
Starbucks is the leading
example of how mobile
payments can be
successful with a tight
integration to rewards,
free offers, and
marketing
Attributes of a Best-in-Class Mobile Wallet/Payments Application
Card Storage
POS Payments
Merchant Network
Loyalty Program
Coupons/Discounts
Wallet Data
Transaction Volumes (in millions USD)
Market Ready
$517
$454
Up & Coming
$380
$414
$302
Needs
Development
$263
$224
$159
Non Existent
Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2012 Q1 2014 Q2 2014 Q3 2014
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© 2014 Fair Isaac Corporation. Confidential.
Non-POS Transaction
Data Security
Challenges
• Only accepted at Starbucks
• Participating merchants are
limited
• More expensive to deploy
(barcode scanners)
• Static barcode
MOBILE WALLETS
Mobile wallets haven’t
yet gained widespread
adoption as technology,
market, and consumer
readiness are all under
development.
Attributes of a Best-in-Class Mobile Wallet/Payments Application
Card Storage
POS Payments
Merchant Network
Coupons/Discounts
Institution-Led
Market Ready
Providers1
Up & Coming
Needs
Development
1
Partial List
Non Existent
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© 2014 Fair Isaac Corporation. Confidential.
Non-POS Transaction
Loyalty Program
Wallet Data
Provider-Led
Data Security
Challenges
• Strategic mix of wallets to be
supported
• Security
• Evolving standards & market
readiness
• Customer replacement value
MOBILE BANKING APPS
Mobile banking
applications are
beginning to incorporate
payment mechanisms for
P2P as well as POS
Attributes of a Best-in-Class Mobile Wallet/Payments Application
Card Storage
POS Payments
Merchant Network
Coupons/Discounts
Up & Coming
Needs
Development
Non Existent
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Loyalty Program
Wallet Data
Data Security
Challenges
• Evolving standards & market
readiness
• Limited capabilities to import
other cards
• Competition
Market Ready
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Non-POS Transaction
APPLE PAY
Apple has made a big
splash with Apple Pay,
but still has room to
improve.
Attributes of a Best-in-Class Mobile Wallet/Payments Application
Card Storage
POS Payments
Merchant Network
Coupons/Discounts
Up & Coming
Needs
Development
Non Existent
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© 2014 Fair Isaac Corporation. Confidential.
Loyalty Program
Wallet Data
Data Security
Challenges
• Enabled consumer base is
limited
• Participating merchants are
limited
• Replacement value is security,
not ease of use
• Pricing
Market Ready
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Non-POS Transaction
MCX / CURRENTC (EXPECTED AT TIME OF LAUNCH)
CurrentC promises
secure transactions, and
faster checkouts but
rewards and coupons
pose the biggest
customer opportunity.
Attributes of a Best-in-Class Mobile Wallet/Payments Application
Card Storage
POS Payments
Merchant Network
Coupons/Discounts
Up & Coming
Needs
Development
Non Existent
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© 2014 Fair Isaac Corporation. Confidential.
Loyalty Program
Wallet Data
Data Security
Challenges
• More expensive to deploy
(barcode readers)
• Security & privacy concerns
• Value proposition & customerfriendly challenge
• Giving bank account
information not card
information
• ACH & Debit only
Market Ready
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Non-POS Transaction
Keeping Pace With the Evolution
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NOT EVERYTHING IS CHANGING
What’s Changing
Merchant Driven Programs
Multichannel Access
Specialized Non-Bank Players
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What’s Not Changing
Only Banks Can Take Deposits
and Issue Network Cards
Top Ten Issuers=
85% of Market
10–12% Growth in a $26 Trillion Market
BANKS ARE LOOKED TO FOR SECURITY, BUT
INCENTIVES LAG
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© 2014 Fair Isaac Corporation. Confidential.
BANKS DETECT MORE, BUT CONSUMERS HEAVILY
INVOLVED
Most common ways victims discovered identity theft, by type of theft, 2014
Percentage of Information Risk Executives, September 2014, n=37
50%
Existing Account misuse
40%
30%
Other identity theft
20%
10%
0%
Contacted by financial Noticed fraudulent charges
institution about suspicious
on account
account activity
Noticed money missing
from account
Contacted by company or
agency
Contacted financial
Credit card declined, check Received a bill or contacted
institution to report a theft bounced, or account closed
about an unpaid bill
due to insufficient funds
Source: US Dept. of Justice, 2014 Victims of Identity Theft,, Dec 2014
How is fraud typically detected?
Percentage of banks responding, multiple responses accepted, 2014, n~200
When a customer notifies us
62%
Through automated data analysis or transaction monitoring software
57%
At the point of transaction
53%
During account audit/reconciliation
41%
Third-party notification
36%
At the point of origination
Third-party investigation
Internal whistleblower
29%
21%
18%
Source: 2014 Faces of Fraud Survey, Information Security Media Group
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© 2014 Fair Isaac Corporation. Confidential.
TWO-FACTOR AUTHENTICATION HAS COME TO
PAYMENTS IN MANY FORMS
First Authentication Factor
Standard Card
Swipe
Something Someone Has
+
Something Someone Has
EMV
(Chip and Pin)
Apple Pay
(Biometric)
CurrentC
(Device and Pin)
Second Authentication Factor
Something Someone Knows
+
Something Someone Has
Something Someone Is
+
Something Someone Has
Something Someone Knows
+
Source: CEB analysis.
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© 2014 Fair Isaac Corporation. Confidential.
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3 NEW PRINCIPLES FOR CONSUMER AUTHENTICATION
Risk-based security
doesn’t always mean
ADDING locks, but it
does mean considering
the transaction, user, and
capabilities at hand.
1.
Align Authentication Strategy to Transactional Risk
•
•
2.
Don’t Hide Security, but Make it Easy
•
•
•
3.
•
© 2014 Fair Isaac Corporation. Confidential.
“Frictionless” doesn’t mean invisible
Reassure customers and involve them only when necessary
Example: Fraud notifications, transaction verification Apps
Consider Your Distribution and Support Channels
•
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Incorporate “Step-up” authentication for risky transactions
Remove security measures where the risk is low, or easier authentication
methods are available.
Understand impact that security will have on support
Work to supplement other channels through cross-channel processes
DEVICE LOSS AND REPLACEMENT PROCESSES MUST
EVOLVE
Card Transaction Forms
1955
Paper Card Stock
1. Notify
2. Change
Account #
3. Replace Card
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Embossed Card
1. Notify
2. Change
Account #
3. Replace Card
© 2014 Fair Isaac Corporation. Confidential.
Magnetic Stripe
1. Notify
2. Change
Account #
3. Replace Card
2014
Chip Card
1. Notify
2. Change
Account #
3. Replace Card
Mobile/NFC
1. Disable
2. Locate device
3. Authenticate
on new device
CONCLUSION
► The
best way to predict success in payments is to test them against customer
value
► Security
is now more than just an imperative, it’s a differentiator
► Even
in cases where banks are disintermediated they are not absolved of
responsibility of fraud
► Opportunities
to secure consumer data and finances are greater than the risks
posed by alternative payments
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Please rate this session online!
Jason Malo
jmalo@executiveboard.com
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© 2014 Fair Isaac Corporation. Confidential.