Category Archives: Financial Technology

Banks, make account opening easy from a mobile device and win customers

SimpleFinancial technology bloggers have written a lot recently about the implications of BBVA’s acquisition of Simple and Facebook’s acquistion of WhatsApp.  I know, what does the WhatsApp acquisition have to do with FinTech?  Industry pundit, Jim Marous, points out that the WhatsApp acquisition points to an ENORMOUS industry trend that sends a huge warning signal to all financial institutions.   That trend, and this should be no surprise, is the significant shift for consumers from the desktop to the mobile device in not only social media, but in banking too.  The warning signal? Consumers want to engage with their bank through the mobile device as the primary channel of engagement.  Banks need to get their mobile house in order or customers are headed out the door, through the windows and maybe even through the ATM.  The most salient mobile app feature that banks must get right to address this trend is account creation.  Banks who make account creation easy from the mobile device will turn the tide …and will attract more customers away from banks who do not embarce mobile.

Marous sites, “While Facebook was built for the desktop and migrated to mobile, WhatsApp was built for mobile first, giving the network an advantage in today’s marketplace.”  Similar to Facebook, a bank’s consumer products and user experience has been desktop based and is gaining momentum to migrate to mobile devices.  I am a Wells Fargo user and have downloaded the mobile app that offers a snapshot into my bank account online.  Aside from remote deposit capture, the application offers very little additional value that leverages the power of my mobile device.  As I’ve mentioned in previous blog posts, there are many FinTech innovators who are creating banks and banking technology that put mobile first.  GoBank, Moven and Simple are prime examples.

The most significant opportunity to drive mobile banking adoption is to fully leverage the camera feature on a  smartphone.  Yes, most banks do utilize the camera by enabling mobile deposit capture and photo bill pay.  However, the camera needs to be enabled for a much more significant  functionality: The ability to capture the PII needed to open a bank account without asking the consumer to key it in using a device key pad.   Without this feature, the mobile channel will always be secondary to the online banking channel where consumers create and manage banking relationships.

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Financial technology innovators Jumio and Mitek  are making great strides in leveraging the device camera to capture customer data. Jumio recently launched at FinovateEurope a technology that uses the device camera to scan an ID and extract the needed PII to open up a banking account. The technology then “deposits” this needed data into a bank account registration form.  Wow.  Cool. The technology addresses the significant consumer pain point of using a tiny device keyboard to open up an account ….which is a process filled with typos, frustration, and high abandon rates.   The Jumio platform makes opening a bank account fast and easy.

 

The mobile camera ID scanning technology sounds great…however, from the consumer perspective I can identify several potential hurdles or concerns that have to be addressed.  Where does the picture of the scanned ID go?  Is the image in my device photo stream?  If I lost my phone, could the thief see this data? If the ID image lives in a cloud, who’s cloud is it?  What happens if the cloud provider is breached?  There are so many questions here that need to be addressed!  One thing is for sure, innovators need to have the data security technology locked down and messaging at the ready to educate customers on why this ID verification technology is safe.  After all, consumers don’t readily distribute copies of their ID to just anyone offline…and it’s no different in the online world.


Finally! Innovation attacks the mortgage lending process with GoRefi!

We recently refinanced our house to take advantage of a rate one point lower than our current mortgage.  Wow, that’s a big chunk of money each month. However, the process to realize that savings was PAINFUL!  We worked through a broker, Finet Mortgage, who we’ve used for several transactions.  The team at Finet does a great job finding the best rate and is very helpful in managing the laborious document submission process.  Unfortunately, despite Finet’s best efforts, the refinance process is still not pleasant due to the lender’s processes, document requirements and lack of communication… that results in frequent rush requests to find certain pieces of paper.  All the back and forth frequently results in a longer time to close…and frequently in increased fees to get the work done.

There is so much room for improvement here.  EVERYONE has similar painful experiences.  There has got to be a better way!

GoRefiThere IS a better way and the innovation is coming from GoRefi.  I spent some time with their leadership and learned more about their product and value proposition.  Banks, be ware, GoRefi is well positioned to turn the mortgage lending process on its head…and can pass savings off to consumers at a lower interest rate.

GoRefi takes the friction out of the mortgage lending process by focusing on the major frustration points my wife and I complain about: poor lender communication, long times to close and elimination of exorbitant fees. GoRefi positions itself to:

  • Provide an interest rate .25% lower than most banks
  • Provide a 30% savings on closing costs
  • Close the transaction in 14 days…instead of the industry 60

Wow, this sounds great.  So, why did we use our broker and NOT GoRefi?

My wife and I have managed between us over 10 real estate transactions and I have to admit I’m a little hesitant to use GoRefi.  I’m sure many others experienced and inexperienced people may be hesitant as well.  I think the hesitancy can be appeased if GoRefi:

  • Articulates their legitimacy as a lender. I’d like to know if GoRefi is the loan originator…or if they also shop around to other lenders for the best rate. If they do make the loan, where does the money come from?  Where do their rate quotes come from?
  • Communicates their stability as a company.  Most people don’t care who originates the loan.  However, I personally find it frustrating when our loan is resold…and resold…and resold.  This is concerning for it means we need to revise our bank’s bill pay tool to submit payment.
  • Defines how they treat and protect all the data submitted.  At this point GoRefi does not clearly define what precautions they take to protect our identities and PII.  How do we know GoRefi is not a lead gen site that resells the information provided to legitimate and not-so-legitimate companies?  Yes, GoRefi does provide this information on a Security and Privacy page…but the links are in the breadcrumbs at the bottom of the home page.  This information needs to be FRONT AND CENTER.

Having met these guys it is clear they will have responses and processes in place to address each of my reasons for hesitancy.  However, consumers will not ASSUME this and need to be directly informed….or “spoon fed” this information.

Now assuming these concerns are addressed and a consumer does apply for a loan refinance, GoRefi must treat any customer like the Queen of England. GoRefi closes their refinance process definition with a bold statement:

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I think this is where GoRefi will win (and win BIG) customers or will crash.  As soon as the customer starts submitting the required documents, a GoRefi rep must become the customer’s best friend.  The rep must be available to answer any questions and must keep the customer informed of where they are in the process…at all times.  GoRefi must over communicate.  If not, consumer trust in GoRefi will quickly erode and lender will seem like all the others.

The big question that pops into my mind is can GoRefi afford the headcount needed to bring on these high touch reps? These reps are important hires and they each need to deliver an exemplary customer experience.  After all, GoRefi is striving to transform the lending process with consumers…and I think they are well positioned to do so.


Can Apple Benefit from a Strategic Partnership with PayPal?

The fact that Tim Cook hinted that Apple might be getting into payments is no surprise.  It’s more of a “duh.” Apple has the user accounts, consumer credit cards on file, and millions of iPads and iPhones in market.  The launch of Touch ID and the iBeacon sensor only connect the dots even further.

Apple’s Passbook paves the way for expanding the wallet beyond loyalty cards and into the ability to make online and offline payments. The launch of the Touch ID addresses security concerns and helps prevent unauthorized payments should the phone, or “wallet”, be lost.

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In the online world, it’s not a far stretch to imagine a consumer using their Apple ID to authorize a charge to their credit card for a purchase made on an e-commerce site.  However, competitive pressures from Visa, MasterCard, and PayPal may make convincing e-commerce sites to accept Apple payments that much harder.  One recent article points to Apple making payments as part of the iOS developer kit…which would easily provide code needed for a developer to add a payment feature to their mobile commerce app.

However, the opportunity for Apple gets more challenging in the offline retail world.  Yes, iBeacon creates a network to enable mobile payments through detecting and authenticating a mobile device.  Cool. However, Apple faces the challenge of convincing merchants to adopt the payment processing hardware, dongles, etc.  Google, Stripe, Square, and Dwolla also face this problem, among others. Even with its big brand recognition and marketing strength, Google was not able to grow offline retail adoption of its wallet.

So what are the opportunities for Apple moving forward?  Apple could build its payments business through acquisitions, or strategic partnerships.  Square has been a leading innovator in the payments space, is building merchant adoption and has a strong focus on UI/design given their recent hardware release.  While a Square acquisition may be expensive, Apple would quickly acquire payments processing technology, a growing user base of merchants and a design focused group of developers.  Bloggers have also identified Stripe as a potential, less expensive acquisition.

I think Apple can benefit the most, however, from a strategic partnership with PayPal.  Recently a LOT has been written about PayPal feeling the heat from Apple and pitching to help build out their payment network.  Some people see this as a signal PayPal is feeling threatened.  Yes, the competitive threat is there.  However, PayPal has many elements that Apple needs to be a leader in this category.  I think together, PayPal and Apple can create a break through wallet that defines the mobile wallet.

First of all, PayPal has addressed many of the cross-boarder (currency) trade challenges that Apple will eventually face.  Remember, Apple products are ubiquitous and they face hurdles in every new market they enter. We all know that Apple will not want to limit payments to the US market.

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Secondly, PayPal has a merchant program in place and is regularly improving the product feature set. This in market learning will only improve PayPal’s ability to deliver a solution merchants actually want and can easily adopt.  PayPal is also co-marketing with merchants to drive consumer adoption.

Lastly, PayPal is seen as the “most trusted” mobile wallet brand as defined by a 2013 Javelin study. Why is this important?  In light of the recent data breaches, mobile security will be a big factor for not only consumers, but for merchants.  Yes, Apple’s fingerprint ID is fantastic to access the device and authorize transactions.  However, there is a lot happening in the payment processing back-end that PayPal has focused on securing for almost 20 years. A partnership with PayPal will enable Apple to address this hurdle and avoid a dreaded data breach.  Should the unthinkable actually happen, culpability would most likely NOT fall squarely on the shoulders of the world’s number one brand.


Banks, are you paying attention to what T-mobile just announced?

 

T-mobile just announced that they plan to provide mobile banking services to their customer base.  These services include a pre-paid debit card, a mobile banking app, and a basic checking account.

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Clearly T-mobile is continuing to offer value to their customer base that has signed up for a phone using a pre-paid contract…. and it’s working.  T-mobile is quickly winning customers in the coveted 18 – 35 target market…the segment that is most likely to engage with mobile banking.

T-mobile is partnering with The Bancorp Bank to provide this customer value.  Sprint was the first carrier to partner with Boost Mobile to provide similar banking features to its customers.  These strategic partnerships provide a great deal of value to both partners in the mobile and banking verticals. Many T-mobile and Sprint customers have pre-paid contracts so it’s not a far leap to understand this segment would also see value in a pre-paid debit card and low fee banking products.  The banks providing these services gain access to a mobile savvy customer base that is not being well served by the Top 100 banks.

These strategic partnerships should raise the neck hairs of executives at the remaining mobile carriers and at the Top 100 banks. Yes, Verizon and AT&T are big guerillas.  However, similar to bank sentiment, mobile carrier sentiment is low too.  Consumers are tired of paying high fees for mobile service. However, by providing additional value to a high life time value audience, these carriers can attract customers away from the larger carriers…even if it’s a slow and steady rate.  Remember the tale of the tortoise and the hare?  AT&T and Verizon should consider opportunities that may be available with yet “un-wed” mobile banking providers like GoBank, Moven or Simple. I’m wonder if the pay as you go mobile provider, Ting, is talking with any of these similarly minded banking providers? There could be an interesting partnership there.

From the banking perspective, executives are aware that it’s all about mobile.  Contrary to recent articles touting that top banks are aware of the importance of mobile, it’s well understood that most banking technology innovation will occur OUTSIDE of the banking industry.  I’ve heard this big bank mobile focus described as a mobile arms race.  However, I think banks may need to buy their “arms” from outside the banking industry providers, to continue the metaphor.

Over time, maybe within just 5 years, a young and frustrated segment of customers will be evaluating and switching to banking providers who meet their needs in the most cost effective way through a channel that is most convenient.  It’s no secret that this channel is mobile.

Banking executives must quickly evaluate how they can meet the needs of customers beyond banking and providing special offers that can be found already in a Penny Saver. Because of the negative sentiment towards banks, financial institutions may consider being an unbranded, silent partner where they provide the banking back end and rely on a partner to provide the branded consumer facing front end.  However, could a big financial institution that is used to being the “alpha male” in a relationship be open to playing a more balanced role with an innovative partner?  Over time, the bank’s future as a leading financial institution may depend on this as the coveted 18-30 population ages and mobile banking becomes more ubiquitous. *

* The use of the word “ubiquitous” is brought to you by Starbucks, a brand with retail locations everywhere. 🙂


What Can Bank Social CRM Teams Learn from Ford? A lot!

Last year my wife and I began our search process to find a new SUV. Our consideration set included Toyota, Ford and Chevrolet. I tweeted out one evening that we were considering the Ford Explorer and asked for feedback from my community.  Within 24 hours I received a reply…not only from friends, but also from Ford.  The response included a link to the Explorer’s features and an offer to schedule a test drive. Color me impressed. (Tweet me at @ericdunstan with the 80s movie reference)

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I responded that we were interested in a test drive. A Ford rep quickly responded and offered to schedule a demo and to provide incentives.

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Ford is effectively using social media as a lead generation tool and quickly acquired my information to schedule a test drive.  I used all natural language text with no # or handles. Clearly Ford is monitoring the social media channels and has an effective strategy to capture the information and act on it.   Nice work.

I recently blogged about my frustration with the mobile deposit feature of the Wells Fargo mobile application.  I tweeted my frustration as part of a theraputic venting processes.  Within 24 hours Wells Fargo replied with a tip to address the mobile application #fail and a request for me to call a 1-800 number to address any further issues.

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I applaud Well Fargo for capturing or “hearing” my frustration on Twitter and responding.  However, given the importance of social media as a marketing channel, Wells Fargo’s response is almost a given.  I would imagine that almost all of the Top 100 banks have similar processes in place to monitor and manage the social media channel.  However, I believe Wells Fargo’s response falls short of meeting my customer needs and their social media team could learn a lot from what Ford is doing.

The Wells response was very generic and made me do the heavy lifting.  “Try closing the app and restarting your phone.  If the problem persists, please call 800….”  Duh. Wells Fargo, I’ve been an iPhone user sense the iPhone 3 and know that restarting an app is a quick fix.  However, given the Wells app recent reviews, I think this functionality fail is an application problem.  Additionally, the LAST thing I want to do is call your 800 number to then have to dial through a myriad of prompts to eventually talk with a representative after a several minute wait.

The Ford response was very personal, responded to my specific question, and provided a channel to connect with a representative directly.  Ford made me feel personally taken care of, listened to and treated as a desired customer.  Wells could have worked harder by…

1. Offering to collect my information so an online/mobile customer service rep could contact me directly

2. Having the rep present the option of contacting him or her directly through a Twitter DM to help trouble shoot

3. Providing me a link to their website with a list of known issues

4. Acknowledging my frustration and offering an incentive as a “mea culpa” for their failed application

I feel like my concerns were heard by Wells Fargo, but I don’t feel personally taken care of to ensure my issue was resolved and that I’m a valued customer.  This is an example of the difference between just listening to the customer and engaging with the customer.  By engaging with the customer, Wells has the opportunity to personally respond to my need to show that my customer relationship is valued.  Ford did this so well that we bought an Explorer from them.

Moving beyond just listening to and engaging with the customer may require rethinking how customer support teams are trained and incentivized.  Additionally, companies should consider implementing a social media analytics and engagement software solution.  These solutions go beyond functionality of Tweet Deck that enable users to track multiple accounts and listen for mentions of their company or brand.  The more robust solutions, like Attensity or Nimble, for example, enable companies to listen to the customer, analyze the need and then act on meeting the customer need.

Consumers are increasingly frustrated with their banking relationship. There are a few Internet and mobile only banks, like GoBank or Moven, which take the mobile experience and customer service seriously.  Leading banks, including Wells Fargo, will quickly lose customers should they not learn how to actively engaged with their customers through all channels of customer support, including social media.


Know your customer first to find the right strategic partnerships

This week I had a conversation with an executive at a mobile banking company. We spent a majority of our time discussing the strategy of using strategic partnerships to build a customer base, deliver products that meet customer needs and generate revenue. This executive shared an unfortunate experience where his team was pushed into a partnership where they provided most of the product development resources and had to commit to the lion share of the marketing spend to promote.  Unfortunately, the double barrel commitment yielded little return in helping the company achieve its goals. The partnership was more of a distraction and had high opportunity costs. Frustrating.

Strategic partnerships are an important lever to pull to grow revenue, drive acquisition, build out technology, and increase product functionality.  However, it’s mission critical that the right strategic partnerships be established or the relationships will be a distraction and take critical focus off of what is important.

One of the most important exercises a company must go through is to understand who their customer is and how the company will meet customer needs.  Without this understanding, it will be impossible to find the right strategic partnerships. Once the customer is understood, companies need to evaluate potential partners across 4 factors.

The first factor is access to the right customer.  Will the partner enable a company to market their product to a customer segment that will generate revenue and have high life time value?  If not, the partnership will yield access to consumers whose needs are not met.  As a result, little value will be provided to the company.  Unfortunately this happens far to often as young companies rush to find ways to acquire new users and monetize as quickly as possible.  As we all know, this is a symptom of a short-term focus and a need to show growth to current and would be investors.

The second factor is to understand the required investment needed to realize the value of the strategic partnership.  For example, eBay entered into a strategic partnership with PayPal to meet the needs of its users to pay for things securely online.  Yes, eBay had to invest product resources to integrate the PayPal technology into its listings.  However, the investment had a very positive ROI for it brought huge value to eBay buyers and sellers. The product partnership proved to be very successful, as we know, and eventually resulted in eBay acquiring PayPal.

The third factor is the company’s internal resources and willingness to support the partnership.  I’ve seen many companies stumble on this factor. I was part of an organization that needed to partner to quickly provide product features to remain competitive.  It was one of those standard “make vs buy” debates that resulted in the executive team deciding to move forward with a partnerships strategy.  Unfortunately, employees outside of the executive committee did not feel they had the resources needed to support any technology partnerships and quickly dug their heals in and resisted any discussions. Needless to say, any partnership agreements quickly stalled in the implementation process.

The last factor is both parties’ shared interest in a successful outcome.  The partnership must be of equal or greater strategic importance to both partners.  While at Excite@Home I managed a strategic partnership with Paramount Pictures that was designed to increase awareness that Excite was a destination to learn more about the latest blockbuster movies. I managed a team of developers, designers and marketers to build solutions to promote Paramount’s movies across the Excite@Home network.   We busted our butts to get things done.  Unfortunately, Paramount didn’t have much interest in promoting us as defined in our partnership agreement.  We were lucky to get an Excite@Home logo placement on the front page of the Paramount website…but were nowhere close to receiving any offline placements.  Paramount reminded us of this too frequently.  Such is life in the big city. It will always be Silicon Valley vs Hollywood.

So blah.  What is the conclusion to my bloviation? Before company executives start frothing at the mouth to strike strategic partnerships, it’s important to do the introspective work first.  Who is your customer?  What customer needs are being met with the product?  What needs are not being addressed by the product?  Only with this sense of corporate self-awareness can companies enter into fruitful strategic partnerships.  Without doing the upfront work first, it’s like searching for a spouse without knowing what qualities one is looking for in a mate.


Mobile must remain a priority for large banks to retain customers

My family and I received several checks from family members as gifts and as payback for gifts purchased.  My wife typically handles the day-to-day checking account and generally handles making deposits at the nearest Wells Fargo ATM.  I suggested that she try using the mobile deposit feature on the Wells Fargo mobile application.  Being the wife of someone who works in FinTech, she agreed to try out the feature….despite all the negative feedback about the application. Unfortunately,  she successfully validated the negative comments splattered across iTunes.

The biggest disappointment came through the application crashing after each attempt to deposit a check using the mobile deposit feature. What I found most interesting were my wife’s comments after the 3rd attempt. “Well, Wells Fargo, I guess you REALLY don’t want me to use this feature,” was the first comment.  The second comment was “What happened to the pics of the checks I took before the app crashed? Are they stuck in the app or are they with Wells?  Can someone steal the money?”

Three interesting thoughts came to mind as I digested her valid complains.  One, when it comes to getting customers to try new features that involve their money, banks better be sure the feature works for the customer the first time.  Yes, app crashes can happen for many reasons.  Unfortunately, several reviews reflected the same frustration and experience my wife had…which implies that improvements need to be made to the application. From my wife’s point of view, Wells Fargo implicitly told her mobile deposit is not ready for prime time and to keep using the ATM.  Wells needs to track that these customers are and target them with a “mea culpa” CRM program to win back their trust with new technology. After all, according to a recent study, 49% of consumers will change banks for a better mobile experience.

Secondly, I think my wife’s concerns about where the check pictures have gone after the application crashes point to an engrained reaction that stems from frequent e-commerce transactions.  I think similar “where’s my money now?” concerns come up when a consumer enters in a credit card number online, presses submit and the site crashes. “Did my credit card go through? Do I need to re-enter my credit card? If I do, will I get double charged?  Is my card number safe?”  All are common questions following an e-commerce site crash.  I think it’s only natural for my wife to ask similar questions after a mobile banking application fails.  In-application messaging must be delivered immediately to consumers to quell their anxiety when things don’t go as planned.

Lastly, the low application star rating and poor review indicate that mobile is NOT a big priority for Wells Fargo. In an effort to win customers, I would imagine that the mobile team would quickly iterate and redeploy an application as quickly as possible. Unfortunately, Wells Fargo is not the only major bank that appears less focused on winning customers through mobile.  Chase and Bank of America have similarly low rated mobile applications. If these major banks do not step up their focus on mobile, the door will remain WIDE OPEN for innovative mobile banks like GoBank and Simple to entice customers through compelling mobile banking experiences.


Mobile platform security is key for mobile payments providers

I was at one of many Christmas parties and conversation topics, of course, covered “where will you be for Christmas” and “are you done with your shopping.”  Almost everyone was done with their shopping, but the big follow up question was “Well, did you end up shopping at Target?” There were a handful of people at this gathering that did shop at Target over the ill-fated shopping period.

The conversation very quickly involved everyone around the buffet table and included comments like, “I can’t believe hackers actually were able to break into a huge chain like Target” and “your credit card information is not safe anywhere!” Clearly EVERYONE at this party will be checking their credit card statements very closely in January!

However, one comment made really grabbed me. “If my credit card can be swiped by hackers at Target, I’m sure as hell not going to want to use my phone to pay for stuff.”  Obviously this exclamation sparked another round of fervent debate and discourse. A few well-known coffee and pastry shops in the area were called out in conversation as using new mobile payments technologies and were “flagged” as potential places to monitor for card fraud.

The implications of the Target data breach on the mobile payments vertical are HUGE.  There are serious challenges that must be addressed both on the consumer and business side of the equation for the many emerging mobile payments technology providers.

First of all, consumers have the perception that it’s no longer safe to use even debit or credit cards at physical retail stores.  According to one account of the Target breach, a security analyst at a major bank was made aware that cybercriminals were planning to sell online a new stock of stolen credit/debit cards.  The analyst bought the stolen card numbers of his/her bank customers using Bitcoin.  Presumably, these transactions lead to the discovery that these card numbers were stolen from Target.

One could easily make the assumption that Target was not even aware of the breach until the bank analyst made these card number purchases from the cybercriminals. Yikes! This lack of awareness of the problem scares me deeply at the consumer level.  Would Square be able to quickly inform a merchant that consumer’s payment data has been swiped and is being sold by cybercriminals? Could Square inform users that their data was stolen?

Secondly, business and IT executives at Target and all major retailers are wondering how and why the Target payments system was hacked.  Obviously, there are fast and furious internal investigations within Target as their legal and technical teams prepare for a barrage of lawsuits coming their way from banks and consumers.  These Target executives will be pounding on the doors of their payment system providers and their 3rd party vendors as well.

The discovery phase of these lawsuits will get UGLY FAST.  Moving forward post breach, all physical and online retail payment platform providers will be evaluated with much greater scrutiny with a focus on platform security, ability to detect a data breach and processes to quickly inform users that data has been compromised.

Emerging payment providers such as Square, Dwolla and PayPal need to address these implications head-on to address consumer and business needs in a post Target data breach world.

Platform security is now a big focus.  Yes, each provider does have website messaging that talks to how secure their platform is.  However, security requirements and technology must be increased especially as the payments platforms are being sold into individual SMBs and at the enterprise level that use multiple mobile devices to process transactions.

Mobile payment providers can quickly equip themselves with cutting edge mobile platform security technology through strategic partnerships.  Industry leaders include MobileIron, Good Technology, or AirWatch.  For example, by partnering with MobileIron, Square can provide a layer of mobile platform security to their SMB customers who use the payment platform across multiple mobile devices (payment terminals).

Addressing the mobile platform security needs will help address consumer concerns as well that their payment data and money are safe at the payment platform level. Square, Dwolla and PayPal must educate consumers on WHY their payment data and money are safe.  Providers must clearly explain what happens if a Square account is hacked and the PIN number and cash balance is stolen.  Can these providers stand behind a guarantee that transactions are safe?  Can they back up consumers’ cash balances if the money is stolen?  These are all key concerns that must be addressed for consumers to feel safe in using mobile payments technology to pay for items at physical retail.

Personally, I keep a very low balance in my mobile PayPal account that is connected to a low balance bank account.  Why?  I still don’t trust that the receiving terminal is that secure and nefarious code could somehow steal my account numbers and distribute across the world…all through an unsecured wireless connection at the SMB’s business location.  Maybe I’m just paranoid and uneducated.


Square is proving to be a valuable alternative payment solution for small businesses

This past weekend I had a great conversation with a friend of mine about wine, politics, classic cars and payment technology.  As the song goes, “these are a few of my favorite things.”  My friend, Mick, is an auto mechanic based out of Monterey, CA who focuses primarily on British and other European import cars.  When I say British, I mean early 1970 Mini Coopers before BMW started importing the more stylized versions with nifty customized paint jobs and stripes. He’s a British car enthusiast’s enthusiast…with the accent and Rolling Stones t-shirt to boot.

Mick is a savvy business guy and has A LOT to say about small business banking, lending, payments processing and taxation.  After a few mimosas the conversation gets very lively as you can well imagine.

I learned that Mick currently uses the payment processing tools, software and equipment provided by his business bank, Rabobank.  The bank makes it easy for his business to use their credit card processing machines through favorable card processing fees, equipment leasing options and bundled low interest loans and credit cards.   Rabobank typically charges him 2 ½% – 3% on processing fees for Visa and MasterCard transactions only.  The bank also has account managers available to help with any problems in the payments processed…and are constantly trying to cross sell him into other bank products.

Last month Mick started to explore alternative payment processing options out of frustration with the Rabo solution.  Rabobank processes payments only in his shop using Rabo supplied machines.  Unfortunately, his checking account does not receive the payment until 3-5 business days after the credit card transaction is made.  These machines are a bit clunky and keep him tied to his shop which is a problem for he deals with many customers at other garages. The solution also does not connect to his inventory management solution so he has to track each sale separately on his supplier order forms.

A friend suggested that he look into Square.  His eyes got wider as he described all the great features Square has to offer through a FREE downloadable app and simple card reader connected to his iPad. Yes, the wide eyes could have been due to the mimosas, but his excitement was palpable.

“Through Square I can now load and access all of my parts inventory and process orders from anywhere.  I met a guy at a coffee shop last week and he ordered several Jaguar parts from me.  I punched in the order on my iPad, ran his credit card and emailed him the receipt. I gave him the parts and it was done.  Amazing.”

Mick was also excited about the 2.75% transaction fee, no equipment rentals and the ability to access Visa, Mastercard, Discover and AMEX.  The excitement around the mix of credit cards surprised me.  However, his clients are typically high-end car collectors.  AMEX is this customer segment’s card of choice….which is a point of differentiation for Mick’s shop compared to others in the Monterey and Carmel area.  Another benefit to Square is the ability to receive the payment deposit the next business day.  For Mick, and for any small business owner, this is HUGE to support the cash flow of his business.

The missing link is for Square transactions to integrate with a QuickBooks account.  Right now he has to export the Square transactions as a .csv file and then import into QuickBooks.  “It’s a bloody pain in the ass,” he says.  However, in time I’m sure Intuit will build out the API for easy automatic imports.

So how should Rabobank, and other small business lenders, feel about Mick’s Square epiphany?  Clearly, the Square solution is a formidable threat to Rabo’s business banking division.  Banks feed on a steady revenue stream from the services and relationships they support from their small business banking business. Banks need to pay close attention to how small business clients are responding to the Square solution and either adjust their payments business/product or consider a strategic partnership with this (and other) innovator.


PayPal must provide consumer incentives for repeat use of payment app

As I walked through the Financial District in San Francisco last week I came across one of the oldest forms of marketing  promoting the newest way to pay for something; a sandwich board offering $5 off for customers who pay using PayPal.

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I did a double take when I saw the PayPal logo for most restaurants promote their relationships with Yelp, Foursquare or OpenTable…let alone promote the use of a mobile payment tool.   I’ve seen very minimal payment tool promotion beyond what Peet’s is doing to promote their relationship with Google Wallet.  As we all know, Google Wallet has gained little traction.

I ducked into the restaurant, Bamboo Asia, to get the special offer that required me to pay with the PayPal mobile app to receive $5 off my purchase.  I ordered a Bhangra Bowl and a tea.  I opened the app on my phone, paid and received the discount.  Cool.  It was easy.

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Clearly Bamboo Asia is part of PayPal’s merchant payments pilot program and has been provided incentives to generate consumer awareness and drive app downloads. PayPal has an up-hill battle here for there are other payment solutions, such as Square and Dwolla, who are competing for awareness and consumer wallet adoption as well.

The $5 off purchase offer may help PayPal increase trial, but it falls down at driving repeat use.  This week I went back to Bamboo Asia and used the PayPal app to pay.  The restaurant manager said, “Oh, the discount is one time only.” “No worries…I still want to pay using PayPal,” I replied.  The manager looked at me like I had a booger hanging from my nose. “Why would you want to use the app again without the discount?”  That statement points out the importance of not only increasing adoption, but also providing reasons why consumers should continue paying with the mobile wallet.

Unfortunately this store manager was only focused on the immediate discount offer and didn’t really see a benefit if his customer base continued to pay with PayPal.  Bamboo Asia customers were also not provided a reason to pay with PayPal either.  This should be concerning for PayPal for two reasons.  First of all, the merchant will see a spike in sales for the short term, but will not see a continual lift from repeat customers.  In this case, consumers downloaded the app just to get the discount. The merchant may wonder why he participated if none of the PayPal app users become repeat customers.  Secondly, PayPal is driving downloads, but not demonstrating to customers the value in continuing to pay with PayPal…which leaves the consumer mind share WIDE open for a competitor to tell consumers WHY they should pay with a mobile payments tool.

What do PayPal and the merchant need to do as a follow up to the “download the app” discount program?  Offer incentives for consumers to continue to pay with PayPal.  Maybe Bamboo Asia offers special deep discount offers to users who use the app to pay 10 times?  Or, maybe PayPal creates a consumer loyalty program that offers points every time a consumer uses the app to pay for anything at a restaurant? OpenTable followed a similar strategy by rewarding their customer base with 100 points for each reservation made through their service. I believe the customer is sent a check or discount coupon from OpenTable to spend at a restaurant of their choosing.

Given how crowded the mobile wallet space has become, it’s clear that consumers need an incentive to adopt a solution. PayPal has the right brand awareness in the B2C and B2B space.  The big question is how PayPal can make it easy for merchants to use their mobile payment tools. A second factor to success will hinge on what co-op marketing programs PayPal can build out with merchants to provide incentives for consumers to pay with PayPal.  PayPal, the field is wide open now.  You’d better act fast or the teams at Square and Dwolla will get there first!


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