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The Blockchain is the new Google
The following is an excerpt from The Business #Blockchain: Promise, Practice, and Application of the Next Internet #Technology by William Mougayar. In it, Mougayar waxes ecstatic about the future of distributed databases. At its core, the blockchain is a technology that permanently records transactions in a way that cannot be later erased but can only be sequentially updated, in essence keeping… Read More -
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Four Genuine Blockchain Use Cases
Financial institutions may have more limited ways to harness the #technology than previously thought, one researcher argues.
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Will PSD2 and the Payment Accounts Directive help Overdrafts to disrupt the Credit Card?
In crude terms, the most valuable Enterprise customers for EU Credit Institutions have traditionally been internationally trading private enterprises with multiple Payment Accounts, term loans, deposits, M&A, trade finance, international payments and foreign exchange hedging. The most valuable Consumer customers for Credit Institutions have tended to open a Payment Account as a youth and progress to a Debit Card and onto a Credit Card as their first source of unsecured credit. Over the customer lifecycle, this valuable Consumer ideally progresses to Secured Mortgages, Pensions and Investments with substantial Deposits as a Senior Citizen.
However, Credit Institutions have customers with far simpler needs who may never borrow from a Credit Institution or who have yet to start borrowing. In the Enterprise segment of a Credit Institution’s customer base, Public Administrations and Local Authorities are a prime example. These customers may have deposits but their funding comes from Central Government or from fees for public services. In terms of making payments, these Public Administrations and Local Authorities have payroll payments for their employees and supplier payments to contractors. In terms of collecting payments, these local authorities legally oblige citizens to pay dues such as local taxes, school fees and parking permits. These Enterprise customers do not borrow nor do they use many of the more advanced business banking services used by internationally trading private enterprises. They are not hugely attractive Enterprise customers for Credit Institutions seeking to cross-sell their full range of services.
In the Consumer segment of a Credit Institution’s customer base, there are citizens with simpler financial requirements who need to make payments to Public Administrations and Local Authorities. These can be citizens who may not have payment accounts with direct debit facilities or who do not use payment cards. These consumers can be reluctant borrowers from Credit Institutions or perhaps have yet to start borrowing. They are not hugely attractive Consumer customers for Credit Institutions seeking to cross-sell their full range of services. However, notwithstanding the commercial appetites of Credit Institutions, Public Policy makers in the European Commission have been seeking to automate payment processes in this market segment for some years.
In 2006 and 2007, the Commission piloted the “EU-Pay” concept in a handful of Member States. EU Pay was designed to “bring the benefits of quick and easy-to-use electronic payment mechanisms to all citizens, and not just the wealthy and computer literate.” The policy desire was a multichannel, Europe-wide, payment collection mechanism for Public Authorities, which integrated seamlessly with existing payment methods. Its usage would “make a significant contribution to improving Accessibility for All and reducing the Digital Divide”. EU Pay conceived of an environment where citizens who did not have credit cards, bank standing order mechanisms or access to or knowledge of the Internet would be able to use EU Pay to pay bills from public authorities (for example, shopping at the supermarket or when using a mobile phone).
Some private sector providers are now offering Payment Initiation solutions in this space. Some Public Administrations in Italy and Luxembourg are using MyBank to build their e-government capacity. MyBank is positioned as a citizen-friendly online payment method for tax collection, public school enrolment, parking and public transport, fines, etc. MyBank is an e-authorisation solution that enables safe digital payments and identity authentication through a consumer’s own online banking portal or mobile application. MyBank creates a direct link between a customer’s online bank account and the online business’s bank. PSD2 will legally require all EU Credit Institutions that are Account Servicing PSPs to publish Open APIs to support Payment Initiation services of this type.
PSD2 is making Payment Initiation Services available but will the Citizens with simpler financial requirements be able to access these services through a Payment Account?
The EU Payment Accounts Directive intends to make sure that these citizens will have access to a Payment Account. The EU Payment Accounts Directive (PAD) was adopted in July 2014. Its main aim is to help the EU internal market for payment accounts work well. The provisions of the PAD come into force at Member State level on 18 September 2016. The PAD seeks to improve:
- transparency and comparability of fee information about payment accounts to make consumers more aware of the fees and charges applied by account providers. It will also make it easier to compare Payment Account offerings, which may lead to more competition and better deals for consumers.
- switching of Payment Accounts by establishing minimum standards, to make switching more attractive to consumers and promote competition.
- access to basic Payment Accounts to ensure that all consumers legally resident in the EU have access to basic banking services, whatever their financial situation, to reduce financial and social exclusion. This access must come in the form of a “Payment Account with basic features”
The PAD compels EU Credit Institutions to offer “Payment Accounts with basic features”. In order to ensure that “Payment Accounts with basic features” are available to the widest possible range of consumers, the PAD requires that they should be offered “free of charge or for a reasonable fee”. To encourage unbanked consumers to participate in the retail banking market, the PAD requires that Member States should be able to provide that “Payment Accounts with basic features” are to be offered to those consumers on particularly advantageous terms, such as free of charge. With these Payment Accounts, which consumers must be able at least to:
- place funds in a payment account;
- withdraw cash from a payment account;
- execute and receive payment transactions, including credit transfers, to and from a third party.
Under PAD, EU Member States need to ensure that the number of Credit Institutions offering “Payment Accounts with basic features” is sufficient to ensure the reach of all EU citizens, to avoid any kind of discrimination against them and to prevent distortions of competition. In principle, “Payment Accounts with basic features” should be offered by as many Credit Institutions as possible, with a view to guaranteeing that consumers can open such accounts at premises of a Credit Institution that is within close reach of their place of residence. The Consumers that use these “Payment Accounts with basic features” must not be discriminated against when accessing such accounts. Credit Institutions can provide, at the request of a consumer, an Overdraft facility in relation to a “Payment Account with basic features”. Credit Institutions must comply with the EU’s 2008 Directive on Credit Agreements if they do.
Payment Initiation Services using the “Payment Account with basic features” will be attractive to Public Administrations and Local Authorities. Public Administrations and Local Authorities will have a strong incentive to promote the use of these Payment Accounts and they may even insist on the use of these Payment Accounts. As the PAD ensures that these Payment Accounts will be available “free of charge or for a reasonable fee”, this will not be a particularly controversial public policy measure.
Public Administrations and Local Authorities will gain several benefits from the use of Payment Initiation Services with these Payment Accounts. They will be able to improve their processes with citizens who are reluctant to share their financial data on the internet. As there is increasing labour migration within the EU, they can handle citizens from other EU Member States that might not be covered by local payment services and customs. The Public Administration or Local Authority will not have to store and ensure the safeguarding of customers’ financial details.
Public Administrations and Local Authorities also put little value on the “chargeback” process offered by traditional Credit Card schemes. If the supplier will not refund money in a dispute and the consumer paid using a credit card, the card provider may agree to reverse the transaction. This is called a chargeback. Sometimes a consumer using a Credit Card may want to dispute a card transaction if the supplier did not deliver the goods or services. This can also arise when the goods were delivered but were faulty or not as described. In broad terms, these are private sector problems and do not arise in the world of public sector parking permits, local taxes and school fees.
Following PAD and PSD2, we may see a divergence in routine digital processes between EU customers with simple needs and customers with complex needs. Customers with simpler needs will use Payment Initiation Services on “Payment Accounts with basic features”. They will infrequently access unsecured credit in the form of an Overdraft on “Payment Accounts with basic features”. Customers with complex needs will use Credit Cards that are linked to Fully Featured Payment Accounts. They will access unsecured credit through a Credit Card and they will access credit far more frequently than the customers with simpler financial requirements.
The active use of PSD2 Payment Initiation Services by Public Authorities on “Payment Accounts with basic features” in a relatively insignificant market segment for a Credit Institution will demonstrate a viable alternative to Card Schemes. Demand for and usage of a “Payment Account with basic features” could spread well beyond the citizens with simpler financial needs. A very sizeable share of the banking population could emerge that never use a Debit Card, causing a bottleneck on the traditional consumer journey to the Credit Card as the first source of unsecured credit.
Credit Cards brought unsecured credit to the mass market of consumers. There are major industries devoted to issuing, acquiring, securing and servicing credit card transactions and credit card data. Historically, the automation of the credit card value chain within the Financial Services industry has been significantly more mature than issuing and managing an Overdraft on a Payment Account. However, many #banks now have automated the process of sanctioning an overdraft for consumers. It can be put in place in a few hours. The automation of Overdraft issuing and Overdraft management is steadily improving.
PSD2 in Plain English (Payments Landscape
for Non-Specialists) (Volume 1)The margins from issuing Credit Cards are falling for EU Credit Institutions. They are now faced with Interchange Caps on Credit Cards. They have to respond to margin-sharing demands from Apple Pay and other similar mobile payments overlay services. The security of credit card data stored by Merchants is an increasing concern.
After PAD and PSD2, a strategic question may arise for EU Credit Institutions – could an Overdraft on a Payment Account be a better option than a Credit Card for delivering unsecured credit to complex and very valuable customers?
Clayton Christensen theorised that sustaining technologies foster improved product performance. Apple Pay can be viewed as a sustaining #technology for unsecured consumer credit offered on Credit Cards, by incrementally improving the utility of the Credit Card as a payment product. Consumers that regularly use a Credit Card for unsecured credit now have a wider and more modern range of options on how to use that Credit Card for payments.
Occasionally, however, disruptive technologies emerge: technologies that result in worse product performance, at least in the near-term. Disruptive technologies bring to a market a very different value proposition than had been available previously. Generally, disruptive technologies underperform established products in mainstream markets but they have other features that a few fringe (and generally new) customers value. The use by Public Authorities of PSD2 Payment Initiation Services on “Payment Accounts with basic features” can be regarded as an early “fringe” usage.
The Local Authorities’ Payment Initiation Services that use the “Payment Accounts with basic features” will initially have a worse product performance for a Credit Institution than a Visa or Mastercard Credit Card. The payments traffic will be initially confined to unglamorous parking permits and local taxes and will not be a mainstream payments flow. PSD2’s Payment Initiation Services are confined to the European Economic Area and does not have global acceptance like a traditional Credit Card. These payments customers will be slow to request unsecured credit and Credit Institutions may be slow to agree to give unsecured credit to these customers.
There are logical reasons why Credit Institutions might want to ensure that their Credit Cards might keep pace with digital developments in Smartphones and at Point of Sale. They can find several reasons to adopt Apple Pay rather than consider how PSD2’s Payment Initiation Services could drive the growth and development of Overdrafts on Payment Accounts. Firstly, the Payment Initiation Services and Overdrafts on Payment Accounts generally promise lower margins, not greater profits. Secondly, the Payment Initiation Services are likely to be first commercialised in emerging or insignificant markets (such as Local Authority payments from “Payment Accounts with basic features”). Thirdly, banks’ most profitable customers with high Credit Card limits generally don’t want or need Payment Initiation Services (and you should always listen to your best customers). However, these are exactly the decision making processes that Christensen describes as part of the “Failure Framework”, where incremental thinking trumps radical thinking and the likely rate of improvement in “inferior” solutions is not considered.
Over time, the merits of the new methods could become applicable in the mainstream. The Merchant payee in a Payment Initiation Service has eliminated the need to collect and store personal data. Customer identity and confidential data are protected. Immediate authorisation of payments reduces the risk of fraud and charge-backs. With the security and two-factor authentication processes in the PSD2 framework, Public Authorities may not only offer a safe method for citizens to pay taxes and services, but also begin to roll out online access to public services through secure digital identity authorisation.
In crude conclusion, the core value of a Credit Institution license is the ability to take deposits and give loans. Short term and unsecured credit for a creditworthy consumer is often a stepping stone to long term and secured credit from the same Credit Institution. There are many popular and wealthy brands seeking to join the Credit Card value chain and margins are being squeezed. The automation maturity, risk management and user experience of Overdrafts on Payment Accounts as a means of unsecured consumer credit may still lag Credit Cards as a mass-market solution. However, local tax payments and parking permits may not be fashionable or high profile in the short term, but they could provide ingredients for the disruption of Credit Cards as the primary vehicle for unsecured credit in the longer term.
[linkedinbadge URL=”https://www.linkedin.com/in/paulrohan” connections=”off” mode=”icon” liname=”Paul Rohan”] , the author of this post, is also author of “PSD2 in Plain English”.
for Non-Specialists) (Volume 1) -
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Former Citigroup CFO Sallie Krawcheck launches Ellevest, a digital investment platform for women
#Former #Citigroup CFO #Sallie #Krawcheck launched her anticipated new startup, a #digital #investment #platform for #women called #Ellevest, this morning from the TechCrunch Disrupt NY 2016 conference’s stage. Krawcheck is not your typical startup founder, which makes her entry in the investing space particularly interesting. Prior to Ellevest, she was the president of Global Wealth and… Read More -
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Augmented Reality (AR) in Financial Services
Who would believe that Steven Spielberg’s high-tech futuristic shopping mall concept in the movie Minority Report, where Tom Cruise’s character is confronted with digital signs that call out his name when he passes them, would one day be brought to the real world by NEC and IBM, who are separately developing facial recognition advertising billboards. Recently, Google’s project Glass, which is developing an augmented reality head-mounted device (HMD), has made the tech world sit up and take notice. the retail industry has seen a spurt of development around augmented reality with Tesco being at the forefront. The real estate and the advertising industries have been quick to embrace augmented reality applications to improve sales and customer outreach. In financial services, augmented reality has not been able to make much headway but the time is ripe for companies to leverage augmented reality technologies to deliver cutting-edge solutions to customers.
Augmented reality, in simple terms, is the use of diverse #technology to enhance and improve our view of the real world. Augmented reality is a direct or indirect representation of physical, real-world surroundings whose components are enlarged by system-generated sound, video, graphics, etc. For example, telecasting a cricket match with live scores, images etc. on the screen. this is actually considered to be the opposite of virtual reality, wherein people involve themselves to an extent that they exceed the boundaries of physical reality and have got nothing to do with real world events. The basic scheme of augmented reality is to overlay graphics, audio and other sense enhancements over a real-world environment in real-time.
What benefits can financial institutions derive from adopting AR?
Augmented reality can benefit financial services which are embracing the mobile and social media revolution. Financial transactions are increasingly being executed through mobile devices. There is an ever-growing user base for location-based services and presents a huge opportunity for financial institutions. With mobiles becoming advanced, sensors through AR applications, financial firms can generate direct benefits for consumers, businesses as well as workers.
Technology used in AR
Augmented reality technology with smartphones is drawing a lot of attention these days By using specialized software, users can turn their iPhone, Android or other smartphones into a virtual heads up display.
All a user has to do is point his phone’s camera at any point/location/building and the relevant information is displayed on the phone’s screen as graphics. Most of the developers of mobile AR applications are expecting AR to become the next “Big thing” in the market.
AR apps, like World Surfer (for smartphones like the iPhone and high-end Android-based devices) provided by GeoVector and Mobilizy’s Wikitude World Browse, provide users with a better way to interact with different places in their surroundings.
How does an AR app work?
- AR app reads the GPS data on the phone to find the current location device
- The app then governs the phone’s positioning from its electronic compass to decide the direction it is pointing at
- The app then looks into its database for text, hyperlinks, pictures, etc. that have been tagged to that location in the compass direction from the current location
- If it finds anything relevant, then it positions them over the image of the object on the phone’s screen. For example, If it is a restaurant, the app displays it’s operating time, menu, directions, etc.)
- The AR app usually first displays the required nearest place towards the pointed, followed by other places that are at a distance
For all this to happen, a high-end phone with good battery backup is required because the graphics and GPS technology used in these phones consume lots of battery charge.
This technology can be applied in any situation where the user needs to locate a place in his surroundings. Users trying to locate banking channels can benefit a lot by using augmented reality applications. #Banks are now looking forward to use this technology to enhance their experience with the users and to pull in more customers to their door step. this technology can be best utilized by banks in their consumer, commercial banking and Capital Markets businesses.
Strategy to implement AR applications
Anticipate – instead of responding to customer needs, financial firms need to anticipate them. Firms need to understand the customer’s behavior and complexity and understand if the AR strategy is aligned with business goals.
Build – build the product with a team of developers and business managers. Augmented reality ideas can make good business sense if a proper analysis is done.
Launch pilot – the AR application should be launched on a pilot-basis initially for testing purposes.
Get feedback – get feedback from customers as well as the sales force. Do a cost-benefit analysis.
Broader deployment – go for a broad deployment with a marketing push. Customers need to be made aware of how to use the application.
Application of AR in financial institutions
Customers using web and mobile applications expect a compelling user experience that is usable, useful and attractive. Augmented reality applications can be leveraged to improve the existing business scenario and even create new business cases.
The various scenarios where augmented reality can be applied in the financial services industry:
How can AR benefit your financial institution?
Better cross-sell of opportunities
Ability to identify and blend real-world into cyberspace can help track your bank cross-sell various credit products in a highly targeted fashion. For example, a customer waiting at an airport to check-in for a flight can quickly point their phone at the nearest image of their bank to buy a travel insurance policy.
Reduced customer support costs
With augmented reality, customers can easily locate and self-serve traditional low-value transactions or non-transactions without calling customer support. For example, locating the nearest branch or ATM, determining the working hours of a bank, etc.
Personalized service
At a time when banking services are considered exchangeable/replaceable, augmented reality can help a bank significantly personalize a customer’s experience, like showing the nearest suppliers to a business partner, etc.
Increased retention and potential for lead generation
Augmented reality offers a highly effective way to capture the customer’s attention, resulting in greater dwell at one place.
AR Initiatives by financial institutions
PayPal AR
PayPal has just been granted a patent for displaying information on products through augmented reality. The patent, titled Augmented Reality View of Product Instructions, was filed last January and would enable users to see relevant information about a product using an AR headset or device.
The patent asserts that part of the goal is to help people figure out how to assemble and control the (increasingly complex) products that are purchased.
“Today’s products are increasingly complex to setup and operate. Often, the products are accompanied with detailed instructions that may be daunting for a user to follow. In other cases, a user may discard instructions after an initial set up of a product.”
Thus, the goal is to offer people assistance so that they can actually enjoy the products that they get, as opposed to fight with them for hours:
“In each of these cases, the user’s ability to operate the product may be hampered by a lack of information about the product or an inability to use the product. This in turn may affect the user’s experience with the product and the user’s perception of the manufacturer of the product.”
The information includes product reviews, instructions, and recommended accessories.
With this patent, PayPal is looking to help make purchasing flows easier for consumers. The technology would presumably be able to identify objects and pull all pertinent information from the web to overlay onto the AR display.
Patent Preparation
The patent also hints at this being just the beginning. The technology has the potential to identify any physical object, not just those purchased with PayPal, and immediately get information on it (including how to purchase it online, most likely through PayPal).
For now, that’s just a pipe dream, seeing as this is only a patent and patents are filed all the time for technology that might never see the light of day.
One major hurdle in the way to making this product possible is the current limitations in computer vision. The ability to identify and recognize objects to get information on them is still being developed, but it is making huge leaps. So who knows what the (augmented) future will really look like.
Conclusion
Augmented reality is a technology ready to explode and banks and insurance companies need to adopt it early. Financial institutions need to have a strong creative angle to apply augmented reality concepts to customer-centric applications. Prototypes should be tested in select markets before a wider launch. Mobile banking and social media had their critics but they did not take long to become a part of most people’s lives. Augmented reality is not very different and needs to be prioritized and brought in-sync with the business and technology strategy of financial institutions. With smartphones acting as a catalyst it presents an opportunity like never before.
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Former CFTC Official: Barack Obama ‘Should Heed the Call’ on Bitcoin
The #Obama administration #should move quickly to embrace #bitcoin and #blockchain #technology, a #former government regulator has argued in a new op-ed.
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State of Blockchain Q1 2016: Blockchain Funding Overtakes Bitcoin
CoinDesk has released its latest “#State of #Blockchain” report, analyzing news and events from Q1 #2016.
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Wielding the baton: How CIOs can best orchestrate FinTech innovation
“How did you do that?” “What do you need to be successful?”
Since leaving UBS I have been hearing these questions often from people interested in my experiences orchestrating #FinTech innovation. Typically the questioner is someone facing challenges similar to the ones I have faced in my career as a Chief Information officer (CIO): not just innovation, but innovation in a complex, global organization, with multiple business lines and geographies.
My answer always runs along the same lines. As a CIO you must first keep in mind that business is in the driver’s seat: innovation is not a tech play, it’s a business model, product and service one. But in today’s tech-driven environment, the CIO generally has the conductor’s baton in his or her hand. That means it’s up to you to orchestrate the change. You need to do so from front-to-back, covering all aspects from generating ideas to going to market.
Having done this several times, I’ve thought a lot about the process. For me, the following stages are essential:
Illustration: Jon D. Harper – Strategy and Innovation Process Improvements
- Find key trends: You need to know what is coming down the pike in tech, and how it may be used in the context of your organization.
- Understand business priorities: You must thoroughly understand where the business is today and, more crucially, where it would like to be in three to five years.
- Decide on the tech you would like to test like a VC fund: Now you can match what you know about technological developments with what you know about the business. Look for developments with the best potential in your context, be it new technologies, methodologies, software, approaches, whatever seems like it might fit and drive the business forward. Based on this, you can decide on a long list of ideas to be tested.
- Validate your hypotheses: This is the key part: Get some funding and put a small team together, preferably outside normal business lines, and test the ideas in a sandboxed laboratory environment. Do it quickly but thoroughly, in a non-bureaucratic way, but always with the business and customers in mind.
- Move validated ideas to the normal investment portfolio: A lot of your initial hypotheses may prove wrong. That’s fine. The ones that make it through the process are likely to be gems. If the expected benefits are indeed confirmed, then move those ideas to your normal investment portfolio, where they can be developed using your regular processes.
There are some other things to keep in mind. You will have to coordinate a number of support services. You need to manage your ecosystem, for instance, from startups and universities through to the regulator. The research, business case and use case selection processes need to be managed as well . You also need to manage and be active on the communications side. And finally, you need to ensure that once new capabilities are available, line managers can easily find out what they are and integrate them into their portfolios.
In other words, you will need a complete framework for your innovation efforts. And whether you work in a centralized way or take a more distributed, federalized approach, you will need teams to manage the overall process.
This process has worked well for me in the past. It’s one of the reasons I was lucky enough to be named among the Financial News’s FinTech Top 40 for the last two years and City AM FinTech Powerlist. While this is a satisfying confirmation of the work, there is really nothing here that anyone else couldn’t do. Just stick to the method, and the results will come.
This post express the opinion of the author: Oliver Bussmann that originally posted it on linkedin
Follow Oliver Bussmann on Twitter @obussmann.
Image source: http://www.stripes.com
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One of Ripple’s Early Supporters is Now Using Ethereum to Rethink Banking
Fidor Bank CIO Patrick Gruban takes CoinDesk inside a recent tech trial it conducted #using the #Ethereum #blockchain.
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