The Weekly Extract from Extractable is a condensed roundup of digital experience news for financial services institutions, and our take from San Francisco.
This week we look at the Acting Comptroller of the Currency, Brian Brooks, and his push for a Payments Charter. We wonder if the time for contactless payments has arrived in the US. Finally, we continue to track the discussion on post-covid digital banking strategy.
OCC Pushing Payments Charter
When Joseph Otting resigned as Comptroller of the Currency in late May, Treasury Secretary Steven Mnuchin appointed Brian Brooks as the Acting Comptroller of the Currency. Brooks was most recently Chief Legal Officer for the fintech crypto firm Coinbase. It is no surprise that his plans, as noted in an article in HousingWire, focus on innovation.
In an article in PaymentSource, David Heun reports that Brooks is pushing the idea for a payment charter for payments companies. The charter would be similar to the OCC’s failed fintech charter and would be “in place for applicants within a few months.”
Heun writes “While the fintech charter introduced in 2015 focused on a bank charter for marketplace lenders, the payments charter would represent ‘’a species of non-depository companies that probably qualify for a bank charter just as surely as the non-depository lenders do’”
Heun explains that a payments charter “would allow companies like PayPal, Stripe or even some advancing cryptocurrency companies to consider a bank charter, which permits a company to commence a specific aspect of business as a bank. It would include incorporation and a certificate of incorporation, while specifying the rights of a banking institution.”
Lydia Beyoud writes in Bloomberg Law that “Brooks wants to transform the future of banking” but “he may not have much time to do it.” She adds that the upcoming presidential election gives him a small window to impact regulation.
While Brooks statements and actions show a desire to help innovation within Banking, consumer advocates see a threat to OCC’s role as a protector of consumers. Beyoud notes “It was a foreboding sign to consumer advocates, that on Brooks’ first day as acting comptroller, he released a final rule reinforcing the ability of banks to export loan interest rates to jurisdictions with lower usury caps.”
Beyoud ads, “He also raised the eyebrows of consumer advocates with a June 1 missive to governors and mayors advising that continued lockdowns risk harming the banking industry.”
As payment companies, like PayPal, Stripe, and Square, continue to expand their banking services, their transformation towards full banks might result in increased competition with community banks and CUs. It may also result in offering a “level playing field,” as Brooks noted.
Given the history with OCC’s fintech charter, which is currently stalled in the courts due to actions from state bank regulators, it is unlikely that the payments charter will be finalized before the election. Either way, regulators will eventually have to modernize as the industry continues their journey through digital transformation.
Contactless Payments Accelerating
Among the impacts we are tracking due to the pandemic are the changing consumer behaviors around payments. Last year we discussed roadmaps with many of our clients and noted only a smattering of them examining contactless payments. The consensus for contactless payments in the US has been that adoption was slowly growing but that it would take a long time to reach a tipping point. A year ago PYMNTS published an article that asked “Is The US On The Verge Of A Contactless Surge?” While they presented a positive outlook on adoption, there was no prediction on a specific timeframe.
This week on the PaymentsJournal Podcast they interviewed Tina Giorgio, President and CEO, ICBA Bancard and Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group. They noted that, “recent statistics reveal adoption of contactless payments is…accelerating”. At the onset of the pandemic Mastercard found that contactless transactions grew twice as fast as non-contactless transactions at grocery and drug stores. Reports from Visa indicated that 31 million Americans used a Visa contactless card or a digital wallet in March 2020, up 150 percent since March of 2019.”
“I think what’s also really interesting is that Visa has noted that there have been more cards being used in a contactless environment than wallet. So for those thinking that cards might be a stepping stone to wallets, maybe that’s actually the case,” stated Grotta, “that might suggest [to issuers] that if you haven’t put a plan in place for contactless, you might want to start thinking about it.”
Stephanie Walden writing for Forbes notes that post-Pandemic Americans will not “want to handle wads of cash and coins that have been touched by hundreds of strangers.” The same applies to touching point of sale devices and handling over cards to salespeople.
She notes that, Accenture lists a “strong push toward a cashless society” as the No. 1 potential long-term impact that the pandemic may have on global payments processes. She adds that “MasterCard polled 17,000 consumers in 19 countries and found that they perceive contactless payments as the cleaner way to pay.”
Walden summarizes the opportunity “from tap-to-pay debit transactions to no-touch ways to pay for public transit, the current landscape is fertile ground for contactless technology to take off.”
Other experts disagree that adoption of contactless will happen due not the pandemic alone. Sree Singaraju, Vice President of cloud solutions at Mobiquity, is quoted in an article by Tatiana Walk-Morris in Retail Dive, “a government or card issuers mandate might be a catalyst toward contactless payments adoption in the U.S.” He points to countries that have already mandated the shift such as Australia.
According Cyndie Martini, President and CEO of Member Access Processing, while some consumers, particularly younger consumers, are already keen on using contactless technology, it is the merchants that make it possible. “Consumers have an expectation that merchants should be moving at the same speed they are,” Martini said. “If I were a retail merchant, I would definitely be looking at new ways to take payment that kept my clients moving fast or quicker at the checkout line, because that’s what people want.”
We agree with Grotta that FIs should have a plan in place for contactless. FIs should expand their horizon beyond credit cards and think about debit digital wallets. Do you have contactless payments in your digital roadmap?
Studies Confirm Rise in Digital Banking Adoption
As we covered in past weeks, study after study point to continued adoption of digital banking and payments during the pandemic. As the US continues to reopen, there are signs that at most of the gains are likely to stick. The Financial Brand’s Jim Marous quotes research from Simon-Kucher & Partners, a global strategy and marketing consulting firm, that found “47% of consumers said they will reduce branch visits after the COVID-19 lockdowns end.”
Jim notes “during the COVID-19 shut down, consumers became increasingly aware of the power of digital and the importance of using data to improve the customer experience. From being able to get products ordered in an instant from Amazon, to receiving groceries from Instacart or dinner from Grubhub, consumers saw the benefits of using stored insights to save time.”
He calls for FIs to up their data capabilities to not just manage data but to “utilize the data for the consumer’s benefit.” Jim asserts that it is time to “reimagine banking in a post-pandemic world” with “a focus on both disruptive technologies and innovation, as opposed to simply moving forward in small steps”. Finally, he recommends that FIs consider hybrid platform models to “meet strategic priorities.”
In a separate Financial Brand article, Steve Cocheo notes that the pandemic showed the industry that they indeed could successfully transform digitally. He quotes Alison Hoover, Partner at PwC, “I have been surprised, in a positive way, and impressed, both by how quickly most of the banks were able to respond — sometimes via brute force — to be able to push through massive amounts of change and to implement digital transformation in such a limited amount of time.”
Hoover makes the argument that FIs having bypassed inefficiencies during the pandemic can’t go back to what they did before. She gives the examples of “wet signatures.” The bottom-line that this is a perfect opportunity to reset an FI’s strategy.
But how will FIs reprioritize their strategy? In a third Financial Brand article, Silvercloud’s DJ Haskins makes the point that focusing on reducing digital friction should be the top priority. Haskings suggests FIs consider these questions:
- Are you providing easy-to-find-and-follow information across all of your digital channels, or are you creating digital friction?
- What impact is this having on your customer experience, on your call volumes, technology adoption and conversion rates?
Further he proposes four considerations to reduce digital friction:
- Breaking down internal silos by putting the focus on the customer experience
- Providing navigational beacons to make information easy to find
- Delivering contextual guidance to anticipate the customer’s next step
- Leveraging mobile and online banking to provide the full branch experience
A similar case is made by Ashwini Dave, Digital Marketing Expert at Acquire. Writing in the Global Banking and Finance Review, Dave notes that “emerging technologies, banking, and customer service are standing at a crossroads where the paths, invariably, converge ahead.” He sees a focus on Customer Experience (CX) as the strategic imperative coming out of the pandemic, aided by technologies that will automate front and back office functions. He looks at AI, chatbots, and Robotic Process Automation (RPA) as examples of technologies driving a greater focus on CX.
Dave suggests “the focus for the Banking sector going forward will not be to simply:
- Deliver basic customer service but elevate it
- Meet customer expectations but exceed them
- Stay on top of customer needs but preempt and address them in a dynamic and timely capacity
At Extractable, we agree that this is a crucial opportunity to reevaluate your current strategy – whatever the approach may be. Organizations must start with revisiting their vision. Given the change in environment, is your current vision, if you have one, still appropriate? If not, what should it be? What are your new objectives? How will you achieve them? How will you measure them?
If you need help in thinking through it, reach out to us.