The Weekly Extract: March 9, 2021

  • Alex Jimenez
  • March 09, 2021

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 good and bad of current mobile banking apps after the increased adoption of mobile banking in 2020. We discuss the coming surge of Mergers and Acquisitions (M&A) in the banking and credit union (CU) space. Finally, we examine the future of payments.

 

Mobile Banking-First World

A few years ago there was talk of reaching a plateau in the adoption rate of mobile banking. The story then was that all digital-savvy banking customers were already using mobile, and laggards were highly unlikely to start using it. While the acceleration in adoption rates have slowed down, adoption has continued to increase. The impact of COVID has resulted in further adoption. According to the Mobile Banking Competitive Edge Study, as reported by Insider Intelligence’s Content Marketing Producer Alicia Phaneuf,

“89% of survey respondents said they use mobile banking. Further, a massive 97% of millennials indicated that they use mobile banking.  Mobile banking is not solely for younger generations, however, as 91% of Gen Xers and 79% of baby boomers also reported seeing the benefits of these services.”

On a separate survey, Ipsos-Forbes Advisor U.S. Weekly Consumer Confidence Survey found that “roughly three in four Americans (76%) have used their primary bank’s mobile app within the last year for everyday banking tasks like depositing checks or viewing statements and account balances,” writes Mitch Strom in an article in Forbes.

Either way, adoption is clearly much broader than what we have seen in the past. The convenience of mobile devices makes mobile banking apps the most likely channel for functions like checking balances and transferring funds within a bank. Mobile banking apps continue to add features. Both Phaneuf and Strom cover the mobile banking features that are most valuable from the perspective of the two separate studies.

Phaneuf writes,

“Account management tools allow customers to conduct basic banking tasks in-app and help banks enable a single-channel mobile experience. Nearly 80% of Insider Intelligence Mobile Banking survey respondents say mobile is the primary way they access their bank account.”

 

Strom agrees that consumers “most value using (a) bank’s mobile app to check off typical banking to-dos that… may have (been) traditionally reserved for banking at a branch, ATM or by phone.”

The Ipsos-Forbes study notes that mobile check deposit, viewing statements and balances, transferring funds between accounts, and bill pay, as the dominant features used by most consumers. On the other hand, “fewer survey respondents listed features of convenience as being among their most valuable within the last year. These include peer-to-peer payment (11% of respondents), finding nearby ATMs (8%), cardless ATM withdrawal (6%) and budgeting and tracking tools (5%).”

While features are an important part of mobile banking, plain usability seems to have taken the backseat for some organizations. Steve Cocheo, Executive Editor at The Financial Brand, writes that “even as some financial institutions begin issuing continuous improvements to their apps, others are falling short on square-one basics like simple screen readability.”

Another area where organizations are coming up short is security, or the perception of security. Cocheo notes that, “security and trust issues … play a critical part in consumers’ feelings about mobile apps. Research finds that 30% of users don’t trust apps’ data security measures. And 18.3% worry that their money could be stolen.” Phaneuf agrees that “security is the foremost factor shaping consumers’ confidence in banks’ digital channels, and is becoming even more advanced with technologies such as biometric authentication, facial recognition, and voice recognition.”

As organizations look to improve the mobile banking experience, Cocheo offers the following to do list:

  • Keep it simple.
  • Don’t ignore security for sleek looks.
  • Personalize the app where possible.
  • Match app features with online banking features.
  • Give more thought to error prevention and error resolution.
  • Ditch banker-speak for plain English.

If you need help with your mobile banking strategy, contact us.

 

Increase in Bank Mergers and Acquisitions

Recently Buffalo-based M&T Bank announced the acquisition of People’s United, expanding M&T’s reach into New England. This is on the heels of the announcement of Huntington Bank’s acquisition of TCF Bank late last year.  According to an article in Bloomberg by Leonard Kehnscherper,

“UBS Group AG expects the coronavirus pandemic to further boost consolidation in the banking sector amid increasing threats from low interest rates and intensified competition.”

UBS believes that these acquisitions are a response to moves by the top 4 banks, “which (are) moving into new states and spending billions of dollars annually on digital offerings.”

Lauran Noonan and Robert Armstrong write in the Financial Times, that analysts believe this is a growing trend. They write, “Likely buyers include such US regional lenders as US Bank and Citizens Financial, as well as Canada’s TD Bank and Bank of Montreal… Smaller US banks and foreign lenders with weak returns and less reason to remain in the US, such as Spain’s Santander, are seen as more likely to sell.”

Noonan and Armstrong also make the connection between the pandemic and the increasing use of digital banking on M&A pressure. They quote a “senior figure at one midsized US bank,” “Any bank that’s below the top four or five, especially in retail banking, has to be asking itself some very serious strategic questions…It’s not foreign versus domestic, it’s all about scale.”

These questions aren’t limited to banks. As the Credit Union Times noted back in November,

“While mergers may not be right for every credit union, the current environment has challenged all of us to explore new opportunities and challenge traditional notions. As you plan for 2021 and beyond, consider how your cooperative might be able to create new member benefits and create more sustainable, long-term growth through a proactive M&A strategy.”

 

The Future of Payments

Last year those of us that follow the payments industry were finally able to celebrate the fact that the value of ACH credits have finally outnumbered that of checks. This is in a world where payments experts are touting real-time payments and chastising the US for being woefully behind. Then the pandemic hit us.  Many of us believe that payments have changed forever, as Peter Wickes, General Manager Enterprise EMEA at Worldpay, notes in Finextra.

Wickes writes, “Restrictions and guidelines put in place to deter the spread of COVID-19, along with the health and safety concerns associated with physical cash and touching surfaces such as payment terminals, have forced consumers to change their everyday behaviour and led to surge in digital and contactless payments.”

Late in 2019, I had a discussion with a bank payments executive about their 2020 plans. I noted that contactless wasn’t on their 2020 roadmap. He told me that he didn’t believe that adoption warranted their organization to prioritize contactless. He pointed to the lackluster adoption of Apple Pay and Android Pay with his cards. I haven’t circled back with him, but I assume that his outlook has changed.

Wickes notes that “The Generation Pay report from Worldpay from FIS found that there is an increasing appetite for contactless and digital wallets since the start of the pandemic. Globally 61 percent find it easier to pay using contactless, and this percentage rises amongst younger generations (Gen Z, Y and X).”

Other trends in payments that Wickes defines as the future of payments include user experience innovations, biometric authentication, and QR codes. Nick Ismail, in an article in Information Age, agrees with those trends but defines them slightly differently.

  1. Embedded finance, which “encapsulates the idea that financial products in and of themselves are less important than the context in which a customer needs them,” quoting Richard Hodgson, CFO at Global Processing Services.
  2. Software-based payment technology. Ismail quotes to Justin Pike, founder and chairman of MYPINPAD, “Standardisation of the payment experience through software, across all channels (both online and offline) is where we are rapidly heading. This innovation will bring a myriad of benefits for both consumer and brand, but it absolutely must be built on a foundation of security.
  3. Cross-border e-commerce. “For merchants, the opportunity to reach new markets and customers is too good to miss. However, customers now demand the same level of speed, convenience and value from any retailer, regardless of where they are,” says Mike Shafro, CEO of xpate.
  4. App-based commerce. “As we continue to adapt and recover from the impact of the pandemic, apps will continue to play a vital role in reducing unnecessary contact during the checkout process,” says Jeremy Nicholds, CEO at Judopay.
  5. Fraud-as-a-Service. Ismail writes that “Tamas Kadar, co-founder and CEO of SEON — the fraud fighters — suggests 2021 will see a rise of Fraud-as-a-Service.”

That last item is of great concern to many people. There’s a growing move in payments to address fraud head on through tokenization. As described by Andre Machicao, SVP Global Head of Product at Visa’s Cybersource, in an article in ATM Marketplace, “tokenization replaces a cardholder’s 16-digit Visa account number with a secure identifier that protects the underlying card number from fraudsters. With tokenization, the primary account number is not transmitted and the technology helps protect businesses from a data breach and enables them to better manage their PCI DSS security compliance.”

Machicao notes that security isn’t the only item that tokenization addresses. It also improves customer experiences by allowing “card-on-file” experiences with any merchant, “one click” checkouts, and “consistent application of loyalty programs.” Machicao calls tokenization “the lynchpin in not only enabling these digital experiences, but in also meeting the growing consumer expectation for unified commerce.”

Recently, we completed a payment strategy project with one of our clients. Many of these trends are addressed in their roadmap. Are you looking for help with defining and planning your payments strategy and roadmap? If so contact us.

 

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