Future Freak - CUNA Councils · •CNP fraud grows • Driven by e-commerce growth and EMV shifting...

Future FreakTechs & Trends Transforming Financial Services

Lee WetheringtonDirector of Strategic Insight

@leewetheringtonSeptember 30, 2016

© 2016 Jack Henry & Associates, Inc.®


@leewetherington


…how the future

happens now.

Ethan and Liam.

Prepaid cardholders.

Mobile bankers.

Mobile wallet owners.


…but their CU

doesn’t offer

any of that.




Ethan tests “emergency

funding” text request on

his new card…


Liam reverses

“emergency funding”

for his Dad…



• Where We Are

• Payments Freaks

• Mind Freaks

• Fraud Freaks

• Future Freaks

• Voice, UX & The Via Negativa

Agenda

Where We Are


High Times for Credit Unions

SOURCE: Callahan & Associates’ 2nd Quarter Trend Watch; August 23, 2016


• Membership growing at its fastest rate (4%) since 2000

• Lending growing at a double-digit pace (10.6%)

• CU asset growth outpacing bank growth (7.6% vs. 3.4%)

• CUs see a 9% increase in interest income

• Non-Interest Income (NII) gap between banks and credit

unions is down to .35% compared to 1.11% 10 years ago

• Interchange income accounts for 42% of NII for CUs

Credit Union Trends 2016

SOURCE: Callahan & Associates’ 2nd Quarter Trend Watch; August 23, 2016

Historical Bias

The tendency to assume that the past

is a sufficient predictor of the future.

Blind-spot Bias

Failing to recognize your own biases

is a bias in itself.

SO

UR

CE

: “I

N S

EA

RC

H O

F N

ON

-IN

TE

RE

ST

IN

CO

ME

: U

NC

OV

ER

ING

IN

CO

ME

TO

DA

Y A

ND

TO

MO

RR

OW

AT

CR

ED

IT U

NIO

NS

: Leaders

hip

Report

”; C

alla

han &

Associa

tes; A

ugust

2016

Tipping point: “Other Income” surpassed “Fee Income”!

Fees for value have surpassed fees for punishment!

SOURCE: “IN SEARCH OF NON-INTEREST INCOME: UNCOVERING INCOME TODAY AND

TOMORROW AT CREDIT UNIONS: Leadership Report”; Callahan & Associates; August 2016


• “Other Income”

• Card Interchange

• Mortgage Sales

Fees for Value Now Exceed Punitive Fees

• “Fee Income”

• Overdraft Fees

• Late Fees

But card interchange and card fees now make up

the biggest part (42%) of non-interest income (NII).

CUs’ NII is vulnerable to shifts in card revenue.

Payment Freaks


SOURCE: Nilson Report, December 2015, Issue 1077

Payment Shifts Thru 2019


CUs More Optimistic about Debit Growth

SOURCE: PULSE 2016 Debit Issuer Study Executive Summary

Issuers debit volume projections for 2016


CU DDA Acquisition/Attrition the Best

SOURCE: PULSE 2016 Debit Issuer Study Executive Summary

Average DDA acquisition and attrition rate (consumer and business)

29

U.S. consumer preference for debit cards declined to 41% in 2015 down

from 49% in 2013. Credit card preference held steady at 35%.

SOURCE: TSYS 2015 U.S. Consumer Payment Choice Study

“Many merchants have programmed their

POS terminals to only accept PIN on EMV

debit cards.”

Brandi GregoryCornerstone Advisors

“For every 5% shift from signature to PIN,

debit interchange will be reduced 20%.”

Brandi GregoryCornerstone Advisors

SO

UR

CE

: “I

N S

EA

RC

H O

F N

ON

-IN

TE

RE

ST

IN

CO

ME

: U

NC

OV

ER

ING

IN

CO

ME

TO

DA

Y A

ND

TO

MO

RR

OW

AT

CR

ED

IT U

NIO

NS

: Leaders

hip

Report

”; C

alla

han &

Associa

tes; A

ugust

2016

Current Signature-to-PIN debit ratio is 66% to 33%.


• Debit card headwinds

• Delayed EMV deployment and growing false-decline rates are deteriorating cardholder experience

• Consumer preference for debit stagnating/declining

• Rising rates of Card-Not-Present fraud online

• Device-based mobile wallets dominated by credit cards

• EMV will accelerate signature-to-PIN transition

• Slow disappearance of POS payments

• Mobile-order-ahead-and-pay and BOLPUIS give card-on-file merchants more immediate control of payment

Debit Card Challenges Ahead

SO

UR

CE

: P

ULS

E 2

016 D

ebit I

ssuer

Stu

dy E

xecutive S

um

mary

Debit card enrollment in mobile wallets is anemic,

but half of issuers expect mobile payments to make up

25% of debit transactions within the next 5 years.

Average EMV dip-and-stay transaction takes 9 seconds.

Average human attention span has shortened

from 12 seconds in 2000 to 8 seconds in 2015.

Average goldfish attention span averages 9 seconds.

Credit card bias in growing card-on-file, MOA&P, and BOLPUIS schemes.


Mobile wallet ecosystem is fragmenting.


• Impact on mPOS?

• And the cash-

management services

that have developed

around mPOS?

No Headphone Jack?

Q: What’s the biggest hassle consumers face paying in a store?

A: Standing in line waiting to pay in a store.

Mobile Order & Pay Ahead

45

SO

UR

CE

: w

ww

.busin

essin

sid

er.

com

; “T

he 5

To

p F

inte

ch P

redic

tio

ns &

Th

e F

inte

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ascape

Info

gra

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; 2016

http://www.businessinsider.com/


BOLPUISBuy Online Pick Up In Store


The disappearance

of POS payments will

challenge issuers

and their wallets.


Social Media “Buy Buttons”


Turns out you

need interest

and intent.


Contextual

Commerce

2.0

51SOURCE: http://cunexusonline.com/autoxpress/

Will there be an opportunity to monetize faster payments?

Charging 1% for instant P2P.

Mind Freaks

58

“Adults under 35 have a savings rate of negative 2%.”SOURCE: Moody Analytics

50-60% of Generation Y

confess they have impulse

purchase problems…

and huge holes in their ears.

Myelin

61


So what’s the

answer to the

impulse problem?

63

Impulse Savings

64

65

66

67

Automated savings

Fraud Freaks

SO

UR

CE

: P

ym

nts

.com

’s“3

rdQ

uart

er

2016 G

lobal F

raud A

ttack Index”


Compromised SSNs Explode in 2015

2014 2015

Cards# of breaches 138 160

# of records 64M .8M

SSNs# of breaches 325 338

# of records 16M 164M

SOURCE: ITRC Data Breach Reports 2014 and 2015; www.idtheftcenter.org;

http://www.idtheftcenter.org/


Issuers falsely declined $118B:

13X actual fraud of $9B

$9BACTUAL FRAUD

$118BFALSE

DECLINES

False Declines > Actual Fraud

SOURCE: Javelin Strategy & Research


• CNP fraud grows

• Driven by e-commerce growth and EMV shifting fraud from counterfeit fraud at POS to online card payments

• Issuers tighten authorizations in response

• Tighter authorizations generate more false declines

• Issuer losses from improperly declined transactions (plus reduced future spend from dissatisfied cardholders) outpaces fraud losses 4-to-1

• 40% of declined cardholders abandon cards

• Additional 25% reduce card usage

• 11% drop in cardholder spending 3 months after decline

• Spending remains 8% lower 6 months later

What’s happening?

SOURCE: MasterCard Advisors, Security Matters, “How Much Does a

Declined Transaction Intended to Prevent Fraud Really Cost?”

73


Voice-First

Ecosystem

Voice Commerce

A chat-based personal finance coach.

81

“How’s my July looking?”

The Futureof Everything


The Future? More Complexity, More Options

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MembersThe Distributed CU

Scenario 1

Scenario 2

Scenario 3

Scenario 4

The Better CU

The New CU

The Disintermediated CU


How to classify

fintechs?

SOURCE: Celent’s “BANKS, RETAILERS, AND FINTECH: REIMAGINING PAYMENTS RELATIONSHIPS PART THREE: THE FINTECH

PERSPECTIVE”; Zilvinas Bareisis and Gareth Lodge; January 2016”; Stephen Greer; November 2015

Attitude.

SO

UR

CE

: C

ele

nt’s

“BA

NK

S, R

ET

AIL

ER

S, A

ND

FIN

TE

CH

: R

EIM

AG

ININ

G P

AY

ME

NT

S R

ELA

TIO

NS

HIP

S P

AR

T T

HR

EE

: T

HE

FIN

TE

CH

PE

RS

PE

CT

IVE

”; Z

ilvin

as

Bare

isis

and G

are

th L

odge; January

2016”;

Ste

phen G

reer;

Novem

ber

2015

Becoming

an FI

Fintechs by attitude toward financial institutions.

“What CUs need to create are platforms, not partnerships.”Ron Shevlin, Cornerstone Advisors

…but be careful.

“Expanding feature sets

result in products that

don’t have a core

experience.” Brian Prentice, Gartner

SOURCE: “The IT Industry’s 95% Problem”; by Brian Prentice; January 20, 2016


The Via Negativa

(the way of subtraction)


The way ahead is

not about adding

features, it’s about

improving experience


…and there’s even

an API for that.

What if you could make user experiences better by knowing your members’ emotional reactions?

Alexa, end the presentation.



@leewetherington

[email protected]

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Future Freak - CUNA Councils · •CNP fraud grows • Driven by e-commerce growth and EMV shifting...

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