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© 2011 The Tower Group, Inc. May not be reproduced by any means without express permission. All rights reserved. Top Worldwide Innovations in Payments Changing the world one step at a time Andy Schmidt Research Director Commercial Banking & Payments October 14, 2011
© 2011 The Tower Group, Inc. 1 Agenda Innovation Overview Why is it important, and why do we need it in financial services? Views into Payments innovations by: Service Product Technology
© 2011 The Tower Group, Inc. 2 A framework for analyzing markets and disruption Pace of technology change Barriers to entry RAPID HIGH LOW SLOW BattleshipsJets & Sharks Meteors Fruit Flies
© 2011 The Tower Group, Inc. 3 Each segment displays unique dynamics and innovation potential Jets & Sharks Aggressive competition among sophisticated players Fast pace of business demands advanced technology Incumbents know each other, and their “moves” Relationships change rapidly; business models less so; insider- based which can be disruptive Meteors Slowly evolving, with new entrants entering the business No substantial change beyond price or relationship Incumbents can be surprised by a better mousetrap High potential for disruption in relationships and business model; incumbents not positioned to respond quickly SegmentDynamicsNature of innovation Battleships Dominated by few large players Pace of the business in general is slow Incumbents seek to maintain status quo Unlikely; high probability of “sustaining” evolution from incumbents Fruit Flies Constant experimentation and rapid evolution at the margins Most liable to be influenced by imports from other industries Incumbents can contribute to the experimentation as well Innovation from within and without; constant evolution of business models and shifting client relationships; first-mover advantages are slim
© 2011 The Tower Group, Inc. 4 Why is innovation important in financial services? The basic financial services product set hasn’t changed in nearly a century Customers (and even regulators) are demanding change Initiatives like SEPA and Dodd-Frank/Durbin place limits on bank transaction revenue Parties ranging from alternative payment providers to wireless companies threaten to disintermediate financial institutions
© 2011 The Tower Group, Inc. 5 Some guiding thoughts on Innovation Being first doesn’t mean you’re the smartest It’s perfectly okay to take someone else’s idea and build on it Meaningful innovation often happens in small steps Change is the only constant, so focus is required to sustain forward momentum
© 2011 The Tower Group, Inc. 6 Getting to the segment of one Service Innovations in Payments
© 2011 The Tower Group, Inc. 7 Special Needs, Markets, and Hours Japan(Citibank) Branches are open evenings, Saturdays, or year-round New Zealand (ASB Bank) Virtual branch targeted at Facebook users Singapore (DBS) Creating a Gen-Y branch Sweden (Swedbank) “Special Senior Hour” from 10-11 daily
© 2011 The Tower Group, Inc. 8 Cards & Services for Women Only Portugal (Caixa Geral de Depositos) Offering includes credit and debit cards South Africa (Standard Bank) Offering includes cash back on all purchase Both cards include access to expanded medical insurance Access to life insurance and discounted medical visits
© 2011 The Tower Group, Inc. 9 Cards & Services for Women Only
© 2011 The Tower Group, Inc. 10 Card-less ATM Withdrawals Brazil (Banco do Brasil) South Africa (ABSA) US* (PayPal) Singapore** (Confidential) Offerings have different use cases ranging from the mundane (paying the gardener) to the urgent (lost/stolen wallet) Origination paths are identical: SMS message from user * Announced October 12, 2011 ** In development
© 2011 The Tower Group, Inc. 11 Bumping, wallets, and Bitcoins New Ways to Meet Existing Needs
© 2011 The Tower Group, Inc. 12 Bumping Phones to Make Payments March 2010 – PayPal announces “bump” feature First for Apple, then for Android July 2011 – PayPal announces NFC support Allows any transfer of value – and information – to and from any NFC phones Source: PayPal
© 2011 The Tower Group, Inc. 13 Mobile Wallets – Coming Soon to a Phone Near You Offerings abound: US (American Express, Discover, Google, Isis, MasterCard, Square, Visa) UK (O2, Orange, Vodafone) Denmark (TDC, Telenor, TeliaSonera, 3Denmark) Singapore (Infocomm Development Authority, DBS) Goal is simple – to turn your phone into a “master key” for any payment need Source: Square
© 2011 The Tower Group, Inc. 14 But wait – mobile wallets aren’t just for payments CardMobili (Portugal) offers a mobile wallet for loyalty and reward cards Supports all major mobile operating systems Catalog includes over 2,000 cards from over 30 countries Company has won multiple industry awards
© 2011 The Tower Group, Inc. 15 But wait – mobile wallets aren’t just for payments
© 2011 The Tower Group, Inc. 16 Virtual Currencies – replacing paper and coins with bits and bytes Transactions are often peer to peer without the use of a central authority Relies upon “the network” to self-police Concept drives regulators crazy Can’t rely on the network to stop/filter transactions Proponents claim attention is just a ploy by banks to impede adoption
© 2011 The Tower Group, Inc. 17 Virtual Currencies – replacing paper and coins with bits and bytes
© 2011 The Tower Group, Inc. 18 The New Bill Pay: Reverse Remote Deposit Capture (RDC) Allows users to take a picture of any bill and pay it Can add recurring payee information or be used for one-time bills Uses the same optical character recognition and image correction technology as mobile RDC Currently in pilot, expected to be commercially available by year end Source: Mitek Systems
© 2011 The Tower Group, Inc. 19 Card.io – RDC for cards Source: card.io website
© 2011 The Tower Group, Inc. 20 Gift Cards: Another Way to Use Points Pilot began in December 2010 Allows Chase customers to convert points into closed-loop gift cards Follows growing bank interest in creating “gift malls” for mobile clients Over 20 participating merchants, including CVS, Gap, The Home Depot, Uno Source: Chase Gift Shelf
© 2011 The Tower Group, Inc. 21 Payments You Can Wear US Bank MasterCard® PayPass™ VITAband® Contactless payment device Emergency contact and health information “Wearable” payments already in use in Europe Transit passes and ski lifts are leading uses Source: US Bank, VITAband
© 2011 The Tower Group, Inc. 22 Location-based offers and mobile coupons – right deal, right place, right time Singapore (McDonald’s) – application identifies nearest McDonald’s on a map and send coupon to mobile phone Global (Groupon) – leverages group-buying to deliver significant savings to members
© 2011 The Tower Group, Inc. 23 Sample Groupon offer – Singapore
© 2011 The Tower Group, Inc. 24 Biometrics – authentication based on something you have Poland (BPS) – ATMs let customers use their fingers rather than bank cards to identify themselves and access ATM services US (iCache) – uses fingerprint to make payment and loyalty card data available on a single plastic card for a short period of time
© 2011 The Tower Group, Inc. 25 Phones that can both hear and see have no need for NFC Leveraging the Entire Smartphone
© 2011 The Tower Group, Inc. 26 QR Codes and Sound Leverage Existing Smartphone Capabilities QR (Quick Response) most often used to drive offers or provide information EasyDo (Japan) adds payment functionality and is widely used mFoundry (US) markets an application used at Starbucks eWise payo looking to expand use at POS Source: TowerGroup
© 2011 The Tower Group, Inc. 27 QR Codes and Sound Leverage Existing Smartphone Capabilities (continued) Sound is being used in stores and beyond Shopkick (US) is used in stores to push coupons and offers Zoosh (US) can be used between devices PayFair (Belgium) sends audio file from phone to POS
© 2011 The Tower Group, Inc. 28 Conclusions Financial services institutions need to innovate to attract and retain customers The pace of innovation is fastest in the mobile market where users, banks, and application developers explore – and expand – the medium’s capabilities Gen Y’s demands for mobile capabilities will influence their choice in banks Even slight improvements in existing offerings can add significant value to target markets
© 2011 The Tower Group, Inc. 29 Questions email@example.com
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