Will Cardless Cash Catch On?

mobile-technology-8-7-15.pngApple Pay, where consumers can pay for products using their iPhone, is widely known but not widely used. Will cardless cash do any better?

Six banks in the United States have begun offering a way for customers to get cash from an ATM using their smartphones, according to Doug Brown, senior vice president and general manager at FIS Mobile, a division of the core processing vendor FIS. Twenty-five more are working on rolling out the product, which is part of FIS’ mobile banking platform. The service lets customers use their smartphones to get cash from an ATM, which is billed as a way to increase convenience and security. So far, no adoption figures are being disclosed, Brown says.

“[The banks] are all pleased because adoption is far above what they expected,’’ he says. However, only about 39 percent of smartphone users with a bank account actually use their banks’ mobile banking app, according to a March survey by the Federal Reserve. It’s available. It’s free. And not even half are using it.

But Brown says he expects mobile banking usage to pick up in general, and that tens of thousands of users in the Chicago area have tried out the cashless card service, to rave reviews. BMO Harris Bank, which has $98 billion in assets, and $20 billion asset Wintrust Financial Corp., are offering the service and both are based in the Chicago market.

BMO Harris calls it mobile cash, and it works after you log into your mobile banking app on your phone. You can order up an ATM withdrawal at any of 900 of the bank’s ATMs and your phone communicates with the ATM near you, which flashes a QR code (a machine readable label) that you can scan into your phone. The ATM delivers your cash and a receipt is delivered electronically. You never touch the ATM screen.

All of this is done in about 15 seconds, versus 45 seconds on average for an ATM transaction, Brown says. BMO Harris, which launched mobile cash in March, also launched Touch ID for the iPhone in late July, where you can save even more time by not using a log in and password to access your mobile account—you just use your fingerprint. A PIN can also be used in lieu of a log in and password to save time. The fingerprint ID is available, for now, using the iPhone 5s and newer versions, with a similar Android service available soon.

Brown says cardless cash is secure because each transaction is tokenized, so no data from the transaction is stored on your phone. A secure cloud houses the QR code, Brown says. Fraud is always a possibility, but “it really minimizes the exposure compared to the magnetic stripe world,’’ he said.

Skimming, where fraudsters put cameras on ATMs to record card and PINs, is not possible with this service. “The security that is commonly used at ATMs is over 30 years old,’’ says Douglas Peacock, vice president of mobile banking for BMO Harris, which is a subsidiary of $633 billion asset Toronto-based BMO Financial Group. “It’s been that way since cards were introduced.”

The biggest challenge so far? Marketing.  BMO has a video tutorial for customers who log into online or mobile banking. Wintrust used social media, billboards and TV ads and the Chicago Cubs’ mascot to promote the service. “Like anything that’s brand new, it takes a little bit of learning,” Peacock says.

Banking Compliance and the Cloud: Can They Coexist?

cloud-computing-8-3-15.pngBusinesses large and small are enamored with cloud computing. After all, it promises less information technology expense, delivering cheap, on-demand, and elastic processing power, disk storage and memory, while cutting down on energy use. By meshing their services with the cloud, companies gain social and mobile capabilities that can connect them more closely with their customers. But is it right for financial institutions?

In short, it depends—both on what systems your financial institution is considering and what types of data will be processed, stored or transmitted by the cloud service provider. With careful monitoring and attention to key risk areas, cloud computing can work, and it can be a solid, budget-friendly choice for financial institutions seeking computing power and the ability to scale quickly as business grows.

Cloud Deployment
When considering a cloud solution, you’ll first need to choose a deployment model. Your bank may select from private clouds, which belong to a single organization; public clouds, offered by companies including Amazon and Microsoft; and hybrid clouds, which use a mix of public and private clouds.

Second, consider your service model:

  • Software as a service (SaaS): Your bank uses the provider’s applications and operates them on the provider’s infrastructure.
  • Platform as a service (PaaS): Your bank deploys its own applications onto a cloud infrastructure using the provider’s programming tools—a good choice for banks that develop their own applications.
  • Infrastructure as a service (IaaS): Your bank runs operating systems and applications on the cloud provider’s infrastructure.

Are Cloud Solutions Secure?
For banks, data security is paramount, and you must comply with the Federal Financial Institutions Examination Council (FFIEC)’s Outsourcing Technology Services Booklet, federal and industry protection regulations, and payment card data requirements under the Gramm-Leach-Bliley Act, among others.

Though FFIEC and other guidelines give some clarity on how banks should approach data security, they miss some key nuances of cloud computing. Specifically, banking institutions will also need to consider:

Provider and Data Location
Where your institution’s provider is located and where your data is stored, processed or transmitted can trigger a variety of state, federal or international privacy compliance concerns and issues.

Multiple Levels and Layers of Risk
Cloud providers commonly resell other providers’ services or rely on other subservice providers, which makes risk assessment extremely difficult. Furthermore, data could be backed up and stored by multiple service providers and facilities.

Vendor Risk
Your vendors may use cloud services to store your customers’ information. As a result, you may need to spell out in your contracts what your cloud computing policies are, or at least incorporate questions about cloud computing practices into your vendor risk management program.

Institutions that implement cloud technology will need to address these risks specifically, requiring all parties involved to conform to the security and privacy mandates outlined in their contracts. You’ll also need to develop plans to continually monitor the activities and performance of both service providers and third parties.

Moving to the Cloud
Cloud computing is likely here to stay. And while the shift may be too large for some banks’ tastes, it does come with certain benefits. Keeping compliance and regulations in mind, embracing the cloud may mean increased agility, speed and competitiveness for financial institutions of all sizes.

Why Does It Take So Long to Be Paid?

financial-technology-payments-6-5-15.pngHere’s a topic almost assuredly off the radar for many bank boards: real time payments. Don’t fall asleep yet. This will be of increasing importance in the years ahead.

Commercial customers are definitely in need of such a solution. For business customers, getting paid quickly is far more important than for most consumers. For both business customers and their vendors, checks introduce unpredictable cash flow: slower payments for the vendor, and uncontrolled float for the payer. Businesses are constantly dealing with cash flow management. It often takes 60 or 90 days to get paid after sending an invoice. Some suppliers need to drop tens of thousands of dollars of equipment or supplies off at a customer’s doorstop. Why can’t they be paid right away, instead of waiting around with their valuable goods on someone else’s property? Why do businesses have to preload deposit accounts or prepaid cards to make sure their employees get paid in a timely manner, on payday? 

Online bill pay is no solution, says Bob Roth, a managing director with Cornerstone Advisors, a consulting firm in Scottsdale, Arizona. Twenty percent of payments through online bill pay end up as checks anyway, because the bank has no electronic information on the receiver of the payment. That means a payment can take six days or more to arrive by mail. Eighty percent end up as ACH (Automated Clearing House) transfers, but that can take 12 to 36 hours as well, Roth says. MineralTree founder BC Krishna said he tried to open an ACH account at a bank once, but the bank charged $250 for the application, $50 per month for the account, $20 per ACH file transmitted to the bank, 15 cents per transaction and required him to fill out a credit application. Not surprisingly, this pricing and process is geared towards larger businesses with a higher payment volume. Prepaid credit cards are fast, but they’re also expensive.

If businesses can find something easier and cheaper, they probably will. Seventy-five percent of business owners told the Federal Reserve in a 2013 survey they would prefer their payments be made instantly or within one hour. With thousands of financial technology companies popping up on the landscape trying to reinvent the financial system, there could be a few disrupters in the bunch offering a quicker payment solution. Person-to-person payment networks such as Dwolla and bank-owned ClearXchange already are offering faster (and cheaper) solutions, but they are mostly concentrated on the consumer and small business side of the equation.

In bigger businesses, there are multiple people who have to sign off on an invoice, so emailed invoices often get printed out anyway and the entire payments process is fairly complex, says Rick Hall, an analyst at Mercator Advisory Group in Maynard, Massachusetts. “Businesses have really been looking for ways to not only streamline the process but find the best alternatives,’’ he says.

It may be years before a truly speedy and cheaper alternative exists for commercial businesses trying to make payments. Krishna is a member of the Remittance Coalition, a 240-member group of public and private interests, including members of the Federal Reserve, trying to address some of the obstacles that keep businesses from using electronic alternatives to paper checks. The Federal Reserve is pushing for faster payments, but there are so many different players and legacy systems communicating with each other that a unified set of strategies is hard to implement. The core processing companies FIS, Fiserv and ACI, which each have hundreds or thousands of bank customers that could communicate with each other, are all working on their own real time payment solutions as well, according to Hall. NACHA, The Electronic Payments Association, which administers ACH, also is working on its own solution called Same Day ACH, which was recently approved by its membership. Under NACHA’s plan, same day ACH transfers begin in phases starting in September of 2016. 

But in the meantime, someone may come up with an even better, faster, cheaper and ubiquitous solution. Person-to-person payments are all very exciting, but the consumer side of the equation is a fraction of the payments being made between businesses every day. “The real opportunity is going to lay on the business side,” Hall says. And business customers really are the focus of a great many community banks’ business plans. It will be important not to lose sight of their needs.