How Innovative Banks Fight Covid Through Giving

Charitable initiatives are not new to banks.

Many have foundations, donation-matching programs or standing committees dedicated to giving back. What is new to banks, however, is how fast they’re being expected to contribute to vital causes while juggling other time-sensitive priorities created by the Covid-19 crisis.

Launching an impactful, Covid-specific relief program could be a non-starter for banks unless they leverage technology to make it happen quickly. Two Northeastern banks have proved that it’s possible to spin up new products and programs in days with the help of fintech partners.

As the extent of the Covid-19 crisis became clear, the Community Engagement Steering Committee at The Cape Cod Five Cents Savings Bank, a unit of Cape Cod Five Mutual Company, kicked its planning into high gear. The committee includes employees from different areas of the Massachusetts-based bank.

Before Covid-19 struck, it convened on a weekly basis to plan community initiatives and review applications for support. Now, the committee needed to move quickly to help local healthcare organizations battling the virus on the frontlines. That goal led to a partnership between the bank and Pinkaloo, a charitable-giving fintech the bank connected with at an industry event last year.

Pinkaloo had been presenting to the bank’s internal teams since January, but the arrival of Covid pushed Cape Cod 5, as the bank is called, to formalize the partnership. “Speed to market was important to us because of the emergent need,” says Stephanie Dennehy, chief marketing officer for the $3.6 billion bank.

In a week, the fintech and bank launched giving portals for seven different healthcare providers in the bank’s footprint.

To make it happen, Pinkaloo stayed in close contact with the bank’s team and everyone — from information security to legal to executive leadership — worked quickly to streamline the implementation process. The result was that a vendor management program that would normally take two to three weeks was completed in two to three days, says Adrian Sullivan, the bank’s chief digital officer.

Covid has showed banks that they can move fast in exigent circumstances, but will those lessons last beyond the current crisis?

Sullivan thinks they will. “The way we’ve done things remotely and in such an expedited fashion — I think that becomes new normal,” he says. “We realized how fast it really can be done, so I think we will shift for the better and start to work in a more agile fashion.”

To the southeast of Cape Cod 5 is a single-branch, digital-first bank that’s no stranger to iterating quickly. Quontic Bank, based in Astoria, New York, chose to support relief efforts with a new savings account.

The Drawbridge Savings account pays depositors an annual percentage yield of 0.50% on balances up to $250,000; the bank matches the interest paid on these accounts with a donation towards its #BeTheDrawbridge campaign. The savings account approach made sense to Quontic. They didn’t want to rely on a transaction-based account when people are changing their spending habits and stockpiling funds, says Patrick Sells, Quontic’s chief innovation officer.

To make the idea a reality, Sells put in a call to one of the bank’s existing technology partners, MANTL. MANTL’s account-opening solution automatically books new accounts to the bank’s core. MANTL engineers worked through the weekend and delivered the new savings product in three days. The bank’s team worked all weekend too, preparing disclosures, developing marketing plans and completing all the other steps required to bring the new financial product to market.

Although the stakes are higher in times of crisis, the $395 million bank is used to working in an agile manner. “One of the core values that applies here is progress, not perfection,” says Sells. “Striving for perfection so often gets in the way of progress, and especially quick progress.” Quontic can pivot if it makes a decision that doesn’t work, but the bank recognizes it can’t make any decisions when it’s frozen in the planning stage.

Covid-19 is changing the world quickly. Banks that want to help will need to lean on technology to put their plans in motion fast.

Banking on the Fly at Atlantic Union

When the rapidly spreading COVID-19 virus forced CEO John Asbury to send most of Atlantic Union Bankshare Corp.’s 2,000 employees to work from home, it gave him the chills.

After all, the Richmond, Virginia-based bank is hardly a digital-only enterprise. It has a branch-centric strategy that emphasizes face-to-face customer service. And like most traditional companies, it has lots of people working in big offices.

To Asbury’s immense relief, everyone has quickly adapted to the demands of running a $17.6 billion institution with a distributed workforce. “A month ago, it was quite candidly terrifying, the notion of moving the company to a virtual status,” he says. “But I have to tell you, at this point we’re actually pretty comfortable with it.”

Ninety percent of Atlantic Union’s employees are now working from home, including Asbury and the bank’s senior management team.

As it turned out, working remotely was not the only challenge that Asbury and the bank’s employees would find themselves facing in the early days of the pandemic. Soon thereafter, a second challenge came in the form of an opportunity that hardly anyone was ready for — not just at Atlantic Union but throughout the banking industry.

The Small Business Administration’s Payroll Protection Program, included in a $2.2 trillion stimulus bill passed in late March, was designed to funnel $349 billion in loans to hard hit small businesses that have been forced to close as part of a broad nationwide lockdown intended to curb the virus’ spread. But almost no one was prepared to take loan applications on the program’s April 3 start date, least of all the SBA.

Many banks, including some of the country’s largest, were slow to engage because of their uncertainty about various details in the hastily rolled out program. Asbury, however, decided that Atlantic Union owed it to its small business customers in Virginia, North Carolina and Maryland to quickly embrace the program and help them get funded.

“I think we all feel the weight of our responsibility,” Asbury says. “I never thought we would be an economic first responder. I never thought we would be at the scene of the crash, and here we are. You cannot say to your customers, ‘Sorry, it’s just too much work,’ or ‘Sorry, we just can’t go fast enough,’ or say, ‘Well, we’re going to do this for a privileged few, because the others aren’t worth it.’”

And yet for all of Asbury’s determination to respond quickly, there were many problems that had to be solved along the way. For starters, the bank did not have the right technology to handle the large volume of loan applications that it expected to receive. It had recently licensed an automated workflow solution to build an online account opening system, but the bank’s new head of digital technology concluded that it wasn’t the right solution for account opening. Asbury says she quickly negotiated a credit with the vendor and chose a different technology instead.

“The team literally, in a matter of days, was able to repurpose the solution and stand up an online application web portal and an automated workflow system, which is essentially a virtual assembly line,” Asbury says. Many of the bank’s employees worked 12 hour days and weekends to have the system up and running by April 3. “To be able to build this automated assembly line … recognizing that everyone working on it is sitting in their homes, is unbelievable,” he adds.

Another challenge was the SBA’s failure to provide lenders with a standard note agreement, one reason why some large banks were slow to engage in program. If a bank doesn’t use the SBA’s standard agreement, the agency won’t guarantee the loans. Asbury decided the bank couldn’t afford to wait for the SBA to resolve that issue, so he took a risk. “We used our best educated guess to create our own note, in the spirit of the agreement, and we began to fund,” he says. The agency later said it was okay for banks to use their own note agreements.

Once Atlantic Union began submitting loan applications, the SBA’s “E-Tran” electronic loan processing system kept crashing under the torrent of submissions it was receiving from lenders throughout the industry. The bank had 30 people who manually keyed in data, and is implementing automated technology to import the application data and upload it into the E-Tran system, which will greatly shorten the application process. “We think we can get the cycle time down to one minute for one loan, and that’s really important,” Asbury says.

The bank had 400 employees working full time on the program, including Asbury’s own administrative assistant who was approving loans. Through April 15, 5,717 Atlantic Union customers had been approved for loans totaling $1.42 billion. The program is now out of funds, although the bank has decided to continue accepting application in the hope that Congress will provide additional funding.

The pandemic proved to Atlantic Union that it is both resilient and innovative, traits that will benefit it long after the COVID-19 crisis has passed. “It’s going to cause us to be more courageous,” Asbury says. “I don’t mean we’re going to be hasty [or] impulsive, but I think that we’re going to be able to make big decisions more confidently, and frankly quicker as we’ve proven we can do it.”

Former Bank Disruptor, Turned Ally, Talks Innovation

A career that began with upending traditional banks has given Alexander Sion perspective on what they can do to accelerate growth and innovation.

Sion is the director and co-head of Citibank’s D10X, which is part of Citigroup’s global consumer bank. Prior to that, he oversaw mobile banking and mobile channel governance for the consumer and community banking group as general manager of mobile at JPMorgan Chase & Co.

But before he worked at banks, he attacked them.

Sion co-founded “neobank” Moven in 2011 to focus on the financial wellness of consumers. The mobile bank disruptor has since become a vendor; in March, the company announced it would close retail accounts and pivot completely to enterprise software.

Bank Director recently spoke with Sion about how banks can create new models that generate growth, even as they face disruption and challenges. Below is a transcript that has been edited for clarity and length.

BD: How should banks think about innovation as it relates to their products, services, culture and infrastructure?

AS: Citi Ventures focuses on growth within a dynamic environment of change. It’s very difficult to achieve, and it’s very different from core growth with existing customers. But all innovation, particularly at incumbent firms, has to stem from a desire to grow.

Banks that struggle with growth, or even getting excited about innovation, need to ask themselves two sets of questions. No. 1: Do you have a deep desire to grow? Do you have aggressive ambitions to grow? No. 2: Is that growth going to be coming from new spaces, or spaces that are being disrupted? Or are you considering growth from existing customers?

If a bank is focused on existing customers, retention and efficiencies, it’s going to be hard to get excited about innovation.

BD: What’s the difference for banks between investing in tech and merely consuming it?

AS: They’re very different. If your bank is focused on growing within its core business, then you would lean more towards consuming tech. You’re building off of something that already exists and trying to make it better. You’ve got existing customers on existing platforms and you’re looking for more efficient ways to serve them, retain them or grow share.

If you’re interested in new growth and exploration — new segments, new products, new distribution channels — you might be more inclined to partner in those spaces. You have less to build from, less to leverage, and you’re naturally trying to figure things out, versus trying to optimize things that already exist.

BD: What kind of a talent or skills does a bank need for these types of endeavors? Do people with these skills already work at the bank?

AS: Existing bank employees know the product, they know the customer. At Citi, what we do at D10X and Citi Ventures is to try to expose bank employees to a different way of thinking, expand their mindset to possibilities outside the constraints of what or where the core model leans towards and think from a customer-centric view versus a product-centric view of the world.

The dynamics of customer behaviors are changing so much. There’s so much redefinition of how customers think about money, payments and their financial lives. Creating a more customer-centric view in existing employees that already have the deep knowledge and expertise of not only the product, but how the bank’s customers have evolved — that’s a very powerful combination.

BD: Why should a bank think about new markets or new customers if they found great success with their core?

AS: If most banks in the United States were honest with themselves, I think many would admit that they’re struggling with growth. America is a very banked place. The banking environment hasn’t changed all that much, and most banks are established. Their focus has been on existing customers, efficiency of the model and maybe deepening within that customer base.

But now, fintechs coming in. These commerce, payments and technology players are doing two things. No. 1: They are legitimately opening up new markets of growth and segments that weren’t reachable, or the traditional model wasn’t really addressing. No. 2, and maybe more important, is they are widening and changing the perspective on customer behavior. I don’t think any bank is immune from those two trajectories; your bank can be defensive or offensive to those two angles, but you’ve got to be one or the other.

BD: What are some lessons you or Citi has learned from its testing, refining and launching new solutions?

AS: Venture incubation has to be about learning. There’s a saying that every startup is a product, service or idea in search of a business model. The challenge that every existing incumbent bank will have is that we have existing business models.

Banks need to be able to test ideas very rapidly. It’s easy to test an idea and rapidly iterate when you’re in search of a business model. It’s much more difficult to test new ideas in an already-operating business model. A typical idea is debated internally, watered down significantly and will go through the wringer before the first customer gets to click on anything. In this kind of world, that’s a difficult strategy to win on.

How Innovative Banks Make Mortgages Work

“Push button. Get mortgage.”

That’s the simple value proposition touted by Rocket Mortgage — and it’s a message that was heard by over 100 million people this month in a star-studded Super Bowl 54 ad that may have cost upwards of $15 million. How can community banks compete with such bold promises and big budgets? The secret could lie in working with the same technology titans that have shaped current customer expectations around financing home purchases.

Mortgages are a notoriously volatile product for financial institutions to offer — both from an economic standpoint and a regulatory one — and many banks struggle to break even on them. While a spike in refinancing and a healthy purchase market led to increased profits in the last half of 2019, the Mortgage Bankers Association (MBA) warned that an anticipated dip in refinancing during the second half of 2020 could once again increase margin pressures. Those pressures may result in numbers reminiscent of 2018, when mortgage banking production profits fell to just $367 per loan, according to data from the MBA.

The challenges posed by heightened competition and pricing pressure are accompanied by rules and requirements that are constantly shifting. For banks, it’s not as simple as “Push button. Get mortgage” to make these loans safely, soundly and profitably.

Yet mortgages are a touchstone product that customers expect their bank to provide. This is the rock and the hard place that Brett Fulk, president and CEO of Riverview Financial Corp., found his institution between after his team worked for over a year to set up an FHA loan product.

“We no sooner got ourselves approved, with all of the vendors we needed lined up, [when] the market shifted from FHA to USDA,” he says. “We were now ready to go with a product that wasn’t necessarily the lead product anymore in our market, and I thought there has to be a better way to do this.”

The bank, which has $1.1 billion in assets and is headquartered in Harrisburg, Pennsylvania, found an unlikely ally in Quicken Loans, the parent company of Rocket Mortgage. And Fulk built a partnership that gave the bank access to technology and new products, while insulating it from rivalry with Rocket.

Riverview is working with Quicken through its wholesale program. The bank uses Quicken’s technology platform, underwriting and servicing to make mortgages to its clients, who benefit from Quicken’s slick interface and fast turnaround. Riverview keeps the customer relationship through the application process, staying front and center to provide customer service and also exploring in-house loan options if the application doesn’t conform to Quicken’s protocols.  Quicken retains the servicing for the life of the loan so customers won’t see their loans being sold and resold.

The bank’s customer relationships are further insulated by some rules of engagement that Rocket Mortgage must follow. Riverview customers do not receive offers from Rocket and, if a current bank customer applies through Rocket for refinancing, that application is immediately kicked back over to the bank.

The partnership has translated into tangible benefits. It gives the bank access to Quicken’s full suite of products, while removing processing and underwriting pressures from the bank’s staff. Quicken has made it possible to increase the bank’s mortgage volume without increasing headcount, Fulk says.

And technology isn’t just helping in terms of efficiency. Riverview makes more on transactions when they sell loans because of the volume the bank has achieved through Quicken.

Banks that are examining their mortgage businesses closely need to consider a wide range of technology options at play. Word on the street is that Black Knight Empower is a popular choice for big banks looking to completely replace legacy loan origination systems, and it’s hard to miss the mega funding rounds that Blend, a San Francisco-based fintech firm, has raised for its mortgage-focused consumer lending platform.

Headliners aside, there are numerous other technology companies helping banks of all sizes make mortgages work from multiple angles. Some help banks take part in aspects of the customer’s home-buying journey that institutions don’t usually play a part in; others streamline back office requirements and closing processes. Whatever the application, mortgage tech solutions could be a critical component to helping banks stay in the game.

Fulk says the partnership with Quicken helped keep Riverview Bank in the mortgage business. It stands to reason that the right technology partners could help other institutions do the same.

Potential Technology Partners

Blend

Powering the mortgage experiences for Wells Fargo & Co., U.S. Bancorp and community banks alike, Blend’s “one-tap” pre-approval feature launched in 2019 to compete head-to-head with Rocket Mortgage.

Roostify

This digital mortgage solution boasts impressive loan officer adoption rates. The company has invested heavily in new integrations with pricing systems, document originators and other key vendors over the last few years.

NestReady

NestReady helps banks become hubs for the home-buying journey with a co-branded search tool that locates everything customers need from their real estate agent to their ideal neighborhood and mortgage loan officer.

LenderClose

This aggregation platform accelerates loan processing by delivering all of the reports and services required to close on a loan — from flood certification and valuation products to title reports and e-recording — in seconds.

SimpleNexus

SimpleNexus automates the information flow between loan officers, borrowers and referral partners. The digital mortgage platform allows banks to track loan officer activity and see when referral partners are sharing the app with potential clients.

Learn more about the technology providers in this piece by accessing their profiles in Bank Director’s FinXTech Connect platform.

Winners Announced for the 2019 Best of FinXTech Awards


Awards-9-10-19.pngBanks face a fundamental paradox: They need to adopt increasingly sophisticated technology to stay competitive, but most have neither the budget nor the risk appetite to develop the technology themselves.

To help banks address this challenge, a legion of fintech companies have sprung up in the past decade. The best of these are solving common problems faced by financial institutions today, from improving the customer experience, growing loans, serving small business customers and protecting against cybersecurity threats.

To this end, we at Bank Director and FinXTech have spent the past few months analyzing the most innovative solutions deployed by banks today. We evaluated the performance results and feedback from banks about their work with fintech companies, as well as the opinions of a panel of industry experts. These fintechs had already been vetted further for inclusion in our FinXTech Connect platform. We sought to identify technology companies that are tried and true — those that have successfully cultivated relationships with banks and delivered value to their clients.

Then, we highlighted those companies at this year’s Experience FinXTech event, co-hosted by Bank Director and FinXTech this week at the JW Marriott in Chicago.

At our awards luncheon on Tuesday, we announced the winning technology solutions in six categories that cover a spectrum of important challenges faced by banks today: customer experience, revenue growth, loan growth, operations, small business solutions and security.

We also announced the Best of FinXTech Connect award, a technology-agnostic category that recognizes technology firms that work closely with bank clients to co-create or customize a solution, or demonstrated consistent collaboration with financial institutions.

The winners in each category are below:

Best Solution for Customer Experience: Apiture

Apiture uses application programming interfaces (APIs) to upgrade a bank’s digital banking experience. Its platform includes digital account opening, personal financial management, cash flow management for businesses and payments services. Each feature can be unbundled from the platform.

Best Solution for Revenue Growth: Mantl

MANTL developed an account-opening tool that works with a bank’s existing core infrastructure. Its Core Wrapper API reads and writes directly to the core, allowing banks to set up, configure and maintain the account-opening product

Best Solution for Loan Growth: ProPair

ProPair helps banks pair the right loan officer with the right lead. It integrates with a bank’s systems to analyze the bank’s data for insights into behaviors, patterns and lender performance to predict which officer should be connected with a particular client.

Best Small Business Solution: P2BInvestor

P2Binvestor provides an asset-based lending solution for banks that helps them monitor risk, track collateral and administer loans. It partners with banks to give them a pipeline of qualified borrowers.

Best Solution for Improving Operations: Sandbox Banking

Sandbox Banking builds custom APIs that communicate between a bank’s legacy core systems like core processors, loan origination, customer relationship management software and data warehouses. It also builds APIs that integrate new products and automate data flow.

Best Solution for Protecting the Bank: Illusive Networks

Illusive Networks uses an approach called “endpoint-focused deception” to detect breaches into a bank’s IT system. It plants false information across a bank’s network endpoints, detects when an attacker acts on the information and captures forensics from the compromised machine. It also detects unnecessary files that could serve as tools for hackers.

Best of FinXTech Connect: Sandbox Banking

The middleware platform, which also won the “Best Solution for Improving Operations” category, was also noted for working hand-in-hand with bank staff to create custom API connections to solve specific bank issues. In addition, banks can access three-hour blocks of developer time each month to work on special projects outside of regular technical support.

How Community Banks Can Compete Using Fintechs, Not Against Them


fintech-7-15-19.pngSmaller institutions should think of financial technology firms as friends, not foes, as they compete with the biggest banks.

These companies, often called fintechs, pose real challenges to the biggest banks because they offer smaller firms a way to tailor and grow their offerings. Dozens of the biggest players are set to reach a $1 billion valuation this year—and it’s not hard to see why. They’ve found a niche serving groups that large banks have inadvertently missed. In this way, they’re not unlike community banks and credit unions, whose people-first philosophy is akin to these emerging tech giants.

Ironically, savvy fintechs are now smartly capitalizing on their popularity to become more like big banks. These companies have users that are already highly engaged; they could continue to see a huge chunk of assets move from traditional institutions in the coming year. After all, what user wouldn’t want to consolidate to a platform they actually like using?

The growth and popularity of fintechs is an opportunity for community banks and credit unions. As customers indicate increasing openness to alternative financial solutions, these institutions have an opportunity to grab a piece of the pie if they consider focusing on two major areas: global trading and digital capabilities.

Since their creation, community banks and member-owned organizations have offered many of the same services as their competitors. However, unlike fintechs, these financial institutions have already proved their resilience in weathering the financial crisis. Community banks can smartly position themselves as behind-the-scenes partners for burgeoning fintechs.

It may seem like the typical credit union or community banking customer would have little to do with international transactions. But across the world, foreign payments are incredibly common—and growing. Global trading is an inescapable part of everyday consumer life, with cross-border shopping, travel and investments conducted daily with ease. Small businesses are just as likely to sell to a neighbor as they are to a stranger halfway around the globe. Even staunchly conservative portfolios may incorporate some foreign holdings.

Enabling global trades on a seamless digital scale is one of the best avenues for both community banks and credit unions to expand their value and ensure their continued relevance. But the long list of requirements needed to facilitate international transactions has limited these transactions to the biggest banks. Tackling complex regulatory environments and infrastructure can be not only intimidating, but downright impossible for firms without an endless supply of capital earmarked for these such investments.

That means that while customers prefer community banks and credit unions for their personalization and customer service, they flock to big banks for their digital capabilities. This makes it all the more urgent for smaller operations to expand while they have a small edge.

Even as big banks pour billions of dollars into digital upgrades, an easy path forward for smaller organizations can be to partner with an established service that offers competitive global banking functions. Not only does this approach help them save money, but it also allows them to launch new services faster and recapture customers who may be performing these transactions elsewhere.

As fintechs continue to expand their influence and offerings, innovation is not just a path to success—it’s a survival mechanism.

How Innovative Banks are Eliminating Online Card Fraud

Card fraud has a new home. Just a few years after the prolonged and pricey switch to EMV chip cards, fraud has migrated from purchases where the card is physically swiped to transactions where the card is not present. The shift means that U.S. banks might be on the cusp of yet another move in card technology.

EMV chips were so successful in curbing cases of fraud where the card was swiped that fraud evolved. Fraud is 81 percent more likely to occur today in “card-not-present” transactions that take place over the phone or internet rather than it is at the point of sale, according to the 2018 Identity Fraud Study by Javelin Research.

Technology has evolved to combat this theft. One new solution is to equip cards with dynamic card verification values, or CVVs. Cards with dynamic CVVs will periodically change the 3-digit code on the back of a credit or debit card, rendering stolen credentials obsolete within a short window of time. Most cards with dynamic codes automatically change after a set period of time—as often as every 20 minutes. The cards are powered by batteries that have a 3- to 4-year lifespan that coincides with the reissuance of a new card.

Several countries including France, China and Mexico have already begun adopting the technology, but the rollout in the United States has been more limited. The new Apple Card, issued by Goldman Sachs Group, boasts dynamic CVV as a key security feature. PNC Financial Services Group also launched a pilot program with Motion Code cards in late 2018.

Bankers who remember the shift to EMV might cringe at the thought of adopting another new card technology. But dynamic CVVs are different because they do not require merchants to adopt any new processes and do not create extra work for customers.

But one challenge with these more-secure cards will be their cost. A plastic card without an EMV chip cost about 39 cents. That cost rose to $2 to $3 a card with EMV. A card with the capability for a dynamic CVV could cost 5 times as much, averaging $12 to $15.

But advocates of the technology claim the benefits of eliminating card-not-present fraud more than covers the costs and could even increase revenue. French retail bank Société Générale S.A. worked with IDEMIA, formerly Oberthur Technologies, to offer cards with dynamic CVVs in fall 2016. The cards required no change in customers’ habits, which helped with their adoption, says Julien Claudon, head of card and digital services at Société Générale.

“Our customers appreciate the product and we’ve succeeded in selling it to customers because it’s easy to use.”

He adds that card-not-present fraud among bank customers using the card is “down to almost zero.”

Eliminating card-not-present fraud can also eliminate the ancillary costs of fraud, says Megan Heinze, senior vice president for financial institutions activities in North America at IDEMIA. She says card fraud is estimated to cost banks up to $25 billion by 2020.

“A lot of prime customers ask for the card the next day. The issuer then has to get the card developed—sending a file out that has to be printed—and then it’s FedExed. The average FedEx cost is around $10. The call to the call center [costs] around $7.50,” she says. “So that’s $17. And that doesn’t even include the card.”

What’s more, dynamic CVVs could also create a revenue opportunity. Société Générale charges customers a subscription fee of $1 per month for the cards. The bank saw a more than 5 percent increase in new customers and increased revenue, according to Heinze.

Still, some are skeptical of how well a paid, consumer-based model would fare in the U.S. market.

“The U.S. rejected EMV because it was so expensive to do. It was potentially spending $2 billion to save $1 billion, and that’s what you have to look at with the use case of these [dynamic CVV] cards,” says Brian Riley, director of credit advisory service for Mercator Advisory Group. “If it tends to be so expensive I might want to selectively do it with some good customers, but for the mass market there’s just not a payback.”

Still, dynamic CVVs are an interesting solution to the big, expensive problem of card-not-present fraud. While some institutions may wait until another card mandate hits, adopting dynamic CVV now could be a profitable differentiator for tech-forward banks.

Potential Technology Partners

IDEMIA

Idemia’s Motion Code technology powers cards for Société Générale and is being piloted by PNC and WorldPay.

GEMALTO

Gemalto’s Dynamic Code Card hasn’t been publicly linked to any bank or issuer names, but the company cites its own 2015 Consumer Research Project for some impressive statistics on customer demand for dynamic CVV cards.

SUREPASS ID

SurePass ID offers a Dynamic Card Security Code. The company’s founder, Mark Poidomani, is listed as the inventor of several payment-related patents.

FITEQ

FiTeq’s dynamic CVV requires cardholders to push a button to generate a new CVV code.

VISA AND MASTERCARD

Visa and Mastercard are leveraging dynamic CVV codes in their contactless cards

Learn more about the technology providers in this piece by accessing their profiles in Bank Director’s FinXTech Connectplatform.

How Innovative Banks are Eliminating Online Card Fraud


technology-5-8-19.pngCard fraud has a new home. Just a few years after the prolonged and pricey switch to EMV chip cards, fraud has migrated from purchases where the card is physically swiped to transactions where the card is not present. The shift means that U.S. banks might be on the cusp of yet another move in card technology.

EMV chips were so successful in curbing cases of fraud where the card was swiped that fraud evolved. Fraud is 81 percent more likely to occur today in “card-not-present” transactions that take place over the phone or internet rather than it is at the point of sale, according to the 2018 Identity Fraud Study by Javelin Research.

Technology has evolved to combat this theft. One new solution is to equip cards with dynamic card verification values, or CVVs. Cards with dynamic CVVs will periodically change the 3-digit code on the back of a credit or debit card, rendering stolen credentials obsolete within a short window of time. Most cards with dynamic codes automatically change after a set period of time—as often as every 20 minutes. The cards are powered by batteries that have a 3- to 4-year lifespan that coincides with the reissuance of a new card.

Several countries including France, China and Mexico have already begun adopting the technology, but the rollout in the United States has been more limited. The new Apple Card, issued by Goldman Sachs Group, boasts dynamic CVV as a key security feature. PNC Financial Services Group also launched a pilot program with Motion Code cards in late 2018.

Bankers who remember the shift to EMV might cringe at the thought of adopting another new card technology. But dynamic CVVs are different because they do not require merchants to adopt any new processes and do not create extra work for customers.

But one challenge with these more-secure cards will be their cost. A plastic card without an EMV chip cost about 39 cents. That cost rose to $2 to $3 a card with EMV. A card with the capability for a dynamic CVV could cost 5 times as much, averaging $12 to $15.

But advocates of the technology claim the benefits of eliminating card-not-present fraud more than covers the costs and could even increase revenue. French retail bank Société Générale S.A. worked with IDEMIA, formerly Oberthur Technologies, to offer cards with dynamic CVVs in fall 2016. The cards required no change in customers’ habits, which helped with their adoption, says Julien Claudon, head of card and digital services at Société Générale.

“Our customers appreciate the product and we’ve succeeded in selling it to customers because it’s easy to use.”

He adds that card-not-present fraud among bank customers using the card is “down to almost zero.”

Eliminating card-not-present fraud can also eliminate the ancillary costs of fraud, says Megan Heinze, senior vice president for financial institutions activities in North America at IDEMIA. She says card fraud is estimated to cost banks up to $25 billion by 2020.

“A lot of prime customers ask for the card the next day. The issuer then has to get the card developed—sending a file out that has to be printed—and then it’s FedExed. The average FedEx cost is around $10. The call to the call center [costs] around $7.50,” she says. “So that’s $17. And that doesn’t even include the card.”

What’s more, dynamic CVVs could also create a revenue opportunity. Société Générale charges customers a subscription fee of $1 per month for the cards. The bank saw a more than 5 percent increase in new customers and increased revenue, according to Heinze.

Still, some are skeptical of how well a paid, consumer-based model would fare in the U.S. market.

“The U.S. rejected EMV because it was so expensive to do. It was potentially spending $2 billion to save $1 billion, and that’s what you have to look at with the use case of these [dynamic CVV] cards,” says Brian Riley, director of credit advisory service for Mercator Advisory Group. “If it tends to be so expensive I might want to selectively do it with some good customers, but for the mass market there’s just not a payback.”

Still, dynamic CVVs are an interesting solution to the big, expensive problem of card-not-present fraud. While some institutions may wait until another card mandate hits, adopting dynamic CVV now could be a profitable differentiator for tech-forward banks.

Potential Technology Partners

IDEMIA

Idemia’s Motion Code technology powers cards for Société Générale and is being piloted by PNC and WorldPay.

Gemalto

Gemalto’s Dynamic Code Card hasn’t been publicly linked to any bank or issuer names, but the company cites its own 2015 Consumer Research Project for some impressive statistics on customer demand for dynamic CVV cards.

SurePass ID

SurePass ID offers a Dynamic Card Security Code. The company’s founder, Mark Poidomani, is listed as the inventor of several payment-related patents.

FiTeq

FiTeq’s dynamic CVV requires cardholders to push a button to generate a new CVV code.

Visa and Mastercard

Visa and Mastercard are leveraging dynamic CVV codes in their contactless cards

Learn more about the technology providers in this piece by accessing their profiles in Bank Director’s FinXTech Connect platform.

Drafting a Data Strategy


data-4-29-19.pngBanks need to be aware of trends in data analytics that are driving decision-making and customer experience so they can draft an effective data plan. Doing so will allow them to compete with the biggest banks and non-bank technology competitors that are already using internal customer data to predict behavior and prescribe actions to grow those relationships. These approaches leverage concepts like machine learning and artificial intelligence — buzzwords that may seem intimidating but are processes and approaches that can leverage existing information to grow and deepen customer relationship and profitability.


analytics-4-29-19-tb.png10 Data and Analytics Trends Banks Should Consider
Current trends in analytics include focusing on the customer’s experience, using artificial intelligence and machine learning in analysis, and storing and organizing information in ways that reduce risk. Banks also need to know about threats like cybersecurity, long-term developments like leveraging blockchain, and how to build a governance program around the process. Knowing the trends can help companies make educated choices when implementing a data strategy.

datat-trends-4-29-19-tb.pngHow Banks Can Make Use of Data-Driven Customer Insight
Banks can use machine learning and artificial intelligence to gain insights into customer behavior and inform their decisions. These data-driven approaches can efficiently analyze the likeliness of future events, as well as suggest actions that would increase or decrease that likeliness. Many institutions recognize the need for new technical capabilities to improve their customer insight, but a significant percentage struggle to embrace or prioritize the technology among other priorities at their bank. These institutions have an opportunity to establish a data strategy, map out their internal information and establish appropriate governance that surrounds the process.

The Next Things To Know About Data


data-3-5-19.pngThere’s one thing in today’s banking industry that is critical to remaining competitive, being innovative, and maintaining compliance and risk levels: data.

This is no longer a surprise for most banks. It’s an issue that comes up often among bank boards and management, but there are still a number of challenges that banks must overcome to be successful in all of those areas.

It has a connection to many of the major decisions boards make, from what third-party partners to join forces with to how it integrates the next landmark technology.


	strategy-3-5-19-tb.pngFive Steps to a Data-Driven Competitive Strategy
Maintaining a competitive advantage for banks today lies in one of its most precious assets: data. Banks have the gold standard of consumer data, and leveraging that information can be the trump card in achieving growth goals.

Getting there, though, requires good governance of data and technology, and then using those elements to craft strategic objectives.

compliance-3-5-19-tb.pngFintechs Can Fend Off Compliance Issues With Data
Fintechs are known to be nimbler than banks for a few reasons, including a limited regulatory framework compared to their bank partners and a smaller set of products or services. But with that relative freedom comes added risk if they don’t comply with broader regulatory requirements. One compliance problem can put a fintech out of business.

But those companies can use data to reduce compliance risk. Here’s how.

risk-3-5-19-tb.pngRisk Management at the Forefront in Fintech Partnerships
Bank regulators have generally kept their distance from interfering in bank-fintech partnerships. Agencies have deferred to the bank’s third-party risk management process, but some regulators have indicated the intent to keep a closer eye on third-party fintech firms.

Here is an overview of what banks should keep in mind when considering and managing the risk associated with these third-party partnerships.

innovation-3-5-19-tb.pngFour Ways To Innovate And Manage Risk, Compliance
There is a careful balance that banks must strike in today’s industry. To remain competitive, they have to innovate, but they also have to remain compliant with regulations, many of which have stood for years, and manage risks that can ebb and flow with economic and technological pressure.

Finding a similar balance between thinking strategically for the future while also remembering what has worked and not worked can also be challenging for financial institutions. Building a checklist around these four ideas can help achieve that balance.

partner-3-5-19-tb.pngHow to Pick The Right Data Partner
Banks are grappling with trying to gain the greatest efficiency through a variety of innovative and technological tools, but often are hampered by the quality of the data they maintain. To make correct and sound decisions, accurate and reliable data is essential.

Partnering with third-party data service providers can help with that effort, but even that requires due diligence. To help with that due diligence, banks should have a checklist of capabilities for those partners.