Innovation Spotlight: First State Bank of St. Charles


innovation-1-10-18.pngCundiff Luanne.pngLuanne Cundiff, President and CEO
After beginning her career with the Federal Reserve Bank of St. Louis, Luanne Cundiff joined First State Bank of St. Charles in 1995. She currently serves as President and CEO. With 25 years of industry experience, Cundiff has driven the $371 million asset bank’s steady and significant growth, its expansion into new markets and its introduction of innovative products and technologies. Passionate about the future of community banking, Cundiff leads a team of 225 banking professionals from the institution’s headquarters in St. Charles, Missouri.

What recent discussions have you had with your board around innovation?
Our commitment is always to increase personal service and enhance customer experience. Innovation is a driving force in meeting customer needs. First State Bank’s board is invested in and supportive of our approach. With an eye on the future, we have in-depth discussions to determine how we want to develop service channel enhancements to benefit customers. When considering new technology in an ever-changing market, we have to think about both business and personal clients and ask, “What is the best choice for customers?” Our decisions are focused on innovation that enhances efficiency and increases our ability to provide great service.

How have you used technology to help diversify revenue opportunities at First State Bank of St. Charles? Who helps implement your innovation strategy?
We have built diversity in our revenue streams. First State Bank achieved record-setting mortgage production with a 16 percent rise in home loan volume last year, and investment assets under management increased 4.5 percent. New technology plays a large role in increasing noninterest income in our mortgage and investment services divisions. We rely on the expertise of a variety of teams, headed by our IT strategist, to determine the best approach to integrating new technology. Our higher diversification of income is strengthened with increased operational efficiencies and productivity. In the future, it’s critical that we continue to adapt as payment systems evolve, and look to innovation that remains focused on the customer experience. During service enhancements, we strive to make the transition as seamless as possible to the customer. Through further enrichment of processes, we are optimistic for continued success.

In March 2017, you visited the White House to discuss the unique challenges facing community banks. What were some of your takeaways from that meeting?
Community banks represent such a critical segment of our economy, so I was honored to represent all community banks at such an important meeting. We discussed the regulatory constraints on banks and offered a rare perspective on the challenges financial institutions face today due to that burden. The need for tailored regulation was emphasized along with the critical role banks play in helping our economy thrive. Other topics included regulatory changes to increase small business and mortgage lending, the impact of the compliance burden, and the need to ensure regulatory capital standards are aligned with actual risks and conducive to credit availability. It was evident that the administration had a clear focus on getting feedback from all participants on what regulatory changes are needed. Discussions [about the] Dodd-Frank [Act] and the make-up [of the Consumer Financial Protection Bureau] continue, focusing on how to revise banking regulations that restrict economic growth while maintaining appropriate consumer protections. Altering the regulatory landscape for banking is a challenge and takes time, but these are vital, ongoing discussions that must always take place.

Tax Certainty in Uncertain Times


innovation-12-13-17.pngWarning: This is NOT another article about how tax reform may or may not affect your bank.

Disappointed? We can still talk tax! Instead, let’s talk about tax incentive and reduction programs that positively affect financial institutions and fintech businesses, and will go unscathed by tax reform.

Domestic innovation, quality jobs and capital investment are beneficial to the economy. To promote these economic benefits, the U.S. government financially supports and entices companies to engage in certain behaviors in exchange for tax credits, deductions and tax abatements. The behaviors that policy makers want to encourage include:

  • Developing new software and technology;
  • Creating and maintaining jobs in the U.S.;
  • And investing in facilities and other capital.

Tax and incentive programs are available to companies planning to incorporate any of the above into a growth strategy, and will offset the cost of such investments by reducing cash taxes and the effective tax rate.

A diverse menu of tax programs—many of which are regionally specific—are designed to incent corporate behavior. The below examples highlight a few of these programs.

The Federal Research Tax Credit
The Federal Research Tax Credit (RTC) is a well-established planning tool utilized by U.S. companies engaged in traditional technology development. It is rapidly becoming a similarly valuable planning tool for financial institutions and fintech companies investing in technology-enabled services.

How does it work? Companies claim an annual tax credit based on the cost of the technology development and process enhancements, regardless of whether the development was outsourced or in-house. The rate of return ranges between 5 and 8 percent of the cost, and there is an increased benefit when the company simultaneously claims a state credit.

If you thought this credit was only for product developers and scientific research companies, you are not alone. Financial institutions and other financial service providers reliant upon software platforms and web-based programs underutilize this tax planning opportunity.

Historically, the guidance as to how the RTC applied to financial service technology was murky, and as a result, financial institutions often opted not to apply the credit due to the inherent audit risk. But in 2016, Department of the Treasury regulations finally caught up to include such activities as eligible for the RTC. Companies that have invested in technology focused on financial modeling and enterprise tools, data security mechanisms, and modules developed to provide improved services may want to strategically reevaluate this credit.

Jobs & Investment Location Incentives
Speak with any state or local economic development group, and they will tell you that job creation and capital investment are top priorities to fuel economic growth. To meet this goal, each state has its own menu of programs designed to incent companies to create and maintain jobs, and invest in facilities and capital.

Recall the huge incentive packages recently lobbed to Amazon in hopes of landing its second headquarters, which promises 50,000 jobs and massive real estate development in the community that Amazon ultimately chooses. Although the Amazon project is truly a white whale for most states, development groups regularly put together similar packages, and the value offered is reflective of the anticipated impact of the project.

How do these incentives work? Companies lock in location incentives prior to engaging in development. The threshold for discussion is generally 20 or more jobs, coupled with capital investment. The program names differ in each state, but the gist is the same. If a company embarks on a strategy to build new facilities or improve current facilities, create jobs, or even maintain its current headcount—which could be relocated elsewhere—the state is motivated to support companies to ensure that growth stays within the state.

The jobs and investment incentives generally take the form of income or withholding tax reductions, refundable tax credits, property tax abatements and even cash grants. Although these incentives often seem like a black box, obtaining financial packages for proposed growth is quite likely. Leverage is gained through strategic discussions prior to initiating the project.

Investments made to improve processes, services and technology, or to add quality jobs and invest in your business’ facilities often give rise to direct and indirect tax savings. Our taxing systems will continue to reward such behaviors. The key to maximizing savings is strategically matching the behavior with the relevant program.

WSFS Financial and LendKey Partner to Refinance Student Debt


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With over $1.4 trillion in total student loan debt in the U.S., refinancing is growing in popularity as young professionals seek to get the lowest rates at manageable payment terms. With upwards of 44 million people currently paying off student loan debt, refinancing is a trend that’s quickly picking up steam.

For banks, this represents a huge opportunity to help their existing customers refinance student loans, as well as attract new ones. But with established fintech players like SoFi and CommonBond already established in the student debt refinancing space, banks are beginning to develop technology-oriented partnerships to compete in a still underserved market.

Consider the case of WSFS Financial Corp., headquartered in Wilmington, Delaware, which has 77 offices in Delaware, Pennsylvania, Virginia and Nevada. In addition to its core banking services, WSFS realized there was an opportunity to expand its consumer lending portfolio to a new generation of customers—mainly students and recent college graduates.

Given this demographic’s average student debt of $35,000, there was an obvious opportunity for the bank to offer a student loan and refinancing product. At the time, however, WSFS lacked the internal technology resources to gain traction in the market. This, in addition to regulatory and compliance hurdles related to the student lending asset class, led WSFS to seek out a technology partner with experience in the student lending space.

The result was a partnership with LendKey, a lending platform and online marketplace that enables consumers to easily refinance their student loans. New York-based LendKey works with over 300 credit union clients, with a combined loan portfolio of over $700 million, to provide technology that enables consumers to find the best refinancing options at their local credit unions.

“We were interested in partnering [with LendKey] because we didn’t really have a student loan program, and they have a very good one, as well as a good delivery method to get to borrowers,” explains Lisa Brubaker, senior vice president and director of retail strategy at WSFS. “It helped fill our product gap.”

With WSFS’s student loan refinancing offerings available on the LendKey marketplace, WSFS was in position to enter the market with an experienced technology partner. LendKey also allowed WSFS to set the credit risk and underwriting standards for all loans, ensuring a balanced lending portfolio. LendKey helped WSFS’s student refinancing program to comply with all regulations. The new venture was launched once the two companies had agreed to team up.

Initially, WSFS relied on its own internal pricing on student loan products, and although its rates and offerings were solid, WSFS had entered the market rather quietly. The promotional support was light, and pricing wasn’t competitive with many other lenders. During the first two years of the program, WSFS generated less than $1 million in total loan disbursements—not the kind of market traction that was hoped for.

What followed next is indicative of what makes WSFS’s partnership with LendKey so innovative and (now) successful. In 2016, WFSF engaged LendKey’s account management team, seeking LendKey’s expertise on how the program could be more visible and competitive, without significantly impacting credit risk. The LendKey team evaluated WSFS’ competitiveness in the student refinancing market and made some recommendations. In response, WSFS repriced its loan program and placed itself prominently on the LendKey Network, a market for lenders to both directly promote and fulfill refinancing loans. With this pivot, WSFS’s refinancing program became more readily available to borrowers in every state within the bank’s market footprint.

Since the repricing and strategic shift to the LendKey Network, WSFS has been experiencing significant success in the student loan refinancing marketplace. WSFS’s student loan portfolio volume has grown by a whopping 54,000 percent since 2013, the year prior to the initiation of the LendKey partnership. And by performing an initial credit check on all applicants, LendKey is helping WSFS make faster decisions on whether to approve individual borrowers.

Today, LendKey continues to work with WSFS to enhance its student lending products, providing additional data analysis and credit risk reporting. LendKey’s insights-driven approach is enabling WSFS to grow its portfolio and reach new customers in a highly competitive marketing—while simultaneously maintaining strong credit risk controls.

“Our view is to take the best-of-breed from marketplace lenders [like LendKey] to deliver to our customers without losing that personal touch that we value,” Brubaker says.

Why New FinTech Banks Think They Will Win Out


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There’s an old joke about the guy who’s lost driving in the countryside and stops to ask a pedestrian how to get to the city.The pedestrian replies: “Oh, if you want to get there, I wouldn’t start from here.”

This is exactly how many traditional banks feel today.They want to get to the nirvana of new technologies, but are stuck in a spaghetti of old systems.Some call them legacy systems, others call them handcuffs, but either way they are an impediment to innovation.Old legacy technologies stop the bank from moving forward into the nimble and agile future on offer today, and this is exactly what fintech start-up banks believe they can exploit as it is clearly a weakness for the large banks.

Not all fintech companies compete with banks. In fact, most of them are actually working with banks to help them adopt new capabilities built upon the latest internet-enabled technologies. These include easy-to-use apps for customers, simple-to-add code for merchants and open systems to allow other fintech companies to work with them.It is almost like banking in an app store:Hundreds of companies offering thousands of services for sending and receiving money that are simple and easy to use.One such company is Stripe, a six-year-old start-up that is the preferred code for building online checkout services.Stripe is really easy to work with and has developed the chosen system for many other innovative companies including Kickstarter and Apple Pay, and was valued at almost $10 billion by the end of 2016. The reason why Stripe has gained such a high valuation is that it has taken something the banks make difficult—setting up online payment services—and made it incredibly easy.

There are companies that do similar things in lending, savings, investments and other specific areas of financial services based upon internet technologies.These companies have names like Zopa, SmartyPig, Nutmeg and eToro. They all have fun branding and cool offices, and they all share many of the same attributes in terms of being young, aspirational, visionary and capable.This is why collectively they have seen investments from venture capital and other funds averaging $25 billion for the last four years, according to data published by Ernst & Young.

However, there is a possible impasse here, as the most successful fintech firms are not replacing banks, but serving markets that are under-served. Fintech firms with the highest valuations and greatest success are those that focus on making it easier to invest, provide better access to funding, support small businesses or turn the mobile phone into a point-of-sale device.However, none of them have replaced a bank.They are succeeding by addressing areas that banks find difficult to serve due to cost or risk.

This is why it is interesting today that of the almost 50 new banks that have been launched recently in the U.K., many of them are fintech banks.Atom, Starling, Monzo and others have banking licenses and considerable funding.However, they are up against the country’s biggest banks that have millions of customers, deep funding pockets and centuries of history.For new players, fighting the large banks is going to be a challenge and they will need a lot of funding to succeed.

This does not mean they won’t succeed, but they will need real differentiation and exceptional digital services to win out.Even then, will customers switch?It will be interesting to find out, but the one advantage the new players do have from the start is fresh technology and unconstrained thinking.Equally, they have no cost overheads and therefore can compete more effectively on interest rates.Until they begin to seriously rationalize all of that high cost physical infrastructure, the big banks clearly cannot compete with these new digital start-ups, even with their millions of customers.

Therefore, the fight for the future of banking is going to be an interesting one between a host of new digital players and a few large banks that find it hard to change.Interesting times indeed.

Three Takeaways from FinTech Week


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New York is always teeming with energy and excitement. Every corner, every street, every person contributes to the hum of the city. There was extra buzz in the air with FinTech Week taking over New York last week with multiple events. I’m now sitting back home in Charlotte, reflecting on my time at the FinXTech Annual Summit and at Empire Startups’ FinTech Conference, and I thought it was important to share some takeaways with you—particularly if you couldn’t make it.

Meeting in Person is Always Valuable
We communicate in so many different ways with our customers, colleagues and friends so it’s easy to think we’re in constant contact, that a rapport is building. Additionally, we send most of our digital communications when we decide—we can pause, think, or not respond at all! We secretly like this control of the conversation. But no matter how many e-mails, phone calls, or text messages you exchange there remains no substitute for meeting someone face to face. Conversations are fluid, you must be in the moment. You can form relationships quickly and you learn a lot more about the person from the minute you say hello. That is incredibly valuable.

What I enjoyed about FinTech Week, and particularly the FinXTech Summit, was the smaller, focused audience. It wasn’t overwhelmed with booths, swag, and marketing; it was hundreds of people, not thousands. I think large conferences and gatherings have their place but when you look back at all the events you attend, how many enable you to meet most of the attendees?

Reader takeaway: Look at the second half of 2017 and search for some more focused events to add to your calendar that enable you to learn and meaningfully connect with the presenters and attendees.

We’re Just Getting Started
Fintech is still figuring out the best path forward, which is a good thing! There is so much activity happening here and around the world (which you shouldn’t ignore). Inevitably, some people are just trying to ride the fintech wave. The crowd at FinTech Week was genuine in its desire to bring fintech innovation to market and to consumers.

There is a common tension in the fintech community and last week was no different. Everyone is excited and understands the potential. Many I met already are working towards the future. The big industry change is always tomorrow, not today. Well, that’s OK. Doing something hard, like changing the financial service industry, takes time.

Most of the 5,000-plus banks in the U.S. are just beginning their journey to digital transformation. Industrywide change doesn’t happen overnight-particularly in financial services. While some may find that frustrating, I find it exciting. It means that every financial institution getting started today has more products, services and industry knowledge from which to leverage and learn. The financial services ecosystem is only going to get better-and that is exciting!

Reader takeaway: If you think you’ve missed the fintech opportunity, you haven’t. We’re all experimenting with how to better serve our customers and there is plenty of room for improvement.

The Need for Action
Do something. Take the first step. Get involved and start implementing new ideas to improve the lives of your customers and employees. The initial stages of learning or doing something new make you feel dumber, not smarter. It makes you realize there is so much you don’t know. This is particularly acute if you’ve been in the industry for a long time. Don’t worry; this phase passes as you continue to familiarize yourself with the technology, new ideas and potential of fintech.

Financial services and banks enable people to invest for the future, buy a house, start a business and get an education. Fintech’s promise is to enable financial services to continue to meet the needs of their customers with a secure, delightful experience that fits in their daily lives-not takes them away from it.

Reader takeaway: Get to it. Next time, you can teach the audience what you’ve learned from fintech.

A week after FinTech Week, I am excited to get back to work helping people discover and engage with fintech. I implore you to go meet some people, find a customer problem to solve, and do something about it.

How Community Banks Can Create a Culture of Innovation


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Historically, customer convenience has always been the driving factor in choosing a bank. However, the way we define convenience is changing. Previously, it meant the proximity of bank branches to the customer’s daily route. Factors like customer service, product differentiation and knowledge were also important, but usually the more branches a bank had in convenient locations, the more customers it had. Even today, in most major cities the banks with the highest deposit share are those with the largest retail branch networks.

Times are changing and technology is a great equalizer for community banks. As consumers continue to decrease their use of cash and checks, so has the value of large branch networks for cashless customer segments like professional services. Today, customers seek technologies such as mobile banking, mobile deposit, remote deposit scanners and ACH platforms to manage their banking needs. In their mission to serve their communities, community banks should strive to meet the product needs of their customers as well. Whether your community is defined as blueberry farmers in Maine or multifamily landlords in Boston, banks can integrate technology into the daily lives of their customers to enhance their banking experience while redefining the meaning of convenience.

Founded in 2002 with $6 Million capital, Leader Bank has grown to $1.2 Billion in assets with 265 employees and seven full-service branches in the greater Boston area. Some of our more recent new product initiatives include ZRent, an electronic rent payment technology for landlords that was launched in 2015 and which automates the rent collection process. ZRent currently has 3,000 users and processes over $24 million in rent payments annually. Partner banks join the ZRent network in order to expand these rent payment capabilities to their clients and attract property owner clients. And in 2016 we introduced an automated loan notification system which updates borrowers on their loan statuses as they move through the underwriting approval process.

Over the last four years we have learned some key lessons in introducing new products within the community bank environment. These insights might be helpful to other bankers. The traditional product development cycle has an emphasis on the “great idea” and launching it in a “big way.” This approach may work well for building real estate or other things in the physical realm, but not necessarily for a financial or technology product:

We have adopted a different approach to the product innovation cycle that is more appropriate for financial products within community banks.

Identify Customer Problems by Listening
Instead of putting significant resources towards focus groups and brainstorming sessions to come up with solutions to serve our communities, we propose just listening to your customers with an open mind. “Listening” to customer problems means paying careful attention to the questions and comments that our customers mention in their day-to-day interactions with us. The key is creating a tight feedback loop between customer service, who receives the customer suggestions and the decision makers that create the solutions.

Learning and Research
Next we research each problem to determine whether it applies to our general corporate strategy and if we can offer a valuable solution. Then, instead of hiring a team to tackle the problem, we engage employees with downtime to actively contribute to research. We find that our employees are a great demographic representation of the communities we serve and can teach us a lot about the customer experience we are trying to improve.

Go Small and Go Live
If the research is positive and we have a solution, we will quickly launch a basic prototype of the solution. We call this “go small and go live.” Going small allows us to launch a basic solution without requiring a large budget. This provides great flexibility to factor in customer feedback and continuously improve the concept until it hits the mark.

We employ a concept of “stretch” to move projects forward without the need to formally request a budget for these initiatives. We do so by providing highly-motivated employees with the opportunity to take on additional projects. This type of “stretching” has multiple benefits including higher employee engagement and development of employee skills with no additional costs for the organization.

Tweak, Tweak, Tweak
At this point, feedback on your product is critical to its development to ensure that it will fully meet customer needs. Your team must place an emphasis on receiving customer feedback through any available channel, including surveys, customer phone calls and in-person meetings. From there, a tight feedback loop from the customer service people to the product managers is critical.

Scale and Automate
Once your product has received enough iterations of feedback and tweaks to validate that it meets a proven customer need, it is time to scale and automate. At this point a project manager should seek a budget for marketing, sales and the automation of time-consuming manual back-office tasks. Since the product has been thoroughly tested and used by a beta group of customers and employees, there is enough history to create a realistic return on investment pro forma that can prove to the finance team that investment dollars will not be wasted.

Finding a good idea is easy if you keep your eyes and ears open and listen carefully. Be cost efficient by using existing resources to get a minimum viable product to the market. Once you have established the value of the product and have results to support your claims on a smaller scale, you can seek additional funding to expand and scale the product’s capabilities.

The Year of the FinTech Rooster


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One of my key forecasts for 2017 is that the fintech buzz will continue, but not in the United States. We need to look to China instead. This is fairly obvious as that country saw the biggest rise in fintech investments in 2016, while investments in the U.S. cooled off. This is pretty well summed up in Citigroup’s Digital Disruption report. The second edition just appeared, and opens with:

The rise of the Chinese dragons reflects a unique combination over the past decade of incredibly rapid digitization and the simultaneous rise of the Chinese mass middle class, along with poorly prepared incumbent financial institutions facing off against entrepreneurial e-commerce and social media ecosystems. It is no surprise to us that China accounted for over 50 percent of total fintech investments globally in the first nine months of 2016 and was the only major region where fintech investments increased in 2016–in fact doubling in China in the first nine months of 2016 versus the same period in 2015.

Most notably, China saw one of its fintech giants emerge on the world stage as Alibaba—the country’s largest online e-commerce company—went global. Payments powerhouse Ant Financial (once a subsidiary if Alibaba just as PayPal was once a unit of Ebay) announced that it seeks European and American clients using its AliPay service. And Alibaba founder and Executive Chairman Jack Ma has risen to the same heady heights as Amazon founder Jeff Bezos, or even higher if this year’s World Economic Forum in Davos, Switzerland is anything to go by. Ant is already growing at a phenomenal rate, having gained about 100 million new users in 2016, which took its total above 500 million—or nearly 10 times larger than the world’s biggest banks. Its ambitions don’t stop there. In an interview with CNBC at Davos, Ant Financial CEO Eric Jing said that “we have an ambition to be a global company. My vision (is) that we want to serve 2 billion people in the next 10 years by using technology, by working together with partners _ to serve those underserved.”

The company has never been understated in its ambitions—but to its credit has realized most of them. This is because Chinese internet giants like Tencent, Baidu and Alibaba started in a very different place compared to American internet giants like Facebook, Amazon and Google. The American companies formed to replace old institutions like bookshops. They had a strong, integrated financial system in place, and a well ordered commercial structure. When the Chinese firms began, there was nothing in place to replace. Sure, there were big banks, but these were state owned and had little focus upon customer service or innovation. That has all changed in the last 20 years.

Maybe that’s why, when the chairman of one of the world’s biggest banks was asked recently how technology would change finance, he pointed to the rise of Ant Financial. The veteran chairman—who was not willing to be quoted by name—noted that the Chinese group had acquired a “huge amount of data” and “a great ability to make credit decisions.” The tone of jealousy was hard to miss.

This is because the Chinese internet giants began with a clean sheet of paper and have expanded across China and now the world with their innovative designs. That design began with commerce and communication—Alibaba started as a platform for mum and pop stores to sell their wares—and has expanded into a social and financial ecosystem that can serve all needs through a mobile app. Alibaba and Tencent run not just an internet service, but a payments platform, a social network and more. It is all embracing and fully networked, far more than anything seen outside China.

Between the data analytics that can be applied in that ecosystem, deep learning and contextual commerce capabilities, it’s no wonder the banks are jealous. They should also be concerned, as the Chinese payment model is bound to expand globally and then be copied by the likes of Facebook and Amazon. Happy Chinese New Year!

Is Amazon Go Safe from Mobile Fraud?


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With the introduction of Amazon’s new brick and mortar grocery store, Amazon Go, standing in line to pay at the cashier is a thing of the past. At Amazon Go stores, the customer’s mobile phone detects what items they have placed in their basket, and simply bills their account when they exit the store using a sensor. This is a massive shift in the way commerce is experienced. Despite the novelty in innovation, with the prevalence of identity theft, mobile fraud and credit card phishing, Amazon Go needs to provide consumers the assurance that this new, innovative payment experience is safe and secure.

Here’s how the new Amazon Go stores could impact the security of credit cards in existing Amazon accounts, as well as the potential impact of “invisible payments” on the banking industry, and what Amazon Go will likely do to enhance fraud prevention and mobile payment security.

Securing Existing Amazon Accounts
If you look at the total number of existing Amazon users, the platform has roughly 1 billion total credit cards on file. That’s a potentially huge security concern for Amazon Go, since fraudsters will likely try to phish those accounts. Those seeking to commit fraud in an Amazon Go store are more likely to sign up for a new Amazon account with a stolen credit card, since it is easier than penetrating Amazon’s existing security network. Rodger Desai, CEO of Payfone, illustrates this point:

“Whenever you buy something online, merchants and their processors look at where you’re sending the goods. When fraudsters change the “Ship To” from the address your bank has on file, it’s a clear signal that something may be amiss and requires further vetting. With Amazon Go, those traditional warning signals go out the window. So I can just login as “you,” walk out with stuff, and bill it to you. I think it further exacerbates a very weak identity authentication system. This is true for omni-commerce in general. Buying online and picking up in-store has the same new vulnerabilities.”

Amazon Go will need to utilize various methods to prevent mobile fraud. Technologies are being developed that analyze how people walk and hold their phone as they move in and out of the payment gate. After establishing a baseline for each customer, the software can then spot potential abnormalities as people exit the store and alert as potential fraud.

The Future of Invisible Payments
Amazon Go is attempting to set a standard for invisible payments that could then be applied to different industries and scenarios. What banks need to recognize is that there’s an underserved demographic of people for whom every second of the day is precious. A parent who would rather spend time with their children than wait in a grocery line, or a student who could squeeze in a visit to the gym if they didn’t spend so much time shopping. While the internet saves consumers money by giving them access to price comparisons, invisible payments (like the Amazon Go model) via mobile save people time.

It’s worth noting that invisible payment adoption probably won’t be equally distributed across the board; the older generation might not see that much use for it and prefer the perceived security of paying at the cashier. It is the younger demographic, and on-the-go professionals, who will be the most impacted by invisible payment technology moving forward. The key, Desai emphasizes, is establishing trust with the consumer and being “very conscious of how you’re supporting them” despite the risk that can accompany this payment experience.

Fraud Prevention & Mobile Security
A major security issue will be the provisioning of new accounts, where people might purchase a stolen credit card number on a black market website, then set up a new Amazon Go account on a burner phone to make purchases.

It remains to be seen how Amazon Go will cope specifically with this challenge, but there is an opportunity for banks and fintech companies to play a role in both identity fraud and mobile intelligence. Purchases made on phone numbers and/or devices that have only existed for a couple of days might trigger a fraud alert, for instance. It will be this familiarity with consumer purchase tendencies, and established track records with phone numbers and devices, that Amazon Go will likely use to detect fraud. At the end of the day, verifying mobile identity will be the critical authentication factor for Amazon Go.

Core Provider Ranking: FIS Satisfies More Bank Executives


core-provider-12-30-16.pngBank executives don’t exactly give their core providers a ringing endorsement in Bank Director’s Core Provider Ranking, conducted in September and October 2016, particularly when it comes to these companies’ willingness to integrate with third party applications and their ability to offer innovative solutions.

Eighty-six executives, including chief executive officers, chief information officers and chief technology officers, rated the overall performance of their bank’s current core provider, and within individual categories that explored aspects of the provider’s service to the client bank, on a scale of 1 to 10, with 10 indicating the highest level of satisfaction. An average score was then calculated based on the individual ratings. Participants were not asked to rate other core providers. The executives surveyed represent banks between $100 million and $20 billion in assets. Forty percent of respondents indicate that Fiserv is their bank’s core provider, while 26 percent use FIS and 19 percent Jack Henry. Sixteen percent indicate that they use another provider.

While respondents express some disappointment in what is likely their biggest vendor relationship, one core provider does come out on top.

#1 FIS

Average overall score: 7.18

According to 67 percent of its customers, FIS, headquartered in Jacksonville, Florida, is the only core provider that keeps pace with innovations in the marketplace.

FIS has been the most active acquirer of the big three core providers. David Albertazzi, a senior analyst at Aite Group, says FIS has a great track record of acquiring and integrating innovative companies into the firm’s suite of products. Beginning in 2012, FIS has acquired six firms, according to crunchbase, a data firm that tracks the technology sector. These include two compliance solutions, a payments technology company and a mobile banking solution. Its most recent acquisition was the software firm SunGard, in 2015.

FIS features nine different core systems in the U.S. The company came out on top within all individual categories but one, rating highest for being a cost effective solution, communicating with clients about new products and updates, providing high quality support, offering innovative solutions and for the company’s willingness to integrate with third-party applications.

#2 Jack Henry & Associates

Average overall score: 6.63

Jack Henry, based in Monett, Missouri, came in just behind FIS in many of the individual categories, but rated highest of the three when it comes to being easy to contact and responsive when issues and problems arise. Albertazzi says customer service is a core tenet for the company, and Jack Henry regularly measures how well its IT and support staff are performing. Those efforts are clearly recognized in the industry.

Jack Henry offers a more streamlined product selection compared to FIS and Fiserv— according to Aite, just six core systems. Recent acquisitions include Banno, in 2014, a mobile account platform, and Bayside Business Solutions in 2015, which expanded the provider’s commercial lending suite.

#3 Fiserv

Average overall score: 4.97

Brookfield, Wisconsin-based Fiserv features 18 core systems, according to Aite—the most of the three core providers. That variety, along with its ubiquity in the banking space—Fiserv serves one-third of all U.S. banks and credit unions—may account in part for its low rating.

Client perceptions of their core provider’s performance can be muddied by several factors, including the age of their core system, says Albertazzi. The client bank may be loath to take on a conversion, and instead remain on an old system that the provider is no longer fully supporting. Bank Director did not rank individual systems, but rather the companies’ performance overall. A client running an outdated, basic core would be more apt to criticize a vendor than one using a shiny new system tailored to integrate with the latest-and-greatest fintech solution on the market.

If acquisitions have the potential to jumpstart innovation for legacy core companies, Fiserv could see a boost soon. Fiserv has been a significantly less active acquirer in recent years, compared to Jack Henry and FIS, with just one acquisition in 2013. But Fiserv recently acquired Online Banking Solutions, an Atlanta, Georgia-based provider of business banking technology, which promises to deepen Fiserv’s relationships with commercial banks.

As a group, other providers averaged a score of 6.07, just above the overall average for all providers of 6.02. One-quarter of retail banks could end up opting for startup providers for their online and mobile banking solutions by 2019, predicts Stessa Cohen, research director at Gartner, a research and advisory firm. Currently, 96 percent of banks rely on their core provider for services outside of core banking, according to Bank Director’s 2016 Technology Survey. As banks open up to other technology vendors, it’s possible they’ll lessen their dependency on the legacy core providers, and even open up to newer core solutions.

Fintech Action Cools in U.S., Soars Elsewhere


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Looking back over the last year, it is apparent that the fintech industry has become mainstream just as fintech investing cools. What I mean by this is that fintech has matured in the last five years, going from something that was embryonic and disruptive to something that is now mainstream and real. You only have to look at firms like Venmo and Stripe to see the change. Or you only have to consider the fact that regulators are now fully awake to the change and have deployed sandboxes and innovation programs. Or that banks are actively discussing their fintech innovation and investment programs. Or that institutions are being created around fintech like Innovate Finance or the Singapore Fintech Festival. Fintech and innovation is here to stay.

For me, the biggest impact has been how busy 2016 has been. Each year is busy, but this year has been amazing. A great example is that I travelled to four continents in six days recently. That’s unprecedented and, a century ago, wouldn’t have been possible. Today, it’s easy. We just jump on and off aircraft and go. What is particularly intriguing for me—and telling—is where I go. After all, as someone at the center of fintech, where I go shows where the action is. In 2016, I’ve been to Singapore, New York and, most recently, London, which are the three fintech hubs for Asia, America and Europe, respectively. But I’ve also been to Nairobi, Hong Kong, Washington and Berlin, all key fintech focal points. Nascent centers in Abu Dhabi, Dubai, Bangkok, Kuala Lumpur also are on the radar. So, too, are are Mexico City, Sao Paolo and Mumbai.

In fact, what intrigues me the most is the fact that fintech has bubbled over in 2016. The latest figures show that U.S. investing in fintech slowed in 2016, while Chinese investments went up. And that is probably the most sobering thought as we head towards the holiday season. Fintech reached its zenith in the U.S. in 2016. Prosper and Lending Club started to have to answer some hefty questions about their operations, and there is no major new digital bank in the U.S. Meanwhile, Chinese fintech investments soared in 2016, and Ant Financial, which operates the Alipay payment platform for the Chinese Alipay Group, has become one of the most talked about IPOs of the year.

In other words, China, India and Africa are where we are beginning to see the most amazing transformations through technology with finance. China has more fintech buzz than anywhere at the moment thanks in large part because of Ant Financials’ innovations. India is doing amazing things with technology, and Africa has seen the rise of mobile financial inclusion that is changing the game for everyone.

The key here is to keep your eyes and ears open to change. Too often, I encounter people—senior banking people—who believe that developments in economies they see as historically poor being irrelevant. They don’t recognize that those historically poor economies are becoming presently wealthy and future rich. They are missing a trick.

In fact, I would go as far as to propose that the economies that were historically poor are the ones that are reinventing banking and finance through technology. They have no legacy and have no constraints, so they are rethinking everything. Eventually, their ideas will become things we all use so ignore them at your peril.

Happy New Year!