Staying Relevant In The Payments Revolution

A tremendous level of disruption is occurring in the payments space today — and few banks have a strategy to combat this threat, according to Michael Carter, executive vice president at Strategic Resource Management. In this video, he explains how smart home technology like Alexa and Google Home is changing how consumers interact with their financial institutions. He also outlines three tactics for banks seeking to achieve top of wallet status.

  • Today’s Payments Landscape
  • Technologies to Watch
  • How to Keep Wallet Share
  • Threats to Community Banks

 

Defending Commercial Deposits From Emerging Risks

The competition for commercial deposits has become fiercer in the new decade.

The rate of noninterest deposits growth has been declining over the last three years, according to quarterly reports from the Federal Deposit Insurance Corp. The percentage of noninterest deposits to total deposits has also dropped over 250 basis points since 2016. This comes as the cost of funding earning assets continues to rise, creating pressure on banks’ net interest margins.  

At the same time, corporate customers are facing changes in their receipt of payments. Emerging payment trends are shifting payers from paper-based payments to other methods and avenues. Checks and paper-based payments — historically the most popular method — continue to decline as payers’ preferred payment method. Electronic payments have grown year-over-year by 9.4%.

Newer payment channels include mobile, point of presentment and payment portals. However, these new payment channels can increase the cost of processing electronic payments: 88% of these payments must be manually re-keyed by the accounting staff, according to one study. This inefficiency in manually processing payments increases costs and often leads to customer service issues.

Treasurers and senior corporate managers want automated solutions to handle increased electronic payment trends. Historically, banks have served their corporate customers for years with wholesale and retail lockbox services. But many legacy lockbox services are designed for paper-based payments, which are outdated and cannot handle electronic payments. Research shows that these corporate customers are turning to fintechs to solve their new payment processing challenges. Payments were the No. 1 threat that risked moving to fintechs, according to a 2017 Global Survey from PricewaterhouseCoopers.

Corporate customers are dissatisfied with their current process and are looking to use technology to modernize, future-proof, and upgrade their accounts receivable process. The top five needs of today’s treasurer include: enterprise resource planning (ERP) integration, automated payment matching, support for all payment channels, consolidated reporting and a single historical archive of their payments. 

Integrated receivables have three primary elements: payment matching, ERP integration and a single reporting archive. Automation matches payments from all channels using artificial intelligence and robotic process automation to eliminate the manual keying process. The use of flexible business rules allows the corporate to tailor their operation to meet their needs and increase automated payments over time. A consolidated payment file updates the corporates’ ERP system after completing the payment reconciliation process. Finally, integrated receivable provides a single source of all payment data, including analytics and reporting. An integrated receivables platform eliminates many disparate processes (most manual, some automated) that plague most businesses today. In fact, in one recent survey, almost 60% of treasurers were dissatisfied with their company’s current level of AR automation.

Banks can play a pivotal role in the new payment world by partnering with a fintech. Fintechs have been building platforms to serve the more-complex needs of corporate treasury, but pose a threat to the banks’ corporate customers. A corporate treasurer using a fintech for integrated receivables ultimately disintermediates the bank and now has the flexibility to choose where to place their depository and borrowing relationships. 

The good news is that the treasurer of your corporate customer would prefer to do business with their bank. According to Aite Research, 73% of treasurers believe their bank should offer integrated receivables, with 31% believing the bank will provide these services over the next five years. Moreover, 54% of the treasurers surveyed have planned investments to update their AR platform in the next few years. 

Many fintechs offer integrated receivables today, with new entrants coming to market every year. But bankers need to review the background and experience of their fintech partner. Banks should look for partners with expertise and programs that will enable the bank’s success. Banks should also be wary of providers that compete directly against them in the corporate market. Partnering with the right fintech provides your bank with a valuable service that your corporate customers need today, and future-proofs your treasury function for new and emerging payment channels. Most importantly, integrated receivables will allow your bank to continue retaining and attracting corporate deposits.

Preparing Cards for the Next Era in Payments


credit-card-9-3-19.pngAdvancements in payments technologies have forever changed consumer expectations. More than ever, they demand financial services that stay in step with their busy, mobile lives.

Financial institutions must respond with products and services that deliver convenience, freedom and control. They can stay relevant to cardholders by enabling secure and easy digital transactions through their debit and credit cards. Banks should digitize, utilize, securitize and monetize their card programs to meaningfully meet their customers’ needs.

Digitize
Banks should develop and deploy digital solutions like wallets, alerts and card controls, to provide an integrated, seamless and efficient payments experience. Consumers have an array of choices for their financial services, and they will go where they find the greatest value.

Nonfinancial competitors have proven adept at capturing consumers via embedded payment options that deliver a streamlined experience. Their goals are to gather cardholder information, cross-sell new services and extract a growing share of the payments value chain. Financial institutions can ensure their cards remain top-of-wallet for consumers by developing a digital strategy focused on driving deep cardholder engagement. Digital wallets are the place to start.

The adoption curve for digital wallets follows the path of online banking’s early years, suggesting an impending sharp rise in the use of digital wallets. A majority of the largest retailers now accept contactless payments, according to a 2019 survey from Boston Retail Partners. And one in six U.S. banking consumers reported paying with a digital wallet within the last 30 days, according to a 2018 Fiserv survey. Almost three-fourths of cardholders say paying for purchases is more convenient with tokenized mobile payments, a Mercator Advisory Group survey found.

Financial institutions can deliver significant benefits to consumers and reap measurable returns by leveraging existing and emerging digital tools, such as merchant-based geographic reward offers.

Utilize
Banks need to provide their cardholders with comprehensive information about how digital solutions can meet their expectations and needs. Implementing digital tools, providing a frictionless financial service experience and helping customers understand and use their benefits can empower them to transact in real-time on their devices, including mobile phones, computers and tablets. Banks’ communications programs are important to encourage adoption and use the implemented digital products and services.

Securitize
Banks will have to balance digital innovation with risk mitigation strategies that keep consumers safe and don’t disrupt transactions. Digital payments are highly secure due to tokenization — a process where numerical values replace consumers’ personal information for transaction purposes. Tokenized digital wallet transactions are an important first step toward preventing mobile payments fraud.

Mobile apps that enable cardholders to receive transaction alerts and actively manage card usage also significantly improving card security. Fiserv analysis shows use of a card controls app may reduce signature fraud by up to 53%, while increasing card usage and spending.

Banks need strategies focused on detecting and preventing fraud in real time without impacting card usage and cardholder satisfaction. This can be a significant point of differentiation for card providers. A prudent approach can include implementing predictive analytics and decision-management technology. And because consumers want to be involved in managing and protecting their accounts, they should have the option to create customized transaction alerts and controls. Finally, direct access to experienced risk analysts who work to identify evolving fraud threats can significantly improve overall results.

A recent analysis from the Federal Reserve indicated debit fraud is running at approximately 11.2 basis points, which compares the average value of fraud to total transaction dollars. In comparison, Fiserv debit card clients experience only 5.08 basis points of fraud.

Card issuers balance risk rules that help mitigate fraud against cardholder disruption stemming from falsely-declined transactions. These lost transaction opportunities can reduce revenue and increase reputational risk. An experienced risk mitigation partner can help banks strike the right balance between fraud detection and consumer satisfaction to maximize profitability.

More Engaged Users Are

Based on these average monthly debit transactions: Gray = Low 12.6, Blue = Casual (medium) 18.3, High = High 21.4, Orange = Super (highest) 28.4
Net Promoter Score = Measure of cardholder loyalty and value in institution relationship
Cross-Sold Ration = Percentage of householders with a DDA for longer for longer than six months but open to a new deposit or loan account in the most recent six months
Return on Assets = Percentage of profit related to earnings

Monetize
Banks can turn digital solutions into engines of growth by creating stronger, more lasting consumer relationships. A digital portfolio can be more than just a set of solutions — it can drive significant new revenue and growth opportunities. By delivering secure, frictionless digital services to consumers when and where they need them, banks can maintain their positions as trusted financial service providers. Engaged users are profitable users.

Digitize. Utilize. Securitize. Monetize. Achieving the right combination of innovative products and exceptional consumer experiences will enhance a bank’s card portfolio growth, operational efficiency and market share.

The Myth that Binds Banks to Their Payment Processors


payment-7-22-19.pngBanks are losing a heavyweight fight, one in which they did not know they were participating. Their opponent? The ever-growing giants of debit card processing in an ever-shrinking ring of industry consolidation.

Over the past few years, interchange income has surpassed all traditional types of deposit-based fee income, making it the number one source of deposit-based non-interest income. But in order to maximize that income, interchange network arrangements must be effectively managed and optimized. Executives must sift through misinformation to consider several critical issues when it comes to protecting interchange income.

Many bankers aren’t aware they can choose which vendors process their customers’ debit card transactions from the point-of-sale and believe they are forced into selecting the PIN-based debit card transaction network provided by their core or EFT processor. This couldn’t be further from the truth.

Debit card transaction networks have varying negotiable switch fees, increasingly complex expense structures and several types of incentive offerings for transaction routing loyalty or priority. Most importantly, these vendors offer differing interchange income pay rates; some even support PIN-less routing, which negatively affects the interchange income bank card issuers can earn for certain transaction types. This means bankers must thoroughly evaluate their options to find a partner that can generate above-average interchange profit.

Oftentimes a bank’s core or electronic funds transfer (EFT) processor offers the least-competitive option when compared to other PIN networks. Since the Durbin Amendment awarded merchants the power of the card transaction network choice, EFT processors are negotiating with merchants to get as many transactions on their network as possible. The processors do this by offering lower PIN and PIN-less rates than their competitors.

Of course, if a merchant can divert less of the purchase amount in interchange with the bank, then they absolutely will. The merchant simply chooses the transaction-routing options that are less expensive to them, and pays less to the bank. In this type of situation—where it appears that banks have little control—what can a banker do?

One way for bankers to exert influence is by limiting network choices on their debit cards. Banks should limit the PIN networks available for routing their debit card transactions to a maximum of two. At the same time, banks must select the best two-network combination to force the merchants’ hands, providing the best rates possible. This tactic tips the power scales back toward the card issuers.

Some processors are creating networks to compete with Visa and Mastercard for routing dual-message, or signature transactions. These signature-routing networks, being rolled out by PIN network processors, will likely be structured to appeal to merchants in attempts to win as many transactions as possible. As one might guess, this will further pressure bank income.

Most recently, it’s also been observed that several networks setup for ATM-only routing by their participating issuers were gaining PIN point-of-sale transactions from merchants. They did this by allowing PIN-less routing and simply being present as a network option on the issuers’ debit card network arrangement. Both of these tactics create confusion for banks, and build a case for closely monitoring network performance.

Banks participating in their core or EFT processor’s PIN network should take a close look at how their PIN-based interchange income has performed over the past two to three years. They should compare their current PIN income rates to the rate averages in the FED Interchange Study, fully considering the historical trend being reviewed. This can be a great first step for banks to regain some control of their interchange income.

The Great Payments Opportunity


payments-5-20-19.pngBanks have an opportunity to deepen relationships with their corporate customers facing payment challenges. One promising product could be integrated receivables solutions.

While most business-to-business payments are still done through paper check, electronic payments are growing rapidly. Paper checks remain at about 50 percent of business-to-business payments, according to the 2016 Electronic Payments Survey by the Association for Financial Professionals. But Automated Clearing House payments grew 9.4 percent in 2018, according to the National Automated Clearinghouse Association — a trend that is forcing businesses with high receivables volumes to look for ways to process electronic payments more efficiently.

Electronic payments create unique challenges for bank corporate customers. While the deposit is received electronically at the bank, the remittance and detailed payment information are typically sent separately in an email, document or spreadsheet. The corporate treasurer must manually connect, or re-associate, the remittance information to the deposit, which creates delays in crediting the customers’ account. As electronic ACH volumes increase, treasurers solve this problem by hiring more accounting staff to reconcile these payments.

Corporates also face added complexity from payment networks, which are becoming a more common way for large companies to pay their suppliers. While more efficient for the payer, this process requires treasury staff to log onto multiple payment network aggregation sites and download the remittance information. These downloaded files require manual re-association to the payment in order to credit the customer’s account, which requires adding more staff.

Corporates are also using mobile to accept field payments, like collecting payment on the delivery of goods or services, new customer orders or credit holds and collections. However, mobile payments again force treasurers to manually reconcile them. Moreover, most commercial banking mobile applications are designed for the treasurer of the business, with features such as balances, history and transfers. Collecting field payments needs to be configured so that field representative can simply collect the payments and remittance.

The corporate treasurer needs increased levels of automation to solve these challenges and problems. Traditional bank lockbox processing was designed for checks and relies on manual entry of the corporate’s payments and delivery of a reconciled file. This paper-based approach will be insufficient as more payments become electronic.

Treasurers should consider integrated receivables systems that match all payments types from all payment channels using artificial intelligence. A consolidated payment file updates the corporate’s enterprise resource planning system once these payments are processed. The integrated receivable solution then provides the corporate with a single archive of all their payments, rather than just a lockbox.

Right now, corporate customers are looking to financial technology firms for integrated receivable solutions because banks are moving too slowly. This disintermediates corporate customers from the banks they do business with. But almost 73 percent of corporate treasurers believe it is important or very important for their bank to provide integrated receivables, according to Aite.

This is an opportunity for bankers. The integrated receivable market offers many software solutions for banks so they can quickly ramp up and meet the needs of their corporate customers.

Bankers have a wide range of fintech partners to choose from for integrated receivables software and should look for one with expertise and knowledge of the corporate market. The solutions should leverage artificial intelligence and robotic process automation to process payments from any channel, include security with high availability and be easy for the bank and corporate customers to use.

How And Where Blockchain Fits in Traditional Banking


blockchain-12-26-18.pngMany banks haven’t found an efficient way to deal with issues like payment clearing inefficiencies, consumer fraud, and the general limitations of fiat currencies.

Blockchain, however, may be the go-to solution for many of these challenges.

Issues Traditional Banks Face Today
Traditional banks and financial institutions have faced some challenges for decades, but we have yet to see the technical innovations to mitigate or eliminate them, including inefficient payment clearing processes, fraud and currency options.

Inefficient Payment Clearing Processes
One of the biggest roadblocks that banks face today is how to quickly clear payments while complying with regulatory procedures. The number of payment clearing options available in 2018, is not different from the options available in 2008 – a decade ago.

In the U.S., for example, same-day ACH is likely considered to be the biggest improvement during this decade. Only in recent years have cross-border fintech applications emerged that reduce payment clearing costs and wait times. For the most part, we are still stuck with old architectures that lack innovation, efficiency and the data to make a meaningful impact on money laundering and fraud reduction.

Inability to Stop Fraud
Fraud has always been notoriously difficult to stop. Unfortunately, this remains the case even today. Fraud costs are so high in the US, that interchange fees paid by merchants are some of the highest in the world. Despite an increase of available identity fraud detection systems, banks are still unable to make a material improvement in fraud reduction.

For banks, this leads to financial losses in cases where funds are paid to the fraud victim. For customers, this can reduce trust in the bank. For merchants, it means higher fees for facilities, which creates higher costs for customers. Additionally, customers often wait to receive a new bank card. In 2017 alone, the cost the data lost to identity theft totaled $16.8 billion.

Limited Number of Currency Options
Fiat currencies are limited by geography and slim competition.

When we think about fiat currency around the globe, we have seen a steady move towards standardization. This presents risks for banks and consumers. For example, a heavy reliance upon a single national currency relies upon factors like economic growth and monetary policy.

Twenty-eight nations have experienced hyperinflation during the past 25 years. Not only did banks fail in some cases, but entire economies collapsed. Because there were no currency choices, the problem could not be easily avoided.

This process continues to happen in many locations globally.

Benefits of Blockchain Over Traditional Systems
There are ways blockchain can reduce or eliminate these issues for financial institutions.

More Efficient Approval Systems
When compared to traditional payment approval processes, many blockchains are already more efficient. Instead of waiting days for payments to go through clearinghouses, a well-designed blockchain can complete the verification process in minutes or seconds. More importantly, blockchain also offers a more transparent and immutable option.

With innovations like KYC (Know Your Customer) and KYT (Know Your Transaction) transactions conducted via blockchain, banks can be more capable of preventing finance-related crimes. This means traditional finance can more effectively comply with laws for AML (Anti-Money Laundering), ATF and more.

In addition, legitimate transactions can be approved at a lower cost.

No More Fraud
While fraud seems like a pervasive issue in society, this can be reduced using technology. Blockchain can change how people prove identity and access services.

Instead of having to wait to stop a case of fraud, blockchain can stop transactions before they ever occur. The Ivy Network will have smart contracts which will allow banks and financial institutions to review a transaction and supporting KYC and KYT before accepting the deposit. Because blockchain transactions are immutable, we could see a reduction in counterfeiting of paper currency and consumer products.

Increased Digital Payment Options
While blockchain has many use cases, this is one example of how technology can change finance and the global economy. In the early days of cryptocurrency, there was really only bitcoin. Now, there is a range of coins and tokens like Ivy that serve important purposes within existing regulatory and legislative frameworks.

One of the biggest misconceptions is crypto and fiat payment systems have to be direct competitors. By creating a blockchain protocol that links fiat and cryptocurrency, businesses and consumers can have more, better market choices and use cases for cryptocurrency.

At the same time, financial institutions can serve an important role in the future of digital payments and fiat-crypto currency conversions.

As financial institutions look to solve many challenges they face around payment clearing inefficiencies, consumer fraud, and the limitations of fiat currencies, blockchain is a viable solution. Financial institutions that fail to embrace blockchain’s potential will face heightened monetary and reputational risks, and miss opportunities for growth and innovation.

Zelle Costs Bankers Money, Venmo Can Make Bankers Money


payments-11-29-18.pngZelle, the personal payments platform developed by a consortium of large banks, is poised to become the most used P2P app by the end of the year—outpacing PayPal’s Venmo service, according to the market research company eMarketer.

But does that make Zelle a must-offer capability for the banking industry? Not necessarily.

eMarketer projects the personal payments market to grow nearly 30 percent in 2018, to 82.5 million people—or about 40 percent of all smartphone users in the U.S.

Zelle was developed by the likes of JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. to compete with Venmo, Square Cash, also known more simply as just “the Cash app,” and other up-and-coming third-party P2P services.

You can think of Zelle as the banking industry’s containment strategy—just like France’s vaunted Maginot Line in World War II that was supposed to keep out the German army.

The network of banks offering Zelle has grown to 161, but is a closed system where consumers at participating banks can send personal payments—for free, and in real time—to anyone at another Zelle bank.

One factor that probably accounts for Zelle’s fast growth was the decision to include it in each participating bank’s mobile app. So, if a customer’s bank belongs to the Zelle network, they are automatically a potential user.

While Zelle is a weapon that banks can use to beat back Venmo and Square Cash, the third-most frequently used P2P app, it does have its drawbacks. While Zelle is both free to the user and instantaneous, it costs the participating bank between $0.50 to $0.75 per transaction. So as Zelle’s transaction volume increases, so will each bank’s costs.

Charging users a transaction fee to offset that cost probably isn’t realistic since Venmo and Square Cash are free, although Venmo does charge $0.25 for instant transfers. A good analogy is online bill pay. It costs banks something to offer that service, but most banks don’t charge for it. They offer it for free because all their competitors do, and because it’s a hassle for customers to disentangle their finances from one bank’s online bill pay service and connect with another bank’s service, which can be a disincentive to switching.

Free online bill payment has become table stakes in retail banking, and P2P may go that way as well. But P2P transaction volume has yet to build to such levels that there’s a sense of urgency for all banks to offer Zelle today, lest they find themselves at a competitive disadvantage.

“Urgency means I immediately need to get Zelle. I don’t necessarily think that’s the case,” says Tony DeSanctis, a senior director at Cornerstone Advisors. “Why am I better off offering a product where I’m going to pay 50 to 75 cents a transaction to move money … and also pay the fixed costs to [integrate] it?”

There is, in fact, an argument to offering Zelle and Venmo, or maybe just Venmo. If a bank allows its consumers to include the Venmo app in their digital wallet and prefund the account, Venmo will pay them an interchange fee on every transaction. So while Zelle costs its participating banks money, Venmo offers them a small revenue opportunity to offset their costs.

Zelle is also a private network (which means other people can’t see your transactions) that is marketed to all demographic groups. Venmo, on the other hand, is a social payment network popular with younger generations who are among its biggest users. Richard Crone, CEO of Crone Consulting LLC, says banks are missing out on an important opportunity in social payments.

“A social network is not about [being] social,” says Crone. “It’s a marketing platform and it’s the most effective marketing out there because it’s word-of-mouth. It’s a referral. It’s peer pressure. And that’s how Venmo grows virally.”

Embracing Zelle and other non-bank payments options like Venmo, Square Cash, Apple Pay Cash and Google Pay could be described as a ubiquity strategy. Both DeSanctis and Crone argue that banks should accommodate a variety of payment options within their mobile apps that are linked to their debit and credit cards, just to stay relevant in the evolving payments space.

The problem is that when it comes to payments, most banks really don’t have a strategy. And hiding behind a virtual Maginot Line probably isn’t going to work.

Indeed, history is instructive. The invading German army easily flanked the Maginot Line, which now serves as a metaphor for a false sense of security.

Correction: An earlier version of this article stated that transfers sent over the Zelle app do not occur in real time. This is incorrect. We regret the error.

Four New Revenue Streams for Banks


revenue-10-10-18.pngCreating a healthy bottom line is the biggest goal for most financial institutions. If your bank can’t consistently turn a profit, you’ll quickly be out of business.

Maintaining a profitable bottom line requires a consistent flow of revenue. This can be difficult, especially for financial institutions that rely on both retail banking and enterprise customers to generate revenue.

Why is that? Because 40 to 60 percent of all retail banking customers are not profitable, according to a report by Zafin. Combined with the fact enterprise customers are consistently asking for a more robust product suite with high-tech payment options, turning a profit becomes difficult. Banks can alleviate the pressure by finding new ways of generating revenue that will improve the organization’s profitability.

Here are four ways you can create new revenue streams:

1. Reloadable Cards
If revenue has stagnated, it may be time to reinvigorate your product offerings. A good place to start for retail customers is reloadable cards. A report published by Allied Market Research, titled, “Prepaid Card Market – Global Opportunity Analysis and Industry Forecast, 2014 – 2022” predicts the global market for reloadable cards will reach $3.6 billion in 2022.

The benefits customers receive from reloadable cards are exceptional—fraud protection, no credit risk, and spending limits—and the profits financial institutions can reap are even better.

With reloadable cards, financial institutions can charge customers a variety of fees, including a fee to purchase and use the card, and a fee to withdraw funds for PIN-based transactions. Reloadable cards can also provide depository income.

2. White Labeling
White labeling can be a great way to generate new revenue streams by letting bank treasury departments resell funds disbursement platforms to their business customers. This makes payments more convenient for customers by speeding up and streamlining the process.

By reselling the right platform, banks can gain a competitive advantage by offering multiple emerging payment methods, such as virtual cards and real-time payments, to business customers. These high-tech payment methods are becoming more and more popular, helping financial institutions win new customers and retain established accounts.

3. Mobile Device Payments
The demand for mobile payment capability has been steadily growing since early 2000. Now, with digital natives like Gen Z entering the workforce, financial institutions have an opportunity to create mobile payment strategies that focus on customer satisfaction and retention.

This is a still an emerging space, but one that holds many possibilities for delivering products and services customers want and need. White labeling and reselling a funds disbursement platform, including mobile payment options, can help treasury clients in this area.

4. Improve Data Analytics
While not a revenue stream per se, analyzing data more effectively can help you identify new ways of increasing revenue unique to your business. For instance, if your analytics reveal many of your customers are small businesses struggling with treasury management, consider launching products and services that help.

The more you know about your consumers and the way they interact with your organization, the better equipped you’ll be to address their needs. Advanced customer data analytics will allow you to improve performance and add products in multiple areas of your financial institution, including:

  • Credit revolvers
  • Credit cards
  • Lending programs

Thoroughly analyzing customer data can also improve your ability to target new services and products to customers who want them.

Find New Products and Services that Appeal to Your Customers
Use your data and experiences with current customers to find areas where they’re struggling. Can you step in with a new offer that solves their problems? Options for improvement with existing customer accounts are the best new revenue streams for your financial institutions.

We’ve seen many banks succeed specifically by optimizing fee collections, delivering white-labeled products to improve customer convenience, and taking advantage of emerging payments technology. Use these revenue streams as a starting point, customizing them for what’s right for you and your customers.

Considering Conversational AI? Make Sure Your Solution Has These 3 Things


AI-10-9-18.pngThe pace at which consumers adopt new technologies has never been faster. Whether it’s buying coffee, booking travel, or getting a ride, or a date, consumers expect immediacy, personalization, and satisfaction. Banking is no different. According to a study by Oracle, when banks fall short of their consumers’ digital expectations, a third of consumers are open to trying a non-bank provider to get what they want – and what they want, increasingly, is a digital experience that’s smart, intuitive, and easy to use.

Conversational AI—a platform that powers a virtual assistant across your mobile app, website, and messaging platforms—is core to providing the experience consumers want. Whether you choose to build or buy a conversational AI solution, it needs three key things.

Pre-packaged Banking Knowledge
A platform with deep domain expertise in banking is what gives you a head start and accelerates time to market. A solution fluent in banking and concepts such as accounts, transactions, payments, transfers, offers, FAQs, and more, is one that saves you time training it about the basics of banking. Deep domain expertise is also necessary for a virtual assistant or “bot” to hold an intelligent conversation.

Your conversational AI solution should already be deeply familiar with concepts and actions common in banking, including:

  • Information about accounts – so customers can check balances and credit card details such as available credit, minimum payment and credit limit.
  • Information about transactions – so customers can request transactions by specific accounts or account types, amount, amount range (or above, or under), check number, date or date range, category, location or vendor.
  • Information about payments – so customers can move money and make payments using their bank accounts or a payment service such as Zelle or Venmo.

Human-like Conversations
Most conversational AI systems answer a question, but then leave it up to the customer as to what they should do next. Few conversational AI systems go beyond answering basic questions and helping customers accomplish one simple goal at a time, and that’s sure to disappoint some customers.

A conversational AI platform should be able to track goals and intents so bots and virtual assistants can do more for consumers. It should go beyond basic Natural Language Understanding and combine deep-domain expertise with the ability to reason and interpret context. This is what gives it the ability to help customers achieve multiple goals in a fluid conversation – creating a “human-like” conversation that not only understands what the customer is texting or saying but tracks what the customer is trying to do, even when the conversation jumps between multiple topics.

Platform Tools
Under the hood of every Conversational AI platform are the deep-learning tools. Effective analysis of data is at the core of every good conversational AI platform—understand how it collects and federates, builds, trains, customizes and integrates data. This will have a huge impact on the accuracy and performance of the virtual assistant or bot.

After you deploy the system, you want to be empowered to take full control of the future of your conversational AI platform and not be trapped in a professional services cycle. Make sure you have a full suite of tools that allow you to customize, maintain and grow the conversational experiences across your channels. You’ll need to measure engagement and continually train the virtual assistant to respond to ever-changing business goals, so you’ll want an easy way to manage content and add new features and services, channels, and markets.

Above all – is it Proven in Production?
There is a huge difference between a proof of concept or internal pilot with a few hundred employees to a full deployment with a virtual assistant or bot engaging with customers at scale in multiple channels. A conversational AI platform is not truly tested until it’s crossed this chasm, and from there can improve and grow with additional use cases, products and services and new markets.

During the evaluation, ask for customer engagement metrics, AI training stats, and business KPIs based on production deployments. Delve into timelines related to integration – are the APIs integrating with your backend systems fully tested in production? Understand how the system is trained to extend and do more. What did it take to roll out new features with a system already deployed?

If the platform has been deployed in production several times with several different financial institutions, you know it has been optimized and tested for performance, scalability, security and compliance. You can have confidence the solution was designed to work with your back-end and front-end ecosystem, channels and infrastructure. Only then has it been truly validated and proven to integrate and adhere to many leading banks’ rigorous and challenging regulatory, IT and architecture standards and technologies.

There’s just no way to underscore the value of production deployments as a way to separate the enterprise-ready from the merely POC-tested solutions.

Is It Time to Get Aboard the Zelle Train?


zelle-8-3-18.pngConsumers moved $25 billion in the first quarter of this year using Zelle, the peer-to-peer (P2P) real-time mobile payments service introduced late last year. That puts consumers on track to spend an estimated $100 billion through Zelle this year, a 33-percent increase from 2017. While this indicates an impressive level of growth, it is less clear whether consumer acceptance will be widespread enough to fuel mass adoption by the nation’s financial institutions. But bank leaders can’t ignore the important role payments could play in their organizations.

Few financial institutions offer Zelle to their customers. Zelle lists 113 financial partners, a fraction of the more than 10,000 U.S. banks and credit unions. Twenty-nine banks have launched the service so far, including the seven big banks that partnered together to form Early Warning, the company that owns Zelle. (The consortium also owned Zelle’s predecessor, clearXchange, which was deactivated shortly following Zelle’s September 2017 launch; Zelle’s transaction data includes clearXchange.)

The biggest banks hold the lion’s share of deposits—the consortium accounts for more than 40 percent of domestic deposits, according to an analysis of Federal Deposit Insurance Corp. data—so many consumers already have access to Zelle.

“P2P really works when all of your friends and family can use it,” says Jimmy Stead, the chief consumer banking officer at $31.5 billion asset Frost Bank. Frost was an early Zelle adopter, signing on with clearXchange in September 2016. He says customers love it, and use of the service has grown by roughly 300 percent over the past year.

Zelle is free for consumers and easily accessible through their bank’s online and mobile banking channels. (Consumers can use the Zelle app if their bank hasn’t launched the service.)

Early Warning’s efforts to generate buzz around the Zelle brand—most notably through a series of TV ads featuring Hamilton actor Daveed Diggs—help partner banks get their customers on board. And Zelle only has to convert existing bank customers to the service, while services like Venmo have to attract individual new users, notes Ron Shevlin, director of research at Cornerstone Advisors.

A lack of interoperability between payments services has dampened mobile P2P adoption by consumers, says Talie Baker, a senior analyst at Aite Group. “[Zelle] will be the only interoperable network for mobile P2P payments once all the banks get on board with it—and it basically is right now because of their partnership” with Visa and Mastercard, she says. Eventually, “a bank that’s not participating in [Zelle] is going to have a hard time being in business.”

Eighty-four of the financial institutions partnering with Zelle have yet to launch the service, and the rest of the industry is waiting in the wings. But implementation isn’t as easy as just flipping a switch.

“This is a very complex system—it’s spread across multiple banking platforms, multiple electronic data providers,” says Frank Sorrentino, CEO of $5.2 billion asset ConnectOne Bancorp in Englewood Cliffs, New Jersey. The bank plans to launch Zelle in August. A Zelle spokesperson confirms the payments system must be integrated with the bank’s core, which includes integrating messaging, and putting policies and procedures in place around risk management and customer support.

It’s interesting to note that the Zelle TV spots feature a diverse cast of actors, not just millennials. Stead says that adoption leans toward Frost Bank’s younger customers, but older customers are using the service, too. Cross-generational payments—a college kid getting rent money from mom and dad, for example—are common. This sets Zelle apart from the millennial-heavy Venmo, which doesn’t put funds directly into a bank account (users have a Venmo balance) and has a lower average transaction compared to Zelle.

But the payments space isn’t poised to end like Highlander, the 1986 Sean Connery film in which immortal beings fought until only one survived. Connery may have said “there can be only one,” but there doesn’t have to be—and there’s unlikely to be—one winner here. Venmo is also growing with consumers, with its social media-like feed, debit card and new partnership with Uber. “[Venmo is] hardly suffering as a result of the launch of Zelle,” says Shevlin.

In today’s competitive deposit market, payments should be a part of any bank’s core deposits strategy, says Shevlin. Services like Zelle can help keep deposits in the bank, while an institution that offers an outdated solution—or doesn’t offer one at all—may find its deposits lured away by a competitor, whether that’s a Zelle bank or a fintech account like Venmo.