Future FreakTechs & Trends Transforming Financial Services
Lee WetheringtonDirector of Strategic Insight
@leewetheringtonSeptember 30, 2016
© 2016 Jack Henry & Associates, Inc.®
Lee WetheringtonDirector of Strategic Insight
@leewetherington
© 2016 Jack Henry & Associates, Inc.®
…how the future
happens now.
Ethan and Liam.
Prepaid cardholders.
Mobile bankers.
Mobile wallet owners.
© 2016 Jack Henry & Associates, Inc.®
…but their CU
doesn’t offer
any of that.
© 2016 Jack Henry & Associates, Inc.®
© 2016 Jack Henry & Associates, Inc.®
© 2016 Jack Henry & Associates, Inc.®
Ethan tests “emergency
funding” text request on
his new card…
© 2016 Jack Henry & Associates, Inc.®
Liam reverses
“emergency funding”
for his Dad…
© 2016 Jack Henry & Associates, Inc.®
© 2016 Jack Henry & Associates, Inc.®
• Where We Are
• Payments Freaks
• Mind Freaks
• Fraud Freaks
• Future Freaks
• Voice, UX & The Via Negativa
Agenda
Where We Are
© 2016 Jack Henry & Associates, Inc.®
High Times for Credit Unions
SOURCE: Callahan & Associates’ 2nd Quarter Trend Watch; August 23, 2016
© 2016 Jack Henry & Associates, Inc.®
• Membership growing at its fastest rate (4%) since 2000
• Lending growing at a double-digit pace (10.6%)
• CU asset growth outpacing bank growth (7.6% vs. 3.4%)
• CUs see a 9% increase in interest income
• Non-Interest Income (NII) gap between banks and credit
unions is down to .35% compared to 1.11% 10 years ago
• Interchange income accounts for 42% of NII for CUs
Credit Union Trends 2016
SOURCE: Callahan & Associates’ 2nd Quarter Trend Watch; August 23, 2016
Historical Bias
The tendency to assume that the past
is a sufficient predictor of the future.
Blind-spot Bias
Failing to recognize your own biases
is a bias in itself.
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IT U
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: Leaders
hip
Report
”; C
alla
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ugust
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Tipping point: “Other Income” surpassed “Fee Income”!
Fees for value have surpassed fees for punishment!
SOURCE: “IN SEARCH OF NON-INTEREST INCOME: UNCOVERING INCOME TODAY AND
TOMORROW AT CREDIT UNIONS: Leadership Report”; Callahan & Associates; August 2016
© 2016 Jack Henry & Associates, Inc.®
• “Other Income”
• Card Interchange
• Mortgage Sales
Fees for Value Now Exceed Punitive Fees
• “Fee Income”
• Overdraft Fees
• Late Fees
But card interchange and card fees now make up
the biggest part (42%) of non-interest income (NII).
CUs’ NII is vulnerable to shifts in card revenue.
Payment Freaks
© 2016 Jack Henry & Associates, Inc.®
SOURCE: Nilson Report, December 2015, Issue 1077
Payment Shifts Thru 2019
© 2016 Jack Henry & Associates, Inc.®
CUs More Optimistic about Debit Growth
SOURCE: PULSE 2016 Debit Issuer Study Executive Summary
Issuers debit volume projections for 2016
© 2016 Jack Henry & Associates, Inc.®
CU DDA Acquisition/Attrition the Best
SOURCE: PULSE 2016 Debit Issuer Study Executive Summary
Average DDA acquisition and attrition rate (consumer and business)
29
U.S. consumer preference for debit cards declined to 41% in 2015 down
from 49% in 2013. Credit card preference held steady at 35%.
SOURCE: TSYS 2015 U.S. Consumer Payment Choice Study
“Many merchants have programmed their
POS terminals to only accept PIN on EMV
debit cards.”
Brandi GregoryCornerstone Advisors
“For every 5% shift from signature to PIN,
debit interchange will be reduced 20%.”
Brandi GregoryCornerstone Advisors
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: Leaders
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”; C
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tes; A
ugust
2016
Current Signature-to-PIN debit ratio is 66% to 33%.
© 2016 Jack Henry & Associates, Inc.®
• Debit card headwinds
• Delayed EMV deployment and growing false-decline rates are deteriorating cardholder experience
• Consumer preference for debit stagnating/declining
• Rising rates of Card-Not-Present fraud online
• Device-based mobile wallets dominated by credit cards
• EMV will accelerate signature-to-PIN transition
• Slow disappearance of POS payments
• Mobile-order-ahead-and-pay and BOLPUIS give card-on-file merchants more immediate control of payment
Debit Card Challenges Ahead
SO
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: P
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016 D
ebit I
ssuer
Stu
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xecutive S
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mary
Debit card enrollment in mobile wallets is anemic,
but half of issuers expect mobile payments to make up
25% of debit transactions within the next 5 years.
Average EMV dip-and-stay transaction takes 9 seconds.
Average human attention span has shortened
from 12 seconds in 2000 to 8 seconds in 2015.
Average goldfish attention span averages 9 seconds.
Credit card bias in growing card-on-file, MOA&P, and BOLPUIS schemes.
© 2016 Jack Henry & Associates, Inc.®
Mobile wallet ecosystem is fragmenting.
© 2016 Jack Henry & Associates, Inc.®
• Impact on mPOS?
• And the cash-
management services
that have developed
around mPOS?
No Headphone Jack?
Q: What’s the biggest hassle consumers face paying in a store?
A: Standing in line waiting to pay in a store.
Mobile Order & Pay Ahead
45
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© 2016 Jack Henry & Associates, Inc.®
BOLPUISBuy Online Pick Up In Store
© 2016 Jack Henry & Associates, Inc.®
The disappearance
of POS payments will
challenge issuers
and their wallets.
© 2016 Jack Henry & Associates, Inc.®
Social Media “Buy Buttons”
© 2016 Jack Henry & Associates, Inc.®
Turns out you
need interest
and intent.
© 2016 Jack Henry & Associates, Inc.®
Contextual
Commerce
2.0
51SOURCE: http://cunexusonline.com/autoxpress/
Will there be an opportunity to monetize faster payments?
Charging 1% for instant P2P.
Mind Freaks
58
“Adults under 35 have a savings rate of negative 2%.”SOURCE: Moody Analytics
50-60% of Generation Y
confess they have impulse
purchase problems…
and huge holes in their ears.
Myelin
61
© 2016 Jack Henry & Associates, Inc.®
So what’s the
answer to the
impulse problem?
63
Impulse Savings
64
65
66
67
Automated savings
Fraud Freaks
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: P
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nts
.com
’s“3
rdQ
uart
er
2016 G
lobal F
raud A
ttack Index”
© 2016 Jack Henry & Associates, Inc.®
Compromised SSNs Explode in 2015
2014 2015
Cards# of breaches 138 160
# of records 64M .8M
SSNs# of breaches 325 338
# of records 16M 164M
SOURCE: ITRC Data Breach Reports 2014 and 2015; www.idtheftcenter.org;
© 2016 Jack Henry & Associates, Inc.®
Issuers falsely declined $118B:
13X actual fraud of $9B
$9BACTUAL FRAUD
$118BFALSE
DECLINES
False Declines > Actual Fraud
SOURCE: Javelin Strategy & Research
© 2016 Jack Henry & Associates, Inc.®
• CNP fraud grows
• Driven by e-commerce growth and EMV shifting fraud from counterfeit fraud at POS to online card payments
• Issuers tighten authorizations in response
• Tighter authorizations generate more false declines
• Issuer losses from improperly declined transactions (plus reduced future spend from dissatisfied cardholders) outpaces fraud losses 4-to-1
• 40% of declined cardholders abandon cards
• Additional 25% reduce card usage
• 11% drop in cardholder spending 3 months after decline
• Spending remains 8% lower 6 months later
What’s happening?
SOURCE: MasterCard Advisors, Security Matters, “How Much Does a
Declined Transaction Intended to Prevent Fraud Really Cost?”
73
© 2016 Jack Henry & Associates, Inc.®
Voice-First
Ecosystem
Voice Commerce
A chat-based personal finance coach.
81
“How’s my July looking?”
The Futureof Everything
© 2016 Jack Henry & Associates, Inc.®
The Future? More Complexity, More Options
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MembersThe Distributed CU
Scenario 1
Scenario 2
Scenario 3
Scenario 4
The Better CU
The New CU
The Disintermediated CU
© 2016 Jack Henry & Associates, Inc.®
How to classify
fintechs?
SOURCE: Celent’s “BANKS, RETAILERS, AND FINTECH: REIMAGINING PAYMENTS RELATIONSHIPS PART THREE: THE FINTECH
PERSPECTIVE”; Zilvinas Bareisis and Gareth Lodge; January 2016”; Stephen Greer; November 2015
Attitude.
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Ste
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Novem
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Becoming
an FI
Fintechs by attitude toward financial institutions.
“What CUs need to create are platforms, not partnerships.”Ron Shevlin, Cornerstone Advisors
…but be careful.
“Expanding feature sets
result in products that
don’t have a core
experience.” Brian Prentice, Gartner
SOURCE: “The IT Industry’s 95% Problem”; by Brian Prentice; January 20, 2016
© 2016 Jack Henry & Associates, Inc.®
The Via Negativa
(the way of subtraction)
© 2016 Jack Henry & Associates, Inc.®
The way ahead is
not about adding
features, it’s about
improving experience
© 2016 Jack Henry & Associates, Inc.®
…and there’s even
an API for that.
What if you could make user experiences better by knowing your members’ emotional reactions?
Alexa, end the presentation.
© 2016 Jack Henry & Associates, Inc.®
Lee WetheringtonDirector of Strategic Insight
@leewetherington