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August 17, 2017August 18, 2017

How RBC is using a blockchain to overhaul its loyalty program

While every major bank, from BNP Paribas to Goldman Sachs, is investing resources in blockchain technology to solve problems in back-office areas like clearing, securities insurance and over-the-counter derivatives processing, RBC is going a different way.

The bank is looking at the technology as a potential solution to its loyalty program, in which points earned on credit card purchases can take eight weeks to post, forcing customers to wait that long to spend them.

“We see loyalty as a great use case for blockchain to allow us to provide customers more real-time access to rewards points to provide an almost Starbucks-like experience,” said Eddy Ortiz, vp of solution acceleration and innovation.

It’s a markedly different route than its competitors: Blockchain technology is inherently a pretty behind-the-scenes phenomenon. And for most banks, even if they started using blockchains, their customers probably won’t really notice.

Using blockchain technology would lower the amount of time (to seconds) RBC takes to process and post payments and points data. If it can bring real-time exchange to the bank’s merchant partners and consumer clients, it could also start letting customers spend their points at the point of sale.

“It benefits us internally to be more efficient in some of our processes, but that efficiency can directly translate to something the consumer sees,” Ortiz said.

Because most financial institutions still haven’t fully grasped how blockchains can improve their businesses and are still trying to understand its inherent complexities (despite how fast and how far blockchain research for financial services has grown), it’s not surprising that only 19 percent of them say they’re investing in it this year. Plus, there are other innovations in the industry that might seem vague and perhaps a little hyped, but whose benefits are easier to realize. That’s the lens through which all banks are looking at blockchain, according to Steve Ehrlich, lead analyst for emerging technologies at Spitzberg Partners.

“It is hard to argue that consumer-facing blockchain-based applications like loyalty programs are going to move the needle for clients more effectively in the near term than a new biometric authentication technology or chatbot,” he said. “Innovation departments need to show they’re being responsible stewards with their funds because they are competing for the money with other departments within their firms year after year.”

But Ortiz is optimistic that by proving the use case and solving the real-time issue in its loyalty program, other companies could follow its lead. He did not specify when RBC will come out of test mode but said it would be powering its rewards with blockchain “soon.”

RBC is a member of the R3 CEV consortium and “actively working with at least five” smaller blockchain startups internally.

In October, RBC also invested in SecureKey’s $27 million funding round along with its Canadian peers Bank of Montreal, CIBC, Scotiabank, TD Bank and credit union network Desjardins. They are all working together to create a digital identity tool that would let consumers verify their personally identifiable information for services like new bank accounts, driver’s licenses or other utilities on a blockchain-based platform.

“Our learning has been about how we use the technology contractually with other technologies to still benefit from the blockchain use but also allow us to make client lives easier,” Ortiz said. “We have evolved significantly.”

June 14, 2017June 16, 2017

Cheatsheet: What to know about Prime Reload, Amazon’s latest rewards program

Amazon introduced Prime Reload Tuesday, which rewards 2 percent of purchases back to Prime members who fund their Amazon balances with their debit cards.

The key updates:

To register for 2 percent rewards, users (they need to be Prime members already) provide their debit card number, U.S. bank account and routing numbers (Amazon will “sometimes route orders through your debit card instead of your bank account,” to complete the reload more quickly, it states on the website) and U.S. state driver’s license number.
Users top up their Gift Card Balance with their checking account or the debit card associated with the checking account. They get the 2 percent back into the Gift Card Balance at the same.
Purchases aren’t eligible for 2 percent rewards when shoppers reload using a credit card, even if it’s one of Amazon’s own branded credit cards.

The key numbers:

66 million Amazon customers in 2016 were Prime members, compared to 46 million the year before.
40 percent of Prime members spend more than $1,000 a year on Amazon (compared to just 8 percent of non-Prime shoppers).
Amazon offers two branded Visa Signature credit cards; one for Prime members that rewards 5 percent back and special financing options, one for non-Prime members that offers 3 percent back. Both were launched this January.
Prime subscription revenue was $5.7 billion in 2016, assuming 90 percent of Amazon’s “retail subscription services” revenue (which also includes audiobook, e-book, and digital video and music services). Under the same assumption, it generated $4 billion in Prime subscriptions in 2015.
32 percent of shoppers that own a store branded credit card are Amazon cardholders; Amazon ranks number 1 among consumers with store cards, followed by Target (30 percent) and Macy’s (24 percent), as reported by the Vyze Retail Credit Survey.

The analysts’ view:
Cherian Abraham, senior business consultant, Experian: “Amazon primed this move — no pun intended — to take place once the Prime customer base reached sufficient scale to make this economical for Amazon to bring to its Prime base. Reloading an Amazon prepaid account via a bank debit allows Amazon to keep the cost low and one-time, whereas for the bank it disallows revenue that it would have realized for every Amazon transaction — and it loses visibility on to these transactions. And a prepaid load off of debit is a far less risky proposition compared to its own branded credit. Further this move allows it to go to a new segment of customers who are Prime customers but don’t own a an Amazon branded credit card.”

Brendan Miller, principal analyst, Forrester Research: “When you add money from an outside account into a gift card account, that is often treated very differently by the consumer than money sitting in their actual bank account. There’s an emotional difference about it. It tends to get spent more readily than when it’s sitting in your bank account and people are trying to manage budgets… It also reduces Amazon’s card processing fees. Instead of me making a bunch of transactions on my credit card, I’m making fewer transactions because it’s being reloaded, say, once or twice a month versus the seven, eight, nine separate purchases I make each month on Amazon. Then I’m only paying with my card twice to reload it so Amazon’s transaction fees will be lower. Debit is always cheaper to process than credit.”

The big picture:
Forget the rumors about Amazon potentially buying a bank. Amazon practically is a bank. To date it has a foot in payments, cash, small business lending, consumer credit and now it’s coming for debit card users.

It’s not necessarily positioning itself to replace the existing banks, Miller said, it’s just another way for people to interact with their money at a time when consumers funds are becoming more and more dispersed. Too bad for banks, that naturally means they’ll be taking fewer and fewer deposits and eventually, engage less and less with their customers, who will be engaging more with service providers like Amazon.

“There was already a trend of bank card spend being consolidated inside apps and services, and we are seeing the downstream risk to banks who are aware of this trend but aren’t do anything to act on it,” Abraham said.

February 2, 2016

How Payoff is shifting the conversation about consumer debt to financial wellness

Scott Saunders is CEO and Founder of Payoff

What is Payoff?

Payoff is a leading financial wellness and empowerment company leveraging technology, science and personalization. We are working to change the status quo in consumer finance and help people cross the chasm from borrowers to savers, investors, and givers. We’re excited to have support and significant industry leadership from our impressive Board of Directors, including: Joe Saunders (former Visa CEO), Arianna Huffington (Huffington Post Founder), Mohamed El-Erian (former Pimco CEO), Sean Park (Anthemis Group Founder) and Jim Lane (former Goldman Sachs partner).

Why do you believe it’s a “next generation financial company”?

By taking a more personal and holistic wellness approach to their finances with Payoff, our Members gain insights to connect their behaviors, feelings and aspirations to an empowered path forward. For example, at Payoff we:

Use science to empower our Members: Our Chief Scientist, Dr. Galen Buckwalter, helped to develop the matching algorithms at eHarmony as their Chief Scientist Officer, and he’s bringing psychology to finance, ultimately facilitating positive behavior change and helping people make better financial decisions. Payoff has taken the hundreds of questions you might answer in a typical psychometric assessment and compressed them into a three-minute “gamified” online version that gauges your financial personality. Our assessment provides insights into “why” you spend vs. just focusing on “what” you spend (information you can already get from traditional credit reports).
Treat underwriting like a first date: Payoff doesn’t want to issue multiple loans to one person. Instead we want to understand people’s levels of motivation to really pay off their debt. As a result, Payoff has a significantly lower default rate than the industry average of 4%-5%. We’re also actively researching and building resources and tools to support motivated Members who don’t currently qualify for a Payoff Loan.
Offer Member Advocates: Based in Payoff’s Costa Mesa, Calif., headquarters, our Member Advocates provide personal support, guidance and a listening ear to our Members via a call, email or online chat. 86% of Payoff Members have opted in for 90-day check-ins following the initial welcome call from their Member Advocate.
Are the first marketplace lender to provide Members with free FICO® Score updates: Starting this month, Payoff will provide Members with complimentary monthly access to their FICO® Score (which are used in more than 90% of lending decisions in the U.S.). Members will see trending information impacting their score and educational resources. In a recent study, Members who paid off $5,000 in credit card balances using a Payoff Loan saw an average increase in their FICO® Score of 40 points.
Are a growing community: With a Net Promoter Score (NPS) of 80, Payoff Members are showing their desire to join our financial wellness movement and help us continue to build an even better and growing community. Payoff has been very positively reviewed within the industry’s leading sites, such as Magnify Money (A+ Transparency Score), NerdWallet (Best Customer Experience), ekomi (4.8 out of 5 stars), CreditKarma and the Better Business Bureau.

What is the biggest challenge you’re finding growing a company in consumer finance?

Breaking the status quo. Financial wellness is a new concept. The status quo is delivering traditional financial products and services that don’t help customers achieve success. At Payoff, we put our Members first and have their best interests at heart. We meet them where they are today, take the time to listen and understand them, and develop products and services that support their needs. For example, we focus on their most costly problem today – past credit card debt – and offer a refinance loan to help eliminate it instead of offering multiple loans to encourage new debt. We also offer our complimentary online Lift program that’s a hub of useful financial tools and tips.

How does Payoff balance the friction between “wanting users to become free of debt” vs. building a consumer credit card company that monetizes such debt?

We have a solid foundation and business model designed around the idea that when the customer wins, we win. If it were up to us, we wouldn’t call it a loan, because it’s really their goal to eliminate the credit card balances that they currently have, and we’re partnering with them to achieve that goal. The loan is really just one part of that relationship — and we issue a single loan to Members to pay off their debts, not second and third loans. Along their journey with us, our goal for our Members is to get them on their personal path from borrower to saver, investor and giver, and help them achieve their dreams.

How do you think about distribution? What does your funnel look like?

Our focus is currently on serving the U.S. market. We have an integrated marketing approach that includes direct response with supporting paid ads, social engagement, and direct mail. We’re also building a vibrant community of partners who share our values and want to introduce Payoff and our solutions to their own community members.

What’s in store for Payoff in 2016?

This will be the most exciting year ever in the journey of Payoff. Last year we helped thousands of Americans to begin their paths from borrower to saver as we refinanced credit card debt. We’ve also helped our Members improve their FICO® Scores by an average of 27 points. This year we’ll launch new solutions to help them continue that journey, understand themselves better and develop the level of peace that we should all be able to have with regard to money in our lives. We’ll also continue to innovate and explore opportunities that extend our reach and impact in support of our mission.