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Chase is using its Warriors deal to beef up Chase Pay offering

Chase is making a play to get into the music and ticketing business and may use its Chase Pay product to interact with customers in new ways and get more of their data.

The largest U.S. bank by assets inked a multi-year endorsement deal with Golden State Warriors’ star player Steph Curry in March of 2016; on Monday, it was named the official bank of the Warriors and it also has naming rights sponsor to the future home of the NBA championship team, Chase Center, opening in 2019.

“[Chase Pay] is not only a different way to pay; there’s a lot more information on you as a customer that will help us be more targeted” that Chase can gather through the app, said Frank Nakano, Chase’s head of sports and entertainment sponsorships. Nakano said it will “allow us to know that if you’re at a game five times in a month, we should push a special reward to you because we know you indeed were in the building and what you bought. It’s on us to make [Chase Pay] more enticing to the customer.”

Until now, it hasn’t been clear what Chase’s plans are for its Pay product. It hasn’t published any user numbers and it’s not obvious why customers should use it instead of Apple Pay, Samsung Pay, or the mobile app of one of its quick service restaurants partners that probably offers them some kind of rewards or loyalty incentive. Chase seems aware of this; it sponsored a research report conducted by Forrester Consulting that says for mobile payments to take off, retailers need to offer value beyond the actual payment at the point of sale that will bring more convenience to the customer or make them feel they’re getting something out of it.

Nakano said the Chase Center experience for Chase customers could borrow from that of an airline in the sense that people entering the arena will be able to upgrade their experiences upon checking in — upgrading their seats at a show or a game, offering a chance to visit the players after the game, getting to arrive through a special Chase entrance, being hosted in a VIP-like room, pushing more discounts on more things.

“You’ve checked in, you’ve been there, you’ve been spending money, so we’ll know you are a fan because of your presence in the building,” Nakano said. “You might get there and not realize you want something until these offers pop up. It makes it feel like we know you better. I think people expect that now — partners being more additive and not getting in the way of the experience.”

Citibank has staked its brand on that, making music and entertainment access through its longstanding partnership with LiveNation and sponsorship of the Global Citizen music festival part of its strategy. Chief marketing officer Jennifer Breithaupt has said that music is “part of Citi’s DNA” and that having these initiatives as part of its brand has forced bank marketers “be on the front lines with consumers” as customer banking relationships are deepened more and more in digital channels than physical branches.

A year ago it might have seemed like an ambitious marketing pursuit to get everyday people to think of banks as go-to resources for shows, sports events or even restaurant reservations. But the evolution of digital and mobile channels allows big old financial institutions like Chase to compete in that space if they want to.

“Digital and mobile has allowed us to be more timely,” Nakano said. “Part of the reason we do this is it’s something else to connect with our customers on rather than just product.”

To celebrate the their new deal, Chase and the Warriors are sending a giant golden basketball around to different spots in the Bay Area beginning this week for fans to take pictures, meet some players and cheerleaders and participate in small giveaways (think T-shirts and tickets). The “Golden Ball” will travel around until the first game of season, when they’ll celebrate last year’s championship. It’s all part of the build-up to the opening of Chase Center.

“Part of our philosophy is that we’re part of the community and were part of the team before Chase Center opened,” Nakano said. “We are present in the Bay Area we’re just showing that more.”

As much fanfare as there is around the Warriors, however, Nakano maintained that the real value for Chase comes from the nightly engagement with a community of passionate, loyal sports fans at a venue that hosts 200 events a year. When asked how Chase measures the return on investment of a sponsorship like that of the Warriors, he said the analytics team has created a “score card” to identify the value of an engaged customer — a collection of all of a customer’s touch points with the bank, from charge volume on tickets to concessions.

It also accounts for “brand lift” and community effect. There’s a community component to each of the bank’s sponsorships, he said.

“Sports and entertainment gives us an opportunity to engage customers with something they’re very passionate about,” Nakano said. “We use that passion as the core of everything we do and then we try to look at it as a fan.”

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‘Driving force’: Inside PayPal’s partnership strategy

PayPal seems to be going full Alipay, scooping up partners to create what looks like a comprehensive ecosystem of financial services.

Last week, the payments processing giant announced customers could use their PayPal accounts as a form of payment in the App Store, Apple Music, iTunes and iBooks. Customers can’t add PayPal to their Apple wallets, but they may be able to one day — that partnership would benefit both companies and PayPal probably doesn’t want to compete with cards because they need them to fund customer accounts. The payments processing giant did partner with Google though, in April, allowing Android Pay users to add their PayPal accounts as a payment form.

In October, PayPal also partnered with Facebook to allow users to send buy things through Facebook Messenger; and earlier this year it was reportedly in talks with Amazon about a payments partnership. And these are just the biggest companies. PayPal has forged several partnerships and acquisitions that allow it to extend its reach to small businesses and the underbanked as well as its core customer base of consumers and merchants.

“We had a lot [of partnerships] in the second half of 2016,” said Joe Gallo, a senior communications manager at PayPal. “In 2017, we’ve seen Google and Apple and I think that’ll continue. This is a driving force for us… we plan to continue to assign deals at that pace.”

PayPal has 16 million merchant accounts and 203 million consumer accounts. This year alone, PayPal has announced that customers will soon be able to buy things at physical shops with their PayPal balances through Android Pay, that it will extend a pay-with-Venmo option to PayPal accepting merchants by the end of the year and closed a huge deal with TIO that will bring 10,000 billers into the PayPal network. Its latest offering is a partnership with e-commerce platform WooCommerce and accounting software company Xero.

“PayPal’s strategy has been to partner, partner, partner promiscuously — and in this space, that’s the right thing to do,” said Brendan Miller, a senior analyst at Forrester. “They’re less concerned about their competition and are more about enabling great experiences for the entire ecosystem, and they know it’s going to bring them business when it comes to enabling PayPal at all these different touch points.”

Customer choice 
The key to customers’ hearts (and business) is choice. The industry is beginning to better understand the idea that there won’t necessarily be a winner in digital payments or that each new product doesn’t need to be a Venmo-killer to provide value and do well. Like credit and debit cards, customers will use multiple services when and where they best suit them.

“Consumers are using a lot of different methods so we want to offer them choice,” Gallo said. “We don’t want to say you have to use tap-and-pay because that becomes a barrier to entry. By offering to a series of others and partnering with credit card companies and issuers, we’re able to provide to Citi or Chase or Wells Fargo cardholders and have that breadth of portfolio that we can integrate.”

While most companies focus on either the consumer or the merchant side, PayPal’s customer spectrum includes them both. Apple Pay, for example, is very much a consumer proposition, meant to bring convenience to the Apple device owner. Until now, Apple has only supported credit or debit cards as a payment form. By implementing alternatives like PayPal would give Apple customers even more choice and freedom to pay how they like.

Until then, Apple will remain a significant merchant customer to PayPal.

“If a consumer can’t use a PayPal account in Android Pay and that’s their choice of in store payment, that’s a missed opportunity for us,” Gallo said of the Google agreement.

Building products with empathy
For a long time PayPal took a combative stance toward Visa and MasterCard, said Zilvinas Bareisis, a senior analyst at Celent. It tried to use bank accounts as funding sources as the card networks threatened to apply special charges and fees to services like PayPal.

“Six to nine months ago they buried the hatchet and said, let’s start working together,” Bareisis said.

Now PayPal is of the mindset that it needs to be ubiquitous, wherever the customer is. That’s very close to banks’ mantra these days. Also like banks, it’s also playing to the reality that money is an emotional topic for many people and when they need their financial institution, PayPal will give them the support they need.

“[Choice] is part of the strategy, but it’s also about helping consumers better manage their money over the long term and how that drive emotional loyalty,” Miller said. “If they can help consumers better spend, save and manage their money, which is emotional…Everyone is realizing now it’s not just the banks that’ll do that, try to drive that emotional connection with the consumer.”

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‘A new customer segment’: Inside Western Union’s refugee assistance program

Remittance giant Western Union is recognizing that refugee communities can be emerging economies in their own right.

The Kakuma refugee camp in Kenya has 164,571 registered refugees and asylum-seekers, according to the UN Refugee Agency, and more than 500 merchants: produce markets, coffee and tea shops, bars; hardware and electronics shops, clothing stores, bike shops. Most refugee camps operate as largely cash-based economies — an expensive and inconvenient reality.

Now, Western Union and Mastercard are working on creating a digital infrastructure model for refugee camps, with Kenya as their test bed, focusing on mobile money, digital vouchers and cards that remove the intermediaries and losses associated with in-kind donations, brings funds directly to beneficiaries and gives them some control over their financial health.

“Ninety plus percent of refugees will never be granted asylum,” said Maureen Sigliano, head of customer relationship management at Western Union. “A lot of these countries where the bulk of the world refugees are” — Jordan, Lebanon, Turkey — “are poor; hosting such large volumes of refugees puts a burden on those countries. If they have a little cash in their hand, they’re no longer a burden, they become a new customer segment.”

In most of the developed world, digital transactions generate data on customers that companies can use to evaluate their credit, create new services and bring new businesses and customers into the economy.

The idea is still in an exploratory phase, but the plan is to use Mastercard’s digital voucher program to provide chip cards to refugees and host community members. The cards would be loaded with points they can spend on everyday purchases and are designed to work on or offline so participating agencies, like the International Rescue Committee, for example, can monitor different programs.

They also want to incorporate more widespread use of Kenya’s advanced mobile payments — the shining example of how mobile infrastructure can bring underserved people onto the formal financial grid — inside the camps. M-Pesa, the mobile money transfer service launched in 2007 by telecoms giants Vodafone for Safaricom and Vodacom, is the largest mobile payments network in the world. It’s used by 90 percent of the country and Western Union already offers the option to send remittances directly into an M-Pesa wallet.

Other countries with large refugee populations don’t have the physical, financial or technological infrastructure to pursue a digital model, but assuming in a few years they could, Western Union is betting they’ll be able to apply what they learn in the Kenyan camps to others.

The problem with cash 
Refugees manage money in a number of different of ways, according to Gregory Matthews, deputy director of economic programs for cash initiatives at the International Rescue Committee. Most rely on receiving aid in cash, some use prepaid debit cards — but it can be hard to find an ATM; and some use money transfer agents like Western Union, whose fees can be hefty depending on the transaction.

“High fees are definitely a problem from an operations and efficiency perspective, but they’re also a reality,” Matthews said. “In places where we work, nothing else is available — that’s why they have high fees.” It’s possible to shift those fees away from the person receiving the funds, he added, but the IRC itself still processes a lot of bulk payments and has to swallow those fees.

How refugees handle money depends in large part on the local banking infrastructure. With its high mobile penetration, Kenya becomes the perfect test bed. And as more countries show interest in that kind of development, “working with refugees is increasingly an onramp to getting people to use mobile wallets,” said Matthews.

“Nothing is all digital or all cash, it’s a mix,” Sigliano said. “The word is evolving such that it’ll increasingly become digital, but not as fast as we’d like, so we have to make sure all options are available.”

From default to design
Western Union is 166 years old and operates in more than 200 countries; it was serving refugees “before people were talking about refugees,” Sigliano said. But in September 2015 a photo of a drowned Syrian boy sent tremors around the world. She identifies this as the day Western Union changed.

“We saw that photograph and realized we actually need to be more focused on this reality; it can’t just be by default, it has to be by design,” she said. “How is it possible that a company like Western Union who serves the immigrants of the world wasn’t taking a strong position on refugees when we are uniquely positioned to do so? How can we ever expect customer loyalty if we’re not loyal to them at a time like this?”

That’s when the company decided to work harder on financial empowerment, instead of just financial access. Of the billion of dollars being moved each year between government agencies and NGOs to refugees, some 90 percent is for in kind aid: food, clothes, books, tents. Just five to 10 percent is delivered in cash. And with procurement, transportation and distribution costs associated with it, it’s so expensive it’s a wonder no one has successfully tried to disrupt the system.

“On average the cost of delivering in kind aid is 50 percent,” Sigliano said. “You put a million dollars in and get $500,000 on the other end.”

It also creates a cycle of dependency. Refugees fall in line in to receive cash in an envelope and so far the global perception of them is that they’re “poor, dependent, hopeless people,” she said.

“What they need most is financial empowerment, dignity and opportunity. So when a refugee gets even a tiny bit of money and can decide to spend, save or invest it, it gives them back dignity, choice and allows them to take a little control of their lives.”

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As mobile payments expand, Chase Pay seeks to differentiate

Chase has been fairly quiet about Chase Pay, and is taking a small guy approach that focuses on adding value through merchant partners.

After giving a year’s warning about its imminent launch and then finally going live last October, it still feels very under the radar. It’s not marketing on social media. It’s not pushing its mobile banking users to the Chase Pay app. It’s not drawing any attention to itself.

“We purposefully have been saying we want to mirror what some of the best apps out there have done and think like a small guy a little bit in that we want get the product right and roll it out as it’s ready to the right audiences,” said Dina DeMerell, chief marketing officer at Chase Pay. “We’ve been rolling out in a measured way as features and functionality and merchants become available.”

Today, Chase Pay’s largest merchants partners include Best Buy and Starbucks — both of which let users order and pay in advance. Shell stations will join the network later this summer, according to the bank, as well as HMS Host, Atom Tickets and Parkmobile later this year. Higher end (or just “fancy”) restaurant chains in the Level Up network — with whom Chase Pay partnered in December — have been added too now, like Sweetgreen, By Chloe, Georgetown Cupcake and Fika. Earlier this year, it acquired MCX, a retailer consortium with members like Walmart and Target.

However, while the main players are playing for customer convenience — why fumble through a wallet for a piece of plastic when a customer can just tap the device that’s probably already in hand? — Chase is looking to create new value propositions for customers: offers, discounts, things that motivate a person to actually break the old habit of paying by card and creating a new habit: paying by phone.

Through the app, available only to Chase debit and credit card holders, customers can order ahead from participating restaurants, receive discounts on their order and pay for it before they arrive to pick it up; they can pay for things using Chase Ultimate Rewards points or cashback rewards; in Denver and Boston, Chase Pay is testing a feature that will allow users to save money by rounding down their bill whenever they order ahead.

“Order-ahead is a feature that can get people to use to because it actually improves the life of the customer,” said David True, a partner at PayGility Advisors. “Just switching from swiping to scanning doesn’t change a customers life or make the experience any better.” And even if the food companies have their own apps, this gives users an incentive to use Chase instead.

Since Chase announced the Pay product in 2015, Samsung Pay has added in-app payments and location-based discounts and offers, Facebook Messenger added support for group payments between friends, Starbucks introduced an order-ahead capability in its app, China’s Alipay and WeChat both arrived in the U.S. Last week, Apple Pay revealed its digital debit card and peer-to-peer payment function through iMessage. This week Zelle is coming for Venmo users through their mobile banking apps.

“Other apps have been successful and done best when they grow up slowly and get it right first, before they start marketing,” DeMerell said.

However, competing with other mobile pay products isn’t Chase’s game. Similar to Apple’s p-to-p play, Chase Pay adds value to its 26 million existing Chase customers that are digitally active on the mobile banking app. “Customers are going to decide what they want to use most,” DeMerell said. “Right now it’s important we offer a Chase solution anywhere a customer might go.”

On some level, the Apple, Samsung and Android Pay products are in direct competition with Chase Pay. Chase is playing in that space too.

“We’re supporting those products actively, we want customers to select Chase as their payment method for apple or Samsung pay. If that’s the product the customer wants to use we want to make it easy for them to connect with Chase,” she said.

After all, the merchant appeal for providing Chase Pay as a customer payment option is that they pay lower transaction fees on Chase Pay purchases than on those made with other payment methods — like the Apple, Samsung or Android Pays.

“For all of these players trying to replace plastic at the point of sale are doing it, it’s an add-on,” said True. “[It’s] hardware in Amazon’s case, probably in Samsung’s too; collecting data in Google’s case. The merchant doesn’t want to turn away any form of payments. Chase isn’t going to push it on merchants because how they make money on merchants is otherwise. They’re not going to push people hard to use this Chase Pay app.”

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With job posting, Snapchat hints at reinvesting in payments

Remember Snapcash, the payments offering by the popular disappearing message app Snapchat that never seemed to take off? Now, parent company Snap is seeking a new payments product manager, suggesting a reinvestment in payments.

According to a job posting, Snap is looking for someone to build and manage relationships with financial services and technology providers, create new payments and commerce opportunities, devise long-term strategies for internal tools, data and revenue-related products and lead a team from a payment product’s conception to launch.

Snapcash was introduced in late 2014, and Snap hasn’t shared Snapcash users stats or transaction volume, so it’s unclear how it’s actually performing. Snap did not respond to interview requests by deadline.

“There is no indication of what kind of payment volume they’re doing, and it’s not a good sign,” said Ron Shevlin, director of research at Cornerstone Advisors and author of Smarter Bank. “When you’re successful, you like to tell the world what you’re doing, like Venmo does, because it’s impressive.”

Unlinke Venmo, which launched in 2009, Snapcash didn’t have a clear value proposition. The vanishing concept at the heart of Snapchat’s brand doesn’t translate well to financial transactions, and there was a mismatch between what people used Snapchat for and what they want from payments, Shevlin said.

“They want and need an electronic paper trail and Snapchat doesn’t do that,” he said. “The whole payments strategy from Snapchat was a bit of a stretch because it wasn’t a logical extension of what they were doing. It appealed to a demographic that was actually not making a lot of payments.”

Venmo, by contrast, easily became part of the lives of 20-somethings, who were eating out a lot and splitting the bill or had at least one roommate and could use it to split rent and other utility bills. It was free, easy and fun — three qualities not to be underestimated, Shevlin said.

Through a deal with Square, users can add a debit card, type a dollar amount into Snapchat’s text-chat feature, and hit a green “pay” button to send money to someone instantly. It’s effectively a white labeling of Square Cash. Your friend has 24 hours to accept the payment or else it’ll be refunded to you to make sure it didn’t disappear. Square declined to comment.

Snapchat’s search for payments expert suggests that something about the payments play is working, or that Snap is now trying to improve its value to users now that it’s gone public. Snapchat also faces mounting competition from Facebook, which hired PayPal president David Marcus in 2014 and launched payments through Messenger in 2015 and has lately been adopting Snapchat-like features for Facebook and Facebook-owned Instagram.

Facebook’s Instagram Stories has 200 million daily active users, Facebook reported earlier this week. Snapchat reported 161 million daily active users in February, an 82 percent decline since the launch of Instagram stories.

“[Snap] wants to become a more important platform in their customers lives and that Facebook hired the president of PayPal for its messenger platform clearly suggests these companies think payments is an important hole in their story,” said a payments expert at a U.S. bank, who asked to remain unidentified because employees aren’t allowed to comment on other companies. “Maybe they want to start e-commerce stores that Instagram has been quite successful in letting its users build.”

The source pointed to China’s WeChat as an example. Commerce is embedded deeply into the app, he said. U.S. platforms haven’t gotten there. They mostly allow people to talk, but not connect with businesses easily like WeChat does.

“Snap has always been the ‘fun’ platform,” the source said. “They need to get people to think of them as the core way to manage their life. Facebook with a public social graph has it, Snap doesn’t.”

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How Ant Financial is transforming the Chinese payments industry

Alibaba’s financial affiliate group is reaching out to the under-banked in China.

Alibaba’s Ant Financial Services Group has brought people with low income and limited to no credit history onto the financial grid by incorporating digital payments into existing e-commerce and social media platforms — a feat by any standards, especially as other markets, like the U.S., lag behind.

By using the customer data from those transactions, Ant has been able to give them access to other financial services its created that look a lot like typical core banking products — savings accounts, credit assessment and loans for consumers and small businesses — according to a report released Wednesday by the United Nations Better Than Cash Alliance.

“That Ant Financial is now able to analyze all that data and leverage the platform to extend loans to companies or individuals has had a big impact on how they produce new businesses,” said Camilo Tellez, head of research for Better Than Cash Alliance and the lead author of the report.

Ant Financial has basically found a way to scale financial access and wellness tools similar to existing apps in the U.S. either struggling to take hold or not really integrating with the other existing offerings – like the savings app Digit or micro investing app Acorns. But U.S. customers still largely pay with plastic, whereas mobile payments are so big in China that Ant can use transactional and other alternative data to create a true financial ecosystem. Friction around customer data is one of the biggest things in the U.S. keeping financial services siloed.

Ant Financial launched in 2014 and as of September 2016 had loaned $107.3 billion in loans to more than four million small businesses over its Alipay platform to date, according to the UN report. Grameen Bank, the Nobel Peace Prize-winning microfinance organization and community development bank, has lent $17 billion since its inception in 1976.

In China, 79 percent of adults have had a bank account at some point, according to the UN research, but only 10 percent of them have borrowed in the formal financial system and for them, their digital footprint of transactional data and payment behavior can add to their credit histories. The same is true of small businesses, which historically have had difficulty accessing credit or taking out loans because China’s major banks are so heavily focused on lending to state-owned enterprises. Sesame Credit, Ant’s social credit scoring system, now has more than 350 million registered users and 37 million small businesses that buy and sell on Alibaba Group marketplaces. Sesame examines customers’ credit history, financial behavior, contractual capacity, identity and users’ social networks.

There are also accessible ways for people to save and invest their money. Alibaba’s Yu’e bao lets customers invest the money “left behind” on digital wallets into a money market fund, earn interest on that spare change daily and still have the freedom to withdraw the funds when they want. Alipay effectively acts as a fund manager but is treated as a distribution service from a regulatory perspective. Customers can also use Yu’e bao funds to make e-commerce purchases. Yu’e bao, which now serves more than 152 million customers, grew its assets under management to $117 billion in 2016 from $29 million in 2013.

“You have all these different opportunities being created through these messaging platforms for younger entrepreneurs for small and medium sized enterprises,” Tellez said. “Hopefully some of that impact will be found in other markets and similarly be able to provide SMEs better access to capital.”

In China, merchants are required to accept mobile payments — each point-of-sale terminal needs to have near field communication technology built in — so they’re more accessible, user friendly and more people can take advantage of the opportunity, which allows more data to enter and flow through the system.

The closest thing to a social payments platform in the U.S. is Venmo, which stops at peer-to-peer money transfers. But Tellez says he sees Venmo 2.0 bringing the money transfer capability to merchants. While the U.S. has so far missed out on a lot of mobile payments opportunity the China has been using to the advantage of its financially excluded consumers, it’s possible merchant partnerships with Venmo or something like it could be how we actually start integrating mobile payments.

“As companies are leveraging more data analysis and they start looking at how to integrate wallet functionality into everyday activities, the wallets will become like silent pipes through which payments move,” he said. “We’ll see more partnerships happening where you don’t even recognize that you’re using Venmo to pay for things, it’ll be more seamless.”

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5 charts on how mobile payments are growing in China

Social payments in China now reach almost $3 trillion, according to a United Nations report released Wednesday.

China has been a world leader in mobile and social payments while the U.S. and Europe have been slow to adopt them. Payments on messaging and e-commerce platforms like WeChat and Alibaba are set to increase China’s GDP by $236 billion by 2025.

Now, the United Nations’ Better Than Cash Alliance is hoping other countries can emulate China’s models as much as possible, if only to unlock economic opportunities for people and small businesses the way China has.

“While China is a very specific country study, it does give us insight into some changes in behavior starting to happen across the global consumer segment, specifically regarding how people make payments,” said Camilo Tellez, head of research for Better Than Cash Alliance. “This ecosystem that has grown in China in an insular way has shown how we can take advantage of these social platforms and really use them to reach economics of scale.”

China learned early on what many financial startups and institutions are just starting to integrate into its own financial system: the keys to success include building payments services existing e-commerce platforms and social networks to draw new customers, making platform tools like application programming interfaces openly available to innovators for seamless integration and enabling universal access for users and businesses by developing ecosystems that function across various platforms, according to the report.

Here are five charts from the report that show the success of WeChat, Alipay and China’s payments market.

mpayments by value

Alipay and WeChat absolutely dominate mobile payments. WeChat payments rose to $1.2 trillion in 2016 from less than $11.6 billion in 2012. That’s an 85-fold increase in four years. Combined, Alipay and WeChat payments rose to about $2.9 trillion in 2016 from less than $81 billion in 2012.

WeChat payments are growing faster than its original messaging service. The Tencent subsidiary launched in 2011 and introduced its payments functionality in 2013. WeChat grew its active daily user base 43 percent to 806 million in 2016 from 195 million in 2012.

The rise of Internet and mobile phone use in China has had a lot to do with this. China’s shift to smart phones took place over the course of the last five years, according to the report. Mobile payments capabilities existed for most of that time, whereas in the U.S. and Europe, customers became heavily dependent on their phones before being introduced to that function.PSP market share- mobile payments

Integrating payments into WeChat has fueled its growth. In 2015, Alipay had 450 million monthly active users each spending $2,921 on average. In the same year, WeChat had 697 million users whose average spend was $568 on average and grew 168% to $1,526 in 2016.

Tencent’s partnership strategy allowed WeChat users to pay for basically anything – beyond just peer-to-peer payments – by establishing relationships with vendors and merchants which sometimes offer promotions for WeChat users in physical stores. Customers can use WeChat to top up their mobile phones, pay utility bills and book plane, train and movie tickets. You can even book a karaoke session with WeChat.

wechat use

Cards are still king. Despite impressive growth over a short period, just 12 percent of payments are done on mobile devices in China compared to 16 percent online, 30 percent in cash and 41 percent with cards. The sheer scale of the Chinese market, however, means these numbers get pretty big.

China retail consumption value by payment type

China UnionPay, the main domestic payment card clearing and settlement system, as 26.7 million merchants with electronic point of sale devices installed for card payments. Debit card penetration stands at 3.1 cards per person – and is increasing, according to the report. Although, every new POS device sold in China is required to come equipped with near field communication technology for mobile payments. Meanwhile, the U.S. has been in a chip versus stripe cards debate when most of Europe implemented chips a decade ago.

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How Chase is tackling mobile payments

Unlike many banks, Chase is focused on mobile payments, with its four-month-old Chase Pay product.

Late last week, it acquired MCX, a retailer consortium with members like Walmart, Target and Best Buy, its second mobile payments acquisition. Three months ago, Chase partnered with LevelUp, a mobile payments app geared at smaller retailers on the East Coast. The MCX deal is not surprising; Chase announced its Chase Pay product in October 2015, a full year before it became available to its customers, and said at the time that it would be using MCX’s technology.

“The [MCX] deal provides Chase with an important entry point into many of the largest merchants in the U.S., as well as the appropriate technology to integrate with those outside the MCX consortium, but does not guarantee its prospects for adoption,” said Jordan McKee, a principal analyst in 451 Research’s payments practice, in a report on the acquisition.

Retailers in the MCX network are some of the largest in the U.S., which should help drive Chase Pay activity. Those companies don’t accept rival wallets like Apple Pay, so Chase doesn’t appear to be in competition for consumers. However, Chase offers its businesses fixed pricing without the usual fees for interchange, merchant processing or network processing, which would make Chase Pay more appealing to businesses than its rivals, but consumer adoption of any mobile payments still hasn’t really taken off.

There are many reasons mobile payments haven’t reached their tipping point yet. They’re not seamless; placing a mobile device in exactly the right position can be trickier than it should be. It’s hard to make new payments technology run on old, rusty rails. The development of payments infrastructure, at least in the U.S., has been too slow to keep up with consumers’ current standards for fast and secure payments. As payments become increasingly sophisticated, hackers do too and new features meant to tighten data privacy in payments can only be useful for so long.

Existing mobile payments experiences are also inconsistent with each other and none are widely enough accepted to lessen some of the friction, which slows adoption down even more. Every experience is so different; there are different apps to log into, different passwords to remember; some let you authenticate with your fingerprint, some don’t; some pay functionalities live in their own apps, some require you to access it from inside a larger app. There isn’t one single experience where a user can pay multiple ways at a single location.

“The [MCX] consortium became so myopic in its obsession with circumventing the card networks’ transactions fees that it entirely lost sight of how CurrentC would add value for consumers,” McKee said. “Its strategy began to further unravel as members such as Walmart strayed course and launched their own mobile wallets.”

With LevelUp, customers who have downloaded the app link their credit or debit card and scan a QR code at checkout to pay for their items. Their purchases at a single retailer are bundled into a monthly bill that the customer pays later, thereby lowering card fees for the retailer. The payments process has not always been smooth, mostly due to the technology hardware involved.

However, LevelUp also offers a rewards scheme through its retail partners. They vary from one place to another but they generally award you a discount in a dollar amount after spending a certain amount at a given place – you could unlock a $10 credit at a favorite coffee shop after spending $80 there, for example. They’re small rewards, not like racking up points to use when purchasing your next big vacation, but it’s the kind of incentive that other mobile wallets need to change consumer habits, which is ultimately what will allow mobile payments to take off.

If Chase offered the kind of incentives LevelUp offers within the network of MCX merchants, it could bring what’s been missing in mobile payments to a scale.

Now if only Chase’s next payments move would move away from the old QR code.

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Riding the rails: Chicago’s route to a cardless transit payment system

The commuter of the future will hold out a smartphone to get on a train or bus without worrying about losing a transit card or lining up to reload. Goodbye tickets, passes and balance inquiries — everything will reside in an app.

The U.S. isn’t quite there yet, but South Korean commuters have been able to use Samsung Pay to board buses and trains for over a year. While most mass transit payment systems in the U.S. still use older technology to collect fares, Chicago is getting closer to cardless payments. Chicago’s experience shows how a phased transition lets customers adapt while allowing the transit system to absorb technical changes.

“You have to focus on customer and design your system to fit the customer experience,” said Sushil Rajendran, Americas central region general manager for Cubic Transportation Systems, the contractor that built the updated fare system for the Chicago Transit Authority.

The transformation of Chicago’s transit payment system was a $500 million undertaking. In 2013, it launched the Ventra card, a digital account-based contactless card for subways and buses. Customers could tap a Ventra card to pay for purchases and use it as a debit card.

In November 2015, the city launched the Ventra app, which allowed riders to buy passes or add credit for bus or subway rides, and purchase mobile tickets for commuter rail. Single-fare trips can currently be paid for through mobile wallets such as Apple Pay, Android Pay and Samsung Pay, and customers may also use contactless credit and debit cards of their own. While the Ventra card value can be added from within the app, the physical card is still currently needed to access transit. The city is now working on a virtual Ventra card that would operate within an NFC-capable smartphone — a shift that would allow transit riders to tap their phones before getting on trains and buses.

Chicago’s phased transition let customers catch up with the technology while giving the city’s transit infrastructure time to cope.

“If you try to bite everything at once, the supplier can’t deliver, and the organization is not likely to be able to handle it either,” said Michael DeVitto, who managed payment systems for New York City’s MTA for 27 years and is currently chief strategy officer at digital payments startup Waltz. “It gets disruptive if you say, ‘On day one, we’ll take out the existing card and put in a new system.’ In Chicago, they knew Cubic, so their process of layering allowed them not to be so disruptive.”

DeVitto said the process of building a new transit fare system is complicated by city contracting processes and technological hurdles, including old fare readers that are difficult and costly to replace.

Many transit companies use several financial institutions to process payments, adding a layer of complexity.

The recipe for Chicago’s success required both an immediate fix for a legacy system that would soon no longer be supported and an experienced contractor, DeVitto said. Cubic had the benefit of having worked with Transport for London on its payment modernization efforts.

“They were a partner of Transport for London, and they used a lot of information that they gained from not just the technical side but on the process side,” DeVitto said.

For Cubic, accommodating customers using a range of legacy products required marketing efforts, including websites and gate displays.

“We had a divided group [of customers] — we had a large group using paper tickets, some using magnetic stripe cards, and others used smart cards,” said Rajendran.

Despite Chicago’s successes, for most cities, the transition to a modernized fare system won’t be easy. According to John Vasilj, a managing director at Accenture who focuses on transit, contactless cards aren’t catching on quickly and many customers still rely on cash. And while bigger cities may be able to emulate Chicago’s example, a smaller center may not be able to easily attract interest from companies that would build a new fare system.

“Chicago has scale, as there’s a lot of people who are going to use that system, so a system you might buy for Chicago you might not buy for a smaller mid-American city because there’s not the volume of users,” said Simon Laker, vp consulting at Consult Hyperion, a firm that advised Transport for London on its process to allow riders to use contactless cards to pay.

“You can get the big systems integrators interested in Chicago, but they may not be interested in a smaller city — it wouldn’t be commercially viable for them.”

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Malauzai Software’s Robb Gaynor on digital banking, mobile payments, and chatbots

Rob Gaynor of Malauzai Software

We’ve been on kind of a kick here recently with the podcast, exploring trends in mobile finance and what’s driving mobile banking and retail payments. Today’s guest is Robb Gaynor, the chief product officer at Malauzai Software, a digital solutions provider for community banks and credit unions. The company counts as customers 450 of the 8000 or so financial institutions that fit this bill.

Robb is a self described “mobile banker” with almost 30 years experience in the space, beginning with a stint at Schwab in the pre-Internet banking days. Our discussion covers Robb’s experiences and observations about the evolution of self-service financial services, mobile banking usage trends, and even about what to expect from chatbots and conversational banking down the pike.

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Below are highlights, edited for clarity, from the episode.

Evolving self-service banking

I got into mobile banking when I started at Charles Schwab many years ago, when we were online but prior to the internet. We had people using private networks. But the concept of automating someone’s banking relationship was there. I got lucky because Schwab was undoubtedly one of the pioneers. We were doing interactive voice response and then ATMs came along.

I remember when someone like a Sapient or a US Web came in way back in the 90s to tell us we could use this new public network. We thought they were crazy — we paid GE millions of dollars to manage our private network. But they were right — you could secure the public network and do internet banking.  Fast forward from brokerage to Internet banking to mobile banking, and I’ve been in this space for 26 years.

Community banking’s challenge

You can imagine how hard it is for these small banks to compete against the larger banks with really deep pockets. These banks are small businesses — the average community bank has less than 100 employees. It’s important that they have the tools to succeed. We’re not alone in servicing this segment. There are a lot of great fintech vendors that enable community banks to do their jobs well and compete.

Digital banking insights

We love data and analytics and we do a lot of reporting. We aggregate our data across the institutions that use our software. We recently looked at transactions related to transfers of money within an institution and externally. People transfer money at very different rates — orders of magnitude in difference — based on the size of their screens. Bigger screens, bigger transfers. Android users are very different than iOS users. We also looked at the intent of transfers. We saw that half the transfers leaving checking went into savings and the other half went to spending. So, that’s interesting.

The world of mobile wallets

Think Starbucks versus Apple Pay. The world of mobile wallets seems to be divided between businesses offering payments and the Pays (Apple Pay, Android Pay, Samsung Pay). The business payment side is doing really well — one of every five payments at Starbucks happens over their app. The Apple Pay model is an aggregation model. All we know is that the Starbucks model is working, so we help banks offer their small business customers a payment app to use with their own customers. That’s our MOX Pay product.

Chatbots and conversational banking

The emergence of voice is going to impact digital channels. You’ll start to see a bunch of companies launching first generation products. There are two profound things that we hit on. The first is that conversational banking means that there’s going to be more than one question asked. A lot of Alexa apps are single dimensional. The other thing is that for the first time in history, we’ll start to use more than one device to interact with the computer. You’ll ask a question from one device and receive the answer on another. We call it the Star Trek Effect. It’s an interactive, parallel device experience.