Wirecard’s Deirdre Ives: ‘Our customers are driving innovation’

Wirecard is a global technology group that enables companies to accept payments from all sales channels. The German company operates in 35 countries and in over 100 transaction currencies with connections to more than 200 international payment networks, including American Express, Alipay, WeChat Pay, Apple Pay and China UnionPay, among others.

With its acquisition of Citicard’s prepaid business in 2016, the firm is expanding its presence in the U.S. Deirdre Ives lead Citicard’s prepaid business and now is the managing director for Wirecard North America.

Deirdre Ives is our guest today for the Tearsheet Podcast.

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Below are highlights of the episode, edited for clarity.

The driver of payment innovation
Ultimately, I see customers driving innovation. It’s their preferences and comfort level with things like convenience and security that we need to meet. In the end, that’s what drives all our technical innovation. It’s not tech for tech sake or trying to convince consumers to use what’s best for us but the needs and preferences of real people.

Security in payments
I see two major themes when it comes to innovation: security and increasingly flexible, personalized mobile payments. If you look at the rise of Europay, Mastercard and Visa and contactless terminals have been a boon to U.S. retailers, especially for brick and mortar shops trying to stay competitive in a ecommerce-focused environment. It’s helped merchants stay competitive and ease consumer concerns about the safety of their personal information. As part of that, there’s been a tremendous advances in tokenization. It’s quite possible that credit cards are the most secure form of transaction out there especially when integrated with a mobile wallet.

Biometric identifiers have improved security significantly. Things like thumbprints have become standard practice. We’re looking at biometrics like facial recognition and retinal IDs. As sci-fi as these sound, at the end, it’s all about reducing risk and adding value for the customer.

Payments, personalization, and social tools
When I look at the world today, much of the innovation we’re seeing in the industry is coming from the rise of mobile payments in the context of social tools. The most famous examples come from China. Statistics on wireless payments there are staggering. WeChat Pay, the mobile wallet function of the WeChat app, is actively used by 600 million consumers each month. 44.5 percent of people use the app to avoid carrying cash. Alipay has 520 million worldwide consumers. Both are Wirecard consumers and the one thing we’re looking to do is how to introduce these and similar platforms to the U.S. market in order to serve that global consumer base in North America.

Slow mobile wallet adoption in the U.S.
These things always take time. Historically, consumers take a while to come around to new payment methods. It’s generally been the banks, merchants, and payment facilitators helping consumers adopt new payment methods. If you think about it, checks were first used in the 1680s to help farmers and businessmen, but they weren’t widely adopted until centuries later. The earliest credit cards were introduced in the 1950s and now they’re a central part of our lives. But that was a decades long process and what got them there was banks and merchants offering perks to drive adoption. The same applies to mobile wallets. They’ll mature as retailers roll out better reward and loyalty frameworks for them and make them easy to use. So, when we reflect back on how Wirecard can help, it’s up to us to drive adoption, both in how we go to market and in the technology we develop.

WorldRemit’s Catherine Wines: ‘We’re trying to make money transfer as easy as sending texts’

Catherine Wines has seen how technology has impacted the remittance business. When she co-founded WorldRemit in 2010, she envisioned doing to remittance what the online travel agencies had done to their industry. Fast forward a few years and her firm, WorldRemit is one of the fastest growing tech companies in the U.K. and from a valuation perspective, is progressing toward unicorn status.

On the podcast this week, we talk about what prompted her to take on such a large, stodgy industry and why it’s been so hard to move money internationally. We discuss her view on the role of cash in our economy and WorldRemit’s international growth plans.

Catherine Wines is our guest today on the Tearsheet Podcast.

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Below are highlights from the episode, edited for clarity.

Why get into remittance?
I used to work in another company doing remittance, but the old fashioned way. People would need to go to a shop to send money. When I left my previous company, I met Ismail Ahmed through a common friend. He had this idea of bringing remittance into the 21st century by bringing the industry online.

We’ve often made the comparison to travel agents. Years ago, when you wanted to book a flight, you used to go to a travel agent in a physical location. It was the same with money remittance. Now, you wouldn’t think of booking a flight by going to a shop. You do it online. That’s what we wanted to do with moving money: make it a lot more convenient and a lot cheaper. By doing this, we knew we would compete with the large incumbents like Western Union and Moneygram.

Why has it been so hard to move money internationally?
You have to establish quite a large network. In order for us to be able to send money and have a customer receive it almost instantaneously, you need to have a lot of partners in the recipient’s country like in Africa, the Philippines, or Africa. Building that network takes a long time and is quite costly.On the send side, in order to be able to send money, you need to get a license, and that can be quite expensive and time consuming. For example, in the U.S., you have to apply for a license in each and every state. We started in 2014 and now, we have licenses in 48 of 50 states.

Where are the banks in the remittance business?
Banks have never really gone into remittance because of the need to build these partnerships. Banks couldn’t provide the service that their customers wanted. Our products is very much for economic migrants, working overseas and sending money home. They need to send smaller sums of money pretty quickly. Banks just couldn’t compete because they work on Swift, which is quite slow and expensive.

Where do you see growth in the business coming from?
Sending money is about a $500 billion market. A large amount is still sent informally, like people carrying cash with them. There’s a big push to move that to more formal channels, like us, making it more convenient and cheaper. We started seven years ago in Europe, and now we’ve expanded to 50 send countries going to about 140 destinations.

We’re still a relatively small competitor compared to Western Union, so we’re trying to grow our business in existing markets while we expand to new ones.

‘In my world, it’s called theft’: How Ajay Banga wants to change inclusion

Count the CEO of Mastercard among those who think in-kind donations and financial aid systems are corrupt.

“We are in the business of killing cash. And so, who is the single biggest generator of cash in an economy? It’s the government paying its citizens and giving social benefits,” he said. “During the distribution of those social benefits globally, 30 to 40 percent of what’s distributed does not reach the citizen. In the NGO world that’s called leakage, in my words it’s called theft.”

Banga wants business leaders to take economic development more seriously; to stop looking at financial inclusion through their short-term returns lens, rethink how they see capital and open up to the “enormous” money-making potential of bringing people out of poverty, he said Wednesday on the main stage at the Bloomberg Global Business Forum in New York.

“I’m through with ticking the boxes in the corporate sphere,” Banga said. “That’s not what brings change… the more we talk about the long-term and we say ‘Ajay, I’m not making more money at this and I’m doing for the long-term,’ nothing is going to change.”

Mastercard is currently working with Western Union to create a digital infrastructure model for refugee camps focused on mobile money, digital vouchers and cards, with Kenya as their test bed. The point is to remove the intermediaries and losses associated with in-kind donations, brings funds directly to beneficiaries and give people some control over their financial health.

The work 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 such as the International Rescue Committee can monitor different programs.

“We’re using technology and getting them to record their payments on an electronic mail, so that they can go to a bank and say, ‘You can see I have this much revenue everyday,’ and the bank can make a better decision on lending,” he said of the company’s efforts in Kenya. “By their using it, I make money from their transaction. The bank makes money. The [small businesses] are happy. That, to me, is a business opportunity that is connected to our core competencies.”

First step for business leaders: know the difference between “so-called poverty alleviation” and taking people from poverty to prosperity. The former is only the first step toward prosperity and legitimizes the idea that there isn’t enough of a business incentive in this work, he said.

But there isn’t any trust on this topic between governments and private companies, and that’s a huge problem, he added.

Banga said his company spends a lot of time in developing countries trying to convince governments and other groups about the importance of applying technology to drive inclusive growth or give people identities (because if someone doesn’t have a formal identity it’s “kind of like being in prison”), he said. Mastercard has committed to pulling 500 million financially excluded people onto the financial grid; he said it’s currently at 330 million.

“The first reaction from government and multilateral institutions is: why is this guy doing it and what’s in it for him?” he said.

A spokeswoman for the International Rescue Committee said the it “welcomes the investment and innovation from the private sector to build up the digital infrastructure that would make the delivery method faster, more versatile and transparent and lead to the delivery of better aid.” “Cash relief” is one of the most efficient and effective forms of aid, she said, specifying that cash can be digital cash as well as hard cash.

But the reality, to Banga, is that when business people see money in it, change tends to actually take place.

“My only anthem is, ‘Look, there’s money in this.’ At the risk of sounding mercenary: when you want change, you want return.”

Image via Bloomberg

‘A story the world needs to invest in’: Inside SBI’s inclusion efforts

A fully inclusive financial ecosystem is arguably the Holy Grail of fintech. While there is much that fintech solutions can and should improve across all aspects of legacy financial services in the developed world, they largely work just fine if you have access to them.

Being inclusive doesn’t just mean that basic banking services like checking and savings accounts are available to all citizens, it also means extending offerings beyond those services to investment opportunities and insurance and pension products. India, with its population of 1.3 billion, stands to gain the most from this; 19 percent of its citizens have no ID card, no financial access and the country “doesn’t really have any social welfare,” according to Arundhati Bhattacharya, chairwoman of the State Bank of India.

The 212-year-old SBI is the country’s largest bank. It handles about 440 million accounts and 23 percent of the country’s banking transactions. Bhattacharya spoke about her organization’s efforts to advance financial inclusion at the Bloomberg Global Business Forum in New York Wednesday.

“It is not the have nots that have any fear because they really have nothing to lose,” she said. “It is the haves that need to understand: unless the kind of difference that we have seen growing amongst the top 5 percent and the bottom 10 percent… is bridged, we are not looking at any kind of sustainable society.”

Other banking leaders have a lot to learn from SBI, which is probably why Bhattacharya was invited to the event; U.S. banking and finance leaders came to speak on prospects for expanding trade and the future of energy in the Middle East.

“Most big business understand this and therefore, they too are eager to participate in this [inclusion] experiment,” she said. “But having seen it working in India… it’s a story that can be replicated in very many places and it’s a story that the world really needs to invest in.”

Between India’s Aadhaar authentication system and its efforts to digitize financial services and commerce as much as possible, the country has made great strides in financial inclusion. SBI, according to Bhattacharya, has concluded that to achieve financial inclusion, initiatives need to be accessible, affordable, high-quality and easy to use. That’s a challenge for privately owned banks — a huge factor in why SBI has found so much success compared to banks in the developed world.

“In the initial stages, such accounts are really not commercially viable,” she said. “Privately-owned banks, even though they may feel that this is the right way to go, don’t have the ability to do so because quarter and quarter, they have to report results.”

The Indian government owns 57 percent of SBI.

And in the initial phases of programs motivated by inclusion, banks aren’t going to see positive results show up in their quarterly earnings reports, Bhattacharya said. That’s why on Wednesday she called on the business and political leaders and investors in the room to rethink “what they are going to give a premium on and what they’re going to discount.”

“We are told very frequently that there is a discount, on account of the fact they know we have to carry out certain government mandates, such as these programs,” Bhattacharya said. “It’s high time that society at large realized that if you’re going to have a stable society, if you are going to have a sustainable growth… organizations that are part of such things should actually be given a premium, and not a discount.”

India’s Unified Payment Interface is a system that enables seamless payments between various organizations. An individual can connect a checking account at one bank to the mobile banking app of another bank, transfer money to someone whose account is held at a different bank and is connected to his own various accounts at various insititutions — for example.

In addition to this system, banks’ existing branch presence and no-frills savings accounts called Jan Dhan accounts, India also has Aadhaar, the digital identifier that requires only people’s scanned fingerprint to perform a financial transaction. Thanks to these individual initiatives, Bhattacharya said SBI has issued more than 70 million debit cards, sold 20 million simple life and accident insurance policies and a million pension products — all at very affordable rates.

“The fact of the matter is, we have realized that the business model has to be volumes and not high margins,” she said.

Image via Bloomberg

How digital payments became politicized

Visa, Discover, Apple Pay and PayPal have all cut off or limited their payments services to so-called hate groups in the wake of violence that erupted when white supremacist and neo-Nazi groups protested the removal of a Confederate statue in Charlottesville, Virginia.

After learning that PayPal played a key role in raising money for the white supremacist rally, PayPal said it would bar users from accepting donations to promote hate, violence and intolerance. Apple disabled payments via Apple Pay on websites that sell white supremacist and Nazi-themed merchandise. Discover said it would end merchant agreements with “hate groups, given the violence incited by their extremist views” while Visa and Mastercard said they were cutting ties with a number of sites they “believe incite violence,” don’t comply with their acceptable-use policies or engage in illegal activities.

It’s fair to say that in the fraught political atmosphere of 2017, even payments have become politicized.

Some say it’s a private company right to take that kind of stand, others say it infringes on First Amendment rights. While it’s arguably not the place of payments companies to be making moral determinations, it’s also not illegal for them to do so. And whether or not they “should,” companies in payments and beyond have made the decision to respond. The question is what the repercussions are for the payments system if they keep acting as de facto watchdogs who will inevitably experience pressure from customers who threaten to take their business to another payments firm.

“Payments are necessarily neutral,” said Jason Oxman, director of the Electronic Transactions Association. “They don’t take a political position, they don’t prefer any company or any consumer over any other. They’re a tool and they’re a very helpful tool in driving commerce but also ensuring consumers have the necessary ability to save for the future, make investments, retire comfortably and protect their resources.”

Commerce in the U.S. takes place over electronic payments systems, which processed $6 trillion worth of payments last year, according to Oxman.

“Electronic payments drive commerce and make commerce possible,” he said. “Sometimes those tools are used by people whose behavior is illegal or unliked. It’s important not to blame the tool of the activity of the people who have used the tool.”

Is it PayPal’s job to play watchdog?
The whole idea of payments and electronic transactions is built around two concepts: identity and risk. Payments companies need to know who has access to their services, who their customers are, and if the account holder’s digital identity matches his or her physical activity. And when it comes to money movement, merchant acquirers and processors are there to mitigate some of the risk involved.

But just by nature of payments being digital transactions, payments companies have found themselves in a position to track payments and to be able to understand things like how people are using their money and what kinds of things merchants are selling.

“A lot of these companies are responsible for connecting with these previously unseen people are being put in a position of being the de facto watchdog. They can’t be in the position to allow certain things to happen,” because of Know Your Customer and anti-money laundering regulatory requirements, said James Wester, research director for IDC Financial Insights’ global payments practice. “There are a lot of these companies now being asked to do. Because they’re at heart about mitigating and limiting risk, their default position might be that they’re not going to allow certain types of consumers, merchants, transactions to take place because it’s not in their best interest.”

Many of these decisions can be traced back to Operation Choke Point, a 2013 Department of Justice initiative that requires U.S. merchant acquirers to submit the types of merchants they provide electronic payments for. Many acquirers won’t work with certain types of businesses that are perfectly legal but risky from a regulatory perspective — pronography, firearm sales, even “racist materials” for example.

Many acquirers choose not to do business with these types of companies for a big reason — and it’s not because of their moral compass. It’s because the chargeback rate — the rate at which a merchant returns funds to a customer — on those transactions tends to be really high; if someone receives a bill for a pornography order, people often say they didn’t buy that and ask for their money back. That high chargeback rate makes it particularly difficult from a risk perspective to underwrite these transactions, Wester said.

“They just say ‘we’re not going to do that, it’s too much of a risk, it’s hard for us to model it, it’’s hard for us to make money on it.’ It’s not out of any moral or ethical decisions, it’s a business decision,” he said.

For those companies who do choose to underwrite risky businesses, Operation Choke Point set intentionally higher regulatory requirements for them to be able to accept those payments — effectively intimidating those merchant acquirers from doing business with them. The point was to make it troublesome to the point that it was hard for companies to find partners that would want to process the payments.

Earlier this month the Department of Justice shut down Operation Choke Point, but it’s not clear all other agencies have too. If companies keep taking political stands they run the risk of the regulators stepping in to “choke” them again — not by forcing them who and who not to do business with, but by “pressuring them to curate it in a certain way,” said Brian Knight, a senior research fellow at the Mercatus Center at George Mason University.

Oxman said he’s hopeful that kind of “intimidation” happens less from now on.

“Payments companies shouldn’t be held responsible for criminal behaviors,” Oxman said. “It’s bad for business.”

Payments companies could cut off the underserved
Perhaps the biggest impact digital payments has had on the world is their ability to bring financial access to previously unbanked individuals and new businesses and consumers into the economy.

Governments want financial inclusion for all too: they want to be able to recognize tax revenue and protect people, which is easier for them to do when everyone’s financial transactions have a digital footprint.

But as companies like PayPal and Visa take political stands and declare where they stand on different issues, they risk shutting people out of the financial system when they exist to bring them in.

“As we build out financial inclusion, we start adding more people, more merchants into the financial system, so there’s more oversight,” Wester said. “What does that mean when it comes to how much oversight organizations can do and in terms of shutting that off?”

Wester said it’s a trend that’s only going to grow the more we bring individuals and merchants into the financial system and that while it’s not necessarily good or bad, it’s an inevitable truth that needs to be understood. “For a company like a bank or a PayPal or Square, is their job to be in a position where they have to be making moral decisions?”

A perilous path
Even without Choke Point, companies acting as the de facto watchdog will always run the risk of regulatory intervention, Knight says.

“If you see firms being pressured to take a political side… those firms may be getting regulatory pressure because they’re seen as being too powerful,” he said.

And while firms have a lot of choice in who they’d decide to do business with, or not, and many criteria they can use to make that determination, political world view is not one of those classes.

“Big players have a disproportionate share of the market,” Knight added. “If they all get together or independently decide they aren’t going to do business with group X, Y or Z, that runs the risk of effectively cutting those groups out of the payments system.”

The most visible and most global brands will continue to be pressured by their constituencies and special interest groups to show their value by, in some cases, choosing not to service entire markets, says Dorothy Crenshaw, founder and CEO of crisis communications firm Crenshaw Communications.

“The public is looking to business leaders [for moral leadership] because they respond,” she said. “They have a board of directors and all kinds of red tape but they can act and they have acted. Its up to brands to decide which side they’ll choose.”

Inside KeyBank’s partnership strategy

KeyBank in Cleveland, Ohio on Thursday signed off on its latest partnership and equity investment in a fintech startup, the third for the bank’s enterprise commercial payments.

The deal with Billtrust, a company that automates invoice delivery and payment and cash application, comes after two other agreements with Avid Exchange, which automates companies’ accounts payable, and Instanet, an online security brokerage. Terms of the deal were not disclosed. For Billtrust CEO and Founder Flint Lane, KeyBank’s attitude toward vendor relationships and sales was a big indicator of future success.

“What most banks do is partner with software companies — and they love having partnerships, but then they put it in the bag of their sales team and say, here’s another thing to sell. That’s not what KeyBank does, it takes each partnership as its own discreet unit,” he said. “Without focus, these kind of things don’t work so well.”

Key is also a sponsor of Ohio’s Fintech71 accelerator for startups operating in banking, payments, insurance, health care, investing and regtech. The bank wouldn’t disclose how much spending allocates to fintech vendors and other talent partnerships and sponsorships.

“Budget isn’t our real restriction,” according to Matt Miller, head of product and innovation. “Time is the bigger resource constraint for us rather than budget,” he said.

Tearsheet caught up with Miller on how Key’s relationship-first approach to clients and how that plays into its partnership strategy. The following has been edited for length and clarity.

What percentage of your invoices are done in paper?
I think with those clients [using the Billtrust offering] we see at least 50 percent on paper, but it depends client to client. We deal with some really large clients in the Fortune 500 that still have a very high percentage of paper invoices.

What’s the biggest or most consistent pain point for your clients?
Cash application. Once you receive the money how do you direct it to the appropriate place in your system to reconcile the payments? The value of having all that invoice data in one place is the first leg of value. Then by nature, we know when a payment comes back in, where to apply the payment on the back end. BillTrust has built a really nice process involving machine learning and AI to learn as you go so the system gets smarter as more invoices are being sent out and cash reapplied on the backend. To a client it provides tremendous efficiency and cost saving opportunities.

How does your latest agreement fit into your payments strategy?
Banks historically have been focused on payments execution — how you help clients move money from point A to point B across different channels. We continue to be focused in that space but as the industry has evolved we believe we also need to add value before and after the payments. A lot of fintechs figured that out ahead of the banks.

Tell us about your vendor strategy.
Our model is two-pronged: It’s finding a great partner who fits client needs and with whom we can structure a commercial arrangement to offer a service to our client; and having some sort of equity ownership in that partner so we can be seen in a greater strategic light and have a deeper integration with the partner — a lot of times at the board level in an “observer” role.

How do you determine what clients need?
We take a relationship-first approach with our clients. We have specifically organized our sales force around how our clients see themselves; around industry and vertical rather than product and services. Client-wise our book has a lot of industrial companies, from a vertical perspective, and that’s a sweet spot. We want to understand all the details of clients’ financial operations deeply enough that we can go in and consult — we don’t want to show up with a product pitch. If we do have one it’s rooted in a deep understanding of that client.

How do you get feedback from clients?
Our product team needs to capture that info from our sales force. We need to be out on the ground with clients as much as we are in the ivory tower. That’s probably how we get the most of our information but we also use market research and intelligence methods — surveys, interactive communication with clients, focus groups, client events. We try to be pretty robust in how we gather feedback. We’re happy to co-create when and where it makes sense — both with clients and fintechs.

So when do you develop something yourself and when do you look to a startup to do it?
We have to take an honest look at whether we can do this ourselves or if a partner will help us get to market more quickly with a better offering or more meaning to the customer in the highest quality way relative to competition. With a partner you’re dealing with a company focus 24/7/365 on one particular offering. Here, we might not have the ability to focus like that and that’s when it makes sense to partner.

Who is the competition?
Everyone is raising the bar, we can’t just look at the usual suspects within our industry. We have to look at fintechs, we have to look at technology companies like Amazon and Google who are serving in other ways that are making customer think about how they experience technology. All of these things go into our calculus.

How Wells Fargo is letting customers take back control of their financial data

People store card information in a lot of places. Netflix, Spotify, Uber; various apps for their favorite workout, lunch, shopping apps. There’s sensitive financial data flying all around us; it’s the risk people take in exchange for convenience.

Now, Wells Fargo is rolling out a tool that lets customers keep track of it all, an aptly named “Control Tower,” within its mobile banking app that gives them a single view of their digital financial footprint — which includes recurring payments, third parties, mobile wallets, subscriptions, different devices where they’re signed into their banking account — and lets them turn on or off the sharing of their bank account information.

For the bank, it’s about meeting customer expectations, which have evolved. People pay for things and manage their financial lives with other non-bank financial services providers just because they like them (and they’re usually free). Instead of trying to retain customers by replicating those other offerings — which is unrealistic for an institution of Wells Fargo’s size and scale — or somehow preventing customers from buying into their allure, Wells is letting them go about their financial lives as they like and incentivizing them to at least come home at the end of the day for dinner.

The bank is piloting the product with employees later this year and plans to launch it for customers in 2018.

Through a number of moves over the last year, Wells Fargo has positioned itself as leader of the crusade to give customers control over their financial data and how it’s used, but none so pronounced as the introduction of the Control Tower. Ben Soccorsy, head of digital payments product management at Wells Fargo, called it a new type of interaction model for customers — one based on control and trust.

“There are fintechs and other types of companies that can deliver pieces of this already,” Soccorsy said. “It’s not those pieces or the inherent technology that are new, it’s this new way of putting it together in a way that delivers new value to the customer. It’s not just data sharing here and turning your debit card on or off there, device management there. It’s one place.”

That customers expect self-service — ATM withdrawals and deposits, online bill pay, mobile money transfers — from their bank is perhaps the most visible way technology has changed banking. The Control Tower takes that a step further. Giving customers control over how their data is used is the holy grail of digital identity, and the bank has been taking steps toward that goal over the past year by signing agreements with Xero, Intuit — owner of QuickBooks, TurboTax and Mint — and Finicity that allow it to share customer data with the third party using application programming interfaces.

The Control Tower will be rolled out in stages as the bank pursues similar agreements with more third parties; they need to connect with the bank through an API in order for the customer to get the full benefits of the offering, Wells CEO Tim Sloan said at Fortune’s Brainstorm Tech conference in Aspen last week. That implies Wells Fargo is about to get pretty aggressive in its partnering strategy.

The first ambition of these arrangements is to move away from the commonly used screen-scraping method — where the third party “scrapes” the necessary information when customers log in with their bank credentials and hold onto it for future use. Wells has also been speaking out about the need for banks to take a stand against screen-scraping by creating industry standards for data exchange.

Beyond data security, the move by Wells is a sign of the industry’s new willingness to break down their silos and partner or collaborate with third party providers and in some cases products that could be considered competitors, like Apple Pay — all in the name of offering customers choice and developing emotional loyalty.

“We want our customers to have their financial relationship with Wells Fargo. If you want to use another payments provider because that’s your choice, that’s fine, as long as you come back to Wells Fargo,” Sloan said. “We want to offer our customers convenience as long as, ultimately, they come home.”

That’s similar to what JPMorgan Chase said when it announced its data sharing agreement with Finicity two weeks ago.

“Our customers really want to use these financial apps and they do use them a lot,” Trish Wexler, a JPMorgan spokeswoman, said at the time. “We want them to find a safe, secure and private way for them to be able to do that without having to hand over their bank password.”

How personal financial management apps like Moven, Clarity or even old timers like Intuit’s Mint survive in a world where all banks can show customers their entire financial snapshot beyond just their bank accounts is unclear. It’s too early to say, but there’s probably room for both types to exist, Wells Fargo’s Soccorsy said. Of course, the startups also provide a lot of inspiration.

“It’s a good thing we have companies out there looking at creative and innovative ways to help customers be more financially successful. They do it in a way that’s focused on probably one use case, one type of problem, one very specific need a customer has,” he said. “Our company has learned that they’ve been successful in doing that in pieces and parts; we are putting it together in more comprehensive ways.”

That’s one of the reasons innovation appears more difficult to execute at banks than at startups. Small announcements like credit card toggling and direct fraud alerts seem insignificant when they land in customers’ inboxes, but banks are often working to solve broader problems before customers even realize they’re problems. Whether Wells customers begin to care about who has their financial data and how it’s being used once they have the ability to control it remains to be seen.

“That’s part of the role we play. Control is about making you feel comfortable and it comes back to trust,” Soccorsy said. “Our company wants to build trust everyday with customers. This is a forward looking opportunity to do that, recognizing that customers aren’t asking for it by name today.”

Adyen’s Luke Salinas: ‘The industry’s been talking about omnichannel for years’

Luke Salinas runs strategy in North America for Adyen, which is a provider of frictionless payments across online, mobile, and in-store for global companies like Uber and Netflix. Prior to his role at one of the hottest fintech firms anywhere, he ran payments and fraud at Uber, so he has a strong merchant perspective.

Salinas, who ran payments and fraud at Uber, joins us on the Tearsheet Podcast this week to delve deeper into what today’s largest merchants demand from their payments providers and unpack the trends impacting today’s payments business.

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

Serving the enterprise
“Historically, our focus has been solidly on the enterprise. We process for eight of the top 10 Internet companies, like Uber and Facebook. Eventually, we’ll have to move down to the mid market but for now, it’s pretty much blue skies in the enterprise space.  A lot of large companies are dedicated to providing the best user experience and frictionless experience they can. Accomplishing that outside of the big, established Western markets has been a challenge and that’s where we come in and try to help our merchants mirror that experience in challenging markets around the world.

We’re also enabling merchants to expand across the globe as quickly as possible and doing that with a feeling of safety and security. Large merchants are also trying to figure out subscriptions. How do you do subscriptions like Netflix and Spotify do in markets that don’t have the same recurrent payment capabilities that the U.S. has?”

Getting omnichannel right
“Lately, we’ve put a big focus on our omnichannel proposition. We’ve been working with a a lot of really large retailers. Omnichannel is something the industry has been talking about for years. Before today, if you were a big retailer and you wanted a truly omnichannel experience for your shoppers — things like buy online and pickup in-store, return in-store, or endless aisle — you really had to do it yourself as a merchant.

You’d plug into a point of sale payments provider and an e-commerce payments provider and you’d have bring it all back into your own ERP and unify all the channels there. We’ve been working with merchants to work on a single, unified platform across all payments across all channels, so that the meat of all that unification process happens on our side, limiting how much development retailers need to do.”

The next frontier for cashless payments: Pocket money

A child who expects a reward from the tooth fairy may soon find it in the form of a digital money deposit rather than physical money under the pillow.

As the world of payments between friends and family goes digital through tools like Venmo, Zelle, Square Cash and Apple’s peer-to-peer payments feature, one of the last vestiges of the cash economy is payments from parents to kids. But now, banks and startups are offering ways parents can make digital payments to their children, a move that goes far beyond the convenience factor — it’s designed to help teach children personal finance skills early in life.

From the banking side, Denmark’s Danske Bank has taken an early lead. Last week, it launched a pocket money app for kids ages 8 to 12 that is free to use for parents who are Danske Bank customers. In a consumer environment where mobile payments are commonplace (89 percent of Danes used mobile payments last year, according to Visa), using cash to pay children’s allowances often isn’t easy for parents.

“Since we are very digital, we have mobile payments solutions; it’s very common that parents simply don’t carry cash,” said Line Munkholm Haukrogh, head of digital payments at Danske Bank. “Sometimes kids don’t get paid on a regular basis, even if the parents promise.”

Through the app (called Lommepenge, which means pocket money in Danish), parents can pay their children allowance money through the Danske Bank mobile app, which can be transferred to their child’s Lommepenge account. The bank also offers a debit card for the child’s Lommepenge account. The pocket money app lets parents and children create a “virtual vault” of savings, a means for them to begin a conversation about money.

“It could be that they’re saving up for a bike or whatever they want to save up for,” Haukrogh said. “It’s a way to enable parents to say, ‘Hey, what are we going to spend our money on?'” The app also lets parents monitor the spending of their children, set up recurring transfers, block access to the debit card and set up spending limits.

In North America, where mobile payments haven’t caught on as quickly (a recent study from Accenture found that regular adoption last year stood at 19 percent), startups have forged an early path on payments from parents to children. A Bank of America spokesperson told Tearsheet that the bank’s peer-to-peer payments service Zelle allows for parent-to-child digital payments, but Current, a startup that launched in the U.S. last month, is taking that further by creating a platform that merges task assignments from parents with digital payments to children. Current can be accessed through the web and a mobile app.

“What you can do is set up one-off chores or tasks — No. 2 is poop duty to clean up the dog poop and No. 1 is cleaning up one’s room,” said Current founder and CEO Stuart Sopp. Current, which has 2,500 users so far, connects to parents’ bank accounts through an API and offers a debit card for the child. Current is supported by subscription fees; a one-year subscription to the service costs parents $3 a month.

According to Sopp, a task assignment sequence could unfold as follows: A parent assigns a room-cleaning task to the child, the child cleans the room and sends a picture of the clean room to the parent, who then sends a digital payment upon approval. Current also offers parents capabilities to monitor their child’s spending, set up spending limits or block access to the debit card. For Sopp, the drive to set up this kind of tool was a means to offer digital payments to his daughter for household tasks.

“I wanted to be able to give my daughter [digital] money and teach her good financial habits,” said Sopp. “There was no good way of doing this, and with the digitization of families and money along different devices, they have nothing to buy with cash anymore.” Current offers users three types of wallets — one for spending, one for saving and a third for donations to charities.

The under-18 customer segment is a vast market ignored by the major U.S. banks, said Sopp.

“There’s a lethargy around banks in general, and they have enough problems dealing with the erosion of their customer base without having to deal with the trouble of marketing custodial products,” he said. “[Current] is the digitization of an old financial discipline — we want to start that here as a cultural norm in this country to teach financial education.”

Photo credit: Current

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.