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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.”

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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.”

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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

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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.

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Venmo rising: Why PayPal wants you to pay for purchases using the app

The act of posting payment details on an emoji-rich social feed is about to move to payments for purchases.  Venmo, the peer-to-peer payments service said to be most popular with millennials, is expanding its reach so users will be able to have that same experience when buying things.

PayPal CEO Dan Schulman announced this week that the option to pay with Venmo for purchases will be available for any merchant that accepts PayPal by the end of the year. To use the feature, users will need to enable it from within the app. It’s remarkably similar to PayPal One Touch, with the ability to split payments with friends and share what it calls the “excitement for each purchase” on the social feed.

“We think that’s powerful in the long run to think about Venmo being your most intimate social network,” said spokesman Josh Criscoe. “On Venmo it’s people you’re doing most of your activities with.”

But beyond offering users a back-up payment method, what’s really driving the move is a bigger strategy to connect Venmo to brands and generate revenue. While Venmo processed $6.8 billion in payments in the first quarter of this year and $17.6 billion in payments last year, Criscoe acknowledged that the peer-to-peer payments aspect of Venmo is not a money maker for the company. Venmo subsidizes the costs of the transactions, he said, keeping it free for users. But for ‘pay with Venmo,’ merchants will pay 2.9 percent plus 30 cents per transaction — the same price as PayPal.

“In the long term, it’s a way for merchants and brands to get exposure and connect with more users,” said Criscoe. “There’s a lot of powerful stuff here than just the buy button. We hope that Venmo is something that you can use to pay anywhere and everywhere.”

While ‘pay with Venmo’ was first rolled out in 2014 with selected merchants using the Braintree platform (e.g. Uber, Airbnb), the ability to use it with the millions of brands, including Target and Walmart, is significant, especially as the peer-to-peer payments space gets more competitive with the launch of bank-backed Zelle and rumors about an Apple rival to Venmo in the works.

Despite more competition in the peer-to-peer payments space, Criscoe said connecting the Venmo experience with brands has long been part of its vision.

“Venmo has always been on this path,” he said. “We have a really strong base of customers that are really loyal to Venmo and evangelize about it every day — it’s spread by word of mouth with little or no marketing spend.”

 

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CardFree’s Jon Squire: ‘It’s hard to decouple loyalty from mobile’

Jon Squire CardFree on the Tearsheet Podcast

When you think about successful mobile apps you — and most people in the retail space — probably think about Starbucks, Taco Bell and Dunkin’ Donuts. Jon Squire and his firm CardFree are behind many of these leading retail apps and they’re just getting started.

Squire joins us on this week’s Tearsheet podcast to talk about what the special sauce is that goes into making a hit mobile app and what questions retailers should ask when interviewing mobile vendors. We also dig deeper into the role loyalty programs play in today’s mobile wallets.

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The excitement around mobile apps
“For merchants who want to embrace mobile, they’ve looked at the success Starbucks had with its app and wondered whether firms could control their own destinies and provide these services. What Dunkin’ proved was that it could work and even work in the franchisee model, where it’s more challenging to roll out new technology stacks. In the wake of Dunkin’s success, we’ve seen a lot of merchants hop on the bandwagon. The biggest driver and buzzword here is data — how do I get to know my customer directly? Is this the first opportunity in 20 or 30 years to market to that consumer on the go, directly to their device when they’re in the most relevant location? Retailers have also realized that if they don’t embrace the space themselves, they’ll have to partner with other people in aggregate plays that downplay their direct relationships with their customers.”

What makes a successful mobile app
“Historically, our team worked on the first Starbucks app and secondarily on the Dunkin’ application through another startup. What we’ve found is that there’s a huge gap in the marketplace for integrated mobile wallet solutions. There are a ton of players that offer payments solutions. But payments aren’t really broken. Then you look at loyalty, which has a hockey-stick effect when coupled with payments. But things like real-time offers, CRM systems, order ahead and beacons — providing an integrated solution for a merchant just didn’t exist three or four years ago.

For Dunkin’s original app, at its peak, there were 30 mobile vendors that needed to be cobbled together for the mobile commerce solution. That’s not tenable for an entity that’s trying to roll out something quickly and be agile. It’s crude but it really is the ‘one-throat choke approach’.”

How loyalty impacts spending and frequency
“With mobile, once you get a person using your service, the customer tends to be your most valuable customer. If you get 20 percent of your audience using mobile, they’re by far your best customers. That’s because they spend 2 times the amount of money in the basket and shop twice as frequently. It’s hard to decouple loyalty from mobile. If you remember when we launched Starbucks the first time around, loyalty wasn’t part of the package. It was literally just leveraging its prepaid card, which admittedly is a freak with a huge number of followers and could be considered its own form of tender in the U.S. When we did add loyalty, you did see that hockey stick of usage. You could see it in line, when that star dropped into the cup or when the gauge went up on your perks account — anything that happens in real time that rewards something a customer just did at the point of sale increases that behavior.”

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Big in Japan: How blockchain startup Ripple plans to disrupt Swift

Blockchain startup Ripple has now cornered a third of Japanese banks and is set to reach half of them later this year, but the first mover among providers of distributed ledger technology has been much quieter in the U.S.

Ripple has been so successful with its payment projects that this year it’s pushing to shift focus to its network. The company was a first mover in the blockchain space and has been relatively quiet and productive compared to its “vendor” peers like Hyperledger or R3 CEV. More recently, however, it has been anything but shy about going head-to-head with Swift, the current hub at the center of the global banking – which makes it hard to ignore how few U.S. bank partners Ripple has.

“[Ripple] is looking to bring some of the big boys to the network but as you can imagine, those are some of the biggest beneficiaries of the inefficiencies of correspondent banking,” said Javier Paz, a senior analyst at research firm Aite Groupe.

Ripple’s Patrick Griffin, senior vice president of business development, said the company has developed the first blockchain network with rules and commercial standard legal agreements. Its biggest obstacle now is in growing its sales team quickly enough that it can keep up with its innovation team, Griffin said. The company now has 150 employees.

Although it’s clear cross-border payments is due for an overhaul, it’s not so clear that Swift is. Banks and fintech companies embrace collaboration and partnership and the idea that the latter will come eat financial incumbents’ lunch is now a thing of the past. Most of those banks belong to both the Hyperledger project, of which Swift is a board member, and the Swift network itself.

In cross-border transactions, there are generally multiple stops a payment makes before it goes from the payer to the receiver. If, for example, someone in India wanted to send $1,500 to someone in the U.S., that person would probably visit a local bank perhaps unable to make that transfer, so that bank would send the payment to another Indian bank that could. The payment then goes to a U.S. bank which sends it to the recipient’s local bank, where the customer would finally pick it up. Each stop along that payment’s way eats up time and money in exchange and holding fees.

Swift’s biggest problem is that of “nostro accounts,” basically correspondent bank accounts – and that’s where Ripple can provide real value to the system, said Tim Coates, managing consultant at Synechron. Swift announced it is running a blockchain proof of concept with Hyperledger technology this January – months and in some cases a year after most of its U.S. members began running their blockchain PoCs. Damien Vanderveken, head of R&D at SWIFTLab, said it’s looking to see if blockchain technology can minimize or eliminate the friction brought by nostro accounts, but did not comment further on the project.

“The nostro problem is a big part of Ripple’s value proposition,” Coates said. “If we can do realtime settlements then we don’t need a whole store of nostro accounts. If not, then we always need a buffer of funds in each account and that buffer is just locked away. We shouldn’t have to put a lot of money away so we can exchange money between banks.”

Swift effectively is looking for ways to allow banks to use existing pipelines of connectivity, like Swift’s messenger, that don’t necessarily rely on nostro accounts but use other types of messaging, said Javier Paz, a senior analyst at research firm Aite Group. Effectively, Swift would be willing to disrupt itself to keep away competition like Ripple.

“Ripple’s success has been in cross-border currencies first in the peer-to-peer space and simple remittance and transfer across the globe,” said Ramesh Siromani, a partner in the financial institutions practice of A.T. Kearney, a global strategy and management consulting firm. “But to gain more volume attraction and network growth would require signing up more banks across the globe and in business-to-business payments where volumes are bigger.”

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Why Zelle is more than just a Venmo clone

When a product’s name becomes a verb, it’s safe to say it’s caught on. The popularity of ‘Venmoing’ pizza or beer money goes one step further and offers proof that mobile peer-to-peer payments have changed the way Americans interact with money. For its largely millennial user base, Venmo is a social network that lets users add emojis, have a little fun and make transferring money less transactional. For banks, Venmo occupies a peer-to-peer payments space they haven’t been able to crack — until perhaps now.

Zelle, a peer-to-peer payments system run by major U.S. banks, is rolling out this year. Last month, Bank of America was the first major bank to announce Zelle integration into its mobile banking app, and others will soon follow. Zelle has often been portrayed as the banks’ way to go after PayPal-owned Venmo. Recent headlines called Zelle’s launch a “war on Venmo,” or “Venmo killer.” But it may be just a sign that the peer-to-peer payment marketplace is now large enough to accommodate multiple players, including older customers who are less likely to post an emoji every time they’ve made good on their promise to repay a friend back a few dollars.

Zelle itself is a rebranding of the bank-led clearXchange peer-to-peer payments network, run by Early Warning and owned by a consortium of major banks. It’s a network that will let customers of 19 major banks to make instant payments to each other, and through partnerships with payment processors, Visa and Mastercard, credit union customers will be able to use it, giving it huge growth possibilities.

Beyond a new option to send money to friends, Zelle may be out for a much larger piece of the pie than just Venmo users. With $17.6 billion in payments processed last year, Venmo is a force to be reckoned with. But Zelle developers say they are aiming for a much larger market.

Zelle’s marketing strategy focuses on consistent branding emphasizing the user experience — the security and the rapidity of payments — rather than the social element.

“When we talk about Zelle, it’s about a target market that ranges from 18 to 54,” said Jeremiah Glodoveza, vp of communications at Early Warning. “When we did our research, social sharing or those types of features, sure they may have appealed to a subset of that segment, but not all of them, so what we’re really optimizing is for an ubiquitous experience and that’s why some of that functionality wasn’t prioritized.”

Although banks may be behind on peer-to-peer payments, they have a strategic advantage over competitors with control over the payments infrastructure and inbuilt trust among some users. So rather than trying compete head-to-head with Venmo, Zelle is likely to organically draw in a large customer base.

“They just have to have a viable alternative,” said Bob Meara, senior analyst at Celent.

The peer-to-peer payments market may also be a way for banks to keep customers from leaving the bank’s ecosystem, increasing the likelihood that they may use other bank products.

“This is bigger than peer-to-peer payments,” said Meara. “Every time Paypal, or Square or Venmo takes a customer interaction away from a bank, that’s engagement a bank doesn’t have with its customers. If banks can keep their users engaged, then they have more of an opportunity to cement relationships with customers while providing a broader array of services.”

Venmo, however, says new entrants in the peer-to-peer payments marketplace is a net positive.

“The common enemy is cash, which makes up up the majority of payments between friends today,” said spokesman Josh Criscoe. “There’s plenty of room for several more folks in the market, so we think that if any additional folks enter the market, we welcome it.”

Criscoe said Venmo has a loyal user base built on word-of-mouth recommendations and social sharing. While it can take 24 hours or more for money to transfer over Venmo, he said instances when people need the money immediately is more the exception than the norm. He added that PayPal’s recent partnerships with Visa and Mastercard will allow Venmo users instant access to funds later this year.

While Zelle has the prospect of broad appeal due to the ability for bank accounts to interface directly with one another without requiring a third party, Zelle could benefit from taking a page from Venmo through social media outreach.

“Banks definitely should be looking at what Venmo is doing as far as connecting the user base using APIs from Facebook connections and other social media aspects to more easily connect consumers to each other,” said Brendan Miller, principal analyst at Forrester. “That was the secret sauce for Venmo and it’s something banks should try to replicate.”

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How financial tech startups are reaching out to low-income Americans

The term “financial technology” may evoke images of wealthy sophisticates using their phones to do their banking and manage investments. Recent data shows that adoption rates skew toward younger urbanites. But financial technology companies like WiseBanyan are looking to new ways to reach lower-income customers, including those who don’t even have a bank account or use payday loan services instead of traditional accounts.

The market is big: According to a Federal Deposit Insurance Corporation study, in 2015, 7 percent of the U.S. households were “unbanked,” meaning no members had a bank account. Unsurprisingly, unbanked rates were higher among low-income customers, and outreach to this segment of the market has been a challenge for the financial services industry as a whole. Among the reasons cited for not having a bank account were insufficient funds and high fees.

The Pew Research Center defines lower-income households as those whose incomes are less than 67 percent of the American median household income, roughly $36,000. This segment of the population, according to Pew, is about a third of the U.S. population. Industry watchers say the traditional banking system isn’t designed for lower-income customers, creating space for financial technology companies to fill the gap.

“Financial technology offers the potential to better serve consumers on a host of issues where current products offered by banks either don’t meet the needs or the products offered by banks are at very high cost,” said Aaron Klein, economics fellow at the Brookings Institution.

Financial technology companies reach lower-income customers through easier access to money, credit and lower-cost services, he said.

One area where lower-income customers haven’t traditionally been considered is investment planning, often called “wealth management.”

WiseBanyan, a robo-adviser app, offers automated investment advice after analyzing its customers’ financial goals. Unlike traditional brokerages, it allows customers to deposit and withdraw without fees, regardless of income category. CEO Herbert Moore said the app’s goal is to reduce barriers to entry to allow individuals of any income category to achieve their financial goals.

“As a firm, we believe that people of any income or asset level should be able to achieve their financial goals,” he said. “We can help folks who would otherwise not be offered a service.”

Moore said a quarter of his 23,000 customers have incomes under $50,000. The app’s revenue stream comes from value-added services, including a fee-based tool that helps users look for tax deductions. These types of money management tools could potentially benefit a large swathe of the American population.

Legacy banks, however, note that low-income customers can take advantage of specially-tailored products to meet their needs. These include including low-fee accounts, like the Citi Access Account, and prepaid visa cards that offer many of the features of checking, like Chase Liquid or PNC SmartAccess prepaid visa card. Citi Access Account customers pay a $10 monthly fee that can be waived if they meet certain conditions, while Chase Liquid and PNC SmartAccess cards both cost around $5 a month.

“Our goal is to get people who are out of the mainstream— often for reasons that aren’t their own fault— to give them the tools they need to get back in the mainstream and hopefully become PNC customers,” said a PNC Bank spokesman.

Still, industry watchers say that financial technology companies have an opportunity to fill a void by offering banking and financial services to lower-income customers, said Courtney Robinson, policy counsel at the Center for Responsible Lending, a non-profit whose mission is to ensure a fair, inclusive financial marketplace for borrowers. “There is a gap that’s being filled for lower income borrowers, borrowers of color.”

Despite the advantages that financial technology companies offer, Robinson stresses that the lending space among startups still skews towards higher-income borrowers, and customers still need to be vigilant against high fees and lending rates.

“While some are masquerading as something different or unique, they’re offering almost payday loan-like prices,” she said.

For legacy banks, partnering with financial technology entrepreneurs may be the best way forward to enhance access. Through a $30 million contribution to a five-year partnership with the Center for Financial Services Innovation, for example, Chase aims to support financial technology innovation through funding, mentorship and support for early-stage entrepreneurs.

“It’s going to be us working together that’s ultimately going to reach low-consumers,” said Colleen Briggs, executive director of community innovation at JPMorgan Chase. “That’s how we’ll move the needle.”

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‘When you start, you don’t know people will pay’: Zuora is shifting ecommerce from products to subscriptions

When publishing platform Medium announced it was shutting down its advertising sales group as it pursues direct payments from readers, it wasn’t solely about the brokenness of ad-supported media. Something bigger is going on that speaks to all of ecommerce. The results point to a massive shift to subscription payments. New data shows that subscription-based companies are growing nine times faster than those in the S&P 500.

From owning products to subscribing to services

Customers no longer need to own products in order to use them. The sharing economy, popularized by firms like transportation-on-demand platform, Uber, is dramatically changing the definition of what companies do and how they provide value to their customers. Examples abound: GM, arguably one of the flag bearers of this old-school product-centric focus, no longer defines itself as a car company. The GM of the future is all about personal mobility.

The company launched Maven in 2016, which organizes its activity in ride and car sharing programs, including in-house technology development, the firm’s $500 million in Lyft, and its partnership with Uber. Users of the firm’s Maven app can personalize their transportation experience by accessing their music and maps in Maven cars via an integration with Apple’s CarPlay and Android Auto.

“Maven provides on-demand access, choice and ease of use. The right vehicle and right mobility service for the right trip at the right time,” said Julia Steyn, GM vice president, Urban Mobility Programs. “With more than 25 million customers around the world projected to use some form of shared mobility by 2020, Maven is a key element of our strategy to changing ownership models in the automotive industry.”

Putting customers in the middle of the business model

Subscription companies growing faster
subscription companies growing 9x the S&P: Zuora

Powering payments for companies making the transition from products to subscriptions is Zuora. The 10 year old company services three types of enterprise customers, including technology players, media and entertainment firms, and companies undergoing big, transformational moves to subscriptions. Zuora works with multinational manufacturing firms like Schneider Electric, NCR, and Arrow.

For media firms like Medium, moving to subscription commerce isn’t as simple as ripping out ads or replacing buy now buttons with recurring payments. The entire focus of the business changes, and it begins by treating users as more than just a set of eyeballs.

“We don’t define subscriptions as just charging a monthly fee. It all begins by putting the customer at the center of your business model,” said Tyler Sloat, Zuora’s chief financial officer. “Then you have to figure out how to acquire customers, engage them, and after earning the right, to monetize them.”

Designing the offering and optimizing pricing

One of the major challenges in moving to subscription commerce is determining the optimal product and pricing mix. Its early work with large firms transitioning to this new model gave Zuora insight into just how hard it can be to get a subscription offering right. “When a company launches a subscription for the first time, you can’t be sure that people will pay,” said Sloat. “Until you start charging a customer, you really don’t know the assignment of value he places on what you’re selling.”

To begin the transition to subscriptions, product-centric firms need a whole new set of metrics. Late in 2016, the payments company launched its Insights product. By crunching financial, behavioral and demographic data, Zuora can now help clients develop a deeper understanding of their customers, using metrics like usage intensity trends, user similarities, engagement level, churn probability, and user personas. Companies can then begin testing how this information impacts growth of new subscription products until they ultimately find what works best.

Subscription in the media industry

Medium’s move away from ad-supported content was really more a statement about its entire business model. Putting readers at the center is certainly a departure for media firms that have had to employ sensational headlines and annoying page breaks to juice pageviews. For media firms reliant on ad revenue, the tradeoff  had always been choosing just how far to sacrifice the customer experience to keep advertisers happy.

Not everyone thinks that media firms will be able to successfully wean themselves off advertising and cross the payment chasm. “Medium’s move from ad-supported to subscription supported is just out of the frying pan and into the fire,” said Wheeler Winston Dixon, a professor of film studies at the University of Nebraska, Lincoln. “With so much free content available on the web, I think people will resist the idea of paying any subscription fee at all for content, especially when Google News offers more than 90% free content, supported by ads. People just get AdBlocker, and view it for free.”

For now, Zuora is doing more than just processing recurring payments for subscription businesses — it’s helping businesses experiment with the model. Sloat thinks Medium and other firms will find that it’s not one-size-fits-all and that the attrition that comes with putting up a paywall can be mitigated by making multiple offers.

“Medium can look to Adobe’s launch of its own subscription product,” he said. “The company saw the writing on the wall and that the business was moving away from buying software. But it rolled out its subscription product, including some products in the subscription and excluding others, as it gradually migrated users away from licenses and upgrades.”