Online payment issue needs to be solved

Walk into a Nordic brick and mortar retailer, and it is usually simple to split a purchase among different payment instruments. You can pay part with cash and part with card, or split the amount among multiple cards. But move online, and you are forced to complete the entire transaction on a single instrument (one card). 

This can obviously be an issue when a customer doesn't have enough funds in a single account, but becomes especially grieving when paying with a scheme-based prepaid card. Unless the prepaid balance matches the exact amount of the shopping cart, there will either be breakage on the transaction – or no payment made at all. 

Splitting an e-commerce purchase across multiple cards shouldn't be that difficult from a technical point of view. It can be done in the brick and mortar environment, after all, and according to fellow industry professionals, e-retailers across the pond can already do it. Nordic payment service providers are hereby encouraged to step up and look into this issue. It could result in a competitive advantage. 

This post is an extract from MACAW Payments Bulletin 62: Payment issues that need to be solved.

The year m-payment will take off...

“This is the year mobile payments will take off… Really!” Really? We hear this pitch every year, but we have yet to see actual take up reach the levels forecasted for the last five to ten years. 

Maybe it’s time to evaluate the actual benefits of mobile payments to merchants and consumers, and which forces are driving adoption forward – and also those holding it back. This applies both to proximity payments and remote payments. 

There are literally hundreds of European companies claiming to be in the mobile payments business (whatever they mean by mobile payments, another story.), but most evidence we've seen points in the direction of gradual evolution rather than an overnight revolution. 

In the end it all boils down to actual benefits for consumers and merchants from adopting mobile solutions compared to their existing options. Mobile has to be cheaper, faster, easier, more accessible – and/or just as secure as a bank/card transaction. Ideally, mobile payments should give consumers something extra on top – like a discount, coupon or gift card. If not, what incentive do they really have to switch habits? 

Why banks fail at analytics

Bankers love numbers and poking their heads in spreadsheets. That’s why we find it rather odd that so few banks are really good at analytics. And even fewer implement their analytic findings to boost profitability. How is that even possible in an era when data is so abundant and revolutionizing industry after industry, from books to airlines?

The latest MACAW Bulletin gives you not one, but six reasons to why banks fail at analytics. These are observations from working with banks in countries across five continents. And the findings are surprisingly consistent. Maybe your bank is the exception, and you really are great at analytics, but odds are you will recognize your bank in some of the following.

Locked in Old World thinking

Look at what Facebook, Google, Amazon and Apple are doing with IT, analytics and rethinking business models. They have revolutionized everything from web hosting and search engines to music, books, and even payments. They are capitalizing on information, analytics and performance optimization. Banks are watching from the sideline. In the end it will be too late to be proactive to change. 

No culture for innovation
Banks attract many clever people, but they tend to be economists, accountants and lawyers. When did you last attribute ‘innovation’ to any of these professions? Sadly we find few truly innovative marketers, business-wise engineers, or entrepreneurs working at banks. And when the occasional brightly shining star does come along, she tends to fight an uphill battle for gaining acceptance at management level to challenge conventions.

No statisticians
Among the numbers loving bankers, where are the statisticians? One might find the occasional number cruncher with a statistical degree working in risk management at a bank, but they are surprisingly few and even rarer are those allowed to participate in business development processes.

Legacy systems
Mature banks will groan when you say 'we need this data'. The data is spread across different systems, and what’s worse, they’re legacy systems. Often it is a patchwork of spaghetti that almost no one wants to go near, and even fewer know their dark, inner workings. But legacy systems are not all to blame. A lot of it has to do with attitude.

Other reasons why banks fail at analytics:

• Wrong KPIs
• Risk adversity

This blog post is an excerpt from MACAW Card Bulletin 54: Why banks fail at analytics. Purchase your subscription today to obtain the full article. Contact sales@macawresearch.com. 

Mobile Payment Devices

Square has paved the way for a new category of mobile card acceptance devices. These devices, which typically plug into a smart phone or tablet, enable consumers and small merchants to accept card payments. New entrants are popping up with increasingly smarter solutions, and many banks are wondering what is going on and how to respond. 

The number of companies offering devices to transform a smart phone into a card acceptance device is increasing rapidly in the US and across Europe. Square, Intuit, iZettle, PayPal, mPowa, Elavon, SumUp, ChipCap, and a handful of other companies all apparently want a piece of the pie that acquirers have previously ignored. 

As per June 2012, Square has enabled no less than two million individuals, small businesses, NGOs etc. to accept card payments. These segments that could previously not justify the cost of buying or renting a payment terminal with an acquiring agreement are willing to pay a merchant service fee of around 2.75% as long as the card acceptance device is free or low cost to obtain. 

In its simplest form, the card acceptance device is a small card reader that plugs into one of the ports on the smart phone or tablet (e.g. microphone jack or USB), or it can connect via Bluetooth or NFC. The user interface is delivered through an app downloaded typically through App Store or Google Play (for iPhone and Android-based phones respectively). Often the app supports manual card detail entry in the absence of a card reader, i.e. a CNP transaction, which also entails a higher merchant service fee (typically 3.5% + a fixed fee). US-based companies tend to only support magstripe transactions, whereas European ones either support chip or both. 

The majority of solutions involve the cardholder signing with his finger, i.e. signature. However, this appears to be a perceived issue with Visa Europe. Earlier this summer, iZettle which uses Chip + Signature was no longer allowed to handle Visa transactions outside Sweden. The reason provided was that the iZettle reader did not fulfill the Visa requirements for payment devices. SumUp, one of the latest entrants, claims to circumvent this issue by sending Visa cardholders a text message with a secure link, which they have to access to manually enter their full card numbers (which sounds highly cumbersome and probably is). (...)

This article is an extract from MACAW Card Bulletin #51. To access the full article and subscribe to the MACAW Card Bulletin, please contact sales@macawresearch.com. 

European Cybercrime

The European Commission recently released a special Eurobarometer report on Cyber Security. 26,700 people across all EU member states have reported their internet use, concerns and measures against cybercrime, including for online banking and buying goods and services online.

Around half of the internet users in the EU say they buy goods or services online (53%), use social networking sites (52%), or do online banking (48%). There is considerable variation in the online activities that respondents undertake in different countries.When using the internet for online banking or shopping, the two most common concerns are about someone taking or misusing personal data and security of online payments.

12% of internet users across the EU have experienced online fraud, and 8% have experienced identity theft. The majority of internet users in the EU (61%) are concerned about experiencing identity theft.

Internet users have changed their behavior in a number of ways because of security concerns. 37% say that they are less likely to give personal information on websites, while 43% do not open emails from people they don’t know. 51% have installed anti-virus software. However, more than half (53%) of internet users in the EU have not changed any of their online passwords during the past year.

24% of internet users access the internet through a smartphone, but most use a desktop computer (63%) or a laptop computer or netbook (61%), and 6% use a tablet computer or touchscreen.

Respondents in Sweden, Denmark and the Netherlands are more likely to be frequent internet users (83% accessing the internet at least once a day), to use the internet for buying things (80%, 78% and 76% respectively) or for online banking (87%, 87% and 84%). In these countries, respondents are also less likely to be concerned about being the victim of cybercrime.

Food for thought.

Mobile and online what?

MACAW is often asked about our opinions on online banking, mobile banking, mobile payments and digital wallets. Some people even use this industry jargon interchangeably to much confusion. So we always ask what people mean by these terms, and if they don’t know what to answer, we ask more specific questions. More often than not, people struggle to define what they are actually asking about. Maybe not so strange given the complexity of current day payments, so why not clean up the terminology a bit to reflect how the world is changing?

For example, is accessing your online banking facility through a mobile web browser defined as mobile or online banking (or both?). What if you substitute a mobile with another device such as an iPad? Is the term mobile payments reserved for non-bank payments conducted via mobile; what about remote vs. proximity payments; or whether or not the transaction involves a card account? See – it quickly gets complicated. Hence there is a need to define a common industry terminology, and that’s our goal. Let's begin with online banking and mobile banking.

The term online banking certainly made sense when it was introduced, and the browser on the computer was the only mode of access to the internet banking facility. But you can also access the online banking facility with a web browser on a mobile or other device. Is that mobile banking? Not in our book. A browser is a channel or mode of access irrespective of device. Redefining online banking as 'browser banking' is historically and technically accurate. Why retain an old world term when we can use the more precise term ‘browser banking’ which leaves less confusion?

Similarly we suggest replacing or supplementing the term mobile banking, which two device specific channels, SMS and Apps, are no longer reserved for mobile phones. These modes of access are available via other devices such as an iPad. Thus MACAW would suggest a channel-based rather than device-oriented terminology. We can substitute the term mobile banking with ‘SMS banking’ and ‘App banking’ to help clear up the confusion.

So let's abandon online and mobile banking in favor of browser, SMS and App-based banking. A channel/access mode approach removes some confusion and is device neutral.

Gamification

Gamification can be defined as “the use of game design techniques and mechanics to solve problems and engage audiences to generate desired behavior.” Gartner Group estimates that up to 50% of all companies will use gamification by 2015. Whether a bank wants to sell more products, increase card spending, educate their customers, or make their loyalty program increase retention by heightening customer engagement, gamification can help achieve these objectives.

Banking rewards are traditionally related to packaged accounts and credit cards. Customers with a certain asset size and/or number of products qualify for a packaged account, which typically grants lower fees and interest charges or added services such as concierge service compared to not having a packaged account. This does not really engage the customer, but builds a negative barrier to switching. Credit cards have traditionally relied on spending related rewards; in whether as flat or tiered cash back or point-based bonuses on spending.

Airline and fuel loyalty programs are traditionally tiered based on spending levels, and while there are certainly cases of customers that work hard to reach and maintain the higher tiers of these programs (e.g. going on “air miles runs”), this is not really a fun, engaging and brand-strengthening approach to building loyalty and desired customer behavior. So how can banks and cards be smarter than simply offer generic spend-based point rewards?

The first thing a bank or card program manager should ask is “What do we want to achieve”? Do we want to attract more customers, increase loyalty, cross-sell more products, increase a desired behavior, decrease an undesired behavior, educate our customers etc. Once we know, we can set objectives for our program and work to drive customers to those goals through fun and rewarding engagement using elements such as achievement points and badges, mini-games, leader boards, progress bars and other game elements.

To make card spending more interesting, one could give the cardholder achievement rewards for using the card in 5, 10 or 25 different MCCs in a certain period, at certain partner retailers, or for example in one or more different countries or continents. If the card issuer is facing fraud problems, educate cardholders by rewarding them with points for completing educational programs in the form of viewing instructional videos and then doing mini games such as quizzes. If we want to increase cross-sales, we could give new customers bonus points for signing up to new products, such as id theft insurance. These are just a few examples of how banks and card issuers can use gamification to drive desired behavior.

This blog post is an excerpt from MACAW Card Bulletin 41: Differentiation with Gamification. If you would like to subscribe to the MACAW Card Bulletin or hire MACAW to help your organization exploit the potential of gamification to reach your sales and marketing goals, please call +47 412 69 669 or e-mail post@macawresearch.com.