What 2014 Told Us About FinTech in 2015
In 2014, frictionless omniCommerce was on the cusp of becoming a reality. Competition between large retailers has driven the implementation of omni-channel strategies, as innovations in the space have helped transition omniCommerce from buzzword to crucial element in ensuring the future of their businesses.
Central to any omniCommerce strategy is the increased availability and adoption of mobile devices which have allowed commerce to transcend across multiple channels. The challenge that remains is one of effectively engaging with customers across these multiple channels, offering convenient multi-device payment methods, while at the same time collecting valuable data that allows a business to offer tailored discounts, coupons and promotions to entice spending, often through branded mobile apps.
While mobile has grown somewhat as a method of making a purchase, in-store mobile use has grown exponentially. According to a Vantiv survey in 2014, 43 percent of consumers now use mobile devices while shopping, spending an average of 11 minutes on their phone or tablet while in the store. Of that 43 percent, about 40 percent of them compared prices online, while others checked online reviews or communicated their possible purchases through social channels.
With a seemingly neverending series of high profile hacks and breaches concerning major retailers in 2014, security will be high on the priority list for enterprise in 2015. Newer solutions, such as Apple Pay, rely on tokenization to keep personal financial information safe, however these newer payment options are still viewed as a less-safe option than credit and debit cards by the average consumer.
Contrastingly, Forrester reports that although security related budgets will increase, there is no guarantee of actual security: “In 2015, there will be large increases in security budgets, with double-digit growth in some sectors… [but] more security budget doesn’t guarantee better security or even increased security maturity… A large majority of companies will discover a breach but botch the response.”
This security deficit will arise from increased digitization mixed with a poor industry response to potential threats. While as much as 60 percent of enterprises will discover a breach in 2015, only 21 percent of enterprises report that improving incident response is a critical priority, according to Forrester.
Cards & Payments
After years of debate, speculation, confusion and rejection, EMV is finally being adopted by the Payments Industry’s single largest market; the USA. The clear benefit that comes with the introduction of EMV cards is the reduction of card-present fraud, however this will probably lead to a surge in card-not-present fraud. Overall, card fraud is estimated to cost the United States economy over $8.5 billion per year. This figure could rise to over $10 billion by the end of 2015 if there is a lack of significant progress with EMV card adoption.
Tokenization of card information has been around for a while as a concept, but the major security breaches of 2014 have seen the concept gain momentum with American Express, Visa and Mastercard all launching their own tokenization services in 2014. The rise of tokenization won’t be a straightforward road to traverse, however, with issues relating to multiple live tokens per account, multiple token types from different entities and the continued determination of fraudsters to crack the codes and gain access to the associated accounts.
Host Card Emulation is still in it’s early stages, but has been picking up steam among mobile operating systems and has also gained support from some of the major card schemes in 2014. HCE mimics a payment card on a mobile device using software, and allows users to pay using their smartphones with payment information that is stored in cloud-based servers. This information is transmitted from the cloud server to an NFC-enabled mobile device and then to a Point-of-Sale terminal in a fast, secure manner. On December 18, 2014, Canada’s largest bank, the Royal Bank of Canada, became the first North American bank to begins trials of the technology. 2015 Will see further break-throughs and innovations in this space, but probably won’t be the year that we get to leave the plastic at home for good.
While competition in the mobile payments arena has continued to flourish in 2014, overall usage and in-store acceptance has remained relatively minor in comparison to cash and cards. Despite this slow pace of consumer uptake, mobile payment transactions are forecasted to reach close to 50 billion in 2015.
Mobile payments are also attractive due to the type of consumer they attract – 2 out of every 3 consumers in the United States are “mobile enabled,” with usage being spearheaded by young adults and high earners, 2 of the most attractive market segments for retailers. This forecasted boom in mobile payments has attracted numerous large players into the mix, with Visa, MasterCard, PayPal, Google and most-recently Apple, all seeking to increase their mPayments market share.
The boost provided by new mobile wallet services such as Apple Pay has also breathed life back into NFC, with point-of-sale system manufacturers betting big on NFC being the driving force behind the next wave of payment innovation as EMV is rolled out in the United States.
Recently labelled by Warren Buffet as a “joke,” we’ve all heard about Bitcoin’s woes by now. Beginning the year valued at close to $800 per coin, a sharp descent in February decimated it’s value, from which it never recovered. At the time of writing this article, it’s value is closer to $275 per coin and is still struggling with news of even more security breaches effecting large Bitcoin exchanges.
With that said, and despite the significant drop in value, there has been some good news for Bitcoin in 2014. According to Coindesk, Bitcoin startups raised just $2 million in 2012. In 2013, this figure rose to $94 million and 2014 saw this number rise significantly to $314 million. Some notable merchants also began accepting Bitcoin for payments, including Microsoft, PayPal, Dell, Shopify and Expedia.
Despite the large amounts of money invested in Bitcoin startups, and the uptake in merchants accepting Bitcoin, the number of Bitcoin transactions each day has failed to even double since the beginning of 2013. The current lack of real-world applications for Bitcoin means that the stigma of it’s two predominant uses, buying illegal goods and services, and hoarding coins in the hopes of increasing value – remains at the forefront of it’s image.
Fintech Vs. Traditional Banking
The past few years have seen alternative lending go from strength to strength. In December, peer-to-peer lending service Lending Club went public, raising $870 million, making it the largest tech IPO in the United States in 2014. According to a recent Bank of America survey, 14% of millennial small business owners have turned to non-traditional lending services – substantially more than older generations.
What this means for traditional financial institutions is that they must adapt in order to compete with innovative technologies as their margins are eroded by these newer players who are unburdened by mammoth legacy systems. Technology investments made by traditional financial institutions will rise in order to enhance the delivery of customer services and facilitate the use of customer analytics to deliver contextual experiences.
As traditional banks continue to reduce their branch footprint, video-based and other remote digital services will become more appealing. So too will the mobile space as accessible and consistent digital banking services aim to become central to consumers financial lives.