Microsoft launched an Xbox Mastercard last week exclusively for US users enrolled in the Xbox Insider program – members of which can preview and provide feedback on new Xbox features and system updates. Starting from the continental United States, Alaska, and Hawaii, the initial launch will be followed by common availability for all Xbox gamers by next year.

Issued by Barclays, the no-annual-fee card comes in five designs and offers points on purchases made at the Xbox or Microsoft store that can be redeemed on games and add-ons on Xbox.com. Eligible purchases at the Microsoft Store earn 5 points for every $1. Purchases can also be made on other platforms including streaming services such as Netflix and Disney +, and food delivery services like Grubhub and DoorDash. Eligible streaming and food delivery services earn 3 points for every $1.

The co-branded credit card also offers an introductory sign-up bonus of 5,000 points equivalent to $50 value and three months of Xbox Game Pass Ultimate for new Game Pass members after the initial purchase.

Why launch an Xbox-centric credit card?

Lockdowns, technology, and mobile devices have increased the accessibility of video games. Nearly 3.2 billion people — around half the world’s population — are estimated to have played games in 2022. Gamers spending a portion of their income on video game-related purchases makes the case why Microsoft capitalized on an opportunity to roll out a credit card targeting this segment.

“We know players are interested in getting more value from Xbox, and we’ve heard feedback from the community that they want more ways to get value from their purchases,” said the Xbox spokesperson in the announcement.

Moreover, it appears that the card launch is a step forward for Microsoft’s strategic plans to shape the commercial components – grow revenue and engagement – of its Xbox ecosystem. The tech firm plans to expand its Xbox Game Pass subscription service into new markets via cloud computing to reach additional customers. The company expects the service to surpass 100 million subscribers between 2029 and 2030, according to recently surfaced documents of the ongoing Federal Trade Commission vs. Microsoft case.

Mastercard, on the other hand, has forged various partnerships with video game firms over the years and most recently partnered with Xsolla, a video game commerce firm to provide customized payment options for video game players, developers, and creators. 

Although Microsoft and Mastercard have collaborated in the past, this is the first time the two have come together on a co-branded gaming card.

Embedded finance in gaming: A hit or missed opportunity?

Although the card comes in different designs with an option to customize it with a Gamertag, some believe that isn’t enough given its positioning as a modern gaming card. According to critics, newer options could have been inculcated by the brand in terms of the application process, accessibility, and loyalty points – overall enhancing the brand value and user experience.

Users can only manage the Xbox card from the Barclays banking app. This feels like a missed opportunity – financial products can now be operated and managed directly within a brand’s app without interrupting the user experience while allowing businesses to maintain brand consistency and in some cases, control over the customer experience. This can also enable brands to access customer data and spending patterns to better anticipate their needs through the card program. 

One such example is the Apple Card by Apple in partnership with Goldman Sachs. The Apple credit card is integrated into Apple’s Wallet app and has a control panel that can be managed from any Apple device. Starbucks also uses its card to enhance its customer experience and fuel revenue through its app and in-house Starbucks Rewards, regarded as the most successful loyalty program in retail. 

Lastly, the Xbox card rewards are not tied to the Microsoft Rewards program and are limited to and only redeemable for Xbox purchases. This means the rewards are wired within the Xbox ecosystem and can only be used to buy more Xbox-related things, in the form of games or hardware. This could limit the card’s appeal to those users who decide to stick with the flexibility of a standard cash-back credit card or just want to continue their enrollment in the Microsoft Rewards program. Microsoft’s rewards can be earned by using any of its services and can be redeemed at partner retail outlets outside the Microsoft store, in addition to Xbox purchases.

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Fast fashion may have brought trendy and runway-ready clothes to the general public but it has also cost the planet dearly. Consumers now buy more and more often and their purchases are more focused on seasonal trends rather than pieces that will last them a long time. All of this means more clothes are produced and discarded than ever before. Currently 92 million tonnes of textile waste is produced every year and the apparel industry’s carbon emissions are expected to increase by 50% by 2030, the same year by which we will run out of our “carbon budget”. 

One way to cut down on these emissions is to encourage more conscious buying. But for consumers, making conscious buying decisions can be difficult. This is because consumers are often misled with corporate smoke and mirrors around carbon emissions, and once a purchase has already taken place, there is very little to no incentive to take care of products that you currently own because reselling processes are difficult and full of friction. 

Ecommerce retailers have a role to play here, as consumers shift to online shopping, retailer websites and online shopping destinations serve as a source of information and can nudge consumers in the right direction. Klarna’s recent update to its platform aims to do just that. 

Recently, the company announced a new shopping dashboard, a CO2 emissions tracker, and sustainability certification filters that aim to remove the friction from conscious buying. “Whenever we provide consumers with this information, we’re not just responding to the demand that we see from consumers that want to shop more sustainably. We also consider our role with regards to a systems impact in the world,” said Salah Said, Klarna’s head of sustainability. 

The updates

The new dashboard: The new dashboard serves as a centralized hub that shows a  consumer’s overall CO2 impact, and highlights brands that prioritize environmental sustainability. The dashboard also curates editorial content on how consumers can take care of their purchases and educates them about sustainable practices. 

Sustainability certification filters: The new search filters allow consumers to identify products that have sustainability certifications by third-party organizations like Global Organic Textile Standard (GOTS), People for Ethical Treatment of Animals (PETA), and Cradle to Cradle.

Many consumers make their purchases not because of a product preference but due to their affinity for a brand. And these preferences are built by analyzing whether a brand’s policies and values align with their social values.

“A lot of consumers really care about whether the brand shares their values. And ask questions like, what do they do on a corporate level?” said Said.

To make shopping with environmentally conscious brands easier, consumers can now filter brands based on their sustainability ratings. The ratings are provided by Klarna’s partner Good On You, which scores brands on a five-point scale, based on their environmental impact on people, the planet and animals.

“We decided to take all the four and five star rated brands, and highlight them to consumers,” he added.

CO2 emissions tracker: 57% of consumers want to understand their emissions impact when shopping online, according to a survey by Klarna. This is why Klarna’s emissions tracker provides product level information on the emissions of an item and breaks it down to each stage of the product’s lifecycle. From this month, this tracker will be able to show emissions information on Health & Beauty and Electronics through the data provided by Vaayu.

“We wanted to make sure that it’s not just an estimated value based on a merchant category. We wanted to look into the specific details of a product, such as its origin, weight, source, manufacturing process and delivery. Which is why we provide the consumer with this lifecycle status breakdown,” Said added.  

Currently, 320,000 consumers monthly come back and check their carbon footprint, according to Said.  He also added that since the app reaches 150 million consumers and half a million merchants, it is in the “perfect sweet spot” to encourage sustainable shopping and manufacturing. 

Sustainability as business value and as value for business

When Big Corp is confronted with its impact on the environment, many organizations begin to pay lip service to sustainability by greenwashing their products, processes, and marketing. Klarna is setting an example that goes against the grain.

For one, the company has focused on reducing its carbon impact within its own operations by taxing its emissions. “We don’t believe in offsets,” Said said. Although carbon offsets are a growing industry pattern, they run the risk of compensating for emissions that may come in the future rather than solving for the carbon that is already in the air.

“Instead of going and offsetting emissions, we wanted to make sure that we support solutions that we need right now,” he added. 

The company aims to reach net zero by 2040 and the carbon tax that it has levied upon itself has resulted in $5 million in contributions to 20 organizations that work on decarbonization of the atmosphere.  

These climate conscious internal policies have carried over to how Klarna designs its core shopping product. While the new update encourages conscious consumption, existing features like “Resell” ensure that customers can give another life to products that they already own. Moreover, since the fintech’s digital interface privileges brands that are environmentally friendly, companies have a vested interest in improving their commitment to the climate and decarbonizing their manufacturing processes.

In a nutshell, Klarna aims to become a shopping destination not only for those that want to shop consciously, but also for those who want to cater to this growing consumer segment. 

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Uneven market conditions nationally, rate volatility, economic uncertainty, affordability challenges, limited inventory, and soaring home prices are rendering a difficult home buying and refinancing market for Americans. BMO’s published a survey that reflects this strongly:

• The survey reveals that 64 percent of Americans are delaying their homebuying plans due to mortgage rate concerns – they are waiting for mortgage rates to drop. Additionally, only 6 percent of Americans plan to purchase a home this summer, as elevated rates and home prices impact affordability.
• Furthermore, among those planning to refinance, 81 percent are waiting for rates to drop.

On this episode of the podcast, I’m joined by Tom Parrish, managing director of consumer lending product management at BMO. We discuss the impact high interest rates and economic uncertainty are having on consumer home buying and financing decisions and how BMO is responding to help its clients and prospects.

Here’s my conversation with BMO’s Tom Parrish.

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The following excerpts were edited for clarity.

A challenging market

Tom Parrish, BMO: In general, there are a couple of different dynamics that are going on in the market. I think the biggest one is the lack of housing supply, which is driving a bit of a resurgence of home price growth. And it’s supporting increased levels of new home construction, given the lack of supply. But it’s also really impacting affordability. So for individuals looking to come into the market to buy a home, obviously, affordability is probably the biggest issue at this point because of where some of the home prices are.

Pushing off buying and financing

I think folks are definitely delaying buying homes. And you can probably put it into a couple different buckets. Personally, I and many others are sitting at very low rate mortgages, where we refinanced a number of years ago. So you have a dynamic of a lot of existing homeowners aren’t looking to sell in this market. I might sell and be able to make a lot of money on my house. But then where do I turn to? And what do I have to have to buy? And how much more from an interest rate perspective would that equate to for my next payment on maybe a larger house? So I do think you have some folks that are delaying potentially upgrading in this dynamic given what’s happening in the market.

And then you have others that want to enter the market, where housing prices and interest rates are putting pressure on them actually getting into a new home around that affordability challenge. That’s the other dynamic — they really need to be saving more in this environment. The good news is obviously getting something for your savings. But, that’s the dynamic that we’re in right now. You have a lot of existing homeowners that aren’t putting their houses on the market, and you have customers, new home buyers who want to get into the market, but there’s not a not a huge supply. And prices are high. So that’s preventing some folks to actually step in the market at this point.

Younger home buyers

I think given where average home prices are at this point, it does put pressure on that first time homebuyer to get into the market. And the key, though, we continue to see, is educating first time homebuyers as they want to consider getting into the housing market and buying that first home and what to expect, so even though you might be delaying entering the market right now, education is always critical. So you understand what’s really required. Saving up for that downpayment.

As the market does and will change over time, I think hopefully some of the affordability will ease a little bit, open up further, especially as new construction goes on. And the dynamic — not everybody can sit on that low mortgage rate forever. People do move. Life events happen. So there will come a time when it will be right for those folks to get into the market because they’ve saved enough and they’re ready to take that added step to get into into a new home.

Educating consumers about home buying and financing

We have a lot of great content on our public site to educate borrowers around the home buying process and what to expect. We also do work in our communities. We hold a number of different homebuyer seminars, especially for first time homebuyers looking to get in the market. We have a robust product offering that has a number of low downpayment assistance programs for folks wanting to get into the market. We also have a robust mortgage group with mortgage bankers that are here to help assist customers, as they want to talk to somebody and educate themselves on how to get prepared and what things they need to do.

Looking for credit

You definitely do see [tapping new sources of credit outside of mortgage], and it depends on geographies. It is much more prevalent as first time homebuyers and some folks are getting gift funds from family or friends that are helping gift a part of their downpayment. That’s maybe even more prevalent than a number of years ago, so gift funds are definitely in there. And then there’s a lot of great downpayment assistance programs. BMO has grant programs for low to moderate income borrowers to help them get into homes. We have programs as little as 1% down from the borrower. And then you can add downpayment assistance to cover the other aspects for your downpayment. So that allows you to get into that home much sooner, potentially.

Anxiety around owning a home

Buying a home is a big decision. So there is a lot that goes into it. And that’s why education is, I think, critically important to get confident in your home buying experience. Work with a trusted bank like BMO and our advisors that help you through that process to make sure you can get confident in your decision and understand all that comes with buying a home. I think that’s what can help alleviate some of that anxiety. Because it’s one of your biggest assets that you’ll have in your life. If you’re moving from renting to owning, you want to be confident in making sure that’s the right choice for you and you’re not getting yourself in a position where you’re going to be house poor.

You know at BMO we all want sustainable homeownership — at the end of the day, it’s about getting somebody into that first home, and having them succeed in that home and grow over time. So educating them upfront on what’s really needed to get there. It’s not just that downpayment — you think about all the other expenses that come with owning a home and just educating yourself about what to expect.

How prepared are customers

The mortgage market is very competitive with a number of banks and non banks out there. Depending on where customers are in their journey, if they’re buying their second or third home, and they had some experience with it, they are looking at banks and non banks for the options. At BMO, we’ve also created a lot of robust mortgage programs to help various types of customers, whether it’s the affordable space or we have a very robust physicians program that we offer for new physicians that are coming into the market.

Enclosed construct — if you want to build a house. We talked about the lack of housing supply, but we’re seeing a big increase in a building. So having a competitive product set to help meet the needs of various customers is critically important.

We’re looking at it also from a relationship standpoint. So it’s not just a mortgage to BMO — we’re looking to create a customer around that mortgage, bringing the most resources in deposits and investments to the table to help that customer make real financial progress, whether it’s owning a home or saving for retirement, I think is important that we’re just not looking at it as one standalone product.

Targeting specific demographics

I think we’ve done a lot to create unique areas to help our customers, whether that’s our robust downpayment assistance programs to help in the affordable space. We’ve created our own portfolio product to help individuals in that space, as well. And that’s what’s unique about BMO — we can create programs that we put onto our portfolio versus a lot of non banks, which traditionally sell agency products, which they they sell to Fannie and Freddie. We’re able to create customized programs or products to help serve various needs. Again, back to affordable all the way through high end wealth customers that may need some different sorts of programs, like interest only loans that we do on the higher end wealth side. That’s kind of common in the industry. But that’s where we have that breadth across the board to really serve our customers in the various life stages that they might have.

Integrating Bank of the West

We are coming together as one organization with our recent acquisition of Bank of the West. As an organization, we’ve grown in significant scale and we have a great opportunity to help our customers in their home buying journey. I have a big mortgage team that has been added as part of that acquisition, so I’m excited for them to be part of BMO. And as I look forward, it’s heavily focused in the purchase market right now, given the dynamics of where rates are. We have a great sales team that’s out there on the street working with realtors, working with customers, to help individuals with their home buying needs. We continue to invest a lot of time and effort into our product set and into our policies, so we can serve our customers through the various life stages.

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Starting your financial journey early literally pays off in America. But 3 out of 4 teachers in the country report that students rarely or never learn about personal finance. Which means that most students not only miss opportunities to learn about finance and save money early, but are also ill-prepared for the financial decisions they will face once they start to lead independent lives. 

Family banking app Greenlight has multiple financial products aimed at younger generations and their families, like the financial literacy game Level Up and teen debit cards. The company has also partnered with a children and family-focused financial literacy podcast Million Bazillion by Marketplace from its first season, renewing its partnership with the Webby-winning series for 5 seasons. The podcast is hosted by Bridget Bodnar, senior producer for Marketplace’s podcast and Ryan Perez, who has a penchant for comedy and has previously written for The Tonight Show with Jimmy Fallon and Saturday Night Live. Together the pair explain complex financial topics like recessions and insurances through a comedic, story-based format. 

Greenlight has now launched its “Million Bazillion Live! Who Wants to be a Bazillionaire?” tour,  which will bring financial education in a game show format to middle schools in 20 cities across the country. 

Million Bazillion Live! Who Wants to be a Bazillionaire?

The Million Bazillion Live! tour will kick off in the East Coast with two, ten-week long programs. The first leg of the tour will visit multiple middle schools on the East Coast, touring cities like Austin, Kansas City, and Dallas with a 30-minute game show where students can win prizes by correctly answering questions about financial matters. The second leg of the tour will begin in spring 2024 in the West Coast. 

The Million Bazillion podcast team is in charge of hosting the game show. “It’s a very modern take on an important topic where kids will compete and win prizes. All while learning about core money topics,” said Jennifer Seitz, Greenlight’s director of education. 

In certain cities, the tour has also planned a family game night where parents can join and learn about important financial topics together with their kids. The Million Bazillion team and Greenlight are targeting middle schoolers because they are the primary audience of the Million Bazillion podcast and  because middle schoolers have limited knowledge of personal finance. “Some high schools have financial education, although it is not required and many states do not have it. But middle schoolers have less exposure to the topic. This is a range where kids can still learn and begin to form habits and attitudes about money that will set the groundwork for their financial journeys,” Seitz said. 

The tone of the game show is set by the podcast Million Bazillion, which in its 5 seasons has cultivated a deep understanding of how to connect with teenagers; the podcast is replayed 100,000 times monthly. “Our On-Demand Team, led by Director Bridget Bodnar, has a real pulse on what this age group already knows vs. what constitutes a lesson. If you want to impress middle schoolers, you need to really wow them with a fun experience. So, we transformed our podcasts into this high-octane, interactive performance,” said Neal Scarbrough, vice president & general manager of Marketplace. 

Even though schools don’t generally offer financial education, students are eager to learn about the topic and tend to have a deep curiosity about how money works in the real world. “We do see that students have real philosophical questions about the money they know they will soon need. Like, who sets the price of rent? How does a credit card work? Why would women make less than men? They usually know there’s something behind a simple question that grownups need to stop and explain,” Scarborough said. 

To engage its audience, the Million Bazillion podcast creates scripted scenarios that immerse students in funny stories as well as raise questions about money. The game show tour is taking these learnings on the road. Greenlight’s ongoing partnership with Marketplace has helped the podcast air for half a decade and also funded Marketplace’s video podcast for young adults called Financially Inclined. “Our shared visions of financially savvy families and kids are in lockstep, and they have consistently partnered with us to help deliver this important content to our future bosses,” Scarborough added.

The game show is a point of entry

Greenlight is not hoping for a one-hit wonder with this campaign. Instead it is using the tour as its foot in the door for reaching more eyes and minds than it has before. Greenlight will continue to have a presence at the middle schools in the tour, even after the game show is over, because many of the schools have opted into its “Greenlight for Classrooms” product. This is a K-12 personal finance curriculum for schools in the form of a free, web-based library of lessons and teaching materials. Already 500 teachers across the country have signed up for Greenlight for Classrooms, according to the fintech. 

The fintech also has products that go beyond the formal teaching environment of a school. Its financial literacy focused game Level Up has supported over 1 million lessons, which were completed with an average score of 88.4%. 

Greenlight has both B2C and B2B products which seem to feed off of the success of the other. For example, the fintech launched Greenlight for Work this year, which is a benefit program through which employers give their workers  access to a suite of family finance and education products. Similarly, Greenlight for Banks allows banks and credit unions to offer Greenlight’s banking and education products to their customers, for free. Its personal finance app has 6 million users and when the Million Bazillion tour comes to an end, the company would have toured the country, in search of many more. 

The post Who Wants to be a Bazillionaire? Greenlight’s game show hits the road appeared first on Tearsheet.

The term ‘neurodivergence’ encapsulates cognitive and developmental conditions like color blindness, ADHD, and autism. About 15%-20% of the world’s population is neurodiverse. But the financial industry rarely keeps the needs of this consumer segment in mind when designing its products and services. 

The fallout? Neurodiverse individuals find financial services and products difficult to use, which negatively impacts their financial health. About 38% of those with cognitive conditions in the US report feeling financially vulnerable. Fortunately, active advocacy and a recent focus on user-centric design has been changing how digital products are designed across all sectors, including financial services.

The financial industry is busy making its products more accessible, for example banks like Capital One are making accessible products by building subject-matter expertise in-house as well as partnering with accessibility technology providers. Similarly, credit unions are also stepping up to the challenge. Given the wide spectrum of accessibility needs of the differently abled, how do FIs improve and retool their technology to ensure their products are usable for all?

This is how Park View credit union answered the call.

Listen closely and partner well

Park View’s interest in ensuring its products are accessible arises largely from its member base. “Park View has a very diverse membership, we have a younger demographic, and we also have a presence in multiple retirement communities. Our folks that live at retirement centers need a very simplistic look and feel, they want to have an enlarged font, they want their colors to be just clear and clean, they don’t need bright, splashy interfaces,” said Tanya Holland, Director of Digital Operations at Park View Federal Credit Union. 

To cater to the needs of its member base, Park View decided to partner with Mahalo Banking, a banking technology provider that is focused on building software for credit unions. After one year of planning with Park View and another in development, Mahalo Banking was able to deploy an interface for Park View that was designed with neurodivergent individuals in mind. 

Initially, Park View switched partners due to questions about its current efficiency and resource utilization. The credit union felt that its very robust technology core was not currently being leveraged as well as it could be. “We knew the power [of our core] wasn’t being leveraged, nor was it on the roadmap to be leveraged. And we really wanted to allow our members to access that same power that our staff could, and we also knew that the digital branch is our largest branch. As we looked down the road, we saw that was not going to be accomplished, so we began the search,” added Holland.

The credit union also considered building its technology in-house but didn’t go down the road due to the technical and resource lift it would require. “Due to the compliance side of it would and because it would require spinning up an entire new team and department. We decided that building capabilities in-house wasn’t where we wanted to go,” said Holland. Assisted by a consultant, the credit union settled on Mahalo Banking. 

Nothing about us without us

Often accessible products emerge from the lived experience of those who are differently abled. Mahalo Banking’s COO and co-founder Denny Howell is red and green color blind and his focus on developing a product that catered to neurodivergent individuals emerged from his own experiences developing software for the company. “I was doing a demo session with our development team on some new features we implemented and I just had a hard time seeing some of these,” said Howell. 

He added that for most banks and credit unions, their credit section is red-themed and debit is green, both of which “do nothing” for him. Hence, he and his team tried to identify more things that are beyond the scope of the ADA (American with Disabilities Act) and they “dug into it, and developed an interface for every form of colorblindness out there,”.

For its platform, Mahalo Banking consulted with doctors from the University of Michigan and Harvard Medical Schools, specifically regarding ADD and ADHD. These consultations helped them design their button hierarchies and text, as well as simplify their overall interface. Their platform also offers special fonts that are easier to read for those who have Dyslexia, light and dark modes, and the ability to switch the entire interface from left-hand mode to right-hand mode. Moreover, users can also switch off animations which can prove to be distressing for certain neurodivergent individuals. 

Credit unions are very member-centric and the needs and composition of their clients play a huge role in determining their priorities, according to Howell. “25% of their membership had a difficult time using their app. Or worse, maybe they’re not engaged in digital banking at all. So we really wanted to kind of solve that and bring it to the forefront,” said Howell. He also added that having neurodiverse people on staff has proven to be an asset in building this product. 

Notification: Your product is now accessible!

To ensure that consumers and employees  at Park View were aware of the changes the credit union had made, it  ran an awareness building and marketing campaign. The internal HR team assigned ambassadors whose job was to communicate about the new interface with the added benefit of bringing candy, popcorn, and ice cream to each branch they visited. “We did a bingo card as well. So every employee, even if you never worked with a member, was still required to complete a large bingo card where you had to go through the new Mahalo product and find all the features and functionalities. So everyone had that same positivity and energy prior to the launch, and it worked out extremely well,” added Holland. 

Park View’s example shows that accessibility is much more compliance. It can materialize as a question of finding partners that help make the most of current investments, it can come as a response to consumer needs. It is about attempting to build the best of both worlds: a financial product that an FI is proud of and an accessible experience that respects the dignity of its users. 

The post How a tech partnership helped a credit union retool for accessibility appeared first on Tearsheet.

As lenders become increasingly digital, they need to continuously manage the tradeoff between making really smooth experiences for their customers with becoming targets for fraud. 

Plus, marketing funnels aren’t monolithic – helping prospects move from kicking the tires to applying for a loan needs to be balanced with making sure lenders are attracting the right, profitable people. It doesn’t help anyone if a marketing funnel becomes overly optimized for an unprofitable customer. 

There’s a new class of technologies  lenders use to more efficiently onboard new, profitable customers and make sure they are who they say they are. That’s helping lenders like Regional Finance, a $1.5 billion consumer lender, stay focused on its business.

On this episode of the Tearsheet podcast, I’m joined by Chris Martin, Vice President, Head of Product Management, at Regional Finance. 

Also joining us is Matt Gomes, GM of consumer lending and banking at Argyle, a leading provider of income and employment data that does deep work in financial services.

I’m Zack Miller, Tearsheet’s editor in chief. Tearsheet has partnered with Argyle to create a four part podcast series that explores how different parts of the financial industry are using modern technology and access to new forms of data to power their businesses today and into the future.

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The following excerpts were edited for clarity.

Matt Gomes, GM Personal Lending and Banking, Argyle: Argyle is the leading consumer permissioned income and employment data platform, which effectively means that we allow us consumers to share their income and employment data with financial institutions throughout the credit spectrum and across a variety of use cases, kind of inverting the traditional way that the, you know, folks would verify income and employment by buying and selling consumer data behind the scenes. I’ve been with the company for for a little over a year at this point, and I’m actually a former Argyle customer. So I spent the prior five and a half years of my career at opportunity financial, worked with Argyle to launch a paycheck link loan program while there. And before my time at OppFi, I spent a couple of years at Avant, so about seven and a half, eight years of experience total in the US consumer lending space.

Chris Martin, Vice President, Head of Product Management, Regional Finance: Regional is a $1.5 billion consumer finance company. We offer personal loans through branch and digital channels. We currently operate in about 20 states, and are growing and expanding nationally. I have a pretty long history in fintech actually, before that name even became popular. I spent 15 plus years at Capital One. And my first role there, I was leading account management on the initial foray into booking loans on the internet. So it’s been a long time. And then over the course of my career, I’ve led digital transformation efforts typically at the intersection of technology, operations, and risk functions. I spent about two to three years in the startup world after leaving Capital One. I also spent some time in consulting before moving here to Regional.

Lenders’ challenges with digital

Chris Martin, Vice President, Head of Product Management, Regional Finance: It seems pretty straightforward on the surface, get leads, run your underwriting models, make loans but it definitely has challenges. One of the startups I worked with was challenged to get a mix of leads that had positive marketing economics — we were actually spending more money on getting getting the business than then we were making on the back end. I think that’s typical.

At Regional, we’re really focused on the risk side. So our lead flow is good. But the economics of the actual customers coming in, we still are working to tune our underwriting goals and really make sure that we’ve got the right customer that can be profitable on the back end. The current focus for the team is on getting ROI.

Fintech lenders and getting the credit model right

Matt Gomes, GM Personal Lending and Banking, Argyle: On the fintech side, both consumer lenders that I worked for were entirely digital — Avant and OppFi built their businesses entirely online. I agree with what Chris was saying: one of the real challenges is getting the credit model right and the credit performance right for folks that you don’t interact with at all in person. I think inherently, really regardless of where you are in the credit spectrum, you’re looking at a higher risk of fraud when you’d don’t interact with a human being.

And there’s a lot of different ways that that fraud can manifest itself. I think one of the more common ones is what I would call hard first party fraud — either you’re submitting fraudulent identification documents or fraudulent bank statements, income, proof of income, something like that. And those are really expensive loans to book. Even if it’s 1% or 2% of your issuance, chances are they’re not making any payments on those loans. So, it ends up having a really outsized impact on your overall loss rate. I think fundamentally, especially early on, that’s a much harder challenge to solve for if you don’t have any physical interaction with a consumer.

I think the industry has come a long way. Probably first on the scene were the banking aggregators, the Plaids and Yodlees of the world. That technology has been around for 10 to 15 years and I think it was the first tool in the tool belt to reduce that risk. And obviously, you’ve got folks like Argyle who are going to get that data directly from the source, specific to income and employment — another tool to talk about to fight that hard first party fraud.

Advantages to digital lending

Matt Gomes, GM Personal Lending and Banking, Argyle: On the flip side, I think there are some real advantages to being digital. First, as an organization — it’s very expensive to operate branches. It’s much less capital intensive to just have a centralized call center and a couple of offices and handle everything online versus having hundreds or thousands of leases, depending on the size of the company, to operate a national footprint. And I do think that, early on, [it makes sense] to invest a lot of the savings into getting the credit model right. And then from there, hopefully, you can turn that into a competitive advantage.

Traditional FIs and identity verification

Chris Martin, Vice President, Head of Product Management, Regional Finance: Historically, identity verification has been a highly manual and labor intensive process. Typically, associates request information from customers that’s then sent, hopefully not by email, but you still see that. And there’s a bunch of back and forth. As the customer submits information, the associate goes through the reviews of some mix of driver’s license, pay stubs, maybe a passport, utility bills — all that information is pulled together and collected.

There’s a lot of opportunity for fraud in that space. And honestly, it wasn’t that long ago, you might actually have had to wait for a postcard in the mail to validate your address. So companies have tried a number of different things with the technologies that we’re seeing with Argyle and others like it, it has the opportunity to really streamline that process. There are a lot of developments in that area.

Challenges for risk management

Chris Martin, Vice President, Head of Product Management, Regional Finance: We’re really heavily focused right now on risk management in order to scale our digital originations. We were having success in some credit segments, and we’re still focused on how you get the right mix of underwriting tools, some of the verification tools, potentially some onboarding experiences, that may look a little bit different.

It’s interesting, because even with the same customer, if we’re booking them online or if they’re booking a remote branch-assisted loan or in branch, you see pretty different performance for what you would think is the same customer across those channels. And the trick is to get that mix right without introducing so much friction that you wind up actually introducing adverse selection. Some of your best customers are actually chased off by the fact that the process itself is so complicated, and then you’re left with the customers that you might not want. So we’re experimenting with companies like Argyle in this space right now. We’re seeing some successes and still working to figure out the right mix.

Adverse selection in lending

Matt Gomes, GM Personal Lending and Banking, Argyle: I think it’s a real concern, frankly, throughout the credit spectrum. Logically, I think a lot of folks assume if you’re operating in this kind of prime/super prime space, risk of either adverse selection or fraud goes down because underwriting someone with an 800 FICO is less risky inherently than underwriting someone with a 550. And that’s true on a per-consumer basis, but I think one of the challenges is that with prime/super prime lenders like LendingClub, SoFi, and credit unions, the challenge that they face is that the average loan size, the average ticket size of what they’re underwriting is much larger than say what an OppFi would underwrite or what I believe Regional underwrites from looking at some of your earnings transcripts.

And so the challenge we have there is that it takes only a couple of bad loans to have a really material impact. And if you introduce too much friction, then high performing 800 FICO folks are just going to abandon your process and go to the next process. Online properties like Credit Karma or Lending Tree have made that easier and easier to do over time. So getting that mix right is definitely a challenge. I would say it’s the number one problem that a lot of our clients are solving in the personal loan space — how to introduce the right verification step to the right people at the right time, and do it in as frictionless a way as possible.

Argyle’s work to overcome hurdles

Matt Gomes, GM Personal Lending and Banking, Argyle: Like all conversion funnels, you’d like to believe that they’re really simple. Put X number of people and Y number of people can come out and be verified. We’re thinking about solving for this in a handful of ways. One of our big bets over the last 12 to 18 months has been on extensively mapping companies to SSO providers. One of the common questions we get is ‘great, love that you cover the majority of the US workforce, but how many people actually know their credentials? And the answer used to be, ‘well, a lot more than you think’ because 55% of people are actually shift based and they’re in there all the time. And another 20% are working gigs and we have great coverage there.

But now we have another answer that we can add to that, which is, well, even if you don’t know them, they do, however, know their Google credentials, which is the SSO provider we use to access everything, every day.

The other thing that we focused really heavily on is just data completeness and data accuracy. This is something that we worked a lot with Regional’s credit and risk teams to get their feedback. It’s great if someone connects to their payroll platform, but it’s not super helpful for clients if we don’t return useful data to them. So things like if ‘hire date’ is not actually listed in the platform, we can go back through all the pay stubs and figure out when they were hired, then we can calculate what the hire date was — things like that, so that we’re always returning the complete dataset that’s ultimately needed.

I do think that’s kind of a unique investment that we’ve made. Compare and contrast that against going back to banking aggregators that have been around a bit longer. Lenders need to do a lot more with that data to get to the same level of comfort with someone’s income level, if you only get, say, 30 days of transaction history — that’s not enough to say, hey, this person’s consistently making what they claim to make. So you need a longer history there, and just, frankly, a certain amount of cleanliness before you can run your own calculations.

Where things are working relatively well

Chris Martin, Vice President, Head of Product Management, Regional Finance: Where I would like to see the industry headed and where it actually is headed might be two different things. I think companies like Argyle, Plaid, and others that take customer-credentialed information and make it available to financial institutions to underwrite, I see those companies who are building out their products suite, reducing friction making it sort of easier and easier for customers to use my work sign in to have all of my data be available to my lender. I think that trend will continue, and companies will continue to bring those products together and make it kind of a one stop shop.

Pushing more power, transparency to the consumer

Where I would like to see it head would be more of a customer focus, and from a standpoint of the revenue and business model, have it depend more on just getting it right for the customer. I think the data aggregators are focused on solving for their client’s needs, which are the lenders, and you see customers to a certain extent suffering as a result of that. If you’ve ever tried to work with a credit bureau to get information off your bureau, or if, say, Argyle has an incorrect payment calculation in its software that leads me to get declined when I know I’ve got enough money for the loan, it’s going to be really, really tricky for customers to be able to have a means to address that, or an escalation path out.

The data is complex, and it’s going to be opaque. I think the customers are potentially going to suffer as a result of that. I’d really like to get a company to spearhead more of a customer advocacy position and give the customers the choice: Would I rather go to a company that maybe is more opaque, or maybe I can go to a company that has my best interests at heart? And I want you to use my company to go gather all this information.

Matt Gomes, GM Personal Lending and Banking, Argyle: I largely agree with Chris. I think the beauty of a platform like Argyle is that it is customer permissioned — it’s not data being bought and sold behind closed doors. People are aware of what’s happening, they know which institution their data is being shared with, and they can choose to no longer share that data with that institution. I’d love to be five years into the future and have 100 million plus people that have decided to credential in and make their data available via Argyle, and also have that data be available to each consumer.

I mentioned Credit Karma and Lending Tree — I think one of the really powerful things that both of those platforms has done is really improve a lot of consumers’ lives, making credit reporting available on a streaming basis, so it’s easier to find errors. It’s not necessarily easier to resolve those errors, to Chris’s point. It’s never been a fun experience for me. But at least it’s no longer as opaque as it was, say, 10 years ago. Platforms like Argyle are the next step in that direction, ideally being able to give every consumer a complete picture of what a lender might see when making a credit decision is ultimately the future that I’d love for us to get to. So yeah, I would say largely agree with you, Chris.

The post ‘Getting the model right’: How Regional Finance balances customer-centricity and fraud prevention in digital lending appeared first on Tearsheet.

Gen Z’s popular haunt TikTok is abuzz with payments activity, surpassing $1 billion in global consumer spending through in-app purchases in Q1 2023, according to data. And the company expects to grow ecommerce further, through merchandising. To that end, TikTok is in early stages of talks with regulators to obtain a payments license in Indonesia. This license will allow the social media company to profit from  transaction fees and compete with incumbents in the region, like Alibaba. 

TikTok has also announced a partnership with Advance Intelligence Group, a fintech startup in Malaysia, that will enable the fintech’s Atome BNPL service on the platform. In the US and Europe, TikTok has been working with JP Morgan to build real-time payments infrastructure that now covers almost one-fifth of the social media platform’s 1 billion active users.

Currently, the platform primarily uses third-party payment providers for payment processing. For example, to receive TikTok Tips, creators are required to set up a Stripe account. And creators can withdraw the money through the in-app currency, TikTok Coins, via PayPal. However, given its work with JP Morgan, the company may soon enter the payments processing space.

TikTok in the US

Recently, TikTok has also launched its e-commerce shop in the US. This new store stocks and ships products made by creators to the app’s US consumers. The shop is expected to only pay creators once buyers have been found and return unpopular items back to their makers, in an effort to keep inventory costs low. 

But so far, TikTok’s move into retail is not panning out well for the company, which is expected to lose over $500 million through its shopping service in the US. Before its retail push, TikTok utilized Shopify as a digital forefront for direct-to-consumer sales of merchandise by its creators. In a bid to save its retail push in the US, TikTok is moving creators and their merchandise to the TikTok Shop, by closing down its Shopify-integrated storefronts. It also plans to ban any links to other ecommerce websites on the platform. 

Meanwhile, government scrutiny around TikTok’s Chinese links are expected to impact its business in America. To avoid a ban in America, the platform is currently discussing a plan with the Biden administration that would give the government “unprecedented” control over its platform.

If US regulators decide to limit TikTok’s presence in the US, it is unclear how ByteDance’s partnership with JPMC will be affected. “It is concerning enough for JPMorgan Chase to carry water for Beijing and falsely characterize ByteDance’s ‘mission [as] to inspire creativity and enrich life,’ said Senator Marco Rubio, while referencing a case study on the bank’s website. 

The post TikTok and payments, a match made on social media appeared first on Tearsheet.

Swift and Wise have partnered on a solution that leverages what each does best: combining the number of banks on the Swift international payments network with Wise’s cross-border payment technology.

No more waiting for wires to clear: Swift member financial institutions can send payment messages through Wise without making major system changes. Lowering the technology hurdle is a big deal for banks facing challenges on multiple fronts in today’s economy — with this partnership banks can offer the remittance experience their customers are beginning to expect, without a large investment in time, money, and resources.

What’s happening: The Wise Platform will use Swift capabilities like cloud and API connectivity and Payment Pre-validation, and will continue to offer banks Swift GPI features, including a payment status tracker which the Wise Platform will update to ensure end-to-end view across both networks.

“Our network, combined with Swift’s extensive reach and trackability, will make international payments more convenient, faster and lower cost for banks, without necessitating a major tech build,” said Steve Naudé, managing director of Wise Platform, at the Sibos conference this week.

Wise continues to build out it’s platform: While the payments firm is best known for powering consumer payments, over the past few years, Wise has grown its B2B offering. For example, Wise for Banks, allows financial institutions to offer cross-border payments to their own customers. It claims it has over 70 financial institutions using its platform.

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Earned Wage Access has become an important value proposition for workers and many neobanks generally offer it. But for larger incumbent institutions, few offer EWA and a lot of it has to do with the lack of regulatory clarity – each state has a different approach to it. But that’s changing. 

Nico Simko, CEO of Clair, joins me on the podcast to talk about the evolution of EWA and some of the recent legal moves some states have taken to clear things up. Clair is a free on-demand pay app for front line workers. 

In addition to drilling down on regulatory changes for earned wage access, we also tackle:

• Clair’s distribution strategy
• How the app helps people save money
• The mechanics of wage advance and how they work
• Clair’s fundraising history and where Nico wants to steer the firm in the future

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The following excerpts were edited for clarity.

Regulatory changes

Let’s start with the essence of what wage advances are. If you go back, say 20 years, wage advances were really hard to build because the data that sits within employers wasn’t really available to financial institutions. And so what you had left was basically a world of not free instant wage advances – come pay me $400 over the course of a year to get $100 in a payday loan. 

So of course, if you look at the body of law of instant wages, it’s actually ‘consumers, don’t go to payday loans’. What has happened is all the wage advance companies historically have said, Well, this is not a loan, this is not a loan, this is not a loan – it’s an advance or something else. Because the body of law was not ready for a product like this one.

That created a lot of friction. There’s good and there’s bad friction. I think this is good friction in that there is an innovative product that consumers want and is better than what’s currently in the market. But the body of law needs to first analyze these products. The DFPI in California did this, and they asked a lot of wage advance companies to submit their data so they could analyze what was going on. And Missouri and Nevada were the first states looked at this discrepancy between where the law was and what these innovative products were doing and said, Hey, you know this is way better than what’s out there for consumers paying even $2 or $3 for $100 one time. 

If you analyze that, that’s way better than most things. So we should allow these players to operate and we should give them an ability to get a license. Maryland and Connecticut do think it’s a loan. So what’s going on is you’re going to have this discrepancy between states that think this is a lending activity and those that don’t.

We’re kind of in the situation right now, which is fantastic, that states are starting to take stances. And that’s great for the ecosystem. I think there is still something like 45 states to go that have not taken a stance yet. I think based on everything I’m reading, publicly available, I think California will edge on the side that this is a form of credit, a form of lending, because they’re like, Hey, this is lending, pretty simple. You give money to people who expect to get paid back. So you need all the standard disclosures, disclose effective APR, and then it’s up to the consumer to decide whether they want to take that advance or not. I completely agree with that. 

Getting into EWA

Nico Simko, Clair: When I was 18, I got an unexpected offer to come and do my studies in the United States. My family’s from Argentina, and I grew up in Switzerland. When I came over, I ended up working hourly jobs for about three or four years of college. And my job, throughout this entire time, was the same: I was an economics tutor. I worked hourly, every tutoring session that I did counted for a certain amount of hours, and then you calculate the hours and that got paid. It was a two week pay cycle and the university needed to print a check. Then they sent it over to me. So I got paid every three weeks.

That was around 2012. Venmo was starting to have some traction, it was a tiny startup with like seven people. I signed up for Venmo literally the same week that I was complaining to my friends that this thing of checks getting paid and the two week pay cycle made no sense. In my head, I was like, if I can pay my friends in a split second, why can’t my employer – that’s literally across the street from me – get me paid as soon as I finish a shift? 

Fast forward a bit and I’m at JPMorgan. I worked on the banking side, focused on payments companies. I saw what Uber was doing with Uber Money, giving debit cards to all of their drivers. As soon as they finished the ride, they could get the money that they earn. I was like, damn, okay, we need to bring this concept to the entire United States, and  ideally, make it completely free for all of customers.

Clair’s distribution strategy

We have a very special distribution strategy at Clair – we actually embed within workforce management and payroll systems. For the first two and a half years, we never sold directly to an employer. We just put a button in the HR tech system. 

What has happened is larger and larger businesses just knocked on our doors. As the business grew, we passed 7000 active businesses now. We have over 10,000 in the system. Larger businesses came to us and we started distributing directly to employers. We haven’t gotten into the business of going direct to employees, because that’s a data problem – you don’t know if people worked or not. You can’t really offer wage advances for free at that point.

Vision for full-service frontline bank

I think the vision has always been since day one that we’re building the best bank for hourly workers. Clair is not a bank, the bank is Pathward. I know you’ve met them in the past. People will sign up for a new digital bank if they can have a feature that doesn’t exist – being able to clock out and get your money is one. 

We wanted to build the app in a way that helps them save. Because first of all, we don’t make money when people take wage advances –  we lose money because we put that on our own P&L. It’s kind of a free thing we give at the entrance. People come with a need, but they want to stay for financial freedom, financial stability, and the ability to budget. 

Getting customers to stick around for more than EWA

I’ll take some of the user testimonials that we get. The average customer banks at a community bank, locally. We’re in all 50 states now. They’ve usually inherited that bank that they are with from their parents or from their community. And suddenly, in their place of work, they sign up for Clair. And what they see within the application is they now have access to features they’ve never had access to before. 

I’ll give you one example, ATMs. People still like cash. It’s so prevalent in many parts of our lives, so we have an ATM map which literally looks like Google Maps, where they can see based on their location, which free ATM is the closest. There’s 40,000 across the country. So we have the largest network possible. And all of these ATMs are free. The second thing is we have a high interest savings account. So they can also put money aside, and for a lot of people, earning 2% to 4% is not nothing. They have the ability to move money both instantly and also through ACH rails. And they can do all of that from the app. 

And then finally, we also built a way to print checks, because a lot of people still pay rent with checks. So you can literally do it from the app, and we will mail a check. All of these features, once you start using them, it’s very hard to go away and go back to your traditional bank that doesn’t give you all of this.

Passion around solving this problem

I felt like if you can start at a place where people are really in need of something, then you can bring them in in an easy way. And therefore you can build a really category-defining company. The reason why I started this company was because I couldn’t stop talking about it. One of my bosses at JPMorgan retired at the same time I was thinking of starting Clair. I would ask him for coffee to get some advice, and he said, Look, we need to stop getting coffee here. I’m going to give you money and go do your thing. He’s our first investor, and he was on the advisory board early on.

Why don’t banks get into EWA?

We have  what we call a moat, a kind of defensive mechanism for the business. You can’t just give wage advances to people on the street, because you don’t know if they worked or not. Whether they clocked in and out –  you don’t know their salary. And so the reason why Chase or Bank of America cannot just start giving wage advances is because they need to go and partner with workforce management and payroll companies to begin. That takes time. 

We bring over deposits. So we love the fact that we have this amazing channel – we want to be able to capture it for a partner bank like Pathward. We are always open and we talk to Pathward a lot about the future of wage advance and banking for hourly workers. We want to adapt the business model as we go. But right now, capturing the paycheck is immensely valuable.

Recent fundraising

We raised a total of $45 million since the beginning of Clair – $25 million was in the last round. Pathward also allocated $150 million for the consumer lending program. We’re really proud of that, because in a market where there’s been a lot of pull out of consumer fintech, we’ve seen an acceleration in our growth and also in our funding.

New product

We recently launched a really cool product called Clair for Employers. So that really allows employers to easily – in less than five minutes – sign up for Clair, so they can enable it for all of their employees. It was a lot of work. So we’re very excited about it. 

Number two is we’re developing a lot of and doing a lot of research around embedding even more within high tech workforce management and payroll companies. And what that basically means is to create an API for customers to build the equivalent of Clair. And so we’re really working closely with them and with a partner bank to figure out what that product looks like, because I really see a separation between us owning the banking experience of the consumer end to end, and then leveraging all of the technology we have in the background, and also the regulatory compliance framework, and offering that as an API to high tech HR systems. Between these two things, that’s where most of the money is going.

The post Evolving Regulations, Evolving Payroll: The future of Earned Wage Access with Clair CEO Nico Simko appeared first on Tearsheet.

Despite the proliferation of online shopping, 65% consumers still prefer to shop in brick-and-mortar stores, according to new research. Items such as groceries, toiletries, home decor, and clothing are the primary consumer products driving consumers to in-person shopping. Customers say they prefer to see the items and test them out before buying them. 

In an effort to make digital channels more appealing, brands are improving search and filtering, product recommendations, and chatbots that can assist consumers with simple queries. 

For the most part, these enhancements are welcomed by customers who appreciate better search experiences, as well as recommendations. Consumers also value  virtual try-on features which help close the gap between online and in-person apparel shopping experiences. 

The only AI feature that seems to be frustrating consumers, though, are these new chatbots, which they report often misunderstand queries, or are unable to answer complex or very specific questions. 
Chatbots have yet to fulfill the role in-store customer reps have been playing for decades, and it is quite possible that they never will. Moreover, while augmented reality features have been well-received, only 1% of the world’s retailers offer these services. Which means many customers are still going to make their way to the store to shop for products they want to test. In the absence of AR, customers are left with the in-app product photographs as the only representation of the product they want to buy. And today’s consumers are tech-savvy enough to understand that product photography is a highly curated and favorable representation of the product.

So how can brands help customers feel understood and see their wishlist items in action, without asking them to drive down to a store? Klarna has a few answers: 

a) Ask influencers: Klarna offers a chatbot-like service on its app, but it also allows consumers to interact with “fashion experts” that can help guide consumers to the product they need and answer questions about the product itself. It’s the in-store customer rep and personal shopper wrapped into one online conversation with a real person.

b) Product in-action: Rather than relying on product photography alone, customers have access to Creator storefronts, where videos and photographs of creators trying on products can be found and products can be directly purchased. Although creators have a vested interest in selling certain products, they are also beholden to ensuring the products they curate are worth their mettle. If a creator is seen to be pushing products that are low-quality or overpriced, they lose credibility and risk alienating their audiences. On the other hand, unlike brand ambassadors that often don’t use the products they market, creators can sample and curate products from multiple brands in one place and only market the products they find useful. 

Klarna also has a recommendation feed that builds upon the digital shopping features customers already like using. Building on its core payments business, Klarna has almost reinvented itself as an online shopping destination. In place of customer representatives and retail displays, the app uses the creator economy. The company’s GMV actually rose by 13% in Q1 2023, in a tough market.

Like Klarna, Affirm and Amazon also have influencer programs. Discovering products through search feels like it’s in the past – almost 31% of social media users now discover new items through influencers. 

The post Digital shopping can benefit from the creator economy appeared first on Tearsheet.

Darren Parslow is the Global Head of Visa Commercial Solutions at Visa.

While consumer payments have become increasingly digital over the past few years, business payments haven’t been as quick to evolve. That’s because business-to-business (B2B) payments work through a complicated supply chain and multiple software systems. This is changing, though, as businesses effectively piggyback on the advances made on the consumer side of payments to make B2B payments as quick, seamless, efficient, and secure. Welcome to the era of the consumerization of B2B payments.

B2B payments: A web of intricacies

Even in today’s increasingly digitized commercial payments landscape, B2B payment experiences often rely on outdated processes and infrastructure. Nearly 30% of business transactions in the U.S. are still done through cash and paper. Getting digital payments right for businesses means applying special attention to their complicated workflows and approval requirements, and working across the amalgamation of various systems and software packages they use.

Businesses are also hamstrung by how much money they have tied up in their supply chains. There’s as much as $3 trillion caught  up in outstanding receivables in the United States, as estimated by PYMNTS. Roughly 30% of those receivables are then paid late, negatively impacting cashflow.

Cross-border payments have also long frustrated businesses. Businesses face settlement lags, lack of visibility, and expensive forex fees, among other factors. Just like consumers, businesses want and are seeking quick, cost-effective, and secure payment methods that meet their needs in the moment.

Businesses know what types of solutions they’d like to surmount to these challenges: They want more control over the flow of their money and greater transparency and traceability of their spending. Visa research found that 73% of small businesses said new forms of digital payments would be fundamental to their overall growth. 

Paving the way toward digital B2B payments

Digitalization of payments has taken off in the last few years, quickly taking hold among consumers who now seek out payment methods that offer convenience, better security, and more visibility. And with digitalization rapidly gaining ground, the B2B world has taken notice. But there’s still work to be done to get B2B payments at the same level as its consumer counterparts.

If businesses can get digitalization right, it opens a number of benefits, including:

• Driving an increase in the number of clients and revenue
• Improving customer convenience and satisfaction
• Reducing operational risks
• Providing easier access to lending

As the largest payment network in the world, Visa provides products, services, and programs that go beyond payment tools and help businesses – from small- and micro-businesses to large enterprises –be more competitive. Visa’s full suite of payment services – including Visa Savings Edge, Instant Savings Offers, and Visa Spend Clarity for Business – is designed to help businesses stay resilient, manage cashflow, develop financial acumen, and save both time and costs.

At Visa, we’re looking for new ways to achieve efficiency, convenience, and security of payments to help businesses of all sizes move money without limitations of existing or legacy processes.

Case Study: Visa B2B Connect

Visa B2B Connect is a multilateral B2B cross-border (high value) payments network designed to facilitate transactions directly from banks of origin to beneficiary banks, helping remove friction, streamline settlement, and optimize payments for financial institutions and their clients. Launched commercially in 2019, Visa B2B Connect has focused on enhancing its network capabilities, bringing in new bank partners, and growing the network’s global footprint. The solution is making progress, too. The network is live in 100+ countries and territories, with payments being routed to 90 countries globally. In 2022, TD became the first Canadian financial institution to join Visa B2B Connect. In 2021, Azerbaijan became the first country in the CEMEA region to launch Visa B2B Connect in partnership with Kapital Bank. That same year, CIBANCO became the first bank in Mexico, Latin America, and the Caribbean to implement Visa B2B Connect. 

It’s clear that the ‘consumerization of B2B’ is underway. Visa is focused on doing its part to speed the uptake of digital tools and payments in the B2B space. We are committed to building out its network and providing more banks and their corporate customers with modern cross-border payments. 

We firmly believe we are at a tipping point when it comes to digitalization. As an industry, players in the payments technology space have the capacity to meet and exceed the expectations of businesses across all payment flows, removing barriers for end-users and improving efficiencies while growing revenue. 

But there’s still work to be done to get B2B payments at the same level as its consumer counterpart. Together, players in the payments technology space have the capacity to meet and exceed these expectations across all payment flows, removing barriers for end-users. Adopting solutions that not only improve efficiencies, grow revenue, and cut costs, but also improve the experience of employees’ day-to-day work will be essential for any organization moving forward.

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98% of organizations have reported at least one data breach in the past two years and 94% of organizations have very significant concerns about payment data security, according to a new research. Shielding the payments ecosystem from being exposed to vulnerabilities generated by advancements in technologies and lax data governance are Payment Card Industry Data Security Standards (PCI DSS). PCI DSS provides important guidelines and requirements that delineate how payment partners should manage and govern their payment data and lessen the attack surface that bad actors can exploit.

But the current version of PCI DSS is a bit outdated. The first set of standards through PCI DSS were introduced in 2004, and its current iteration PCI DSS 3.0 was issued in 2013. Since then, the payments landscape has considerably evolved and grown in terms of volume, stakeholders, and modes of payment. PCI DSS 3.0 is set to retire in early 2024 and version 4 will come into effect the same year. But unlike PCI DSS of days past, this new version demands significant technical change and advancement from players in the industry.

Snapshot: What PCI DSS 4.0 is changing

• Cracking down on phishing: PCI DSS 4.0 requires companies in the payment ecosystem to implement automated email security software that can locate and block phishing emails. Moreover, it is also shifting raising security awareness from a best practice to a requirement, asking companies to review and update their programs at least once every 12 months. 

• Securing the e-commerce environment:  To cut down on attempts at stealing consumer data during a transaction by using malicious code, PCI DSS 4.0 requires companies to conduct weekly checks to ensure that there aren’t third-party scripts of malicious code in their software. 
  
• Level up the tech:  To ensure compliance, companies must now provide multi-factor authentication for all access to credit card data. Previously this requirement was limited to only remote access. Moreover, it also demands that organizations limit access to the least number of people necessary and employ detection mechanisms that identify any changes to the payment processing systems. 

This is only a snapshot – the new regulation has 12 requirements and 300 sub-requirements, some of which will go into effect in March 2024 and the rest in March 2025. 

The compliance clock is ticking

PCI DSS 4.0 will impact every payment channel, and companies expect card-not-present transactions to be the most affected. But nearly every touchpoint within the payments process is going to be affected. 

As March 2024 draws closer, firms within the industry feel the pressure of meeting the requirements put forth by PCI DSS 4.0, with many citing that an extension would be helpful. Among the biggest challenges are developing new methodologies to counteract cyber attacks, performing risk analysis, and updating logistical and operation processes for compliance. 

Meanwhile, understanding of these changes remains low with only a third of payment data security professionals indicating a strong understanding of the changes demanded by PSI DSS 4.0. In this environment it is likely that companies will depend even more heavily on assistance from third-party organizations such as Bluefin, Fiserv, and Paysafe, that specialize in payment data security.

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As the world turns toward digital, the financial services industry is keeping pace by embracing advanced technology to stay ahead of the curve. Bank spending on cloud computing services is forecast to grow more than 16% a year through 2024, to $77 billion, compared with 4.5% annual increases in their overall IT budgets, according to research by IDC.

While cloud technology is evolving how banks operate and handle their business, challenges remain. I spoke with John Kain, head of worldwide financial services market development at Amazon Web Services, about how cloud technology benefits banks, the struggle to harmonize with emerging compliance requirements, and the challenges involved in cloud migration.

According to a Deloitte survey, 95% of banks and capital markets firms consider the cloud as the cornerstone of their digital strategy, yet only 35% see very high value stemming from their efforts. Why?

John Kain, AWS: FIs are in different stages of cloud adoption, which has an impact on the level of value they see. Some customers, such as Wellington Management and Sallie Mae, have seen transformational benefits after completing a full migration to AWS. Additionally, Capital One completed its migration to become a fully digital bank, which led to a 99% reduction in application development time for new infrastructure, more rapid innovation, and the ability to unlock data and fuel machine learning to enhance customer experiences. 

Customers realizing the most value have executive leadership that aligns with the vision and use case for cloud adoption and communicates it consistently across the organization to create awareness and commitment. They focus their cloud efforts to align with their business strategy. Examples include delivering more engaging customer outcomes, as with NatWest, cost optimization and operational excellence, as with PennyMac, revenue generation, and new market entry.

As these organizations begin their migration or the next step in modernizing their technology and exploring new capabilities, they focus on building skills and developing talent. At the same time, they focus on creating meaningful impact early by identifying three to five applications that will deliver results, and then building what the apps need. Once running on AWS, there will be learnings from what works, what is repeatable, and what needs improvement. They organize their teams to enable cross-functional working, leveraging AWS expertise and system integrator partners to augment their teams, where needed, until they have built a sustainable capability within their organization. With the enduring capability in place and lessons learned, they iterate on what they have built, set goals, measure progress, recognize skills, and reward outcomes.

Regulatory compliance is a broad term and remains an ever-changing area. How does that affect cloud providers and their services for FIs?

John Kain, AWS: Within the financial services industry, we understand that regulations change to keep pace with a constantly evolving industry. We have invested heavily in teams and resources to help customers meet their regulatory requirements.

We work closely with customers to help them employ best practices for cloud governance and risk management. Our Financial Services Compliance Specialists team — made up of subject matter experts with backgrounds in banking, insurance, capital markets, and payments, as well as former regulators, information security experts, governance and audit professionals, and technology leaders — advise customers on best practices for cloud governance, risk, and compliance. The breadth of our real-world experience enables us to share best practices and further strengthen our capabilities in our support for customers. As an example, our AWS team collaborated with The Options Clearing Corporation (OCC) on its cloud infrastructure framework and received a notice of no objection from the SEC.

The AWS Well-Architected Framework is also an important tool for our customers to demonstrate the application of best practices for cloud architecture and operations across six pillars, including security and reliability. We also introduced the sustainability pillar to address another area coming into greater focus for some regulators.

What are the challenges associated with cloud computing and its adoption in the financial services industry?

John Kain, AWS: Financial services institutions are no longer evaluating if they should move to the cloud. Instead, they are asking where to start or how to accelerate and scale their cloud adoption. We see customers in the financial services industry migrate to and build on AWS to reduce the burden of on-premises systems, primarily for cost savings and increased agility, and to drive innovation and business growth by harnessing data and developing new digital products, experiences, and distribution channels.

As financial services institutions migrate to and build on the cloud, resiliency, security, data privacy, and compliance with regulations are as important as ever. In addition, the need to find the right talent to support cloud transformation is an ongoing challenge.

Successful cloud migrations involve people, culture, and training. Challenges also tend to stem from these areas. There is no universal approach to cloud adoption that works well for every unique enterprise structure, but there are key elements that create a strong foundation for success. These critical components for success include alignment among senior leadership on the vision that is clearly communicated across the organization for commitment and clarity, with a focus on skills building and talent development among other things.

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FedNow’s recent launch has catalyzed the expansion of instant payments in the US, further sparking interest among consumers to receive disbursements in real-time. 68% of consumers would choose an instant disbursement if given the option, according to a new report by PYMNTS and Ingo Money.

While consumers, regardless of age, are generally migrating away from traditional payment methods toward digital ones, the preference for instant disbursements varies across different age groups. 77% of Gen X are inclined toward instant disbursements and more than half (56%) of Gen Z are willing to go down this route.

Why do consumers have second thoughts about instant payments?

While these statistics may paint a picture of the growing adoption of instant payment systems capturing a sizable market, the report indicates a disconnect between consumer demand and payer supply. Only one in five consumers received some type of disbursement instantly in the last 12 months. Except for product purchase-related disbursements that saw growth of 28% during June 2022, all the remaining categories of non-government disbursements saw a tail-off during the same period. This means that many issuers are still far from extending instant payment options to their customers.

This is not the only stumbling block. The slump in adoption may have also stemmed from the fact that although consumers desire faster payouts when they are owed money, security and trust concerns hamstring many of them – eventually leading them to pass up instant alternatives. Despite having the availability of instant payments, 36% of consumers pulled back because they were skeptical about sharing their card details, 34% fretted that the payer would deposit the payment into the wrong account, and 33% relinquished instant payments because they weren’t comfortable sharing their financial data.

The report also highlights shifts in adoption patterns across different demographics when it comes to leveraging instant disbursements. The consumer segment between Gen X and Millennials – 35 to 45 years old – holds back from sharing their card information (48%) or their bank account information (47%) when choosing a payment method. This percentage decreases by almost half when it comes to Gen Z. 25% and 21% of younger consumers are reluctant to share their card information and bank account details, respectively. Moreover, 52% of this generation would choose another payment method if provided with better incentives. 

In addition, consumers want instant payments – at no cost. 65% of consumers would consider opting for instant disbursements when no fees are charged. While a portion of consumers will pay to get things done faster and equate service fees as a convenience cost, others are less willing to pay for them and are increasingly turning to other alternatives that might be slower but save them money. Only 26% are willing to pay the associated fee to receive their payments instantly. This segment includes consumers who may be financially stretched and require loan disbursements right away. 

The impediments to the adoption of instant payments – unavailability of instant options, lack of consumer trust, and fees – indicate that issuers may have to devise new strategies to meet growing consumer demand. Additionally, issuers and consumers will most likely have to establish a middle ground to improve their relationships and build customer loyalty to foster adoption going forward.

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Banking is undergoing deep changes. We’ve been tracking that. And ss consumers become increasingly open to new digital options, incumbent banks are feeling the pressure. It’s hard to innovate when you spend upwards of 70% of your budget maintaining legacy systems. But neobanks are also dealing with their own reckoning – we’ve moved beyond the days where we got excited about the overall headline customer numbers. As they mature, unit economics matters for these institutions if they want to compete for the long term. Frankly, it’s not easy and it’s expensive to build a lasting banking franchise.

Deloitte’s Nick Cowell, Digital Banking Leader, joins me on this podcast to go deep into talking about the challenges banks face. As he explores some of the causes of customer attrition, for example, Nick defines the characteristics of the eventual winners in the digital banking market. For him, the banks that will lead in the future will become multi-tenant or multi-product providers for their customer base.

This is part of a four-part series we’re doing with Deloitte’s financial services leadership on the trends shaping our industry today and out into the future.

Here’s my conversation with Nick.

The big ideas and questions

• What are the key forces driving the evolution of digital banking?
• How digital banking is changing the landscape.
• Consumers’ openness and intentionality around digital tools.
• Challenges faced by the incumbents.
• Characteristics of the winners in the digital banking market.
• Buy vs. build.
• What is the definition of success?
• Future trends that will influence digital banking propositions.
• How will digital banks evolve from just a bank to a multi-product provider?

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The following excerpts were edited for clarity.

Nick Cowell, Deloitte: I’m Nick Cowell, partner with Deloitte Consulting based out of New York City. And I’m part of the digital bank leadership team. For coverage across North America and the United States, a lot of what we do is help incumbent banking institutions, non-banks, and startups really design, build, and launch digital value propositions, whether that’s new digital channels, new digital products, or more increasingly, helping founders actually launch new digital neobanks.

Adoption driving change

Digital banking penetration in the EU, in particular, has been pretty mature for a number of years now. We’re starting to see more and more interest in the adoption of digital banking and new digital banks coming to market. I think the time is right now in the US, particularly in retail and small business banking. Shifting consumers, more business owners, and business owners’ banking behavior has been influenced by COVID-19. But COVID-19 really exposed the fragility of digital channel maturity, and consumers just demanded better. I also think some of the generational shifts are really driving more and more focus on end-to-end digital maturity across customer journeys, and the ability to self-serve across those journeys, as well.

Deloitte does pretty extensive market research. And, interestingly, some of the research that we did earlier this year indicated that about 60% of US adults would now be likely to switch to a digital-only bank. And when you double-click into some of the segments within that, 20% of millennials already have a relationship with a neobank. So adoption is increasing.

New sources of competition

And I also think the marketplace and the competitive landscape are fundamentally changing — it’s no longer just banks competing with banks. We’re starting to see the fintechs decompartmentalize in different parts of the banking value chains. We’re seeing the rise of more digital neobanks, or digital challenger banks, similar to what we saw in Europe five to seven years ago. And over the last 12 months, we’ve seen the entrance and new seismic disruption that non-banks can have — in particular, big tech companies or new companies where their brand equity and their customer engagement are incredibly strong. They’re now launching either full-service banking offerings or very tailored products, which is having a big impact. I think we’ll continue to see this unmet demand on the consumer and small business owner side being fulfilled by different players in the markets. I think the time is now for incumbents to recognize that and invest in ensuring they survive and thrive in the increasingly digital world.

Consumers expect more

I also think consumers’ buying and spending patterns are fundamentally shifting as well. No longer is it about who will give me the best deal or who has the best sale. There’s an ethos element, as well — which brand really represents my beliefs, my values? And how does that not only show up in our corporate agenda but in the actual interaction I have with that institution? What rewards and incentives are tied to the products that I’m purchasing? How is marketing tailored and the experience tailored to that as well? It’s not just about setting an industry standard mobile and web experiences — that’s the table stakes.

It’s about how you really innovate around your brand, and your product, how you look at your customers, and how you engage with them differently. That will be where the real Digital Champions emerge, and others really struggle.

Incumbent banks challenges with digital

That’s a very broad question. There are many things unique about the US banking and financial services landscape. But I think when you look at the traditional archetypes of banks, there’s a very broad range. The concentration and the kind of services are fundamentally different. You have the large multinationals and large regionals, right down to very small community players. I think when we look at some of the larger players, speed to innovation is a real barrier for them just because of the organizational constructs and silos and decisioning bodies that can take time.

There’s a lot of the baggage they come with from a tech and an operational depth perspective. I read a stat the other day: on average, CTOs and CIOs of big banks spend about 70% of their budget maintaining legacy tech, which when you think about the innovation required to lead the pack or hang on their coattails, 30% may not cut it year over year.

And then you look at some of the smaller regional players. There is a huge investment required to really rethink and double down on high performance, digital products, digital experiences, and also on the underlying platform and infrastructure. From a servicing perspective, these are costly, and these become almost generational investments for some of these small banks. They’re hedging their bets on these platforms, and the experiences and innovation that will give them for the next 10 to 20 years. That obviously comes with a huge degree of risk and a huge degree of caution that has to be applied.

I think the underlying common pattern we’re seeing is that there’s more and more customer attrition or customer exploration outside of their primary or secondary banking relationships, which incumbent banking institutions need to be really aware of and be addressing, either by differentiated experience or just increase the value that they can provide, whether that’s financial or otherwise, to their customer bases.

Winning characteristics in digital banking

Look at the real innovators and there are kinds of foundational things that are just built into their DNA around really understanding the segments that they’re targeting and building value propositions that go deeper than just transactional banking relationships. Toggle on building an emotional relationship, whether that’s the brand identity, the brand positioning in terms of marketing, and how it engages with certain segments, but more and more in the actual product and experience design.

How are you hyper-customizing the features, the incentives, built around traditional deposit or lending products to really speak to and incentivize adoption? That goes beyond just offering really compelling interest rates on high-yield saving products. It’s how the rewards are tailored to the beliefs or the needs of certain segments.

The second thing is really having this mantra of it’s not buy versus build, it’s kind of a hybrid using the best in class fintech providers, the next-gen technology stacks to build your technical infrastructure that really drives that innovation and performance, but also acknowledging that the last 20% or so really has to be unique to be credible, and to differentiate from the competition in terms of what you’re putting in the marketplace.

There is a lot of optionality for diversification in revenue streams, whether that’s taking traditional banking products and pricing them differently with subscription fees or product bundling. We’re actually looking beyond banking. And I think particularly in the small business space, there’s a lot of opportunity through APIs and partnerships. How can you provide your end customers with a one-stop shop bank to help them manage their business, insurance, tax services, accounting, and workforce management services, all provided by a bank, but with third parties on the back end?

Some of these institutions are already doing it. I think Starling Bank is the leading example in the UK, actually, increasing the ROI on your platform investments by white labelling them and licensing them in the Banking-as-a-Service model. It’s just another way that some of these digital innovators are being successful.

Defining success in digital banking

When you look at a lot of the large digital challenger banks, even the large ones in the US, success has really been communicated in the market by customer acquisition numbers. I think more and more investors are putting pressure on digital-only banks, neobanks, and challenger banks, around their path to profitability. And I think having a clear product strategy around moving into interest income products, moving into lending — how you drive year over year profitability is something which a lot of these banks are going to have to demonstrate to really be successful.

There has been success in disrupting the status quo from a brand perspective, from a customer acquisition perspective, from an experience perspective — but now investors and analysts are saying, okay, show me how you drive profitability. I think there have been some really interesting models: Starling, as I mentioned before, really doubled down on the share of wallet and product mix to a smaller customer base in the UK. Others like Revolut, it’s all about scale, both geographic and product mix. So there are different models, but I think the common theme is success has moved on from just digital experience and customer acquisition — it’s now, show me the profitability.

Future banking trends

The data shows that there’s market appetite by customers in the US for differentiated experiences and there’s an openness to actually moving to brand new digital bank brands, as we’ve seen from the customer acquisition numbers. The real winners will be the ones who can offer a broader set of products and services, and in doing so, ensure that they’re driving profitability through the economics of the products that they’re offering.

I also think we’re going to see more and more demand for banks to really put their ethics where their wallet is, so to speak. How do you actually build that into the value proposition so that customers’ beliefs and the ESG agenda show up in a very tangible way, rather than just on corporate agendas? Coupled with that, how can you use everyday banking interactions to actually improve the access and opportunity for your customer base, whether that’s through better spending habits and your use of data, and how you pay that back to the customer in terms of financial health?

Around 18% of the adult population can be considered unbanked or underbanked in the US. So how can you build in tools, which really provide better access and opportunity for those communities? I think there’s a social need to do that.

More broadly, we will see digital banks and digital bank brands evolve from just being a bank to being more of a multi-tenant or multi-product provider for their customer base. It’s very slow right now, but I expect we’ll see more and more M&A and JV activity, as incumbent banks realize they may not have the brand equity to reach certain segments, or they may not have the innovation to drive certain kinds of product launches overnight. So how do they partner with the provider who can?

They can figure out a revenue share model. We’ve been talking a lot to some of our clients about this: you have a digital bank brand really own the customer on the front end, and the positioning and the customer acquisition. But some of the products, particularly the complex lending products are actually underwritten by a larger incumbent. And there’s some kind of revenue share mix, which benefits both parties. I think we’ll start to see a lot of that.

In Europe, we’re hearing a little about digital bank on digital bank acquisition. As the path to profitability becomes more and more of a burning issue, I think we’ll start to see more of that, as well.

I think we’ll see more and more demand from consumers and from small business owners for better digital experiences, more transparent products and pricing, and banks to show up differently in terms of ESG. And from a values perspective, which could actually be more of a decisive driver in terms of who and where people choose to bank with, we’re excited about where that goes. It levels the playing field and it brings new entrants in. Lastly, there’s obviously the question around how the regulation and the regulatory environment in the US will will adapt and evolve to enable and safeguard the system at large as we see this disruption.

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Do Generative AI tools have the power to propel banks into a new era of personalization and efficiency? 

My recent research on the use of Generative AI shows that the answer hovers on a strong “maybe”. For banks, the advances made by the growing list of technology companies like Open AI, Google, IBM, and Amazon are promising but still somewhat underbaked to warrant a full buy-in. 

So what’s the hold up about? Due to the novelty of Gen AI, the regulatory structures around the technology are still developing. In the meantime, more persistent concerns with AI such as bias, governance, and privacy have carried over to this new tool. 

Bankers recognize this challenge, too.

“I’m really excited about it from a couple of different angles. I think it’s a newer, more refined set of tools that we can use to solve problems, maybe even a little bit more surgically than we have in the past. And then one of the things I worry about is our ability to use them effectively, to govern them and manage them,” said Tracy Daniels, Head of Insights and Analytics at Truist. 

Even though Gen AI was presented to the world as a user-facing chatbot, it is likely that its introduction into banking is going to be different. Consumer-facing chatbots cannot afford to make mistakes. These environments are highly-regulated and inaccuracies can damage consumers’ financial wellbeing. 

“If I’m ordering a pizza, and you have a bot that’s going to reply to me when I’m ordering, there’s very few ways you can go to jail. But if you’re a bank and your chat bot says the wrong thing, maybe you’ll go to fricking jail,” said Dan Faggella, Head of Research and  CEO at Emerj Artificial Intelligence Research.  

Gen AI in the back office

To avoid unsavory scenarios without compromising on innovation, banks are bringing Gen AI to the back office first. Gen AI is very good at taking a lot of data in and drawing out salient information and insights. These capabilities lend themselves to processes of summarization and research and cut down on man hours and processing times. “We can use Gen AI to summarize public and proprietary data and provide insights back to our customers, and our clients. On the other hand our teammates can benefit from summaries about rules and regulations, and training materials,” said Daniels. 

Through Truist’s Innovators in Residence program, IBM and Truist have developed a productivity tool for its employees in Truist Wealth. A small team in the Wealth division of the bank is tasked with creating summaries over 350 times a year of hundred pages long responses to RFIs (Request for Information) provided by fund managers. “The “RFI Simplifi” tool, powered by the WatsonX platform, creates an initial draft of this summary instantly, saving the Wealth user hours of time better spent interviewing fund managers, performing their own research outside the RFI process, or even evaluating new funds. “The teammates piloting the capability are already seeing its value and working closely with our tech teams to evolve it toward a production offering,” said Ken Meyer, Divisional Chief Information & Experience Officer at Truist. 

Gen AI’s ability to parse and utilize unstructured data like RFI responses or even web articles opens a whole new world of information that can be used to inform banking processes. “I often think about how in the past, we’ve sort of looked at all these large, unstructured data stores and have wanted to do more with them,” added Daniels. And to make use of these capabilities the bank is also exploring “retrieval-augmented generation” which allows employees to query the bank’s knowledge bases in natural language as well as generate code to speed up development.

Moreover, using Gen AI doesn’t necessarily have to mean only using Gen AI. In fact it is more likely that workflows are going to be augmented by Gen AI as opposed to being replaced. “Certain kinds of communication are probably going to be aided by Gen AI, but not automated by Gen AI. That means we come up with our first draft of a legal document with Generative AI, we come up with our first draft of a reply to a customer with generative AI,” said Faggella. 

Also once these tools have been fully deployed, banks like Truist expect to take on extensive change management to ensure that the transition is smooth for their employees.

Gen AI’s implementation is happening but it’s happening in phases. Phase one will be exploratory and focus on improving internal efficiencies. Phase two will consist of products that will touch consumer’s lives and change user interactions.

Phase 2? Personalization and banking chatbots

One of the biggest advantages offered by Gen AI is its ability to personalize financial products and services. And although banks are tentative about diving headfirst into developing consumer-facing products with Gen AI, financial technology providers are less hung up. 

Bud Financial, which uses transactional data to derive customer insights for FIs, has been training Large Language Models of its own for years. These LLMs have been a prerequisite for its work.  “When you get data from the bank, it’s a string of jumbled up letters and numbers, and sometimes there’s parts of words in there. So for example to draw insights, we need the machine to understand that TES, means Tesco,” said Bud’s CEO, Ed Maslaveckas. 

Now, the company has partnered with Google Cloud to utilize the same language model running behind Google’s Gen AI chatbot, Bard, to launch its own product aimed at FIs, called Jas. Jas provides a chat interface where an FI’s consumers can ask questions about their financial lives. It also allows employees at an FI to query the interface for specific subsets of transaction data for processes like risk assessment and drawing up strategies around product upselling or cross-selling. 

Unlike banks that have to cautiously consider the cost and regulatory constraints of each in-house product they develop, technology providers have an incentive to push boundaries and provide new products for their FI customers. “You can ruin everything by thinking about all the edge cases. Don’t get me wrong, you should think about all the edge cases, but I don’t think you should rule by edge cases,” said Masleveckas. 

This attitude is inherently different from Truist’s more measured and watchful approach: “We do envision that Truist will someday offer consumer-facing Gen AI solutions. But right now, we’re primarily focused on how much value we can unlock by creating tools that empower Truist teammates to do their best work,” said Meyer. 

The banking industry’s deployment of Generative AI tools is most dependent upon the guardrails surrounding the technology as opposed to the technology itself. “Whether they’re state or national regulations, we would want to comply immediately. So we do watch not only what’s happening domestically, but internationally, because we’ve seen in the past where some of our laws will follow what you see actually happening internationally,” said Daniels.  

This doesn’t mean that banks aren’t concerned with attendant ethical issues such as privacy and explainability in AI. In fact it alludes to a different approach: banks expect regulatory structures to inform how these issues will be dealt with. 

Partnerships play a big role in how Gen AI-based financial products are coming to market. Truist’s existing relationship with IBM and Bud’s partnership with Google Cloud have clearly influenced their products and how they deploy them. It seems that the race in Generative AI has now extended beyond Big Tech. It is no longer about who builds the best language model, but instead who leverages their existing products and partnerships the best. 

What remains to be seen is how successful these deployments will be at delivering the holy grail of personalization. For example, once policies are in place, will banks that already have AI-powered chatbots hit the ground running when it comes to enhancing their existing products with Gen AI? Will this leave banks that have not taken on digital assistants in the dust? Or will technology providers like Bud Financial swoop in to level the playing feed, given that they clearly already have a head start? 

The post Is Generative AI successfully making inroads into the banking industry? appeared first on Tearsheet.

As populations shift, the remittance industry has evolved, too. Remittances have moved away from being high-friction, expensive, and low transparency to being near real-time, more cost-efficient, and more transparent. To enable this evolution, the payments industry continues to make significant strides in the types of innovative solutions, the various use cases, and the speed and costs of remittance services. 

Immigration, remittances, and financial inclusion

Immigration continues to change the composition of communities globally. In the United States and Canada, the foreign-born population has emerged as a significant community. The U.S. had 44.8 million immigrants as of 2020, accounting for almost 14% of the U.S. population in 2022. A more pronounced shift is happening in Canada. As of 2021, 23% of the country’s population was a landed immigrant or permanent resident. In 2030, Canada expects a quarter of its people to be foreign-born.

Moving countries requires immigrants to find ways to send and receive money. For many, remittances represent a lifeline and a means to support their families back home. An estimated 800 million people receive money from loved ones to pay for things like food, utilities, and education, according to the United Nations Department of Economic and Social Affairs data. In 2021, the World Bank estimated that remittance flows reached a new record of $733 billion. In 2022, total remittance flows were expected to reach nearly $800 billion. 

When these payments are digital, they provide an additional boost to economic empowerment and financial inclusion. With advances in digital payments, families benefit from the lower cost of sending or receiving money abroad. They are able to have money available in near real-time so that they can spend it immediately on what they need. 

The average cost for a $200 remittance is still over 6%, according to the World Bank. Digital payments can bring the costs down for international money transfers. They can also increase transparency for senders, so that they know the total cost of their remittances before they send. 

Digital international payment flows can also lead to greater financial inclusion. With the right guardrails in place, remittance firms and lenders can work together to extend credit based on customer behavior, increasing access to financial services that immigrants lack when they first move.

“Remittances provide a way for those who are underserved or unbanked to access and use funds in real-time, creating pathways to economic empowerment,” said Jim Filice, VP, head of North America money movement and global enablement at Visa.

Looking toward a better remittance future

60% to 70% of surveyed remittance users across North America have used an app-based digital payment method to send/receive money internationally, whereas only 10% to 15% of surveyed U.S. remittance users rely on cash, checks, and money orders, according to data from Visa.

The reliance on traditional remittance methods extends beyond North America. Sending money through digital apps is the most popular method for 69% and 65% of surveyed consumers in Saudi Arabia and the United Arab Emirates, respectively, compared to digital from a physical location, cash, or check.

“With the proliferation of connected devices globally, innovation within fintechs and banks, the transformation of global remitters and capabilities of solutions developed by global payment networks – like Visa – are helping to bring seamless, secure, and rapid digital remittances within reach,” Filice said.

The plethora of opportunities for payment providers

Fintechs and new payment providers have spotted an opportunity to serve these payment flows, offering new choices for immigrants and migrant workers to send money home to their families. Expanded choices are important as research highlights how digitally enabled migrant workers can more easily compare providers and costs to choose the best options for their families.

Visa Direct is powering many of these new solutions. Visa Direct, Visa’s real-time money movement network, helps facilitate the fast delivery of funds directly to cards, bank accounts, and wallets around the world. The solution supports use cases like person-to-person (P2P) payments, account-to-account transfers, business to government payouts to individuals and small businesses, merchant settlements, and refunds. 

“Money movement platforms like Visa Direct are helping to bring fast, easy, and secure remittance payments within reach, but it’s not just about streamlining payments,” Filice said. “We’re helping real individuals solve real world-problems and opening up new opportunities for financial inclusion.”

Visa Direct reaches nearly 7 billion endpoints, including more than 3 billion card accounts, 2 billion bank accounts, and 1.5 billion digital wallets. As of FY22, transactions on Visa Direct surpassed 5.9 billion.

Room for improvement

With the advances in payments technology, more people have access to digital solutions. One-third of respondents (33%) reported sending money from their home country to another country digitally, according to Visa’s Money Travels: 2023’s Digital Remittance Adoption report. That’s a 10-percentage point gain since December 2021 and an indication that digital infrastructure is crucial for successfully adopting digital remittances. But many payment corridors still lack basic infrastructure like electricity and internet connectivity, which is a barrier for millions in digitizing their cross-border payments. 

With transaction volumes up, payments providers and fintechs are continuing to provide opportunities for the underbanked and unbanked, both domestically and cross-border. While remittances can improve the living conditions of those back home, they also fuel growth rates of receiving economies. In October 2022, Visa announced a collaboration with Thunes enabling individuals and small businesses to move money internationally to 78 digital wallet providers, reaching 1.5 billion digital wallets across 44 countries and territories.

“At Visa, we’re constantly striving for ways to enable everyone, everywhere to participate in the global economy,” Filice said.

Empowering the remittance landscape to be faster, more secure, more transparent, and less costly is all central to the mission of financial empowerment. However, lots of opportunities remain for policymakers, remitters, and global financial institutions to get involved. There is an urgent need to make remittances faster, cheaper, and more accessible – as they are a lifeline to billions around the globe. The payments industry recognizes the need to build up a digital remittance network that works for the people that need it the most.

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As apps and institutions further integrate, data and data sharing have become the building blocks of modern finance. Entire ecosystems are being built around financial institutions and fintechs that incorporate rich and impactful information about their customers.

Tearsheet’s Data Awards 2023 are the industry’s top awards program, recognizing and celebrating the best data products, services, and brands powering the modern financial system.

…and these are this year’s winners!

Data Company of the Year: Provenir

Provenir’s Data and AI-Powered Risk Decisioning Platform provides a cohesive risk ecosystem to enable smarter decisions across the entire customer lifecycle – with diverse data for deeper insights, auto-optimized decisions, and a feedback loop for improvement.

With data more accessible and usable, financial services organizations can automate complex decisions by turning predictions into decisions that drive world-class customer experiences.

Best Alternative Data Vendor: Atomic

Atomic provides real-time payroll connectivity, giving consumers access to use and manage essential data residing within payroll systems.

Atomic offers a suite of API solutions covering 480+ payroll connections, including incumbent payroll providers, bespoke enterprise solutions, modern HR tech providers, gig-economy platforms, and government systems.

Atomic simplifies complex payroll and HRIS integrations, with a commitment to innovation and data connectivity for financial empowerment for its users.

Best Customer Data Implementation Award: America Express Business Blueprint

American Express Business Blueprint offers small businesses a “CFO in their pocket” with free cash flow analytics via My Insights.

Small businesses traditionally manage cash flow without the help of predictive analysis and cash flow projections — resources that their larger competitors have access to.

With My Insights, small businesses can make more confident cash flow management decisions. It helps small business owners get back to doing what they love — baking, flower arranging, architecture or whatever their passion is — versus managing their cash flow in the back office.

Data Innovation Award: Carta

Carta released the first database of international salary and equity compensation data — including geo-adjusted compensation rates for over 40 countries, making it possible for venture-backed startups to practice fair compensation practices internationally.

Carta uses its own proprietary machine learning model to build benchmarks capturing compensation for roles within the U.S. based on equity and salary data from over 250,000 employees within Carta Total Compensation. The platform then uses data from non-U.S. employees to create custom geo-adjustments for non-U.S. markets.

Best Alternative Data Product: Argyle

Argyle provides consumer-permissioned direct-source income verification and employment data. Through real-time, cost-effective technology, Argyle prioritizes more equitable financial access and improving the lending process for consumers and institutions alike.

Argyle’s latest platform launch, Argyle 2.0 includes updates to Argyle Link, Console, and API, transforming how businesses retrieve and operationalize income and employment data, an essential but historically siloed dataset that
underpins consumer access to financial services.

Best New Alternative Data Product: Orum

Orum unveiled a new API that enables businesses to verify US bank accounts in seconds. Orum’s Verify is a patented technology that determines within 15 seconds whether a bank account is open and valid before initiating payments.

With 100% coverage for US-based consumer and business bank accounts, Verify is a step forward in an industry still plagued by invalid credentials, friction, and fraud. It makes it easier for businesses to authenticate any type of account. Orum’s Verify leverages real-time payment rails, RTP, and FedNow, to push and verify micro deposits within seconds, information it then pushes to customers instantly via a webhook.

The post Announcing the winners of Tearsheet’s 2023 Data Awards appeared first on Tearsheet.