Dip Your Chip Card like a Boss!

Change is Only as Hard as One Makes it

It’s so very hard to change the behavior of a population as large as the U.S. Previously-held beliefs, resistance to change and just sheer inertia are but a few of the many forces that keep people on their current track. Marketers love to try to change behavior, but they rarely do. Technologies have had the most success over the past decade at getting humans to adopt new behaviors or shift their rituals to a new channel. Here comes another one.

The credit card dates back to 1950 and has never looked back. Paying with plastic has become commonplace among a large number of U.S. households. The Nilson Report states that there are over 1.14 billion general purpose, credit, debit and prepaid cards in the United States. That’s a lot, but we know many of them are cozied up in the sock drawer. Or as we call them in the business, inactive.

A plastic debit or credit card has a magnetic stripe on the back. That’s the grey bar you are used to swiping. Indeed we have perfected our “swipe muscle memory.” Walk up to the check-out, pull out a card and swipe it. That phrase has made it into the dictionary and lexicon many years ago.

swipe

We’re about to introduce a new definition to your Funk and Wagnalls. The next step change in how you pay with plastic is getting some new moves.
It ChipThis fall banks will begin replacing those magnetic stripe cards with new ones. They will still have the magnetic stripe but also come with a computer chip embedded into the plastic, easily seen on the face of the card. I will not go into the technical details here. All you really need to know is that the addition of the chip combined with systems changes at the merchant and the bank results in the use of cryptographic algorithms that communicate in a manner that does not reveal your card number. Bottom line: your card number will no longer be seen by the merchant and therefore cannot be stolen.

This protection is only available for offline purchases in stores that have the new card readers and software updates. If your store does not have these new hardware devices that can read the chip, your transactions are processed in the same way they are today. It also does not work with online stores, as your card is “not present.” The presence of your card and therefore your chip is required for this improved level of security.

Your Purchasing Routine is About to Get a New Move

Many of you have already received a chip card from your bank. Be sure to activate, sign and replace your non-chip card with the new one. You will now have to add a new move to your check-out repertoire. Keep those swipe muscles honed, as the changeover to the new hardware will take a very long time. But it’s time to acquire the “dip” move.

Old and New Transactions

It’s very simple. Insert your chip card into the reader and leave it. Sign your name on the plastic screen with that handy stylus that’s attached to the reader while the card remains in the reader. When it beeps, remove your card and off you go. Don’t worry if the cashier has never seen it before. Don’t be discouraged that they might not be properly trained. Dip like a Boss!

It’s like those first generation ATM’s You inserted your card. the machine swallowed it while you typed in your PIN and performed your transactions. When it was finished processing it spit your card back at you.

Please embrace the EMV chip card. It will improve security.

Swipe and Dip image courtesy of Sun Trust and the Wall Street Journal with minor edits by yours truly.

Money 2020: Part 2 of 3: Mobile Payments and Crypto Currencies

At the close of day one my head was spinning. I managed to avoid all the trappings and temptations of Vegas and made it to my room at an early hour to review my notes and prepare for the next day. I chose to focus on two topics, Mobile payments and Crypto Currencies.

Apple Pay was announced not a month prior and so that dominated the conversation. How it would change the landscape of payments? Who will win? Probably the best way to start is to take a few moments to outline the four main attributes of Mobile payments. They are Near Field Communication, Secure Element, Host Card Emulation and Tokenization.

  • Near Field Communication (NFC) is essentially an antenna embedded in the phone that allows radio signals to exchange information between two devices at close range. It’s been around since the 1980’s and is widely used and often heralded as the future of payments. That promise has gone largely unfulfilled but now that the iPhones Six and Six Plus are NFC enabled we may see more adoption of NFC.
  • Secure Element (SE) is a tamper-resistant hardware that can securely host confidential and personal information on a mobile device. It’s built into the phone and is owned by the carriers (Sprint, AT&T, etc.). Until recently the only way to make payments using a mobile device was through the secure element, which meant the carriers had to be included in the ecosystem.
  • Host Card Emulation (HCE) allows software systems to manage mobile payments by creating an exact virtual representation of a smart card (SE) and storing it in the cloud. This deployment means the carriers can be by-passed by the OS owners. Google Wallet uses HCE in their solution.
  • Tokenization (sorry, no acronym available) takes the credit or debit card information such as account number, customer name, expiration date and replaces it with a surrogate called a token. This card information is not stored on the phone, only token. The merchant receives only the token during the mobile payment transaction and the token provider handles the translation from token to traditional account number for processing. Apple Pay uses tokenization which is stored in a SE on the phone. This protocol will likely be used to a larger degree in the future.

Anatomy of Mobile Payments Phone

It has been reported that over 1 million cards were loaded into Apple Pay within 72 hours of the software upgrade being made available. This is more than all other providers combined, including Google Wallet which launched in 2011. This is a testament to the brand power of Apple who has over 800 million payment numbers in their iTunes system. Google has gotten a bump from Apple’s launch, seeing their wallet transactions increase by 50%.

The question of who will win leads to many more questions. How quickly will merchants install point of sale terminals that will accept NFC transactions? Will consumers feel comfortable loading their cards into their phone and using them at stores? As referenced in Part 1 of this Money series, recent and multiple merchant point of sale breaches have heightened everyone’s awareness that the payments ecosystem needs hardening. Consumers in particular are even more sensitized to this.

One more thing comes into play here. EMV, which stands for EuroPay, Master Card, Visa who collaborated on developing a standard that embeds a chip into a credit or debit card. This chip when inserted in an EMV enabled POS terminal. So another question to add to the above list is will merchants go all the way and deploy checkout hardware that will accept both NFC and EMV? The technology will improve security but is only good for physical story transactions. It won’t help with online commerce because the card is not present. It will also require some new consumer behavior. On an EMV transactions the card is not swiped, but is dipped into a terminal and needs to remain there until the customer signs on the screen and taps accept. Think back to the first ATM machines. You inserted your card and the machine held it until the transaction was completed. Now we either swipe or dip the card but it’s not left in the machine.

Crypto Currencies

We are rapidly reaching the point where you can no longer look in your wallet or checkbook register and know how much money you have available to you. Technology, but increase of financial instruments and the ease of opening accounts has caused us to fragment our holdings across numerous places and spaces. If that wasn’t confusing enough, we now have crypto money being thrown in the mix.

BitcoinI was aware of currencies such as Bitcoin but I didn’t really understand it well. When I saw the amount of time dedicated to it at Money I stopped into a number of sessions to learn. I walked out fascinated by the concept. If you stop someone on the street and ask them to explain Bitcoin you will likely get silence. Technically these currencies are a medium of exchange using cryptography to secure transactions and control how new units are created. There is no financial or banking system and it is not regulated (yet) in the U.S. The safety and integrity of the currency is maintained by members of the currency community known as miners. They use their own computers to validate and timestamp transactions. Why do we need these currencies? Well, obviously we don’t need them but the developers of feel that there is significant friction in the payments and currency system that leads to fees, surcharges, fraud, processing fees and waiting periods.

They site the lack of a global standard for money and nation state specific proprietary infrastructure as primary reasons crypto currencies are the next logical phase of money. Simple, fast exchange with no physical currency.

Although most financial institutions don’t recognize Bitcoin at this time, a number of online commerce sites are beginning to accept them at checkout. Certainly this is will not play into the average consumer at this time, but it is something to watch. Part 3 up next.

Read Part 1:  The Future of Currency and Payments

Read Part 3:  Tech Crime Takes Off.

Money 2020: The Future of Currency and Payments: Part 1 of 3

Money 2020 GlassI attended the Money 2020 conference in Las Vegas this November. It’s a gathering of over 7,500 financial and technology professionals from over 60 countries. Essentially we all talk about the innovation of money and payments, both of which are undergoing unprecedented disruption. It was the forum’s 4th year but my first and I found it exhilarating and thought provoking.

The conference format is multi-layered. Big room keynote presentations, breakout sessions that are panel discussion style, live demos and an exhibit hall with hundreds of booths. I also found it to be a bit of a homecoming event as I ran into at least a dozen people I previously worked with or worked for me at one time. Nice to see friendly faces again and catch up on what they’re doing.

The breakout sessions are set-up in tracks; regulatory, security, e-commerce, retail banking, etc. My role in the bank is very broad, so I elected to pick and choose across the tracks and ingest a bit from each. The conference doubled in attendee size from last year but it occupied the same space in the Aria Hotel. Needless to say things were very crowded. Some people got shut out of sessions because they arrived on time or a bit late, only to find them already full. Standing room only in many of the sessions I attended.

Money Crowd

The content covered a wide range of topics so I don’t claim this post to be a summary of the conference itself. Instead it’s my perspective. What I observed through my lens of “convergence.” I gleaned four distinct themes of content and exploration.

  • Consumer Research: Who will influence change
  • Mobile Payments: Who will win?
  • Crypto Currency: The reinvention of money?
  • Fraud and Security: Will hacking impede progress?

Consumer Research

Lots of the latest consumer research was unveiled at Money and I carefully planned to attend as many of these sessions as possible. We know the world is big, but thanks to Social Media and the news cycle we tend to lose appreciation for that fact. Check out these insane numbers.

Global Stats copy

3.6 Billion unique active mobile phone users on Earth! People are saying they’d give up a lot of things in their life before they would give up their mobile device. You’ve see those studies. Indeed the mobile phone has been embedded in our lives and are neurally connected to our finger and hands. It’s happened in the blink of an eye. Steve Jobs released the first iPhone on June 29, 2007. Many think that the phone has materially impacted the way people pay for things, but the following chart reveals that the change began a decade and a half ago and the tectonic plates of payments has been steadily shifting ever since. The phone has not influenced nearly as many people to consider their payment options as debit and credit cards. Plastic still rules. Note: many of these slides were taken with my iPhone from audience seating. I apologize that some are of low fidelity or are not well framed.

15 Years Transactions

As we can see, while checks and cash dominated the transactions of choice for U.S. consumers in 1996, it has been forever overshadowed by credit and debit. Cash is not going away any time soon and if the security of credit and debit cannot be substantially shored-up, the never-ending rounds of retailer database hackings could keep cash and checks on life support for some time to come.

One study asked consumers how they will pay for things in the future. Every one of the presented forms of payment rose except credit, debit and cash. All three showed a decline, with cash leading the way. Certainly it’s very hard to be confident about a survey looking six years out. In the technology innovation mind it’s an eternity. Many disruptive species will be born in that time. But the scale and footprint of payments is vast and when you add in the generational and geographical aspects one cannot be faulted to remain skeptical.

Future Payments 2

Notice in the chart above that the green line (future) and black line (today) are not that divergent. People say they are expecting to pay in newer ways in greater numbers than now, but those shares are still small. Is this due to the momentum and the buzz around P2P money movement tools as well as the growth of PayPal? Is this how people will prefer to pay in the future?

The chart below puts a future date on the survey questions of 2020. When you look at the numbers by instrument they are not widely different from the above study. What’s interesting is the orange square in the bottom left. An overwhelming number of consumers prefer to use a familiar network provider (Discover, Visa, Master Card, etc.) to provide them with payments choices. Not Square or PayPal, or whatever Silicon Valley garage door opens, but the old guards of payments. Certainly the disrupters definitely have a head start on what attracts consumers. One could say however that it’s the Network’s and Issuer’s battle to lose.

Pay in 2020 2

The Emergence of the Millenial

When you wander a conference and keep your ears open you take note of the words or phrases that are repeated in nearly every type of content session as well as what’s said over a libation or two. One of the words that stood out without a doubt at Money was, Millenials. This generation is defined by most as a combination of Generation Y (25-34) and Generation Z (18-24). Seems like a very wide range, but when coupled with exposure to technology and shifting attitudes towards work and education, one can see why they can be coupled.

All camps that I observed lauded the Millenial population as one that brands − old and new − must attract and retain to ensure growth and to maintain relevance (otherwise known as survival). It doesn’t necessarily require a complete reboot, but it does mean we should guard against doing old things new and focus instead on doing new things that accomplish longstanding needs. This will be hard for financial institutions, but the future is all about change in relevance.

Millennials

Our young friends are absolutely adorable. They are confident and have an “I can” attitude. They are book smart and savvy, which means they carry a significant share of the $1 Trillion student loan debt now piled up in the U.S. As such, many live with their parents because they can’t afford a mortgage. An alarming share are under-employed, experiencing a large and confusing cognitive gap between their image of a job while in school and the reality of what they are doing Monday through Friday. This somewhat explains, at least to me, their zealous interest in getting promoted. Dues (literally) have already been paid in the form of tuition and they are looking for a faster track to pay back.

Research I saw at Money outlined an interesting persona of Millennials . They ike to have fun first then hard work next. They are close to their parents, many who have doted on them as children. They buy prestige brands and will spend more to design or customize a product to reflect who they are. As social natives they have more intense relationships with brands and don’t think twice about calling them out for either handing things well or dropping the ball. Their use of Social Media gives them an outsized voice that smart brands are addressing.

What is most fascinating to me is how they leverage technology to positively impact their financial position. We know they are getting their driver’s license later than previous generations, relying on Uber and public transpiration to get to where they want/need to go. Owning a car, actually driving a car is not at all important. They do not define themselves by the cars they drive.

When it comes to consuming content they don’t have a monthly cable bill the size of a car payment. They’re not cord-cutters because they never plugged in the cord. Television ownership is also much lower among Millenials . TV is on a grid. You have to be in the same physical space as a television to watch it. How barbaric! Why do that when you can stream almost anything to the glass surface of your smartphone, tablet or laptop? Oh yes, they don’t own desktop computers either (how mainframe of us).  Oftentimes they share Netflix passwords or Prime accounts so everyone can get on the same series. The CBS network recently announced “All Access,” a content streaming service. For $5.99 per month subscribers can watch full seasons of current primetime shows and leading daytime and late night CBS Programming. Others will likely follow.

Another bit of interesting research came from a study on values Millennials rated as important vs. Gen X’ers rating at a similar life stage. Millennials value enjoying life, having fun, authenticity and stable relationships much higher than their Gen X counterparts. They moved freedom, close friends and knowledge down in importance.

Millenials vs. Gen X

Y’s and Z’s were influenced by the internet in their formative years. Gen X is actually more closely aligned with the Boomers in that they were more or less adults before they were faced with the prospects of a digital world. One study drew closer connections between Millennials and Boomers than I would have even imagined. It seems the two categories to be reckoned with, especially among financial services are the Boomers of course (we have all the money) and the Millennials who will eventually have all the money. They will just interact with it in a much different way.

Understanding what your customers value, particularly a segment with this much power is critical to financial success. My next Money 2020 installment will cover Mobile payments and eWallets.

Read Part 2: Mobile Payments and Crypto Currencies

Read Part 3: Tech Crime Takes Off.

Image Credits:

Money 2020 magnifying glass: Money 2020

Crowd at Money 2020: Steve A Furman

Various Slides: Taken during live sessions by Steve A Furman

Image of Several Millennials: Mirus Reporter