Amazonian warriors’
bows trained on banks

Amazon arrowA recent Fiserv survey confirms—among other insights—that trust remains a primary driver behind the public’s preference for bona fide banks over non-bank alternatives. Which is why I wish to draw attention to the first runner-up on Reputation Institute’s latest list of America’s most reputable retailers: 

Second only to Barnes & Noble was none other than Amazon.

Amazon, as you likely already know, shows up in the news from time to time for its habit of upheaving every industry it touches. And it already has a good deal more than a toe in the financial services industry—with no regard, as American Banker points out, for trivialities the likes of securing a charter: 

Who needs a banking charter, anyway?

Not Amazon. The most feared company in America keeps finding new ways to eat into banks’ revenues, even though it is supposedly on the wrong side of the industry’s regulatory moat.

The e-commerce giant is already making small-business loans, finding ways to cut into banks’ swipe-fee revenue, and competing against prepaid card issuers.

American Banker went on to say that … 

… several recent developments suggest that Amazon has substantially broader ambitions. Checking accounts, small business credit cards and even mortgages all appear to be in the company’s sights.

And The Wall Street Journal reported earlier this year: Inc. is in talks with big banks including JPMorgan Chase & Co. about building a checking-account-like product the online retailer could offer its customers, according to people familiar with the matter.

(Chase, Capital One, and Amazon did not comment on what “people familiar with the matter” had to say.)

While the banking industry is no stranger to competitive threats, Amazon poses a competitive threat well out of the ordinary. Tearsheet recently reported:

The idea of a “Bank of Amazon” was the first of 10 trends to watch in financial services over the next year … Amazon knows how to keep people happy. CB Insights data found 86 percent customer satisfaction at Amazon, compared to Citi (82 percent), Capital One (80 percent), “all banks” (80 percent), TD Bank (79 percent), and Bank of America and Chase (each 75 percent). Studies show most millennials would rather bank with the Amazons of the world, Facebook and Google included, than their existing banks.

Presenting a daunting list of financial services that Amazon has already developed in-house, Fast Company warned:

Amazon specializes in creating tech-based ecosystems that generate valuable customer data, like online retail, online video, and the connected home. Once such an ecosystem is established, the company is well positioned to layer on products and services that manage related payments, credit needs, or risk.

Finextra summed up the Amazon threat by quoting Bain & Company partner Gerard du Toit:

“For retail banks, the key lesson is that their main competition consists not of traditional banks, but rather the large technology firms such as Amazon that have upended entire industries,” says du Toit. “Tech firms have already reset customer expectations for what a good experience feels like, and Amazon’s expected entry into core banking heightens the urgency of accelerating work to improve the customer experience, largely by making it simpler and more digital.”

Amazon certainly has the know-how, the reach, and the technology to wreak havoc on the financial services industry as we know it. And as for the crucial matter of trust, last month CNBC reported on a recent Bain & Company survey:

Bain surveyed 6,000 U.S. consumers recently with a simple question: If Amazon launched a free online bank account that came with 2 percent cash back on all purchases, would you sign up to try it?

All else being equal, younger respondents were more likely to answer with yes, according to the survey. Almost 70 percent of those in the 18-to-34 age bracket would try the Amazon account, compared with about 50 percent of those 35 to 54 years old and under 40 percent of those older than 55.

And this warning comes from The Financial Brand’s executive editor Steve Cocheo:

Amazon already offers a quasi-deposit service, credit cards, and business loans. Amazon can turn jars of change into gift cards, and will give your kids their allowance via a reloadable debit feature. At what point do executives in the traditional financial industry concede that Amazon is, in fact, a bank?

Perhaps that’s why CNBC opened the above-referenced article with this ominous lede: “Banks, you’ve been warned.”

Lest I be accused of writing a downer of a post this time around, let me state that what I’m attempting to do is write a motivating post, not a depressing one. Forewarned, as they say, is forearmed. Provided we all get busy.

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Digital banking wins,
but don’t close
branches yet

Click here or below to read my newest article
published by The Financial Brand.

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On Synthetic Identity Fraud


Add SSN and stir.

CHANCES ARE that identity fraud appeared the moment that presenting valid ID first became needful. Today’s inflated claims aside, The Balance’s Jack Stroup points out that in early U.S. history fake IDs were used to stuff ballot boxes. Since the advent of the minimum drinking age, underage youth out to purchase alcohol have resorted to ID fraud. And, of course, early credit cards were easy prey. Thanks to chips, today’s cards are less convenient prey but not impervious.

In the good old days, ID fraud involved altering or appropriating the bona fides of a real person. Synthetic ID fraud, which Equifax asserts accounts for over 80 percent of today’s identity fraud, obviates the need for a real person.

All that today’s synthetic ID fraudster needs to get started is patience and a Social Security Account number that passes muster. Among other places, such are bought and sold on the dark web. Best are account numbers rarely or not used, automatically pointing fraudsters toward seniors and, more often, children: a Cylab study reports that “children were targeted 51 times more frequently than adults.” 

An alternative for the fraudster is simply to make up account numbers. Since Social Security numbers are no longer tied to birthplaces but randomly generated, such can sail through as if valid. This can cause complications for anyone to whom the Social Security Administration might later assign that number, a consequence that does not seem to give the average fraudster pause.

Whether the SSN is lifted or fabricated, the fraudster creates a name to go with it. Giving the name weight in the credit world takes time, which is where patience comes in. One method is to apply for credit using the phony ID. The initial application will be declined, but a record of the name and account number will have been placed in credit bureaus’ databases. The phony ID will then show up as a real person on the next credit search, possibly qualifying for credit accounts with small spending caps.

IBM’s SecurityIntelligence lists that and two other ways of giving a synthetic ID weight. One way is to add the new ID as an authorized user of a legitimate account. Another is to create a shell company that extends credit to the ID.

Once the synthesized ID’s gains a foothold, more lines of credit can be obtained and limits raised. When the time is right, the fraudster proceeds with a rapid spending and cash advance spree—and then, of course, disappears without paying.

Not a tiny problem

Forbes’s Alan McIntyre reports that synthetic identity fraud costs …

… banks billions of dollars and countless hours as they chase down people who don’t even exist. That is part of the reason why global card losses have been rising at an average annual rate of 18 percent in recent years, according to Accenture estimates. Synthetic identity theft alone may account for 5 percent of uncollected debt and up to 20 percent of credit losses, or $6 billion in 2016, according to some industry analysts. The problem is even more acute with store credit cards and auto loans.

Detecting synthetic security fraud is frustratingly difficult. Real identities are hidden, making perps nearly impossible to identify. Investopeida reports

Sometimes financial institutions can’t even tell that synthetic identity theft has occurred because the criminal will establish a history of using the fraudulent account responsibly before becoming delinquent in order to look like a real person experiencing financial problems and not an outright criminal who racks up charges and becomes delinquent on the account at the first opportunity.

CNBC’s Investor Toolkit page paints no rosier a picture:

When criminals use a blend of different people’s data, as well as some entirely made up information, it becomes harder for law-enforcement officials to both realize the crime and then locate the culprit, said R. Sean McCleskey, a retired United States Secret Service agent who supervised an identity-theft task force for more than a decade. “If you’re using an address you control, the person whose Social Security number you’re using may never be getting the account statements,” he said.

Fighting synthetic identity fraud

On the consumer side, CNBC suggests giving out one’s SSN as seldom as possible, freezing children’s accounts, and keeping tabs on statements and credit reports. On the financial institution side, forewarning and forearming clients with good information is, as always, a best practice. 

Nor are financial institutions entirely defenseless. The major credit reporting agencies and other companies offer AI-esque tools for financial institutions. For that matter, if you will indulge this modest plug for my employer, Fiserv’s VerifyNow service is not to be overlooked.

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Data for Caffeine

Coffee SpeaksNo sooner did direct marketers commence salivating at targeting opportunities posed by that newfangled Internet thing … than the United States Congress and various regulatory bodies set about passing laws to hamper them. 

Or, at least, that was the idea. Many rules are so plastic as to allow for a good deal of wiggle room—and marketers have proved adept wigglers since the dawn of time. The CAN-SPAM Act, for instance, forbids “false or misleading” headers; but one person’s “false and misleading” may be another’s “creative and charming.” Or, take retargeting, which provides a neat circumvention of rules against emailing website visitors without their express permission. Though it’s perfectly legal, a growing number of consumers are creeped out when ads for a recently searched product suddenly show up wherever they look.

The wisest course for building an online database has always been simply to request data along with permission to use it. Since people rarely give up something for nothing, marketers often dangle a compelling offer in exchange for data and permission. The offer is usually some sort of downloadable file—a document, music, video, images, etc.—or sometimes a non-downloadable incentive that requires shipment.

But SHIRU CAFE, a three-year-old Japanese company, has found a way to deliver a non-downloadable incentive on-the-spot in exchange for data. 

SHIRU CAFE is at once a coffee shop and a gatherer and marketer of data. 

If you’re a student at Brown University in Providence, Rhode Island, SHIRU is a coffee shop—but your money is no good there. The price for a cup of coffee at SHIRU is your personal data. According to NPR’s “The Salt” 

To get the free coffee, university students must give away their names, phone numbers, email addresses and majors, or in Brown’s lingo, concentrations. Students also provide dates of birth and professional interests, entering all of the information in an online form. 

Faculty can pick up a cup of Joe for a dollar. Tough luck if you’re neither a student nor faculty member. You’ll have to go someplace else and pony up.

If you’re a corporate sponsor, SHIRU is a gatherer and marketer of data. Sponsors, if you were wondering, pay for the coffee by purchasing the data. Students who participate, continues NPR,

… open themselves up to receiving information from corporate sponsors who pay the cafe to reach its clientele through logos, apps, digital advertisements on screens in stores and on mobile devices, signs, surveys and even baristas.

It doesn’t take much imagination to understand the value marketers might place on that information. Financial institutions, for instance, could use it to identify students likely to someday prove valuable clients.

There’s no deception or sleight-of-hand going on. SHIRU is up-front about why they want students’ data and how they plan to share it.

As you’d expect, some find the idea distressing. Two Brown students recently called for a boycott. Others have set to work envisioning the worst and writing about it

But come on. College students are big kids. Moreover, no one is forcing their participation. There’s an arguable win-win here, since database marketing is about matching marketers with more-likely prospects, and vice-versa.

Though the Providence café is SHIRU’s only U.S. store and hasn’t yet landed a sponsor, SHIRU operates a number of other profitable, corporate-sponsored cafés in Japan and India.

I’ll be interested to see if the concept grows in the U.S. If it does, expect knock-offs. It would be an easy matter for Starbucks or another chain to offer students coffee in exchange for data. Such would have an easy jump on SHIRU, since in the U.S. you can throw a textbook and hit three Starbucks stores.

For that matter, perhaps a bank looking to capture rising generations might strike a deal with coffee houses near college campuses, offering students free coffee on showing proof-of-account. Although many bank lobbies already make coffee available, a bona fide coffee house presents cachet—and an aura of quality—that no bank lobby can approach. Besides gathering data, a coffee house program would provide an incentive for students to open an account.

Surely there are other possibilities. Perhaps I’ll think of more. But first I’m going to need another shot of caffeine.

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They loaded your card.
Now what?

Digital card via screenTHE GOOD news for your financial institution is that it’s fairly easy for clients to add your card to a digital wallet. 

The bad news is that it’s fairly easy to add everyone else’s card, too. Or, they can bypass your card entirely with store cards paid via store websites. I need hardly point out that every time that happens represents a lost-opportunity cost to banks.

A major contender perhaps falling in-between is Amazon’s credit card. Issued by Chase, it is at once a merchant card and a full-fledged Visa credit card. Cardholders can choose the card for their default payment option for purchases on—or for their default card, period. And many do, for the card packs an incentive: besides the usual one to two percent reward for use at sundry merchant locations, purchases at Amazon and recent Amazon acquisition Whole Foods Market earn three to five percent. That poses quite the threat. Between Amazon and Whole Foods, about the only purchase category for which customers need stray is gasoline. And by shopping online, they consume less of that, too.

Nonbanks galore, and not just merchants, are getting in on the plastic card act. This represents something of a reverse trend: The Motley Fool suggested that plastics may be the future for digital payments. Paypal now issues its own Mastercard credit card, and Square has introduced a Visa debit card they’re calling Cash Card. (That’s an arguably generic term. I’d be curious to see how it would hold up under a trademark challenge.)

To increase use of their own cards, banks have typically relied on increasing the cardholder base, rewards programs, and promotions à la Use your card for a chance to win a trip for two to Hawaii. These remain viable marketing tactics, but they also smell of old school at a time when consumers expect the new and exciting. Moreover, non-banks engage the same tactics.

Fortunately, there are other tactics for rising to the top of the digital wallet.

Play up security. From the onset, banks can discuss security with greater credibility than nonbanks, thanks to a perception that banks with physical facilities are more secure than other issuers. (See my post “The digital branding challenge” here.) Of course, banks had better back their claims by being truly proactive about security, and by finding ways to discuss the matter with clients that are, first, accessible and, second, that assuage rather than worry.

Mind the brand. Here I am talking about a good deal more than graphic identity, important as that is. I’ve written before about delivering a brand in digital banking by use of designintuitive appsmore than mere functionality, and becoming versus claiming. When your brand is strong, your graphic identity conveys a value perception absent lookalike products. And—let’s be honest—lookalike describes just about every financial service.

User-friendly interface. A by-product of the digital age is the lazy consumer. For example, in 2016, the New York Times suggested that for many a Millennial, breakfast cereal is “… just too much work … Almost 40 percent of the millennials surveyed by Mintel for its 2015 report said cereal was an inconvenient breakfast choice because they had to clean up after eating it.” If rising generations find post-breakfast-cereal-cleanup daunting, do not expect them to bother figuring out a challenging digital banking app. Today, “user-friendly” means “easy to use without having to think very much.”

Make rewards programs simple. In their zeal to differentiate, some banks cook up fancy rewards programs. The problem is that consumers are accustomed to simple spend-X-get-Y programs. Most are not up to the effort required to figure out a new program. Even an arguably superior program, if such exists, must be understandable at a glance.

Collaborate. From

An example of a mutually beneficial collaboration is the one between JPMorgan Chase and PayPal, which enables Chase cardholders to easily add their Chase cards to PayPal accounts, see a digital representation of a Chase card in the PayPal interface, and redeem Chase reward points in the PayPal network.

What Jim Marous said. Marous, co-publisher of The Financial Brand and owner/publisher of the Digital Banking Report detailed twelve ways to get to the top of the digital wallet in his article entitled, appropriately enough, “12 ways to get to the top of the digital wallet.” No, I’m not going to summarize it here. Instead, I highly recommend clicking the preceding link and reading the whole piece.

Digital technology has made banking more accessible to clients. But “more accessible to clients” inevitably means “more fiercely competitive than ever for bankers.” This is no time to relax.

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