EMV, CNP, OMG: Big Things Are on the Way in 2015 for Financial Tech
This year, PwC's retail banking report revealed that 71 percent of senior U.S. retail banking executives view non-traditional new market entrants as a top threat. Financial tech startups are the talk of the town. I have a few ideas about what you should expect from the industry next year.
1. EMV (chip and PIN) technology will become a consumer transaction standard throughout the U.S.
In the past six months, EMV (integrated circuit cards, or "chipped" cards) technology adoption has managed to become a mainstream topic of conversation. A technology that has been in use throughout Europe for nearly a decade now brings the promise of better security practices to more consumers.
Throughout 2015, EMV will continue to become the standard for consumer transactions, drastically reducing the number of fraudulent events from in-person retail purchases.
2. Card-not-present (CNP) fraud cases will increase by about 20 percent in 2015.
Because EMV technology does nothing to address card-not-present fraud, CNP fraud numbers will continue to grow at a rapid rate, as more and more purchases are made online. As that growth in transaction volume continues, online merchants and payment portals will grow as a target for payment information and personal information data theft.
3. Apple will allow limited access to the NFC chip on iPhones for developers.
While not officially announced (yet), Apple's previous trend of initially launching locked chips in phones, and slowly opening them up for developer access, is well known. The iPhone 6/6+ is currently locked down to only Apple applications. Once all iOS developers get access to the NFC chip, new direct peer-to-peer interactions and non-payment functions, from a mobile-first economy, will seize the day.
4. There will be a rising tide with mobile payments, but mass adoption is five years away.
Mobile payments are starting to get the awareness and love that they deserve, but mass scale adoption of mobile payments, especially in card-present transactions, is likely at least five years out as a result of the infrastructure needed for merchants.
This goes beyond the battle with Walmart and CurrentC, but extends also to the cost of implementing new point-of-sale systems. Currently, only 2 to 5 percent of card-present merchants accept Apple Pay -- there's still a long way to go. Merchant adoption for NFC transactions will remain below 33 percent in 2014.
5. Mobile loyalty programs will start to gain traction.
Starbucks has shown there is a large and growing opportunity in pairing mobile payments with loyalty, but few others are seeing the same success. IBeacon technology could open this up, but needs wider adoption to make a difference. Apple Pay, CurrentC and others will need to focus on unique and valuable loyalty programs to drive customer interest. Chime is taking a potentially more compelling angle -- building loyalty into the card itself.
6. Cryptocurrencies will still not hit market adoption numbers to move the needle for big banks.
However, due to their open nature, cryptocurrencies will continue to find killer use cases. Bitcoin will stay the dominate player in the crypto world, but other players such as zerocash will make some headway once in-person, secure offline peer-to-peer transactions can be made.
Transaction mining will continue to fly below the radar as the cost of operating miners on all networks will remain higher than the payoff of processing transactions (a currency that incentivizes transaction mining would counteract this, but none exists with any broad uptake yet).
7. Crowdfunding and data-driven lending will continue to surge.
There are still many great opportunities in lending that will take market share away from traditional banks.
Wunder is unlocking solar for business rooftops. SoFi and others are attacking student lending by enabling alums to invest in the education of new students. Earnest helps individuals get access to funds for important life events, such as engagement rings. Kabbage analyzes merchant data from Square transactions to better assess and provide loan funding for small businesses.
We've only just begun to see this industry gain momentum.
8. The financial brand that resonates most with millennials will win the future of banking.
Although ignored now by a majority of financial institutions because of their relatively light spending power, millennials will dictate the future of banking. Currently, 63 percent of millennials possess a credit card, while just 36 percent of millennials own a home. This disparity presents a great opportunity to build financial products that allow millennials to safely use credit cards and build a credit history for larger, long-term purchases.
9. Peer-to-peer payment services will see a meteoric rise as startups and enterprise companies compete for customers.
With Snapchat introducing Snapcash to its 30 million monthly active users, and Whatsapp entering the fray, these companies (and many more) will fight for transaction volume and long-term user retention -- something that will likely be decided by a combination of accessibility, user experience, and peer adoption.
If you think I missed the mark or just want to weigh in, feel free to drop me a line directly or leave a comment below.
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