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Wednesday, March 21, 2018

Instant financing gains online support

A n online ecommerce survey conducted by Klarna Inc. revealed that 64 percent of U.S. retailers polled consider online financing through their stores an important component for driving new and increased sales online. Forty-six percent indicated this option would decrease cart abandonment, which remains a major challenge for online merchants today.

"Instant financing is clearly recognized by online merchants as a means to attract consumers by providing additional freedom, flexibility and buying power," said Klarna North America CEO Jim Lofgren. "The speed and simplicity with which consumers can apply and be approved for instant financing is widely believed to convert more sales."

Considered an alternative to credit cards, instant financing offers a revolving line of credit that customers apply for within a merchant's online checkout and, once approved, allows customers to spread payments over time, usually with low APR financing offers. According to a Bankrate LLC 2016 survey, this option is especially appealing to millennials, less than one third of whom carry credit cards.

Mirroring consumer interest

One year after Klarna released a similar survey to consumers regarding their views about instant financing, results from the two surveys were found to be strikingly similar.

In the initial survey, Klarna discovered that 75 percent of consumers prefer merchants that offer instant financing, 47 percent would like to be presented with this option while shopping online, 39 percent would spend more on purchases given this option, and 28 percent would be very likely or completely likely to switch merchants to use this option for making online purchases.

"Our survey of U.S. online merchants provides an intriguing look into the 'sell side' of the instant financing equation, and we've found similar patterns in terms of the growing awareness, acceptance and integration of this alternative payment option," Lofgren noted.

In addition to instant financing being cited as an important consideration for boosting merchant revenues, online retailers also rated the top three most important features of POS financing as simplicity of online application, speed of approval and keeping consumers on their sites during the approval process.

Banking-as-a-service from Amazon?
Tuesday, March 20, 2018

N ews of early discussions between Amazon and several major financial institutions has been circulating in the financial community. On March 5, 2018, The Wall Street Journal reported the ecommerce company may partner with a U.S. bank to build a checking account product. The article, titled "Next Up for Amazon: Checking Accounts," suggested the product may appeal to unbanked and underbanked shoppers on Amazon's website.

"Offering a product that is similar to an own-branded bank account could help reduce fees Amazon pays to financial firms and provide it with valuable data on customers' income and spending habits," wrote WSJ journalists Emily Glazer, Liz Hoffman and Laura Stevens.

Current early-stage discussions began after Amazon's request for proposal for a hybrid checking account product. The RFP was reportedly sent to several major banks in the fourth quarter of 2017. Among the institutions contacted were JPMorgan Chase and Capital One. The journal's sources said Amazon's goal was to provide the services without establishing a bank charter.


A recent survey by LendEDU found nearly 45 percent of U.S. consumers would consider using Amazon for a primary banking account. An additional 39.1 percent of survey respondents were unsure, and 16.4 percent were against the idea. Among Amazon Prime Member respondents, 55.3 percent said they would open an Amazon bank account; 21.5 percent said they trusted Amazon more than they trusted their current banks.

An additional study by Cornerstone Advisors found a majority of respondents would prefer fee-based Amazon checking bundled with other services, to a free, basic checking account. Jim Marous, co-publisher of The Financial Brand and owner and publisher of the Digital Banking Report, said these survey findings reflect the general commoditization of checking accounts.

"For decades, most traditional banking organizations have viewed the basic checking account as a 'loss leader,' with little attention paid to developing a customized relationship around this product," he wrote in a March 6, 2017, blog post. "In fact, even the movement towards digital banking and mobile banking has been driven by cost savings for the bank as opposed to a better experience for the consumer."

Marous speculated that Amazon would upend the traditional checking account model, using its advanced analytics and customer knowledge to personalize the consumer banking experience. He provided examples of how Amazon checking could drive profitability and market share:

"In other words, Amazon could 'jump the shark' as it relates to open banking, working on behalf of the consumer to provide many of the benefits that could make the life easier … with the Amazon checking product at the center of the ecosystem," Marous wrote.

Fintech banking charter

The explosion of fintechs entering banking and financial sectors prompted the Office of the Comptroller of the Currency to distribute Exploring Special Purpose National Bank Charters for Fintech Companies. Published Oct. 17, 2017, the paper called for a uniform standard for banking entities and invited public commentary from October 2016 to January 2017.

In a Jan. 17, 2017 letter to OCC, Frank Altman, president and CEO and Nick Elders, vice president, technology solutions and services at the Community Reinvestment Fund, cited opportunities and risks in the banking charter. The executives conceded the charter would drive innovation and efficiencies, while attracting new market entrants, particularly the four largest U.S. technology companies: Amazon, Facebook, Google and Apple.

"Of the four largest tech companies in the U.S. (Amazon, Facebook, Google, Apple), only one (Amazon) has experimented in a significant way in the lending industry," Altman and Elders wrote. "Perhaps this is due to the absence of a clear path toward starting a national lending operation. However, as OCC considers how best to proceed, a special purpose national bank charter may be precisely what entices tech companies with highly trusted brands to enter the lending industry, bringing with them the reputation of delivering high-quality products and services so many people have come to rely on them for."

The CRF executives additionally warned that fintech business models are fluid and dynamic by nature, stating, "In pushing closer to the fintech world, OCC must understand they expose themselves to a rapidly changing and fast-moving landscape, historically at odds with an inflexible, and some would say, unnecessary, regulatory framework."

New NACHA program supports B2B invoicing
Monday, March 19, 2018

N ACHA – The Electronic Payments Association, is making a play to get businesses using more electronic data exchanges in cash management operations. The ACH rules group has approved a new Request for Payment program that leverages electronic data interchange (EDI) standards to support electronic invoicing and collections. The program, which is voluntary, aims to nudge businesses closer to faster, more integrated handling of business-to-business billings and payments.

Checks have long been a preferred method of payment by businesses large and small. A 2016 report by the Association for Financial Professionals found 94 percent of businesses still use checks to pay major business partners. But change is occurring. Whereas 65 percent of payments by businesses to major suppliers were made by check in 2007, that share had fallen to 41 percent by 2016. Eighty-three percent of businesses in 2016 also used ACH credits to pay at least some trading partners, according to AFP; 24 percent used ACH debits, 79 percent paid by wire transfer and 48 percent made some B2B payments with purchasing cards.

The AFP’s research put the mix of payments received by businesses from major trading partners in 2016 at: 39 percent checks, 33 percent ACH credits, 5 percent ACH debits, 16 percent wire transfers and 2 percent purchasing cards. (Slim percentages of businesses use other payment methods, such as traditional credit cards, for sending and receiving B2B transactions, the AFP reported.)

Many experts attribute business preferences for checks to cash management systems and processes that have long been in place to support check payment exchanges, like paper-based invoicing and receivables management. NACHA’s Request for Payment program offers an alternative to paper billing statements that leverages a payment messaging network many businesses already use: the ACH.

“Businesses today are looking for ways to effectively and efficiently manage complex payment and cash application processes in our changing global environment,” said George Throckmorton, Managing Director of Network Development and Strategic Alternatives at NACHA. The new Request for Payment program responds to that demand with an EDI standard that supports invoicing. (The automated clearing house [ACH] supports EDI payments through existing messaging formats like CTX which was developed to handle transmission of payments with corresponding remittance details.)

Leveraging EDI standards

The new NACHA program relies on ISO 20022, an international EDI standard for financial transactions. As the Federal Reserve noted in a paper published in 2013, ISO 20022 “has emerged as an enabler of a single, common ‘language’ for global financial communications that can assist organizations in responding to evolving demands.” Building a consensus around the use of ISO 20022 has been a key consideration in the Fed’s faster payment initiatives.

The new NACHA program is available to any business that wants to use the ACH to send invoices, regardless of payment method used to satisfy those invoices. “Although the Request for Payment invoice does include payment instructions, the rules and guidelines do not include payment message standards. Payers have the option to send any B2B payment type” a NACHA spokeswoman explained. Businesses wishing to participate in the program can download the Request for Payment rules from NACHA’s website,, and must reference the rules in trade agreements.

Throckmorton said adoption of the new messaging format should help businesses improve receivables processing, which in turn should help them save money. The program means “businesses can leverage an ISO 20022 message to standardize invoicing and payment collection, and automate the cash application process, as remittances can flow with the payment to support straight-through processing,” he said. “And with the ACH network’s connection to all financial institutions and thus all accounts in the U.S., through the program businesses can expand their reach and better support existing and future customers,” Throckmorton added.

Straight-through processing (commonly referred to as STP) has attracted significant attention from businesses, particularly large and mid-sized corporations eager to improve cash flow through greater automation of billing and receivables processes. The end game is to facilitate corporate treasury transactions from start to finish with little or no human intervention.

NAC's Choke Point battle rages on
Friday, March 16, 2018

W hile the U.S. Department of Justice officially terminated Operation Choke Point Aug. 16, 2017, it appears numerous financial institutions have not received the memo. Opponents claim the Obama-era anti-fraud initiative, originally designed to combat criminal activities, has inadvertently harmed millions of legitimate business owners.

Critics maintain that by stigmatizing entire industry sectors, the OCP measures have led to stringent "de-risk" policies that inhibit high-risk merchants from opening and maintaining bank accounts and lines of credit. Their claims are further supported by an independent study published in March 2018, by the National ATM Council Inc., a trade association representing the retail ATM industry.

The retail ATM industry has rigorous compliance guidelines in place, noted NAC Executive Director Bruce Renard. "U.S. ATM owners and operators are thoroughly vetted before and after entering the ATM business; and, as such, they are not 'high risk' accounts that should be having these sorts of problems in obtaining bank accounts or access to cash," he stated. Renard said the association will continue to advocate on behalf of its members, to fully eradicate OCP's unwelcome residual effects on the national independent ATM community.

NAC Chairman and Access One Solutions Chief Executive Officer George Sarantopoulos said NAC is using practical approaches to end bank account blacklisting. He said NAC leaders and members are working with regulators, field examiners and financial institutions to restore ATM ISOs' and independent ATM deployers' access to financial services. He urged members to remain vigilant, stating, "NAC will continue the fight for the independent ATM operators who continue to struggle with bank account issues, despite Choke Point going away."

NAC returns to Washington

In July 2017, NAC directors and members met with Senate Banking Committee and House Financial Services Committee members to address ATM industry issues, with OCP topping the agenda. When OCP was disbanded a month later, NAC leaders declined to take full credit but acknowledged their efforts may have helped end the program.

On Feb. 15, 2018, Timothy W. Baxter, NAC founding director and President of Dallas-based Swypco LLC, testified before the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee. Both Renard and Sarantopoulos attended the hearing, titled "Examining De-risking and its Effect on Access to Financial Services."

Renard returned the following month to meet with congressional leaders. In a series of meetings, held March 6 through 9, 2018, he presented NAC survey highlights and OCP's ongoing residual effects on retail ATM stakeholders. Survey demographics show independent ATM deployers provide nearly 60 percent of the 470,135 ATMs in the United States. A majority of these "non-bank" ATMs are located outside major banks' footprints, Renard said, adding that these independent ATMs provide critical banking services to un-banked and under-banked consumers.

"I am encouraged that this un-American, anti-consumer, and anti-competitive blacklisting of independent/retail ATM bank accounts is finally getting the attention it deserves in Washington," Renard stated.

Midmarket to drive global cybersecurity spend
Thursday, March 15, 2018

O ver the next four years, midmarket companies are expected to drive 70 percent of global investment in cybersecurity solutions, which could reach $134 billion in total combined global annual spending by 2022, according to U.K.-based Juniper Research Ltd.

Juniper cited cybercriminal exploit of "low-hanging fruit" as a persistent concern, especially among midmarket companies. Small businesses have long been a stable target of cybercriminals, the focus of 43 percent of cyber-attacks launched in 2015, according to Symantec Corp. Research by the cybersecurity firm revealed that in 2017, hackers managed to steal $172 billion from 978 million consumers in 20 countries.

Increasingly aware of the rising cost of fraud to consumers, midmarket companies are equally concerned about the devastating toll on businesses compromised by fraud in recent years. The National Cyber Security Alliance reported that 60 percent of businesses affected by cyber attacks close their doors within six months of an attack. Juniper predicted the cumulative cost of data breaches from 2017 to 2022 will reach $8 trillion.

IoT complicates matters

Perhaps one of the biggest challenge in the years ahead will be how to effectively secure Internet of Things (IoT) devices. Juniper estimated that global penetration of Internet-connected devices will reach 46 billion activated units by 2021.

According to Juniper, because modern devices are typically deployed for years at a time in the marketplace, forward-thinking cybersecurity strategies will need to be flexible enough to react to future demands as more advanced exploits by cybercriminals render modern approaches less effective over time.

As a result, stakeholders must plan in terms of risk mitigation rather than prevention, Juniper noted, adding that in some cases service providers in high-risk environments will be forced to restructure their networks to avoid potential compliance breaches, data theft and even service outages.

"Once a single endpoint is breached, the big danger is lateral movement across the network," wrote Juniper research author Steffen Sorrell. "Layered networks, proper lifecycle management and user 'least privilege' approaches will prove key to containing serious breaches." For more market insights, Juniper offers a free whitepaper, Cybersecurity -- How can service providers save the bottom line? In addition, the firm's Cybersecurity: Mitigation Strategies for Financial Services, Operators, Enterprise & IoT 2018-2022 report is available for purchase online at .

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