On the second day of Money 2020, payments, retail, and millennials struck back.
Sessions included a look at 10 trends driving the future of payments, how brick-and-mortar retailers are winning with digital commerce, why the checking account might soon be dead, and more.
10 Trends Driving The Future Of Payments
The payment landscape is accelerating, and fast.
The best way to keep up, says Michael Abbott, digital lead for Accenture Financial Services, is to predict what’s next.
To that end, he introduced 10 mega trends that will drive the future of payments:
- Gen Z: Today, Gen X is trying to build a payment system that will attract the next two generations. Will that work? Or will this mobile-first generation write their own script?
- UX is the new gold: Moments beyond the point of purchase matter. Payments processors need to find ways to create better user experiences before and after transactions.
- Mobile hits its grove: Mobile adoption continues to rise, as does it’s utility. Phones provide users the ability to consolidate their financial lives in one place.
- Rewards revolution: Spending on rewards cards has tripled in the last decade. The problem: in a low rate environment with high rewards spend, margins are and continue to be tight.
- The network effect: In the face of competition from peer-to-peer payments systems like Venmo, major banks collaborated to create Zelle. This new service, Abbott says, has the potential to rewrite the payments industry.
- Fintech and bank fusion: In 2017, a loan is still a loan if an institution pays out, it needs to be paid back. Fintechs trying to reimagine this model are finding financial trouble. Look for more partnerships in the future, says Abbott.
- An arms race in code: The shift to EMV has also signified a shift to codes, rather than account numbers, as transactional markers. There will be no cards in the future, rather, codes will be available when and where we want.
- We will all become merchants: Soon, payment acceptance among consumers will become universal and not just peer-to-peer payments across a network. Personal payments will soon be accepted phone to phone.
- Fraudsters innovate, too: For financial institutions, fighting fraud is a never-ending battle. And because fraud is a problem across all payment networks, financial institutions need to devise a networked solution to fight it.
- Rip and Replace required: The current payments ecosystem is governed by rules dating back to the 1970s, Abbott says. Upgrades need to be made, and not piecemeal. Rip the Band-Aid off.
Millennials, They’re Just Like Us
Financial institutions spend time, money, and resources trying to attract the next generation of consumer the millennial. ContentMiddleAd
This generation, the first to come of age with the internet and the many voices it contains, has been picked apart by data that attempts to quantify who they are and what they want.
Greg McBride, SVP and chief financial analyst for Bankrate.com, found that millennials have greater inclination toward saving, try to avoid debt, are less consumption focused than past generations, and are risk-averse to long-term investing.
His study found that younger millennials, those between the ages of 18 and 26, have 3-5 months of savings tucked away. Not to be outdone, one in four older millennials (those aged 27-36) has increased the amount they are saving year-over-year, according to Bankrate.com’s study.
Yet, despite these rates of savings, the most common regret millennials have is they don’t yet have enough emergency savings. Why? Because they are more focused on repaying student loan debt, according to the study.
Student loan debt repayment factors into, as McBride says, the myth that millennials don’t want to buy homes. This generation is not buying homes at the same rate as previous generations, but their preference for real estate is higher than any generation but Gen X, the study found. Millennials that don’t want to purchase a home in their 20s are instead invest in student loan repayment and career mobility.
Says McBride, millennials will likely be ready to buy by the time they are 36. What does that mean? They’ll likely skip over the starter home. When this generation buys, they are going to buy big.
As for credit cards, this generation with a propensity for saving and aversion to debt surely wouldn’t want that piece of plastic?
Per CreditCards.com’s Senior Industry Analyst Matt Shultz, the average millennial carries 3-4 credit cards. But that doesn’t mean they carry a balance. Only 25% of millennials carry a credit card balance. This rate is lower than all generations except for those aged 70 and up.
And the only reason millennials carry a balance, Shultz says, is because life is expensive. When asked about their credit card balances, most millennials cited day-to-day expenses as the culprit; that’s compared to Gen X who say retail and repairs, while Boomers say medial costs. Interestingly, millennials are more likely than other generations to blame vacation expenses.
This last point highlights the fact that millennials are driven more by experiences than consumption, Shultz says. It carries over to what they want from their credit cards, too: Millennials want flexibility, experiences, things they can’t get from any other card.
Are We Witness To The Death Of The Checking Account?
By 2018, says Ron Shevlin, director of research at Cornerstone Advisors, HSAs will carry more than $44.4 billion that’s compared to $13.7 billion in 2012.
Where does that money come from? It’s diverted from consumer’s checking accounts during the direct deposit process.
According to Shevlin, there’s $2.2 billion sitting in Venmo accounts, more than $2 billion in Starbucks loyalty cards, and, by 2020, consumers will hold $2.2 trillion in robo-advisors. What’s the commonality? All these funds would have otherwise been held in a consumer’s checking account.
Especially among younger consumers, this deposit displacement is causing, if not the death of checking accounts, its exclusion from the list of core banking products. How consumers store money and use their checking accounts is changing; as are their preferences for general use debit cards a real issue since loans are often funded through deposits.
Cornerstone Advisors surveyed 2,000 consumers between 18-72 with a checking account and a mobile phone and found that 34% would be very likely to adopt a general use debit card offered by PayPal. 17% said the same thing about Apple, 15% for Google, and 12% for Venmo. Strictly among millennial respondents of the same survey, those figures were even larger: 44% for PayPal, 25% for Apple, 24% for Google, and 20% for Venmo.
Cornerstone also asked consumers if they would consider opening a fictional checking account from Amazon: For $5-$10 per month, the service would include cell phone damage protection, ID theft protection, roadside assistance, travel insurance, and product discounts. 43% of respondents said they would open this account.
What’s the lesson? That if and when Amazon decides to offer financial services banks and credit unions are in deep trouble? Possibly, Shevlin implies, because Amazon’s cost of acquisition will be so low.
But more to the point: I think there’s revenue in value-added services, he says. Give consumers a reason to use their checking account and maybe they will.
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