The Next Wave of Digital Money Transfer

Money, technology and accounting in real time—with all deference to spiritual learnings, that might just be the mantra for modern life. At the very least, it makes for a potent brew that says a lot about how we do just about everything we do.

Image courtesty of Graur Codrin/FreeDigitalPhotos.net.

Image courtesy of Graur Codrin/FreeDigitalPhotos.net.

The trinity is in the news in our industry because late in March, mobile payment and merchant services provider Square launched a new integration program with accounting software specialist Xero. Built around a new API (application programming interface), the deal enables transaction data from Square to be fed directly into financial records managed by Xero. That’s a big market and growing: Xero claims 200,000 paying customers in more than 100 countries, with a cloud platform approach that allows a wide range of business applications—from large companies like ADP and PayPal to new entries—to be integrated easily into the ledgers of Xero users.

Of course, in many ways, that’s exactly what Quickbooks does too. Which is why, when the most recent version of Quickbooks was released last fall, owner Intuit also announced a major partnership with Square. That deal, which formally launched a few weeks later, is specifically designed to help small businesses that use the mobile payment service to automatically feed data from those transactions into their books. By all accounts, the arrangement has proved quite successful.

As observers have been quick to point out, these companies are competing furiously with each other. For example, Xero has a Quickbooks conversion service to draw users from its desktop rival, and Intuit has launched Quickbooks Online as its own cloud-based alternative. Meanwhile, Square is increasingly branching into other accounting-related services.

While the market has been waiting for options such as Facebook Credits and Amazon Coins to gain traction, Square is putting its money—in a sense literally—where its reputation is with Square Cash. This is not really another form of currency, per se, but it does represent another form of financial flexibility in the digital era. With this personal payment app, users can ‘email money’ to other individuals with nothing more than a debit card.

For the record, plenty of other companies offer similar services. Larger entities like PayPal and Google allow person-to-person payments, and as in every other category, there are newer entries like Dwolla and Ribbon are also in the mix. And let’s not forget clearXchange, the consortium created by Bank of America, Wells Fargo and JP Morgan Chase. This is clearly a work in progress: Capital One just joined, but founding member Chase has yet to come online.

And that’s really the problem in a nutshell. This is a market that exhibits all the characteristics of the technology sector—it moves forward at warp speed, seemingly solid players get nudged aside by startups, fierce competitors find ways to cooperate with each other, fickle users constantly change in their behaviors and tastes, and products go from killer app to legacy in a heartbeat. Meanwhile, banking industry giants seem to be just lumbering along—a consortium with huge names that makes more of a ripple than a splash.

Why does so much of the really exciting stuff always come from the technology side? Why do innovations from the banking industry never seem innovative enough?

It’s not as if tech companies will be replacing banks anytime soon. The barrier to entry on that side of the fence is much lower, hence there’s more experimentation, and as a result more successes (and more failures). What they do enables us to do what we do—nothing more, nothing less.

But remember, much of the customer base is now made up of a generation that never goes inside a bank branch, has precious little brand loyalty and expects instant digital gratification in every sphere of life, work and play. Other industries such as retail and music have had their very existence undermined by these tectonic shifts, some of which they never saw coming. Our world keeps changing too. Are we changing enough, and fast enough?

What We’re Reading: Retail Banking, Square, Voice Biometrics

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

  •  What’s Behind the Mobile Banking Boom (video)

American Banker

Mobile banking has expanded beyond the market for youthful early adopters and is rapidly becoming a mainstream product. American Banker reporters discuss who else is logging on and the hurdles the industry faces to keep the momentum going.

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  • Report: IT Spending in Retail Banking Will Reach $152.5 Billion By 2018

Bank Systems & Technology

Back-end investment for compliance and investment in digital channels will drive strong growth in IT spending among North American banks, according to Ovum. Retail banks will grow their IT spending to $152.2 billion by 2018 in response to rising customer expectations and investment in digital channels, a recent report by analyst firm Ovum predicted.

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  • Navy Federal Promotes Square For Small Business Payments

Credit Union Journal

Mobile payments provider Square could get a big boost from the nation’s biggest credit union. Navy FCU is promoting Square’s mobile card reader and payment processing services to its small-business members. The $56 billion credit union’s website now hosts a page that allows members to sign up for Square. By partnering with Square, Navy Federal is providing members with an easier way to accept credit card purchases and track their sales, according to Jim Salmon, vice president of business services at Navy Federal.

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  • Banking Insider: U.S. Bank tests voice biometrics to replace passwords

Las Vegas Review Journal

U.S. Bank is joining a short list of large financial institutions that are testing voice biometrics as a potential replacement for the traditional password. That list includes Wells Fargo & Co. and Barclays Plc. Voice biometrics software users log in to an application or website by speaking a word or phrase. The word or phrase is compared to a previous recording the customer has made to verify it’s the same user. U.S. Bank employees are piloting the software and using a simple passphrase such as “my voice is my password” to access credit card account balances, search transactions and make payments on accounts using a mobile device.

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  • Why There Is No Amazon Of Banking

Snarketing 2.0

There are no Amazon-branded products or services. As a result, there are no Amazon product managers with a vested interest in selling their product over some other brand. Can you walk into a Citibank branch and open up a JPMorganChase checking account? Nope. Can you go to the Bank of America web site and apply for a Wells Fargo mortgage? Nope.  But you can go to Amazon’s web site and buy just about anything that anybody else sells.

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  • Here’s the One Stat Big Bank CEOs Are Freaking Out About

TIME.com

A new survey shows that nearly a third of consumers haven’t actually set foot in a bank branch in six months, and one expert predicts that number could rise to 50% in just five years. According to Bankrate.com, 30% of respondents to a new survey haven’t gone to a bank branch in six months. And more than two-thirds of those — 21% of respondents — haven’t set foot in a bank in the past year or more.

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What We’re Reading: Branches, Apple, Security and Square

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

  • Capital One Turns to Responsive Design for Website Delivery

American Banker

With people no longer tied to their desks, customers are now checking their bank’s website from more than one type of device. So, in an effort to keep up, Capital One is enacting an online strategy to fit its website users’ screens using a technique called responsive design. Branchless bank startup Simple has been using adaptive web design and advanced mobile design since its inception, says spokeswoman Krista Berlincourt, in an email. The company was founded in 2010 and it launched in beta last summer.

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  • The Evolving Branch Environment

Bank Systems & Technology

According to SNL Financial, 1,118 more financial institution branches were closed than opened in 2012 – representing the largest such discrepancy in eight years. Yet by all accounts, the branch remains one of the most strategic assets banks have in servicing customers, delivering new products and services and growing deposits. Driven by continued consolidation within the industry, lower operational budgets and decreasing foot traffic at the physical branch, banks are evaluating the traditional branch structure to increase profitability and efficiency at the branch level and new technologies are being leveraged to achieve this.

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  • Android, iOS Dominate Smartphone Market; BlackBerry Falls

Bank Systems & Technology

Android and iOS, the number one and number two ranked smartphone operating systems worldwide, combined for 92.3% of all smartphone shipments during the first quarter of 2013, while Windows Phone jumped past BlackBerry for 3rd place, according to a recent report from IDC. According to IDC, Android smartphone vendors and Apple shipped a total of 199.5 million units worldwide during Q1 of 2013, up 59.1% from the 125.4 million units shipped during the same period in 2012. Samsung remained the leader among all Android smartphone vendors, the firm reported, wit 41.1% market share. Following Samsung was a long list of vendors with single-digit market share, and an even longer list of vendors with market share less than one percent, said IDC.

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  • DDoS Attacks: What Banks Report

Bank Info Security

Leading U.S. banking institutions remain quiet about the ongoing distributed-denial-of-service attacks they’ve suffered since the fall of 2012. Last month, we pulled the year-end 10-K earnings reports filed by the nation’s top 10 banking institutions (see Top Banks Offer New DDoS Details). Those top 10 include JPMorgan Chase & Co., Bank of America, Citigroup, Wells Fargo & Co., Goldman Sachs Group, Morgan Stanley, U.S. Bancorp, Bank of NY Mellon, HSBC North America and Capital One. Among them, seven acknowledged they had suffered from some sort of DDoS activity in 2012 that impacted online- and/or mobile-banking services; Morgan Stanley, Bank of NY Mellon and Wells Fargo did not mention DDoS.

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  • The Next Wave of Mobile Banking

Business 2 Community

In the U.S market today, retail banks offer a standardized mobile banking application. They enable their customers to monitor expenses, transfer funds and pay bills. This provides the convenience and ease of banking for the “on the go” customer. In general, mobile banking is an expanding market and has changed the way customers manage their funds. However, it is arguable that the user experience of each of the retail banks applications is similar. The application allows the end user to view their account balance, transfer funds and pay a multitude of bills.

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  • Digital Usage Policies and the ‘New’ Desktop

Credit Union Times

The PC desktop is changing, so fast that what used to confidently be called the “desktop” is undergoing the sort of rapid evolution bound to throw up new and unfamiliar security challenges. Technological developments such as smartphones, tablets and mobile operating systems can be wheeled out to partly explain this change. However, it is to the humble user rather than computer architectures of network topologies that we must pay the closest attention if we are to understand how the business desktop will be reshaped from the ground up over the next decade.

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  • Why Your Facebook Account Is More Secure Than Your Bank Account

Daily Finance

Earlier this month, federal prosecutors unsealed an indictment charging several men with bank theft on massive scale. According to prosecutors, the thieves loaded stolen account data onto magnetic stripe cards, which they then used to steal $45 million from ATMs around the world. As financial institutions reconsider their security procedures in the wake of the breach, much of the attention will naturally fall on America’s reliance on magnetic-stripe cards, instead of the more secure chip-and-PIN (also called EMV) cards used in other parts of the world. While they’re at it, though, the banks should also consider another big security black eye: The fact that it’s easier to hack into your bank account than it is to crack your Facebook account.

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  • Banks should follow Apple, Starbucks in branch redesigns

Fierce Finance

Banks have steadily moved away from the traditional branch with its long teller queues toward more of a retail store experience. The inspiration these days tends to be Starbucks and Apple retail outlets. Umpqua Bank in Oregon, for example, offers free internet service, an espresso bar, and meeting space at some branches; Capital One plans to offer coffee in its “café” concept branches. Bank of America plans to open at least a dozen “flagship” branches, which will include “power bars” to allow people to plug in gadgets.

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  • Square’s next step: Sending cash to friends by e-mail with Square Cash

VentureBeat

Sending cash to people by e-mail may be the next big payment feature to spread across the Internet (even though it’s 2013, and it feels like we should have had this years ago). Payment service Square is currently testing an invite-only service called Square Cash, which you can use to send money to anyone’s debit card with a simple e-mail, TechCrunch reports. Google launched a similar feature last week when it announced Google Wallet integration with Gmail, but Square’s version looks even simpler.

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The New Paper Chase

It’s always interesting to examine trends taking shape at the intersection of financial services and technology, as this blog does so often. But there’s one issue that’s frequently gets overlooked and yet is still the giant elephant in the room: paper.

Yes, paper. We’re a couple of decades into the era of e-commerce, and for many of us even bills arriving via snail-mail seem like a rarity. We have a staggering array of online tools that enables us to do virtually everything financial, from anywhere at any time. What’s paper got to do with it?

The short answer is: a lot. This is particularly true of checks, as used by millions of consumers and even small and mid-sized businesses. But in many other areas too, it’s an area in which change has been surprisingly slow. On the flip side, doing away with paper will bring enormous benefits, from speedier transactions and greater savings to environmental preservation.

It’s been almost a decade since the Check 21 Act passed in late 2003, allowing financial institutions to create digital versions of original checks. Today, banks deal with each other almost entirely through electronic transfers—once the actual check has been submitted, it disappears from the process.

But tell that to the entities writing the checks in the first place. To be sure, the numbers are dropping, however slowly—there’s close to 2 billion fewer written each successive year. But at this rate, it will take until 2026 for paper checks to be eliminated altogether.

That’s the conclusion in a study published last year by the Federal Reserve Bank of Philadelphia. According to the same report, the benefits are undeniable: getting rid of paper saves the banking industry $1.2 billion a year, while consumers and businesses keep $2 billion in benefits through faster payment processing.

Of course, few trends in technology stay at the same rate—there are frequent spikes and pullbacks, and unexpected accelerations that blow away all estimates. No one expected tablet adoption to grow at such a staggering pace, but it has. It took almost 10 years for smartphones to reach 40 million users (which admittedly meant replacing older models), while that number was crossed only two years after the emergence of the Apple iPad.

Just this week, Juniper Research estimated that tablet buying will lead to 200 million users of “transactional tablet banking services” by 2017. By that time, one in four tablet users will be paying their bills via those devices. There are other signs too—let’s not forget that Amazon used to accept checks, but discontinued the practice in 2008.

There’s now a broad variety of services designed in part to wean users off the habit of writing checks. For example, most banks now offer the ability to capture a check image via smartphone and make an instant deposit. And any number of other providers, from thriving vendors like Square to newer entrants like Zipmark—which styles itself as the digital checkbook—make it easy to avail of the new capabilities.

The changes will have tremendous ramifications: Intuit, which now has close to 30 million customers for its payments services and processes $38 billion a year in payments, estimates that it could increase its payments business by $4 billion by getting QuickBooks software customers, mostly small businesses, to use the payments service.

At this point, the use of paper seems almost a throwback to an earlier time, but the numbers clearly belie the perception. Getting rid of it from the world of finance would likely do a world of good. And given the justified concerns over rainforests and a rapidly declining ecosystem, it would actually do the world good too.