Rutger Responds: Money20/20 USA | 7 Key Take-aways & How to Prepare Your Business
The experience of attending Money2020 for the first time was overwhelming in the best way – so many compelling sessions to attend….so little time to attend them all! Great ideas and insights were shared leaving me with an abundance of food for thought. It took some time to digest this avalanche of information, but below is a collection of my thoughts and key take-aways about the future of money.
Multiple tracks were going on simultaneously at Money2020; here is my summary of the journey I chose. Because of the caliber and quantity of the content, even armed with my filter of Consumer Lending, I still had to make hard choices when it came to which sessions to attend.
Let’s start with a hot topic that is on many people’s minds and came up in several sessions - the looming recession. As one speaker put it “Today, a decade after our last recession, is it fair to say we’re in for another one?”. Regardless of the exact timing of the next recession, Affirms Chief Strategy Officer and Chief Risk Officer, Sandeep Bhandari, made an excellent point saying that the timing of “when to hunker down” is equally as important as “when to step on the gas” to get out of a recession.
Another recurring topic was the new consciousness about the purpose of companies in our capitalist system and if capitalism is broken with 70% of people struggling to make ends meet. PayPal President and CEO, Dan Schulman, mentioned that for democracy to work, we must rise above our self-interest and that digitization of money provides opportunity for democratization. He said that proﬁt and purpose don’t go against each other. There is an opportunity to make a profit with purpose, which is especially important for the millennial workforce.
The opportunity could be in providing access to the global financial system as 3 billion of the world’s population are unbanked and only 42 % of the banked population is considered eligible for lending. One speaker was dead on when he pointed out that terms “unbanked” and “underbanked” assume that banks will solve their lack of access to the system. In the current environment where many alternative players, who don’t consider themselves banks, enter the market and are helping to solve the access challenge (for example Uber with their new account for riders, more about that later), that is not all true. Another panelist made the point that increased access doesn’t guarantee success or ﬁnancial health. Aaron Goldsmid from KIVA mentioned that it is hard to increase inclusion if there is no infrastructure to validate identity or payment history. He continued that inclusion should start there - potentially made easier by using blockchain technology that would put the ownership of personal data with the consumer. During a panel discussion titled “The Next Generation of Digital Banks”, one of the conclusions was that the US market has 180 million underserved and overcharged customers. Whereas the Big Banks serve 28% of ﬁnancially healthy customers well, but they struggle in service to the bottom 72% .
Customer experience and expectations
A theme that has been front and center for a while now but continues to get even more important as more consumers go digital, is the changing customer expectations and the need for a frictionless experience. One session discussed a zero-friction future but came with a twist that “friendly friction” is OK and will enhance the customer experience. In short, giving the customer the option to add steps to a process, for example: a final approval of a digital payment, gives a sense of control. And if done right, results in a better customer experience. Something that has changed as of late is the consumer trust in Big tech digital wallets, which is now equal to or above the trust level consumers have with banks. This also shows in the level of adoption with 3 out of 4 people using mobile payments. Not just in digital payments is the customer experience changing. Frederick Townes the Co-founder and CTO of NestReady shared with us how lenders can utilize today's advancements in AI and machine learning to personalize the homebuying journey for borrowers. A show of hands in the room showed that no one enjoyed the home buying process in its traditional form. One speaker summed it up nicely: “Simple is hard but that’s what the customer expectations are”. Changing customer expectations also gives room for new business models. MoneyLion’s CEO and Founder, Dee Choubey, shared with us how their offering shows how many consumers are switching to subscription models. When they started they were a PFM platform, but soon realized the need to solve more pain points for their customers. The team at MoneyLion also found that on average, access to the Americas ﬁnancial system costs $400. Based on that number their newly announced monthly subscription of $9.99 sounds like good value.
Non-Financial Institutions solving financial challenges
Let’s keep talking about the need to solve customer’s pain points. Another major theme at the conference was non-Financial Institutions solving consumer financial challenges. A clear example was the announcement of the launch of Uber Money by Peter Hazlehurst, Head of Payments at Uber. Uber is trying to change the way financial services are provided to better fit the daily lives of its global customers. The stated goal is 10% more spending power for drivers and building ﬁnancial stability for Uber partners globally. This is not just another credit card, but a financial resource imbedded in the Uber app that helps solve daily challenges like how to pay for gas when your account is empty at the start of the day. By solving financial challenges of their partners, Uber has contributed significantly to the inclusion of previously unbanked consumers. Another newsworthy example of a non-FI solving financial challenge for consumers was the announcement that Amazon’s Alexa will soon be able to help review and ultimately pay your bills. Patrick Gauthier, Vice President Amazon Pay, shared how the voice as a channel is creating new experiences and is transforming how people interact with technology. Upgrade the device to the human, not the other way around. It sounds simple, but I believe this to be one of the major changes of our generation when we figure out how to integrate all our devices and service providers just using our voice. Patrick made an excellent point with his statement and following question: “Your customers are fluent in voice. Are you?”. He shared how this is the logical progression from the internet, which gave us 24/7 access to mobile, which is with us all the time to voice which is the natural way to engage in the moment. A third example was shared by head of Facebook’s Calibra, David Marcus. He told the audience about how at Facebook they observed international payments taking place. Where a person in one country would go to an office to send money, then take a picture of the receipt and send it instantly to the recipient using Facebook messenger or WhatsApp. The recipient then had to wait for several days for the actual money to show up. Libra, a new global currency governed by the Libra Association could solve this customer challenge with a lot less hassle.
Convergence of payments and lending
Another trend that came up multiple times in different sessions is the convergence of payments and lending. In the past, the payment part of the shopping process was separate. Now, we are starting to think of it as part of the journey. Most companies have yet to view online payments as a key piece in their business's very foundation, but from a consumer perspective, payment is part of the experience. With this closer integration we are also seeing digital POS loans growing rapidly; so even payment and lending are starting to blur together, where historically lending was always a separate process that interrupted the shopping experience.
Another way payments and lending are pairing up is using payment information to inform credit decisions. As an increased number of our payments happen digitally, we are getting to the point where lenders will be digitally able to assess the ability to pay. With new players entering the lending space, we see an increase in the use of alternative data used in credit decisions. Carlos Torres Vila, chairman of BBVA spoke about how with industry verticals increasingly blurring, the key battleground in financial services and beyond is around data. He shared how data is sometimes referred to as the “new oil”, but added that data is a renewable resource that does not get exhausted with use. It serves social welfare when re-used. The only limit to re-use should be privacy of the individual. He pointed out that the consent required for re-use of data could be an important area for banks to play a role in given their historical trust relationship with their customers.
Digitally Transforming Small Business Lending
The area of most interest to me at Money2020 was small business lending and the digital transformation in the space. Like consumer lending, small businesses are expecting an improved experience and more frictionless process. Since an entrepreneur’s most valuable asset is their time, they are looking for fast and convenient access to credit and increasingly selecting online lenders. In line with the theme of non-FIs solving customer challenges, we are seeing several merchant platforms providing their small business clients with financial solutions. To compete with this, some fintech lenders are also expanding their financial services for their small business clients.
Money2020 provided tremendous insight on many key themes the financial industry is engaged with daily. Albeit a major time investment, it was most certainly worth it to learn and reflect on these combined trends . After reflection on my experience at this event, I wanted to provide ideas on how to action on the insights - I have a couple of things to offer. 1. Get prepared to respond to a recession when it happens as well as think through when and how to get back in the game when we get through it. 2. Think about how you can solve consumer’s financial challenges with purpose and, if in the process you can include more consumers in the system, even better. 3. Discuss with your team what a frictionless future looks like and what friendly friction can add value for your customers. 4. Look around you to observe what non-FI players are solving consumer financial challenges and how this impacts your business. 5. Determine how the convergence of payments and lending can work for your business and enhance your customer’s experience. 6. Identify how you use and re-use customer data and think about how this will work in an Open Banking world. 7. If you are serving small business customers, identify what best practices or enhancements from consumer finance you can leverage for SMBs and how you can save them time by adding additional services that make their financial lives easier.
If you want to discuss any of the above or want to add your own experience from Money2020, reach out to me at firstname.lastname@example.org.