New Payments Pros And Cons

At the Bank Administration Institute’s recent Payments Connect conference in San Diego, Dominic Venturo of U.S. Bank, Mateo Rizzi of Omidyar Network, and Beth Costa from Oliver Wyman mostly concluded that new payments companies, while raising a challenge, do not seem to be on a roll to take over the payments business—yet.

One reason is size. Their data shows that while fintech’s growth has been rapid (from equity plus debt of $1.8 billion in 2010 to $19.2 billion in 2015), its size still pales compared to Wells Fargo’s mortgage originations or UBS’s assets under management.

The motto of “fail fast, fail often” does tend to clear the battlefield, with not a shot needing to be fired. Even several of the survivors seem to be faltering, what with Square’s 22% drop in its share value or Lending Club’s 57% drop or On Deck’s plunge of 60%, as the presenters reported. They observed that over the past few years many of the would be disruptors have shifted from a clarion call of “Let’s beat the banks” to “Let’s partner” to “Let’s get acquired.” Even the most ardent venture-capital executive would be hard-pressed to call seeking to be acquired by a bank a disruptive strategy.

In a similar vein, Scott Schuh, director and economist at the Consumer Payments Research Center at the Federal Reserve Bank of Boston, made the point that, while people are actively trying out new ways of paying, few have yet abandoned their old ways. Most of the successful mobile and other types of new payments products still require having a credit card or an account debitable via the automated clearing house. We may see people waving their phones to pay for things, but so far the majority of those payments are starting from a bank and ending up at a bank.

One of the several telling charts in this presentation showed that, while new payments grew from being used by 5% of payors in 1998 to 50% in 2014, over the same period the penetration of bank accounts remained steady at 90%. It is as if everyone buying a Tesla was keeping their old Subaru in the garage just in case. Dr. Schuh used an apt term in describing this behavior. He said consumers are not switching accounts and providers as much as they are accumulating them. Every marketer knows trying and switching are two very different consumer behaviors.

Although other presenters at the conference, including Ripple, were positive on blockchain payments, the Boston Fed’s final chart gave a different view. It showed usage at the midpoint of the classic S-shaped adoption curve so small that it barely shows above the zero point on the abscissa axis of the grid.

An interview with Arkadi Kulman, founder of Zenbanx, which launched in the U.S. 18 months ago, gave a fascinating look at a piece of fintech that is unique and, for a particular market, quite useful.

Zenbanx is a multicurrency mobile-payments scheme in which multiple types of currency can all be stored on a mobile phone. There is no foreign-exchange process when a payment is made using a currency the sender has pre-loaded to his account. If I want to pay someone in Yen, I just select the Yen purse, enter the amount and recipient, and hit “Pay.” Zenbanx’s market seems to be mostly families who have members living in two different countries.

It should not be a surprise that Zenbanx started in Toronto, the world’s most ethnically diverse city. Although current use seems to be person-to-person, the product could take the FX transaction out of some international trade operations.

To me, however, the sleeper value is its close connection to a sub-demographic of foreign nationals whose use of financial transactions is high and whose creditworthiness and household-income characteristics are golden. How Zenbanx exploits this high-value market may be the key to its success.

A post-conference discussion with Jen Jen Song revealed yet another new entrant with China UnionPay’s agreement with the Discover Card network to accept the CUP card at U.S. merchants. CUP cards have been issued to U.S. business travelers by The Bancorp since 2013. Given cards’ underlying role in many new payments types, one has to wonder what the next step might be.

—George Warfel • gwarfel@wespay.org