April 2017

Millennials Prefer going to the Dentist than the Bank!

Was the statement of the day for me at Consult Hyperion’s Tomorrows Transactions 2017 (#ttforum17). Cited by Professor Lisa Servon from the University of Pennsylvania and although referring to the USA I have total empathy and I know the feeling all too well. In fact I would suggest that many of us know what she means, millennials or not. Just for the record I don’t enjoy a visit to the dentist!

Lisa’s talk was the story surrounding the un-banked (7.7%) and under-banked (20%) in the US. My attention was really aroused when she described how she went to work at the counter of one of the pay day loan companies. Why are so many people using these companies? Well against our pre-conditioned thinking they can be cheaper when comparing loans with unauthorised overdrafts but it’s really more than this because you need a reason to take loans with an APR of 400%. As a comparison a bank for example might charge a £1 daily fee, if you borrowed £25 for a day that comes out at an equivalent APR of 1,460%.

However the story doesn’t stop there, customers of the pay day loan companies actually found that they offer greater transparency in what they offer and what it costs, compared by Lisa to a McDonalds with menu boards all over the walls. She’s right, if you look through the door of your local bank branch it’s pretty blank which many might argue is the reaction you get when you try to find out what services the bank offers and what they cost.

Then you get to service, the area the banks have been focussing on in recent years. Users of these pay day loan companies were overwhelmingly appreciative of the service they received dealing with the staff on a first name basis and with a smile. I’m sorry but the banks have got a long way to go on this one. As somebody said in the audience the bank knows absolutely nothing about me and from a business point of view I’m sure they are absolutely right.

This really leads on to the other stand out topic of the day – artificial intelligence, machine learning, predictive analytics whatever you want to call it. Very fashionable back in the 80’s, everybody thought machines were just around the corner doing everything we didn’t want to do and a lot more. It fizzled out and never really made it through the nineties but now it’s back with a vengeance. The difference of course is the quantity of digital data being created and analysed. We accept that 90% of the worlds data was generated over the last two years but that was said by SINTEF back in May 2013 www.sciencedaily.com/releases/2013/05/130522085217.htm in any event it is this amount of data that has changed the landscape. Machine learning is based on the concept of analysing history, classifying the present and predicting the future. What we are now able to do is to improve the customer experience using these AI techniques that should be everything from handling customer problems better with automated chat bots through to avoiding the problems in the first place.

There is absolutely no doubt in my mind that we can and should be doing these things on a much larger scale, everybody seems to agree that but is it going to happen in the payments sector? Don’t hold your breath, because there are a lot of people trying to preserve the mystique in the financial sector and that culture has to change first. It’s happened elsewhere, look at the medical sector. It’s the norm these days to self-diagnose to even decide if you need to go to the doctor, the programs are getting even better and actually nobody seems to mind because it has a positive following. Also please note that Blockchain has nothing to do with artificial intelligence.

There was something missing however, the title of the day ‘Ten Years Forward, Twenty Years Backwards’, what has happened to digital cash? It wasn’t mentioned once. Back in the 90s we had Digicash, Mondex, Visacash all vying to solve the Holy Grail of payments. So here is the conundrum, do people really think that the existing payment instruments remove the need for digital cash or is it that you can’t provide a digital cash instrument that meets the needs of the public and the regulators?

The payment panels talked about frictionless payments but at the same time we mustn’t lose consent so you need to add a bit of friction back particularly for high value payments. Then there’s that thorny issue of chargebacks, the consumers love it because they feel protected but the merchants hate it for obvious reasons not least of which is managing the cost. I think the point that many people miss is that the internet was never designed for payments which was brought up by Ian Jacobs from W3C and of course the second question is how do you do cash like payments on the internet. You can argue the physical space is not broken but the internet…

Dr David Everett, SCN Technical Researcher.


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