Silver lining behind
the Equifax hack



PERHAPS YOU HEARD: Equifax was hacked on September 7.

There are some who would reassure us by pointing out that 143 million accounts is less than half the number of MySpace accounts and less than one-third the number of Yahoo accounts that were hacked.

I have two reactions.

My first reaction is that would-be reassurers could do with a lesson in false equivalency. Greater numbers don’t necessarily make lesser ones okay; there were more hacked accounts than there are American households, so you should assume your data is compromised; and names, addresses, SSNs, credit card numbers, and driver’s license numbers are a good deal more than what bad guys typically obtain from social media accounts.

My second reaction is, MySpace is still around?

For financial institutions, the breach can be a bad thing with a silver lining. I can sum up the bad-thing part with three words: “Shaken consumer confidence.” The silver-lining part comes in the form of a marketing opportunity. Clients like being leveled with. They like information. And they like being empowered to keep themselves safe. Supplying useful information will do all of the above. Better still if your competitors remain silent, which I bet most will, for you will brand yourselves as the confident, trustworthy ones, the people with nothing to hide.

In short, the foolish thing to do in the wake of the Equifax breach is to be silent and hope clients didn’t hear about it. Trust me, they heard. The smart thing to do is to provide prompt, thorough information about what the breach entailed, how it happened, how clients can check for free to see if they have been compromised, and, most important, what they can do right now to protect themselves. (This piece from USA Today can provide you a good starting point.) If you have generous policies that protect clients, this is a great time to reiterate them. You should do so even if competitors offer similar protections, since your clients may not know they do.

This is not the time to send out impenetrable copy. I apologize if that came across as tactless. Here, let me try it again, this time with more tact:


Of course you have little choice but to let them review it—you would be unwise not to—but don’t let them rewrite or edit. Ask them to explain their concerns until you understand them well enough to repeat them back in plain, real-person English. You know you’re good to go when they roll their eyes and say, “Yes, that’s correct, but it doesn’t sound very professional.” Then put your best copywriter on it. Time’s a-wasting.

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Upgrades at point-of-sale:
Financial aid for merchants

mobile-phone-2223997_1280IF YOU were going to pick an exciting time to work in the payments business, today would make for a good choice. At times it feels as if each day brings a software or hardware innovation, each bringing in turn faster speeds, surer security, easier access, and greater convenience.

For merchants in particular, payment technology advances can mean more business, more customers, and, therefore, more growth and revenues. What’s not to like?

Actually, there’s plenty not to like, at least in the form of the cash outlay. Keeping up with innovation means acquiring and installing new equipment, software, or both at the point of sale, and being prepared to update or replace it yet again the moment obsolescence sets in. And these days obsolescence doesn’t take as long as it used to.

Perhaps that’s why Visa is offering selected businesses $10,000 apiece for updating their digital technology.

I feel for merchants. The original method of collecting payments—calculating and recording sales by hand—required no capital outlay beyond paper, pen, and cigar box. It was time-consuming and error-laden, but it was affordable. The mechanical cash register was a vast improvement. One of those newfangled devices circa 1878 would have set you back $75, about $1800 in today’s dollars, but the machines proved their worth in speeding transactions, improving accuracy, keeping funds secure, and record-keeping. They became all but standard by 1915.

But it wasn’t long before improved mechanical registers rendered older models obsolete, and electronic models rendered those obsolete. Then embossed credit cards gained widespread use, forcing merchants to invest in manual credit card imprinters. IBM introduced cards with magnetic stripes to the market in 1969. (At the suggestion of his wife, Dorothea, IBM engineer Forrest Parry affixed the first mag stripe by use of a clothes iron.) That, in time, necessitated that merchants invest in mag stripe readers. Soon after that came readers that could communicate with a host, followed by chips and chip readers, and, today, contactless payment options via smartphone. And, not to be overlooked, merchants with more than one checkstand must multiply upgrade costs accordingly.

In an environment where new equipment is all but obsolescent even as it’s being installed, it’s understandable that merchants might be reluctant to upgrade too quickly or too often.

But help is on the way.

Last month USA Today reported:

Visa is looking to push more small businesses into updating their digital payment technology, offering up to $10,000 each to 50 U.S.-based small business owners that are committed to going cashless …

… because …

… Going completely cashless often requires upgrades to current point-of-sale systems, which remains an impediment for many small businesses, which is largely where cash remains king.

Fifty out of nearly 30 million U.S. small businesses—about 0.0001666 percent—hardly overwhelms. But Visa plans to expand the program. Perhaps they’re experimenting with incentives and cost-benefit ratios. After all, the article continues,

Visa isn’t doing this for charity. The world’s largest processor of credit and debit cards takes a small fee from every payment that runs on its network. The more payments done through them, the more revenue Visa gets.

We can only hope that this is a toe in the water. Depending on the temperature of the water, perhaps next they’ll proceed to a foot, a leg, and, finally, the whole body. If more players in the payments industry follow suit, we’ll see POS technology leap forward at record speed. 

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Bank metamorphosis
for fun and profit

gulf-fritillary-butterfly-1839556_1280 RThe digital age has not rolled forth without casualties. Type-writers, maps, encyclopedias, calculators, film cameras, digital cameras, camcorders, cash registers, books, newspapers, music CDs, and more are found among the metamorphosed, endangered, severely wounded, and just plain gone.

You will doubtless agree that morphing beats going the way of the typewriter. The good news for banks is that morphing in a digital environment represents more than survival. It represents exciting opportunities to prosper in newer and bigger ways.

If a building with a teller line, offices, an ATM and a drive-up is the caterpillar, then the butterfly is a device about the size of a deck of cards, except way thinner, and it rides around in purses and pockets. Some banks are now succeeding as butterflies only, but it doesn’t go both ways: No bank can remain a caterpillar and expect to be around much longer.

Change is never convenient, but this time the benefits outweigh

Share of wallet trends steadily up among digital banking clients. A study by Fiserv showed share of wallet for digital clients compared with branch-only clients at about two-to-one. And that correlated with increased longevity: Bank and credit union branch-only clients dropped off at about twice and thrice, respectively, the rate of mobile banking members.

I need hardly point out (but will anyway) that increased share-of-wallet makes clients less likely to dump you for a competitor. Hopefully that’s due to meeting demand with digital services; but on the more banal side, it can be due to the fact that moving accounts, already a pain, becomes a royal pain when clients also have to install, set up, and learn new apps. “It’s a pain to leave” isn’t quite the same as “my bank has won my affection forever,” but it’s nothing to rue, either.

Longevity aside, you’d hope that greater digital share would correlate with a rise in fee revenue, and that is indeed the case. The above-referenced study showed that mobile users generated 72 percent higher revenues than branch-only customers. Fee interchange fee revenue trended up, too, thanks to a positive correlation between mobile banking use, debit and credit card point-of-sale transactions, ATM use, and ACH transactions.

Meanwhile, apps like Zelle and Popmoney® present new opportunities for banks to generate fee revenue. These apps and others like them come with in-place fees as the norm, and, so far, clients haven’t rebelled. This can help compensate for and may someday overtake market forces making it difficult for banks to charge for bill pay.

I could go on about the growth and revenue opportunities that morphing with the times promise, over and above not ending up on the Digital Age Casualties List. Come to think of it, I have gone on about it, here, here, and here. More than a means of survival, this is a metamorphosis that looks to be as good for banks as it is for bank clients.

I’ll end on a prediction: I bet that soon the financial services industry will talk less about “share of wallet” and more about “digital share.”

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A digital banking junkie
reviews The One Device

OneDevicesmallThe One Device: The Secret History of the iPhone Brian Merchant. New York: Little, Brown, 2017

NOW AND THEN along comes an innovation that sends the future careening down a path no one anticipated. Gutenberg’s movable type led to education and human rights advances and correlates with diminishing wars between major powers. Ford’s mass-produced, affordable automobile changed the landscape and the economy by making possible much that we now take for granted, such as motels, gas stations, paved roads, highways, neighborhood shopping centers, a freeway system, the tire industry, and suburban living. Farnsworth’s newfangled image dissector led to billion dollar industries from TV manufacturing to broadcast and cable networks to Netflix, and helped reshape societies by bringing world events into living rooms. 

iPhone could well claim the title of most-recent future-changer. Smartphones based on its design have attained such ubiquity that it’s a little startling to remember that 2017 marks only its ten-year anniversary. Fittingly and certainly not coincidentally, author Brain Merchant’s The One Device: The Secret History of the iPhone has been recently published to no shortage of positive reviews. Why am I offering one more ? I wanted to take a look from the vantage of the payments industry. 

I was prepared for the book to test my stamina as a reader. One does not expect to find a page-turner in the biography of a device. You cannot imagine how pleased—and relieved—I was to discover that Merchant has done, if not the impossible, the highly improbable. The One Device is painstakingly thorough, intelligently organized, and, incredibly, a compelling read. 

Steve Jobs introduced the iPhone at an Apple press conference in January of 2007. Its design preemptively defined the smartphone, forcing Google to scrap the design it was ready to bring to market and return to the drawing board.

Though AOS devices would eventually lead smartphone sales, iPhone set a standard that revolutionized, usurped, and in some cases obviated myriad products and services. Collateral damage in iPhone’s wake include landlines, calculators, cameras, printed maps, publishing, education, communication, news reporting, compasses, social interaction, election campaigns, tape recorders, and, of course, banking. 

Merchant loses no time dispelling the Lone Inventor Myth as it pertains to Steve Jobs. It was not Jobs but a clandestine group of Apple rogues who first toyed with the idea of a touchscreen device. They dubbed the project ENRI, for “Explore New Rich Interactions,” and kept it hidden from fellow employees—primarily to keep it hidden from Jobs. Depending on his mood, Jobs was known to dismiss ideas, even good ones, with a wave of the hand. Jobs in fact did dismiss ENRI with a wave of the hand when the team finally summoned the courage to show him a crude prototype. He reconsidered after a few days. At that point, in classic Orwellian fashion, it became a “fact” that a touchscreen device had been Jobs’s vision all along. Jobs truly does deserve credit, however, for later deciding that Apple’s first touchscreen product would not be a tablet but a phone. 

At and after iPhone’s launch, Jobs failed to foresee what would ultimately transform it into Apple’s crowning cash cow. He emphatically refused to allow third party apps, which he felt would sully his device. Besides, he insisted, iPhone’s “killer app” was its phone function. Market forces led Jobs to capitulate, and none too soon. “The iPhone was almost a failure when it first launched,” Merchant quotes Brett Bilbrey, now-retired head of Apple’s Technology Advancement Group. “When the iPhone was launched its sales were dismal.” Yet last year, observes Merchant, “… there were 7.4 billion cell phone subscribers in a world of 7.3 billion people.” 

What made the difference was the decision to open the app door to third party developers. The decision did more than save Apple and iPhone’s bacon. It launched a mega-industry. The Apple Store now markets over two million apps. Of those, 85 percent are games, which in 2015 accounted for $35 billion in revenue. Merchant shamelessly, in fact, almost gleefully devotes three pages to iFart as a leading indicator of third-party app potential, the digital whoopee cushion netting its developer a half-million dollars within weeks. 

As for iPhone’s killer app being its phone function, the market would soon set Jobs straight on that one, too. “If you fit the profile of the average user,” Merchant quotes technology analyst and Apple expert Horace Dediu referring to the iPhone, “then you are using it to check and post on social media, consumer entertainment, and as a navigation device, in that order.” 

Merchant also ably dispatches the “Apple invented it all” myth. Touchscreen technology began in 1960. Accelerometer technology goes back to the 1920s. For that matter, the iPhone was not the first smartphone. That honor goes to Simon, an IBM device invented by Frank Canova Jr. in 1993, which didn’t take hold. 

Merchant weaves a compelling tale, but from the perspective of a digital payments junkie The One Device comes up short. Merchant makes no mention of the revolution iPhone catalyzed in the financial services industry. Digital banking all but obviates physical banking for a consistently growing number of small businesses and consumers, especially Millennials and younger. (Fiserv researches and reports on the topic on a quarterly basis. Please refer to my articles for The Financial Brand here and here.) 

But don’t let the omission put you off The One Device. Despite its overlooking digital banking, I have five reasons for recommending it. First, it’s an enjoyable read. Second, it’s a fascinating study in how seeming instant innovations in fact stretch back decades. Third, with iPhone parts coming from all over the globe, it’s a lesson in the realities of world economics. Fourth, it’s a tour de force in the interactions of good and bad management, timing, and dumb luck. And fifth, it’s a sobering reminder that, sometimes, placing a small, rectangular object in the road will spin the future off in a new direction. 

Bankers didn’t see any of this coming when Jobs convened his press conference in January of 2007. Kind of makes you wonder what’s under our noses right now that may merit a more serious look.

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A glass of bot fraud:
Half-full or half-empty?

Half of a beersmallerIF YOU’RE A glass-is-half-full kind of person, I have good news. About 80 percent of what you spend on digital advertising is likely to show up under the noses of people you’d like to reach.

If you’re a glass-is-half-empty kind of person, the news isn’t so cheery. About 20 percent of what you spend on digital advertising is likely to show up under no noses at all.

This is reportedly due to bot fraud, automated systems that inflate views and clicks, on which, as you know, digital advertising rates are based. Individual bot fraud apps, hard to detect on their own, are often networked into—what else?—botnets, which have the power to make advertisers overpay in increments that add up fast. The overage, of course, lines the pockets of bad guys.

There is no shortage of ways to commit bot fraud. You can pile multiple ads atop one another with only the top ad visible, while each hidden ad is counted as having been viewed. You can reduce ads to a single, invisible pixel and crowd oodles of them onto a page where, again, they’ll be counted as viewed. You can create content-less sites loaded with stacked and single-pixel ads, and then “launder” to them ad impressions from legit sites. For more such activities—despicable, ingenious, or both, depending on how you look at them—check out Ryan Joe’s entertaining and informative Ad Exchanger article, “The Book Of Fraud: A Marketer’s Guide To Bots, Fake Domains And Other Dirty Deeds In Online Advertising.”

Just how serious are the numbers? According to CNBC,

New figures released today suggest that ad fraud will cost brands $16.4 billion globally this year, and that nearly 20 percent of total digital ad spend was wasted in 2016.

So-called invalid traffic, where bots rather than humans view or click on adverts on websites, was estimated to cost advertisers $12.5 billion in 2016 by ad verification company Adloox.

In December, in what it called “the biggest ad fraud ever,” Forbes reported:

A group of Russian criminals are making between $3 million and $5 million every day in a brazen attack on the advertising market, security firm White Ops claimed today. It’s the biggest digital ad fraud ever uncovered and perpetrated by faking clicks on video ads, the company said.

Not to be overlooked, Business Insider projects even higher numbers for 2017:

The amount of global advertising revenue wasted on fraudulent traffic, or clicks automatically generated by bots, could reach $16.4 billion in 2017, according to a new study commissioned by WPP and cited by Business Insider.

That figure is more than double the $7.2 billion the Association of National Advertisers estimated would be lost due to ad fraud in 2016.

Not a few other publications, including Fortune and Adweek, report similar, unsettling numbers. But a study by cyber security firm WhiteOps, commissioned by the Association of National Advertisers, predicts a downturn in bot fraud in 2017:

The third annual Bot Baseline Report reveals that the economic losses due to bot fraud are estimated to reach $6.5 billion globally in 2017. This is down 10 percent from the $7.2 billion reported in last year’s study. The fraud decline is particularly impressive recognizing that this is occurring when digital advertising spending is expected to increase by 10 percent or more.

One can only hope. By my calculation, $6.5 billion is nearly ten billion less than $16.4 billion predicted by CNBC and Business Insider.

Still, $6.5 billion could pay for a lot of lunches. Happily, the White Ops report offers suggestions for fighting bot fraud. Among others are demanding transparency for sourced traffic, refusing payment on non-human traffic in media contracts, and encouraging Media Rating Council (MRC) accredited third-party fraud detection on walled gardens. You can download the WhiteOps report in its entirety by clicking here.

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