A Chip Off the Fraud Block

HighTechTheftThe encouraging, the ouch, and the plus ça change

The payment industry and the payment-fraud industry are locked in a perpetual arms race. Each time our side develops bigger and badder defense weapons, the bad guys set to work inventing bigger and badder assault weapons. And so it goes, back and forth.

One year from this month, Europay, MasterCard, and Visa will up their side of the arms race by making chip-embedded payment cards standard in the United States.

It’s about time. While a number of African nations, China, Japan, Australia, Canada, all of Europe, and others are already onboard, nearly half of the world’s payment card fraud takes place in the United States. The Economist puts worldwide payment-card fraud at $11.3 billion in 2012, up 15 percent from 2011, and puts the United States’ share at 47 percent.

The encouraging news is that EMV (the banal moniker represents the first letter of each triumvirate member’s name) promises to cut dramatically down on fraud. Breaches the likes of those that this year plagued Target, Michael’s, and The Home Depot will, we hope, be a thing of the past. At the very least, they will be far less frequent. We know this from—and this is an advantage of coming late to the game—observing the experience of nations that embraced the technology ahead of us.

The “ouch” news is that merchants will once again have the privilege of ponying up for new point-of-sale devices. They can, of course, elect to stick with the old technology. But if they do, they may risk assuming all responsibility for fraud at their registers, letting E, M, and V off the hook. That could be a lot costlier than new terminals, and not just if you happen to be, say, Target. More and more, payment fraudsters are going after medium-to-small businesses, precisely because these tend to invest less in security.

Then there’s the plus ça change, plus c’est la meme chose news. Though EMV represents quite the obstacle for bad guys, it is not insurmountable. Given the dollars involved, the most parsimonious criminals may view upping their side of the arms race less as prohibitive and more as a worthwhile investment. Fortunately, experience shows that lesser-heeled criminals drop out of the game. That alone results in a considerable net gain for our side.

As we engage in the ongoing arms race, we will continue to chip—get it? chip—away at fraud, saving our industry billions, and earning the confidence of cardholders.

Meanwhile, there will always be someone on the other side chipping away right back at us. I suppose that’s job security for programmers specializing in security, regardless of whether they work for the good or bad guys. Of course, anyone working for the bad guys may end up unemployed, living off the state, and wearing an orange jumpsuit. That is not the course that I would recommend.

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When it comes to innovation, think small


It’s not every day that a sweaty shoe makes me think.

Yesterday when my wife kicked off her ASICS workout shoes, I noticed this line on the removable insole: “Be better than yesterday.”

That, I realized, says it. Especially with FinovateFall happening during the next two days.

The financial services industry is obsessed with innovation. Rightly so, for we cannot let the competition outstrip us. But when we limit innovation to mean the next big shiny new toy, we have a forest-for-the-trees thing going on.


Shiny new toys that take the world by storm are rare. Smaller, “better than yesterday” changes are far more common, and they are no less able to take the world by storm.

For a low-tech example, consider a mid 1980s innovation. There was nothing shiny or even new about a bottleneck with a twist-off cap. But placing it atop a one-quart container of motor oil was new. This tiny change overhauled the industry. It made the round oilcan obsolete and grew the home oil-change market by making the product easier to handle.

For a high-tech example, observe the people lined up outside your nearest Apple Store, waiting to hand over a substantial wad of cash for the just-released iPhone 6. Let’s be honest. The 6 is shiny, but it’s hardly new. It’s pretty much a 5 with added doodads. And the 5 was pretty much an elongated 4 with added doodads. Purists will no doubt revile me for trivializing, but come on. Even today, the 4 meets the basic need. Die-hards who haven’t upgraded miss out on little in the way of functionality. Apple, it seems, is the master of effecting big change by thinking small.

For another high-tech example, consider movies sold for home viewing. My wife and I are blessed with two lovely daughters who make us suffer when they’re bored on long trips. In their defense, I should point out that they keep up the whining only 99 percent of the time. So, even though we own a bunch of kids’ movies on DVD, we paid for the same movies over again so the kids can watch them on their tablets and my wife and I can ride a few miles in peace. In order to sell us the same movies twice, no studio had to invent a device or secure new distribution rights. All they needed was a modest advance in distribution.

That, too, is the power of thinking small.

The lesson for bankers is, sure, keep a sharp eye for the next shiny new toy, but don’t overlook “better than yesterday.” A modest innovation might be under your nose right now, and it might just change the world.

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Apple Pay: The app that eclipsed the toys

I admit it. I’m an iOS junkie.Apple$Composite

Okay, okay, I’m an Android OS junkie, too. Call me fickle, but being in the business kind of requires me to be versatile.

Last week was nirvana for my iOS side, which was eager to learn about the new iPhone 6 versions and, of course, Apple Watch. The toys did not disappoint, but the announcement of an app by the name of Apple Pay seems to have stolen the spotlight. Perhaps rightly so; time will tell.

The business press heralds Apple Pay as a mobile payment breakthrough. International Business Times ran the headline, “Apple’s Biggest Launch May Not Be The Watch, Or The iPhone, But Apple Pay.” Mashable’s Seth Fiegerman opined that Wall Street is more enamored of the app than the devices.

Why the excitement all of a sudden? It’s not as if bankers haven’t been working on mobile payment for a few years (which in technology is tantamount to “forever”), and it’s not as if payment products like Google Wallet haven’t already launched. Yet there is growing speculation that Apple Pay will be the app that takes mobile payment to ubiquity.

It helps that Apple for once set aside its penchant for playing only with Apple devices. Instead of requiring use of Apple’s proprietary iBeacon, Apple Pay works with Near Field Communication (NFC) technology, which many merchants already have in place.

It’s a smart move. Fiegerman writes, “Apple has partnered with several big banks and credit card companies for transactions on the platform and says the service will work in more than 200,000 retail locations in the United States.”

With Walgreens, Starbucks, and other notable merchants among those 200,000, Apple Pay will be off to a good start. Moreover, Apple’s participation may accelerate adoption among straggling merchants.

As for security, The Verge’s Dante D’Orazio reports, “Apple is using ‘Device Account Numbers’ for each of your cards, which means that your actual card number isn’t transferred to the merchant. There’s also a ‘transaction-specific dynamic security code’ to help keep your payment info secure and prevent hackers from skimming your account number and using it for another purchase.” I might mention, too, that authentication of payments by use of Touch ID adds another layer of security. But don’t relax. Anyone in this industry knows that security and hacking are engaged in a perpetual arms race. If Apple’s security is sound, it means only that it’s the hackers’ move.

Since I use both iOS and Android, would you care to know which one I like better? I’m not telling. Apologies if lunch was riding on the answer.

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Better Together (Part 3 of 3)





Launching digital banking: some bullets

Hint: Your future is at stake

This is the final sneak peek at my presentation at next month’s ABA Marketing and Retail Conference in Orlando. My session, “Better Together: Marketing Mobile and Tablet Banking with the Help of IT,” is on Sunday, September 7, at 3:45.

In my prior two posts, I have done my best to persuade you that your future lies in offering and heavily promoting a killer suite of mobile banking services. In this post, I’ll provide some bullets. If there are naysayers in your organization, perhaps these will help them see reason.

• Not just tomorrow’s, but today’s banking customers want easy, fast, accessible, and versatile mobile services. According to AlixPartners, 60 percent of smartphone and tablet owners who ditched their primary bank for a competitor in the first half of 2013 cited mobile banking as an “important” or “extremely important factor.” Just to emphasize the point, please note that another way of saying “60 percent” is “OVER HALF OF YOUR CUSTOMERS.”

• Digital bankers generate more fee revenue than non-digital bankers. You may recall that according to Fiserv’s proprietary research, “more” means an average of 428 percent.


That’s my title slide. Aren’t you just
dying to see the rest of them?

• Besides driving fee revenue up, mobile banking drives costs down. According to Javelin, “down” meant an industry-wide savings of $1.5 billion in 2013 alone.

• Mobile banking is a sticky product. Once customers are comfortable with an app, they are loath to give it up and face having to learn a new one.

• Banking-by-tablet has begun to outstrip banking-by-smartphone in terms of time spent and number and complexity of transactions. No wonder: tablet screens are bigger and, therefore, easier to use. Caution: Do not use this as an excuse to neglect smartphones. When it comes to quick, on-the-move transactions, smartphones still reign.

• Mobile deposit is a must. Banks offering mobile deposit see a per-customer increase of about 30 percent in logins and about 60 percent in transactions.

• Besides offering a killer suite of mobile products, you must pour energy and resources into signing on customers. Your early-adopting competitors are unabashed about raiding your customer base. This is no time to be shy.

I’ll go into a lot more detail in my session, “Better Together: Marketing Mobile and Tablet Banking with the Help of IT.” Again, it’s on Sunday, September 7, at 3:45. I hope to see you there.

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Better Together (Part 2 of 3)





Musts for launching digital banking services

Hint: Be a marketer

This is the second of three sneak peeks at some of the points I’ll cover in my presentation at next month’s ABA Marketing and Retail Conference. Note that I said “some of the points.” For the whole shebang, I hope you’ll join me in Orlando on Sunday, September 7, at 3:45 for my session, “Better Together: Marketing Mobile and Tablet Banking with the Help of IT.”

YOUR FUTURE HINGES on offering a killer suite of mobile services. But that’s just Step One. For a killer suite to do you any good, you’ll need to put some effort into Step Two, that is, getting customers to sign up and use it. Here are some enrollment musts:

• Don’t be a wimp. Incredible, I know, but some marketers actually worry about “badgering” customers with too many messages about mobile services. I have three responses. (1) You’re not badgering as much as you think. You live with your messaging, which means you’re exposed to it all the time. Your customers aren’t. (2) Think back to when you studied Adam Smith and learned that the appropriate response to demand is supply. Now consider that mobile banking is hot because your customers demand it. If you want your bank to stick around for the long haul, now is not time to worry about bringing up mobile services once too often. (3) You’re a marketer, dammit. Market!

• Capitalize on your proprietary media. Paid advertising is fine, but don’t overlook the media you own outright. Promote mobile services on your website, ATM screens, statements, stuffers, lobby posters, tent cards, e-letters, newsletters, and more. Your messages will have the advantage of appearing in an environment free of competing advertising. And by marshaling this low-cost solution, you will have the advantage of earning brownie points with the even most austere corporate bean-counter.

• Use smart banners. Of your customers who access your website from a desktop computer, some 30 percent also access it from a mobile device—but do not have the mobile app. This is the ideal time and place for a banner that lets them download the app. If your financial institution is like most, you will see a marked increase in enrollment beginning on the day you implement this tactic alone.


• Icons help. Back in the Stone Age, when direct marketers wanted phone calls instead of clicks, they found that displaying a telephone icon (like the one on the right) next to a phone number actually increased calls. Likewise, today icons resembling smart phones and tablets increase clicks. Display them in your messages.

• Sign up your employees. You cannot expect your people to extoll what they haven’t experienced. Then, once your employees are signed up and hooked on your mobile services, you can …

• … Motivate employees to sign up customers. This will require training. If you’re interested in increasing the results of said training several-fold, you should also offer meaningful incentives. I recommend incentives that every employee can receive, as opposed to contests that yield only a few winners. If you want to do both, even better.

• Parade your security. In the old days, one way to allay fears of low-tech theft was to have a huge, thick, impenetrable vault door in plain sight from the lobby. A beefy guard packing heat tended to reassure, too. Today, a fear of high-tech theft keeps some people from using mobile services. Be sure to promote your commitment to and procedures ensuring security. This will require some finesse. You want to talk about security in a way that allays fears, not increases them.

Coming up next in Part 3: Important take-aways

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