For some reason and for the third year in a row, Bank Innovation has shown no better judgment than to include me on its list of “2015 Innovators to Watch.”
The 2015 refers to the year, not to the number of innovators, which is a good thing, because 2,015 innovators would have made for a long article. In fact they kept the list to 44, and I’m grateful and honored to be on it.
Adapted from my upcoming Credit Union Magazine article
IT’S NO LONGER NEWS that payment relationships are a, if not the, wave of the financial services future.Experts have harped on the subject ad infinitum. People like me have harped on it, too.
Part of the message seems to have gotten through loud and clear. Financial institution decision makers are well aware that rising adoption trends attest to demand, and that being slow to supply risks losing business to speedier competitors. It is no idle threat. As mobile options supplant in-person transactions, it becomes easier for once-loyal clients to disengage and defect.
The reader needs no reminder of the value of sticky products, and payment options are proving themselves among the stickiest. Stickiness aside, they offer a wealth of behavioral data sure to make your marketing research people giddy with anticipation. Meanwhile, your CFO will delight in a new, substantial source of fee income, because clients don’t seem to mind ponying up for payment services. They’ll even gladly pay a little extra when they need a premium service like, say, a same-day transaction. I cannot recall another time in our industry when customers actually paid fees willingly.
So if the bottom line matters, you have plenty of reason to offer a full complement of payment services.
But the part of the message that doesn’t seem to have gotten through quite as loud and clear is the urgency not just to offer a full complement of payment solutions, but to out-and-out own the entire payment relationship.
The payments industry is splintering faster than a living room window in a fight with a baseball. And not just credit unions and banks have stepped up to the plate. A growing list of nonbanks like Google and PayPal and myriad merchants and utilities offer easy-to-use payment portals of their own. Every payment relationship a member sets up outside your portal weakens stickiness, and misses profit, longevity, and data mining opportunities.
It’s not too late. Clients still rate traditional financial institutions highest when it comes to payment providers. But that’s fast eroding. In its April 2014 North American Consumer Digital Banking Survey, consulting firm Accenture asked respondents how likely they would be to bank with nonbank companies if those companies offered banking services. Fifty percent said they would bank with Square, 41 percent with PayPal, and 31 percent with T-Mobil. Costco, Apple, Google, Amazon, AT&T, and Sprint all came in in the 26 to 29 percent range. Even at the low end, which isn’t all that low, this is sobering if not downright scary news for traditional financial institutions.
One problem with stickiness is that it works both ways. When a client engages with an outside portal, winning back that piece of the client’s business becomes all but impossible—assuming you even know about it. The best strategy is to enroll members and exceed their demands early, rendering needless all offerings from competing institutions and nonbanks.
I admit that owning the entire payment relationship is easier said than done. It calls for vision, commitment, resources, expertise you may not currently have in-house, and aggressive marketing. But the gargantuan nature of the task does not make it any less imperative.
There remains for financial institutions a small window of time in which set up or purchase and then market payment systems that are easy for clients to adopt and use. Though small, a window it is. I recommend leaping through it poste haste.
ONE DAY IN 1995, McArthur Wheeler took it upon himself to rob two Pittsburg banks. When policed arrested him a few hours later, he was astonished to learn that they had identified him from surveillance videos.
You see, he taken the precaution of painting his face with lemon juice.
Doubtless the science behind Wheeler’s reasoning has already burst upon you. Since lemon juice can serve as invisible ink, Wheeler figured that a lemon-juice covered face would be invisible to video cameras. He tested the idea by smearing his face with lemon juice and taking a selfie with a Polaroid camera. Buoyed with confidence when his face didn’t appear on the photo—we are left to wonder why it didn’t—he set off to make some “withdrawals.”
Inspired in part by Wheeler’s ill-placed confidence, David Dunning and Justin Kruger of Cornell University’s Department of Psychology decided to conduct a series of tests. In what would in time be creatively dubbed the Dunning-Kruger Effect, they established that the incompetent often overrate their competence, while the highly competent often underrate theirs.
In an article he wrote last year, Dunning added an important observation:
I’ve become convinced of one key, overarching fact about the ignorant mind. One should not think of it as uninformed. Rather, one should think of it as misinformed.
An ignorant mind is precisely not a spotless, empty vessel, but one that’s filled with the clutter of irrelevant or misleading life experiences, theories, facts, intuitions, strategies, algorithms, heuristics, metaphors, and hunches that regrettably have the look and feel of useful and accurate knowledge.
Wheeler’s error was not in overestimating his smarts. It was in overestimating the value a smidgeon of information or, in his case, of misinformation.
It’s important for us marketers to recognize that we are not immune. Trouble is, there’s a Catch 22 when it comes to evaluating the information we rely on. Dunning also wrote:
… even the broad outlines of what we don’t know are all too often completely invisible. To a great degree, we fail to recognize the frequency and scope of our ignorance.
Now lest hackles rise, let me be clear: I am not calling anyone ignorant. What I am suggesting is that regular input from the outside can provide a needful reality check as to the reliability of information on which we base marketing decisions. Who knows? Had Wheeler subjected his information to the scrutiny of an outside expert, he might have settled on working for his money as the wiser course.
ONE FINE DAY in 1981, someone at American Airlines eyed the empty seats on many a flight and mused, “If we gave those seats to our most-frequent fliers, they’d be tickled and we’d be none the poorer.” Thus began what today are commonly called rewards programs. They range from American Express’s program, where card users earn points good for catalog items, to buy-ten-get-one-free punch cards the neighborhood sandwich shop hands out.
A well-executed rewards program can increase frequency and spend, but there is danger in mistaking those metrics for loyalty. Loyalty is a feeling, an emotional commitment, a not terribly rational compulsion that makes the mere thought of defection abhorrent.
For a good example of loyalty, look no further than your nearest ardent sports fan. You may infer that person’s loyalty from game attendance, pennant-covered walls, or block letters painted on chests, but it’s important to keep in mind that some of the most dedicated fans do none of these things, and some of the least do all of them.
You may accuse me of conflating apples and oranges. As a diehard sports fan, I want to agree with you. Indeed, to compare a credit card or sandwich shop to my beloved Utah Jazz or Denver Broncos strikes me as akin to blasphemy. But as a marketer I must concede that sports teams are still products. I must also concede other product categories that boast no less ardent fans. For example, try persuading a Harley, Coke, Mac, or mayonnaise devotee to settle for Honda, Pepsi, Windows, or Miracle Whip—while being prepared to duck.
Granted, loyalty-as-a-feeling is all but impossible to quantify. We marketers have little choice but to infer it from frequency and spend. And there’s nothing wrong—in fact, there’s everything right—with using incentives to bring customers back more often to spend more.
But marketers who believe their customers are loyal would do well to submit to the occasional reality check. If a competitor could lure away your best customers by offering them a richer rewards program, you don’t have loyal customers; you have purchased ones.
Now, there’s nothing wrong with purchased customers any more than there’s anything wrong with incentivized customers. The difference matters only if loyalty truly is your goal. If so, remember that attaining loyalty begins with recognizing its nature as a two-way street. Or, as evolutionary psychologists put it, with reciprocal altruism, which essentially states that a proven strategy for getting others to scratch your back is first to scratch theirs.
Want loyal customers? A good starting point might be to first show—not just claim in advertising—your loyalty to them.
Consulting firm First Annapolis recently posted a helpful, feature-for-feature chart comparing forthcoming Samsung Pay with Apple Pay. I won’t reproduce the entire chart here for two reasons. One is that you need only click here or on the image at right to view it on First Annapolis’s site. The other is that I have high regard for copyright laws and for the consequences of violating them.
In their classic Positioning: The Battle for Your Mind, Al Ries and Jack Trout argued that no position was stronger than being first. If you cherry-pick, it might look like a solid claim. Products like Coca-Cola and Scotchgard have held their primacy, and it is not unreasonable to include iPhone with them.
Upon announcing iPhone in January 2007, Apple set the smartphone standard that holds to this day. At the time, Google was poised to introduce the first Android smartphone. It was to have been a Blackberry-esque device with a small screen and solid keyboard. With one look at iPhone, Google quietly scrapped two years of development and returned to the drawing board, choosing being late over being eclipsed.
But the case for first-ness falls apart when you reverse-cherry pick. Consider IBM PCs, Jeep, and Prodigy, where being first helped pave the way for latecomers by softening a market toward a new product, and by bringing to light mistakes for latecomers to avoid. And, to wit, Android now commands more than 50% of the smartphone and tablet market despite its late arrival.
History may repeat itself with Apple Pay and Samsung Pay. Samsung is bringing to market a product that looks a lot like Apple Pay. Both platforms support credit, debit, and prepaid cards. Both rely on cloud-based payment credentials, support NFC technology, and neither stores credit card account numbers on the device.
That is not to say that there aren’t differences. Apple Pay triggers POS devices to receive payment tokens from Visa, whereas Samsung Pay retrieves cloud-based payment tokens and passes them to POS devices at the point of sale. Samsung portends greater convenience at the point of sale with magstrip reader compatibility, and allows for Private Label Credit Cards (PLCC). On the other hand, Apple Pay offers convenience in the form of automatically loading at the point of sale, whereas Samsung Pay customers must launch the app. Apple Pay allows for payment through the app, whereas Samsung Pay works only at the point of sale.
Early indicators are that Apple’s system may be the more secure, but whether security differences are subtle or great, or matter to consumers, remains to be seen. One difference that I predict will be largely moot—unless Americans step up plans to vacation in Seoul—is that, unlike Apple Pay, Samsung pay will work in South Korea.
Returning to first-ness, I suggest that both products qualify. First-ness per Ries and Trout has nothing to do with being first to launch, but with being first in consumer minds. Since Apple Pay is available only to Apple users, Samsung Pay can own the position of “First” among non-Apple users. Samsung may also enjoy a slight advantage in the form of a market that has had a year to adjust to the concept of payment-by-portable-device.
It should be noted, however, that we not dealing with an iOS-versus-Android situation, but with a single manufacturer of Android devices. Were we discussing not Samsung Pay but Android Pay, its chances of attaining better than 50 percent of the market as did Android itself would be far greater.
It goes without saying that Samsung and Apple each hope to pull converts from the other’s camp. Good luck to them. From what we know about each group’s commitment to its own platform and animosity toward the other, conversions happen but not en masse. Each brand will simply sing to its own choir. The relative merits of Apple and competing products will matter less at the point of sale and more when people sit down to argue about whose phone or tablet is better. As long as neither Apple nor Samsung goes to great lengths to alienate its respective piece of the market, both products will probably fare well.