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RBA News: RBA Research Discussion Paper 2020-06
RBA News: RBA Research Discussion Paper 2020-06

RBA News: RBA Research Discussion Paper 2020-06

The Reserve Bank of Australia has released the following Research Discussion Paper:

Consumer Payment Behaviour in Australia: Evidence from the 2019 Consumer Payments Survey

by James Caddy, Luc Delaney and Chay Fisher

Abstract

Since 2007 the Reserve Bank has conducted a Consumer Payments Survey (CPS) every three years, which provides comprehensive information on how Australians make their payments. The 2019 CPS was conducted just before the emergence of COVID-19 in Australia and gives a detailed snapshot of consumer payment behaviour prior to the changes in spending patterns induced by the pandemic. The survey provided further evidence that Australian consumers increasingly prefer to use electronic payment methods rather than cash for their day-to-day payments. Many people now tap their cards (or sometimes phones) even for small purchases. When paying with a card in person or online, consumers are more often choosing to use a debit card rather than a credit card. As a result, debit cards were the most frequently used consumer payment method in the 2019 survey. Consumers are also increasingly taking advantage of the ability to make payments using a range of innovative new payment services that have emerged in recent years, often facilitated by mobile technology and the use of digital payment credentials. Despite the trend towards electronic payments, cash still accounted for a significant share of lower-value payments and a material proportion of the population continue to make many of their payments in cash.

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How Australians Pay Snapshot
How Australians Pay Snapshot

How Australians Pay Snapshot

2019 Consumer Payments Survey

Reserve Bank of Australia

 


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Panic, Pandemic & Payment Preferences: RBA Assistant Governor, Speech
Panic, Pandemic & Payment Preferences: RBA Assistant Governor, Speech

Panic, Pandemic and Payment Preferences

The Disruption Evolved series by Morgan Stanley features guest speakers who are leaders in their field and at the forefront of industry.  In June this year, Michelle Bullock, Assistant Governor (Financial Systems) RBA, delivered a compelling keynote focussing on the potential implications for payment systems in the midst of the Covid-19 pandemic. With a focus on Panic, Pandemic and Payment preferences, Michelle’s shares her insights as we navigate these extraordinary times.

Below is a transcript of Michelle’s address.

Michelle Bullock
Assistant Governor (Financial Systems)

Keynote Address at the Morgan Stanley Disruption Evolved Webcast
Online – 3 June 2020

Thank you to Morgan Stanley for the opportunity to speak this morning.

We are living through quite extraordinary times. The COVID-19 pandemic is having dramatic effects on economies around the world, impacting employment, businesses and households. Monetary and fiscal policies have been heavily mobilised to help bridge the impact of the containment measures on economic activity. But the health crisis has also disrupted aspects of the retail payments system; payment patterns have seen large, sudden shifts as merchants and consumers have changed both their payment preferences and their mode of interaction. Payment service providers have tried to accommodate these shifts in preferences in a fast-changing environment…”

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Future Banking Forum Insights 2019
Future Banking Forum Insights 2019

Future Banking Forum Insights 2019

Can new payment technology reimagine the banking experience of old?

Indue’s Mark Korogiannis, Executive Manager Payment Solutions, shares insights from the Future Banking Forum 2019.

In the past, when we needed banking solutions, we’d visit our local bank manager. This influential figure knew our financial, and often personal situation, and helped us achieve our financial dreams.

More recently, branch closures and automation have seen the demise of face-to-face banking – along with that personal connection. Today, technology looks set to potentially fill this gap, with the emergence of convenient digital platforms that transform the banking experience as well as how customer insights are utilised.

In October, I attended the Future Banking Forum 2019, which explored the impact of fintechs and neo-banks on personal banking. Speakers included industry experts like Simon Vans-Colina from Monzo, Dom Pym from UP, Joseph Healy from Judo Bank and Camilla Cooke from Xinja.

Here are three key themes I took away from the event:

1. Solving customer problems

The Banking Royal Commission highlighted the problems that can occur when unsuitable products are sold to customers. As a sector, we have a responsibility to ensure the solutions we offer are meeting our customers’ needs in a responsible way.

Neo-banks are taking a leadership position in this, using technology and data to deeply understand their customers, and fashioning banking solutions to match – in some cases personalised for that customer. Without the burden of legacy systems and rigid processes, tech-savvy neo-banks can take the friction out of the banking experience, while still meeting their compliance obligations.

For example, Xinja co-Founder, Camilla Cooke, commented that not only technology but also a new way of thinking, helps them compete with the big banks in a customer-experience ‘race to the top’ in the hope that a rising tide lifts all ships with customers voting to shift to banks that exemplify this behaviour.

2. Creating new connections

With digital platforms and fresh thinking, neo-banks are helping recreate the connection that bank managers had with their customers. They view technology and data as their unfair advantage, using sophisticated tooling, artificial intelligence and machine learning to better respond to their target markets – often defined by a mindset and values rather than simple demographics.

To build a connection, banks need to understand what drives their customers’ financial behaviours. For example, Oliver Kidd from Archa said customer data showed their target market was motivated by convenience and value – not by learning how to save. As a result, the company is exploring non-traditional offerings, including aggregation services via a subscription model – potentially using open-banking to give their customers access to products and services from different banks.

3. Having a laser focus

Neo-banks tend to focus on, or appeal to specific market segments, rather than attempting to serve all markets. This could be a particular demographic, market niche, or customer set who hold certain attitudes and values.

Whatever their target market, the view of the neo-banks is that they have the skills, agility and attributes to connect with that market, and deliver solutions that provide value to individuals in those cohorts. They largely see themselves as raising the bar on customer experience – and providing a catalyst for the big banks to re-invent their products and services.

Banking trends (Future Banking Forum Insights 2019)

A key take-out from the forum was the sense that commoditisation of banking has gone too far, leading to a dehumanising, one-size-fits-all approach. So the next step for the sector is to turn this around, using technology to challenge the status quo. There was a strong sense that this will be achieved through a combination of competition and collaboration between neo-banks and more established players.

Overall the prevailing message was that by putting customer needs front-and-centre, we can create products that provide real value and benefits to our banking customers. And by building deeper connections in this way, we can earn their business, loyalty and trust – but also increasingly begin to add new forms of value to their modern lives.

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Insight: The Disruptive Threat
Insight: The Disruptive Threat

Insight: The Disruptive Threat

By now, everyone in Financial Services has seen a headline with dire warnings of “disruption” – by one of the Internet Giants like Amazon or Facebook, or by a regional FinTech startup in Australia. Industrie&Co’s Lukas Bower explains how financial services providers can respond to the disruptive threat.

How can you Respond?

The disruptive threat is indeed real, but how does a mid-tier financial services provider respond?

Many mid-tier providers in Australia focus on a specific region, industry, or some other slice of the broader market.  To combat disruption, your solution lies in uncovering and addressing a need that is uniquely important to your specific community of customers.

The “Design Sprint” Approachthe disruptive threat

If you read the trades, you’ll be aware that customer-centricity is the norm in today’s digital business.

Early customer-centric methodologies focused on the desirability of an idea – exploring whether a customer wants a new feature, by testing an idea with real customers.

As customer-centric approaches have matured, they have expanded to look at technical feasibility and commercial viability as well. This end-to-end exercise is called a Design Sprint – which can be completed in a matter of weeks.

Feasibility & Viability

Feasibility explores your existing technology landscape (CMS, CRM, and any other customer-facing systems), and determines if an idea customers love is technically feasible to implement. Feasibility considers your existing environment – and calls out any technical gaps that need to be addressed. If gaps exist, the feasibility phase tests whether they can be addressed through short Tech Spikes – simple technology tests that prove or disprove whether a technical solution will work.

the disruptive threat design venn

Viability looks at the idea from a business lens. Will it save more money than it costs to implement? Will it retain more customers? Will it help acquire new customers? How long will it take to implement? What training will your team need, if any, to put the new idea in the market?

Building the Right Thing

At the end of the Design Sprint, your business will have enough information regarding Desirability, Feasibility and Viability to decide whether or not you should invest in an idea – and enough customer feedback to understand how strongly they feel about your proposal.

This ensures your business will invest in building the right thing – and avoid spending time and resources on ideas that don’t deliver customer and business value.

Why This Matters

Your competitors do not have the same direct and unfettered access to your customers that you have. Your access enables you to find out your customers’ unique needs and pains, and tailor your solution to fit – using a Design Sprint.

Building the right thing for your customers is key. Building the right thing makes your business “sticky” by giving your customer base more reasons to remain with you – even with new alternatives emerging in your market.

This article was written by Lukas Bower (@lukasbower) Managing Director at Industrie&Co Australia. As the payment landscape continues to evolve with new technologies, new payment providers and new customer requirements, it has become increasingly evident that financial institutions must ensure they continually assess whether their products and services are meeting the needs of their market.

The implications of ignoring these ‘disruptions’ is the risk of falling behind the masses and losing out to adaptive competitors.

Responding to the Threat

Indue has partnered with Industrie&Co to enable a major Australian retailer to bring an unprecedented product into the Australian market, which is a great example of responding to the ever-advancing demands of the industry.

Interested to learn about how you can compete with industry disruptors?  Join Indue’s Chief Commercial Officer, Dave Hemingway as he hosts an audience with Industrie&Co to dive deeper into the practical applications of design sprint methodology.

When

Thursday, November 14th, 11.00am AEDT

 

the disruptive threat Industrie & CoIndustrie&Co is an Innovation and Technology Consultancy.  With offices in Sydney, Melbourne, Hong Kong and Singapore, Industrie&Co helps Financial Services companies identify and build winning product ideas – from Design Sprint through to launch.  Industrie&Co has a strong relationship with Indue, and can help implement next-generation payment solutions. To find out how, please get in touch and share your vision with us.

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How fintechs are responding to the Royal Commission
How fintechs are responding to the Royal Commission

How fintechs are responding to the Royal Commission

The 76 recommendations of Hayne’s final report have been made public, but do Australia’s fintechs think it will change banking?

Article first published 5 February 2019, Finder.com.au.  Author Elizabeth Barry

The final report of The Royal Commission  into the Banking, Superannuation and Financial Services Industry has been handed down by Kenneth Hayne AC QC, and all firms in Australia’s financial industry, which includes fintechs, are taking it in.

The report made made 76 recommendations  in total, including that borrowers should pay mortgage broker fees and that consumer protection laws should be extended to small business loans of under $5 million. The recommendations were focused on Australia’s financial regulators and financial institutions, but depending on the changes that are made, the recommendations would have an impact on the entire financial services industry.

CEO and founder of Australian neobank Xinja Eric Wilson said the reality is that we have “reached a new low”.

“But the report is a line in the sand and marks a real opportunity to shake up the industry and redesign it in the interests of customers,” said Wilson.

Wilson believes the rise of fintechs like Xinja and open banking, due to begin in Australia later this year, will offer a different model for consumers.

“Competition is the silver bullet. The emergence of neobanks like Xinja, which offer a different model, means that people poorly treated by their banks will be able to shop around. It will also become much easier to switch, with the rollout of open banking.”

The introduction in Australia later this year of open banking, which will hand consumers their data allowing them to aggregate information and shift banks or financial services providers more easily, will go a long way to easing the legwork around switching.

Brett King, advisor to the Xinja board and management and former banking adviser to the Obama White House said: “The Royal Commission identified a range of problems and inadequacies in the current system, addressing them requires more than just putting a new face on old banks.

“The  emergence of challenger banks, like Xinja, enable us to design, from the ground up ethical, modern and inclusive financial services, without the baggage of the traditional players.”

“Fintech startups and investors with rent seeking, ethically questionable business models, based on selling private individual data, having high or hidden fees, exploiting customer ignorance or financial desperation, should be on notice and will face the risk of criminal charges. Change is coming and it is not just going to impact the big banks.

“Fintech needs to build around ethical, sustainable business models. In a sector devoid of trust, fintech startups can differentiate themselves and shine a new light of openness and transparency.”[/vc_column_text][/vc_column_inner][/vc_row_inner][vc_column_text el_class=”ind-textBox”]Founder and CEO of Roll-it-Super, Mark MacLeod, said the Royal Commission evidenced a financial services sector “riddled with conflicts of interest and greed” and that any fintechs with similar notions should take notice.

“Fintech startups and investors with rent seeking, ethically questionable business models, based on selling private individual data, having high or hidden fees, exploiting customer ignorance or financial desperation, should be on notice and will face the risk of criminal charges. Change is coming and it is not just going to impact the big banks.

“Fintech needs to build around ethical, sustainable business models. In a sector devoid of trust, fintech startups can differentiate themselves and shine a new light of openness and transparency.”

Source: www.finder.com.au  Read full article here.

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Xinja’s Big Goal
Xinja’s Big Goal

Xinja’s Big Goal

Bring high-quality banking services to the masses with technology. 

Digital bank start-up Xinja plans to bring the experience of a personal banker to anyone with a smartphone, according to Xinja Chief Strategy & Innovation Officer Van Le.

“When we talk about digital disruption, we’re interested in the capacity of technology to take a product, service or an experience that’s currently only available to a small population and democratise that for the majority of the population,” she says.

It’s an audacious goal and one that will stretch the limits of technology, but the demand is clear among younger generations.

Internet banking and mobile/tablet banking service were ranked as the most important factors in a bank, according to a KPMG survey of more than 1,400 Gen Y professionals. They have higher expectations for a seamless customer experience that works across multiple channels.

It has left the door ajar. While Australia’s major banks dominate the local market, 84% of Gen Y professionals said they would consider banking with a tech giant, according to the survey.

A new direction: digital brings customers closer

Le says banking service has become commoditised as branch staff were replaced by a procession of lower-cost, impersonal technology such as ATMs, telephone banking, online banking and apps.

“There’s more utility and convenience but in the process you lose that human interaction and that’s part of what we’re looking to bring back – the humanity with how we’re designing Xinja.”

It’s a goal that every customer-facing organisation has but Xinja brings some key differences to the conversation. Xinja (which is not yet a fully licensed bank) will become a ‘neobank’. It is being built on a purely digital, mobile platform, unencumbered from the legacy systems that can weigh down established players.

The neobank movement has tapped into a rich vein of demand in the UK where start-ups such as Monzo have quickly attracted customers. They have also generated something not generally associated with banks: an air of excitement.

How the promise of re-imagining the banking experience is fulfilled will determine whether that excitement matures into commitment.

“The technology is designed to be able to respond and be configured so the notifications and communication gives customers exactly what they need, when they need it – then as their lives and circumstances change the interactions can change as well.

“But the main heavy lifting the technology does is the maths, the predictions and the thinking ahead, which is what a normal banker would do. Technology allows you to scale that for every other customer who is in a similar situation.”

In March, Xinja raised more than $2.5 million through an equity crowdfunding offer with one-in-four investors committing the minimum $250 investment.

Emojis, wait times and less stress

Le points to several small examples about the way Xinja interacts with its customers.

The app is personalised and information is immediately accessible. Queues are a thing of the past given customers can communicate through a variety of channels (including speaking to a person or leaving messages). Staid, conservative language has been removed and replaced by accessible and human language, including emojis.

“We know the value of customers being told upfront what to expect and we know that people read things with emojis in them. So it’s not just about fun and the brand, it’s about being engaging so they don’t gloss over it because that gets people inadvertently stuck and needing to contact the bank.”

None of these sound revolutionary alone but a great customer experience is nothing more than the sum of a thousand small interactions that work together seamlessly. It should help remove money as a significant cause of stress and anxiety.

“When you boil it down, money is a means through which people express what they love about life and what they care about and that opened the door for us to think about what role should a bank play and what role can we play at Xinja in re-connecting people to what their money should really be about.”

Products and partnerships

Xinja has entered the market with a prepaid debit card – a particularly popular product choice among younger demographics unable to access credit cards.

“We’re building a relationship with customers so they know who we are and trust us,” Le says. “Prepaid card helps them learn who we are – people won’t immediately switch everything over. They get a taste of the experience and how we deliver what we say we are delivering. We have an ethos of earning customers, it’s not about acquiring customers.”

It hopes to provide a full suite of retail banking products, which will require a full banking licence. It is already launching mortgages (under its Australian Credit License) and plans to launch deposit taking transactional accounts (which will require a restricted banking licence).

Xinja supports the development of open banking and other future common infrastructure that will allow them to bring new products to Xinja customers as part of a ‘marketplace’ model. Those products and services may also stretch beyond traditional banking to include products or services in the utilities, travel or retail sectors.

“We’ve tried to stay away from being a ‘product house’ or a ‘solution house’ looking for a problem. We’re starting from what customers want, need and value. It’s very important that we only build things that have value that customers recognise – and then find the best way to make that available to customers.”

Many banks use a net promoter score – asking people would you recommend us – as a way to measure their success with customers.

“Our view of that is that it’s a very narcissistic measure because you’re not actually measuring the impact on the customer – you’re measuring what they think of you… we’re more interested in measuring did we make an impact for you? Did we make a difference?”.

Source: bpaybanter.com.au

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Spriggy: How this start-up is teaching kids to be savvy with money
Spriggy: How this start-up is teaching kids to be savvy with money

How this start-up is teaching kids to be savvy with money

Today’s world is a far cry from putting pocket money in a tin.

More than a third of Aussie parents admit to being worried about their kids’ understanding of digital money.  Mario Hasanakos co-founder of Spriggy, saw a lack of tools in the market to help parents teach kids about money in the digital age.

“It’s not secret that cash is getting less and less prevalent, more transactions are electronic and kids are going to grow up in that world,” he said.

Today digital world is a far cry from the days of getting pocket money from our parents and putting it in a tin, Hasanakos told Your Money Live.

“We’ve heard stories from parents of having a passbook and kids trying to tap the passbook to hope it works like an app.

“It’s just not what our kids are used to, they are digital native kids, they grow up in a world where they expect money to be electronic. It all lives on your mobile phone. There’s a gap in how to give kids that early experience with money.”

Spriggy is a prepaid debit card and app designed for parents to use with their kids.

Parents get sent a prepaid card, personalized with their child’s name and parents get an app they can use with their kids.

Using the app, parents can link any bank account, move money onto their child’s cards, view transactions in real time and help set up saving goals.

Parents and kids can lock and unlock the card at anytime, and parents get notifications when their kids spend money.

“Having those early experiences from a young age prepares you to not make really bad mistakes when it’s worth a lot more when you’re older.”

Spriggy launched two years ago and has received $6 million from investors.

[/vc_column_text][/vc_column_inner][/vc_row_inner][vc_column_text el_class=”ind-textBox”]Source: yourmoney.com.au 3rd November 2018

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Fintech Companies Could Give Billions of People More Banking Options
Fintech Companies Could Give Billions of People More Banking Options

Fintech Companies could give Billions of People more Banking Options

Much has been made of the fact that a new breed of financial technology (or fintech) companies is unbundling banks in the developed world. Startups are attacking all of the components of the traditional bank value proposition (e.g., accounts, portfolio management, mortgages, car loans, person-to-person payments).

Over the past five to six years there has been a rush of capital and talent into startups; investment in them has grown nearly eightfold since 2011.

While their innovative products have been a boon to consumers in mature economies, the resulting efficiency and security benefits have largely bypassed the 2 billion consumers in the developing world who lack formal banking services altogether.

However, there are signs that this is changing. Encouraged by the dramatic increase in the number of people with mobile phones in the developing world, new fintech players are attempting to disrupt the existing financial order in these markets: the money lenders and informal remittance services that often have been the only option for much of the population.

To succeed in these markets, these startups must overcome three challenges: lack of cloud infrastructure, users who are “less digital” than rich-world users, and users who live economically chaotic lives based primarily in the informal sector.

Lack of Infrastructure and Efficient Cloud Services

The fact that many developing countries lack infrastructure that exists in advanced economies presents an opportunity and a challenge. It has prompted some fintech companies to jump in and try to fill the gap by creating “regtech” and “Infrastructure as a Service” (IaaS).

One of the companies doing this is Trulioo, which is making individual government identity databases around the world accessible through a single streamlined interface online. Another is Flutterwave, which is creating payments and banking interfaces to power fintech offerings in Nigeria.

Users Who Don’t Have a Digital Footprint

While some people in the developing world have a rich and intricate set of online behaviors, there are many whose only form of access to the digital world is phones with limited data connections or internet cafés, and plenty don’t use digital products at all. Their resulting limited (or nonexistent) digital footprints mean that the sophisticated algorithms that some fintech companies use to generate risk scores or personalized offers in the developed world aren’t useful in these markets.

To succeed in this environment, local players are evolving models that tap into and create new sources of data on users, often by giving users tools that encourage them to expand their digital lives.

One example in India is SERV’D, which is building an app that helps households and the informal workers they employ (e.g., nannies, drivers, cooks, delivery services) create simple formal work contracts and pay them online. The data generated as a byproduct will capture the wages and other payments of the more than 400 million informal workers in India who previously had no way of demonstrating their income for loans and other benefits.

Another possibility comes from the data that Uber and other ride-sharing companies are collecting on their drivers’ incomes. CreditFix is tapping into this kind of data to lend to Pakistani drivers, allowing them to own their auto-rickshaw or taxi and to go into business for themselves rather than work as employees. Sidian Bank in Kenya has a similar program.

Still another example is Cowlar, a Pakistani company that has created a wearable device for cows. It collects data on their temperature, mobility, location, and activities and translates this into real-time intelligence for farmers to help them better manage livestock. Cowlar is now considering how it might translate this “internet of cows” data into financial products, potentially by discounting insurance for well-managed cows or by using data on the amount of milk produced to justify loans.

Consumers Who lead Chaotic and Cash-Based Lives

Few consumers in developing countries have the luxury of regular paychecks. Often they live payout to payout, which might come from selling farm produce one month and from temporary work in picking tea the next.

They also struggle to deal with unpredictable expenses, including medical emergencies, motorcycle breakdowns, and demands from friends who need help. Consequently, their financial lives are orders of magnitude more complex than those of consumers in the developed world. In these situations, standard, rigid insurance premiums or loan-repayment contracts often don’t work, resulting in missed payments and defaults.

But some companies are creating clever offerings to help people through the difficult times. One example from the developed world is Uber’s Xchange, which allows drivers to participate in very-short-term leasing programs (just a few months) and requires little money up front. As the company put it in a blog post, “The key to flexible earnings is flexible financing.” Another example is Malako, an early-stage startup in Uganda that has been experimenting with flexible lines of credit, managed through mobile phones, that low-income consumers can pay off when they have the money and that allow them to make only minimum payments when they don’t — like a credit card.

Fintech companies are proving that they can create workarounds for the infrastructure of developing countries. They can develop flexible products tailored to the lives of the people in those markets. And they can figure out how to generate data streams that shed more light on potential customers’ finances. They can play an important role in bringing the 2 billion consumers into the digital world and improve both their lives and their countries’ economies.

Source: HBR January 20, 2017

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