That there was a lot of action and motion in the payments and commerce ocean this week is not much of a surprise, as that describes pretty much every week that ends on a Saturday and starts on a Sunday. However, this week the theme of reinvention was the big recurring item, with big names in the game taking long looks at the past — and wondering how to build out an improved version for the future.
Visa led the week off with an announced partnership with global hospitality group Accor for the launch of a new co-branded card with a new take on loyalty that focuses much more closely on consumer preferences than on merely shelling out the points. Following closely on that, there was the news from LendingClub that it had snapped up Boston’s Radius Bank — and, more importantly, its banking license — for the bargain rate of $185 million. A new take on traditional banking, the claim, is soon to follow. And, hanging over all the news events of the week is the ongoing and unfolding COVID-19 outbreak worldwide, its effect on commerce internationally and how the world may have to start doing some things quite differently to get the trade situation back to normal.
So what to make of it new ideas coming down the pipeline and the changes they are carrying in their wake? For this week’s edition of The Week in Payments, Karen Webster was joined by Ondot’s CEO and President Vaduvur "VB" Bharghavan to talk it all through and map out what it all means for what’s next in payments and commerce.
Rewriting The Rewards Paradigm
Visa and hospitality group Accor announced a collaboration on a co-branded credit card this week aimed at doing something a little bit different. Instead of building their rewards program around points earned for purchases that can later be traded back for discounts or free stuff, Accor is instead looking to tap into its vast data troves so that it can create and curate rewards offers that its consumers might find, well, rewarding. Instead of generic points, as Visa’s Senior Vice President of Merchant Sales and Acquiring for Europe Hemlata Narasimhan and Accor’s Senior Vice President of Partnerships Mehdi Hemici explained to PYMNTS earlier this week, customers don’t need more points. They are drowning in them; what they need are rewards and offerings relevant to their actual wants and needs in terms of service and relevance to their daily spending patterns
“We see an opportunity to bring together preferences, with loyalty, with payments, and a call to action all at once — and turn loyalty program interaction from something that is occasional to something that is habitual,” Narasimhan noted.
And it is the very improvement, VB told Webster, that loyalty and rewards have been needing for quite some time. Because the sad truth about the points, he noted, is they are no longer relevant. Take a simple example of a travel firm. It can push points, and over time a customer can work up to that free hotel room. Or, he noted, they can hop over to Expedia, Priceline or any number of other travel platforms and essentially capture the same discount instantly with a click, no point hoarding required.
Plus, he noted, discounts aren’t all that appealing among the demographic group that every retailer wants to court and retail — the affluent.
“Affluent consumers are not necessarily looking for [the] monetary benefits of the war. I think they want the privilege of feeling special. And I think customers want rewards they can personalize around their lives and their wants, and then design their own program around what matters most to them.”
By way of a personal example, VB said when he travels — which is often — he finds when he lands he has two primary needs: a good quality vegan restaurant and a cigar store. What is rewarding for him, he said, is being able to quickly and efficiently access those things, no discount required.
And if rewards programs can recenter around that — around how customers are living their lives and provide relevant offers — it could bring a whole new type of power to the world of rewards, he said.
Being The Bank By Buying The Bank
While LendingClub was not alone among FinTech players looking to secure a banking license and official status that goes along with it — it did make a move in securing one that heretofore has not been tried by any of the other members of its cohort. It bought a bank, specifically Boston’s Radius Bank, for $185 million. In addition to that banking license, LendingClub also bought ownership of the approximately $1.2 billion in assets the bank has under its control.
From where VB sits, this was probably the big good news announcement of the week.
“You know I think it’s a good outcome that expands the profile and footprint for both organizations. And certainly with the kind of capabilities that we are thinking about. I think there would be a very interesting way for them to reach out to their customers and start offering more services,” VB noted. “I think adding a banking charter really allows for the LendingClub to take its customer segment and establish a primary financial relationship. Which is much beyond just the niche.”
And that, he said, is possibly the very exciting change being signaled in this move: That FinTechs, which like LendingClub all started in some particular niche — in LendingClub’s case, peer-to-peer (P2P) lending — are now maturing and expanding their capacities and services beyond those niches. And consumers, according to recent PYMNTS data, are ready for it as some 25 percent report that they are ready to start banking with big tech.
And where there is a willingness among consumers, he said, there is very likely a market that is ready to change over. Consumers have an affinity for their digital service providers. As they become more comfortable in those relationships, firms are going to start thinking outside their traditional service boxes to find ways to parlay that affinity into offerings and eventually monetizing a broader range of services.
“No question about that,” VB said, noting the interesting thing to watch will be who manages to get the formula right for converting customers and then scale it around the world.
And speaking of around the world, the COVID-19 virus continues to take its toll.
Can You Beat Back A Black Swan?
That the coronavirus that originated in Wuhan, China, has had a profound impact on commerce worldwide is, at this point, undeniable. Both Apple and Walmart essentially called the early quarters of 2020 unforecastable due to the number of known unknowns — though both have confirmed that there will almost certainly be effects given China’s incredibly important position in the global supply chain. Experts are forecasting that a wave of mergers and acquisitions is almost certainly coming soon as a result of COVID-19. Even New York City locals are feeling the effects, as ridesharing drivers are now intentionally avoiding neighborhoods with high Chinese populations and riders who appear to be Chinese.
On the whole, a bad situation, and one made worse by the uncertainty it carries with it, VB noted.
“I think the key question: Is this a transient epidemic or is it truly a pandemic? So we live in a connected world and are now in the midst of an event and it’s really hard to predict whether it’s a fleeting impact or a transient impact, but a lasting impact,” he said.
And those impacts are just hard to map, as the world is still designing its response to the disease in real time. This is not going to have level and type of impacts as say, the Plague had in the Middle Ages, he noted, where feudal society collapsed as a proximate result and an entirely new economic order sprang up on its ruins. However, this time, supply chains will be interrupted, certain types of goods could become short and hard to stock, the price of oil could start getting unstable and travel could hit a slowdown not seen in some time.
And that, he noted, are the economic costs. There are also high human costs to be borne and not just from caring for the infected and ill.
“When you think about potential political implications where you have [the] democratization of countries that the Chinese economy is supporting in places like Africa. And then you look at the slowdown of that and what’s the impact of that. I think there are implications much beyond just our daily lives that are profound,” VB noted.
This is why, he said, it is hoped that this event ends up being transient and short-lived, though at this point the data is too thin to know either way.
But, of course, the data is always increasing, evolving and telling a new story. And to make sure you stay caught up in that story, we’ll be here every week, wrapping up the week in payments with the experts to gain insights into what just happened and what will happen next as a result.