Something remarkable happened about halfway through the 2010s or at least something that ought to have been. Except as it turned out, due to the nature of what it was, very few people remarked on it.
Americans stopped talking to each other.
Well, to be more accurate, they stopped talking to each other on the phone. Shortly before the decade hit the halfway mark in 2014, the most favored method of communication among American consumers formally switched. The phone call had a solid 143 run, but as of the mid-2010s moved forward, and smartphones found their way into more hands, the text message dethroned the phone call.
And as smartphones have saturated the market, the amount of time we collectively spend on our phones per day has risen every year of the last ten. This year, 2019, the average American will spend three hours and 43 minutes per day on mobile devices, just ahead of the three hours and 35 minutes spent watching television. But for all the things they will do on those phones, they will spend precious little time talking to another human being on it. In fact, in the last decade, Americans have not only developed an affinity for texting as opposed to talking, but they also developed a positive aversion to talking to each other.
“I have long sent my own mother to voicemail and texted her to ask what she wanted … No matter the task, I’d always text or email first. Was there an app for that? Even better. If all options failed, I’d simply prefer not to get what I wanted rather than talk to a live human,” one writer lamented for the Atlantic in September.
That writer eventually came around to the idea that sometimes live conversation is a good thing, something we at PYMNTS wholly endorse. It’s why we have a Monday Conversation every week – a conversation intended to get another human being on the other end of the phone for their input into what the moving and shaking in the world of payments and commerce means to those who are at its helm. And besides, you never know what you’re going to learn in a live conversation in real time.
So what did we learn this year?
1. Financial Literacy Purveyors Needs A New Education In Reaching Consumers
“What seems to have an effect on people is actually creating an incentive for good behavior instead of trying to force-feed them videos on how to balance a checkbook.”
— Max Levchin, CEO, Affirm
The problem with most financial management tools, Affirm CEO Max Levchin told Karen Webster, isn’t that they aren’t well designed, well-intended and full of useful features. The problem is that they aren’t well designed for the audience they are meant to reach in that they won’t teach anyone to be financially responsible, so much as make it easier for someone who is already pretty financially responsible to manage their finances more efficiently.
A person who was managing all their household finances via a spreadsheet might well find a financial management app a huge benefit because it would save them a lot of time. The customer who wasn’t making those spreadsheets, the person who was actually having a hard time making ends meet each month, the person who is getting eaten up by interest payments?
They aren’t going to be reached by something as simple as an app pinging them and saying, “don’t spend, don’t spend,” because frankly, they can ignore that. What they need are rewards systems that are designed around creating good behavior.
Bad habits exist for a reason, he noted — it was or is rewarding to the customer who has it. Most rewards programs, he noted are built around spending money. To create a good habit to replace it, he said, it’s not enough to tell a customer they are doing something wrong. You have to tell them how to do it right — and then give them a reason to want to other than repeatedly telling them they should.
“I think are ways to create incentive alignment through rewards that are not [based on more spending].”
As for what those can look like — there are many options out there — now that lottery rewards are legal again, firms can reward customers for paying on time or saving a certain amount, by making them eligible for a cash prize or raffle. Or, he noted, when customers pay off their full balance on time for enough months, card companies could lower their APR.
What the rewards are, he said, matter less than understanding the basic truth of human behavior: no one changes a big thing in their life ex nihilo. Ask anyone who has ever tried to quit smoking or go on a diet — massive paradigmatic shifts to behavior are hard to start and even harder to follow through on over time — and companies that want to help customers become more financially responsible need not just to tell consumers to change, but give them a reason to want to change.
“Companies have to be part of the solution,” Levchin told Webster. “The punchline on all these products telling someone just don’t spend any more money is that that is not enough. It just doesn’t land with the people you want it to land with.”
2. There’s No Cybersecurity Silver Bullet, Just Persistence Combatting A Continual Threat
“We have to start with the understanding that the adversaries are not 10-feet tall. They do, in fact, put their pants on one leg at a time. You know they’re there. They’re not bulletproof super villains. They make mistakes.”
— Director Samuel S. Visner of the National Cybersecurity Federally Funded Research and Development Center (FFRDC)
If consumers feel under threat in the era of digitization, they aren’t paranoid, Samuel S. Visner told Karen Webster earlier this year, they are just paying attention. Because of attacks from all over the world, and with all different motives. North Korea, he noted, is mostly after money. There are players like Russia on the other hand that might well attack the U.S. financial system — but not because they want money. It is of a piece, but those attacks are not for financial gain, but to a way of weakening the country and its standing on the world stage.
“In this case,” he said, “nation-states are looking to gain power by corroding the influence of other countries.”
Financial Institutions (FIs), he noted, are thus always going to be popular targets both for the greedy and those looking to cause reputational damage — and there is no easy fix, one-off solution or any way to simply lock the door and keep the hackers at bay. As Visner told Webster, regardless of the motivations of the attacker, FIs must understand the attacks are becoming increasingly sophisticated. They’ve gotten better, he noted, as infiltrating systems, gathering data over time and postponing their attack for weeks and months until well-positioned within a system before actually making their move on it. They’ve gotten better at hacking the humans who work at FIs — who either wittingly or unwittingly give them access to systems.
“These employees make a mistake, or they are badly trained, or they are too busy in an organization that has told them that cybersecurity is a top priority along with 25 other top priorities,” said Visner.
The bad news is bad, he noted, but it is not the only thing to keep in mind. There isn’t a silver bullet defense that can be activated and left, he said, but there are many best practices including dual-factor authentication within systems or staying aware and on top of security patches. He noted that best practices aimed at protecting companies of all sizes would include managing passwords and dual-factor authentication, especially when it comes to server access.
Cybercriminals have an interest in convincing the world they are masterminds inevitably set to crack out systems and cause chaos. But, he said, in reality, they are grinding away looking for weaknesses and places where they can steal information. And there are many tools the good guys can and do use to “make it harder to steal things in the first place” through proactive cybersecurity efforts.
3. Don’t Count Alternative Lenders Out Even If The Economy Hiccups
“We shifted the focus and we shifted to higher quality consumers — and we also shifted the mix of funding towards banks.”
— Scott Sanborn, CEO Lending Club
What exactly is going to happen to the economy in 2020 remains a jump ball — with predictions ranging everywhere from a certain recession coming, to predictions for explosive growth across the economy in the new year.
We’re are not going to opine on that.
What does seem reasonably sure, however, is there will be another recession someday. And, as the conventional wisdom goes, when that day comes, the alternative non-bank lenders that rose out of the ashes of the last recession will face some trouble in an economy that loses its footing. Inexperienced with a downturn, the conventional wisdom goes, these firms aren’t built to sustain volatile interest rates, increasing costs of capital, uneven investor and borrower demand or an economy that is contracted, not growing.
Scott Sanborn, LendingClub CEO, told Karen Webster earlier this year that conventional wisdom needs a gut check. While he can’t answer for every other player in the game, he noted that from Lending Club’s perspective, the future is positive and they believe they are well-positioned to take on whatever comes next, economically speaking. They hope for continued blue skies, he notes, and thus far haven’t seen any strong indication of trouble on the horizon. But into every financial market a little rain must fall, he said, and when it does, he thinks they are ready.
Lending Club, like many of the better up-and-coming digital lenders in the market, hasn’t been static over the last 10 years, it has been dynamically evolving along with the market. The marketplace model is likely to continue to see healthy supply (in terms of investor capital) and demand (from borrowers) regardless of the rate environment. Even in a downturn, he said, borrowers will desire credit and investors are going to be looking for yield.
“Which borrowers and which investors? Well, that will change,” he said.
And Lending Club will change. To date, it is seeking a national banking charter that Sanborn noted will be able to offer more products and services to customers while driving growth and margins and securing a new source of low-cost funding in the medium term. Sanborn noted people often have the mistaken impression that Lending Club is less regulated than a bank would be. However, since more than half of its funding comes from banks, the Bank Services Act more or less requires it come up to banking standards when it comes to compliance, control and infrastructure. A national bank charter would not require it to do anything all that different than what it’s doing currently, he noted, so much as it would allow Lending Club to reap more benefit from a cost they are already paying.
“We’ve got a working, viable business at scale and the addition of the bank only enhances the capability of that business to generate value,” he told Webster. “We’ve got a lot of the infrastructure and controls that the regulators would expect to see in a financial institution. So we feel good about the eventual outcome. The timing is TBD.”
4. The Path To A Customers Voice Commerce Heart Might Just Be Through Their Bill Paying Process
“We saw that paying bills is something that people in America really do not like to do, and that it is something they are really not managing well. We prioritized utility bills over other types of billing because they are ubiquitous in people’s lives. That is why it was such a good first step.”
— Patrick Gauthier, vice president Amazon Pay, Amazon
If we’d asked 100 people at the start of 2019 where they would have expected to see Amazon Pay pop up next, we think we would have been hard-pressed to find more than 20 that said: “on my utility bill.”
And yet, that was the great and unexpected leap forward toward the end of 2019, Amazon Pay Vice President Patrick Gauthier told Karen Webster that once they did a little research, it became clear that despite autopay being an option, Americans weren’t taking it. Instead, they were paying their bills late a lot and racking up late fees.
And Amazon realized they could help consumers do better — with a little support on the ground from Alexa. Thanks to Amazon’s partnership with Paymentus, 90 percent of U.S utility providers can be compatible with payment via Alexa. More than paying the bill, the bill pay functionality added to the voice platform is just part of the offering. Users can also receive notifications from Alexa when their bills are due, and ask questions about them.
The goal, Gauthier explained, is to give customers what they want: the desire to feel in control of their bills. Consumers like knowing how much a bill is, and the details associated with it. That helps them decide when to pay it in a way that manages their cash flow throughout the month — particularly crucial for the vast majority of people living paycheck to paycheck.
“The desire for control leads to a situation where there is no strong mechanism for helping customers to manage their bills. That tends to lead to unhappy and expensive endings,” Gauthier said, noting that most consumers often are reminded of a bill right about the time their lights or water are about to be shut off.
While paying bills is extremely new, the vision for Alexa and Amazon Pay’s roles in the broader bill pay arena is still evolving. That might mean a future where, for example, customers can schedule future payments via Alexa, or where consumers who prefer to pay their bills with cash can do so by digitizing it into Amazon Pay.
Some of those issues are under development, he noted. Others (like cash inclusion) have many complex compliance efforts tied up in them.
“We will watch what the customer does, listen to what they tell us and see how we can evolve it to their needs. When we keep that as our North Star, we can augment what we have available today, and raise the bar from a community standpoint,” Gauthier concluded.
5. Don’t Count Out The David’s In Against The Grocery Goliaths
“What we are seeing now is a second round of this industry redefining itself … The idea of a supermarket was a convenience revolution when it first came out. They made it possible for groceries to be a single stop event — instead of a multiple shop pile-up.”
— John Ross, president and CEO, Independent Grocers Alliance (IGA)
Everyone it seemed wanted to rule the grocery world in 2019 — particularly the biggest players in retail. Walmart and Amazon were perhaps fighting the most pitched and ongoing race during the year, but the action came in from all sides, including Target, Kroger, Costco and Sam’s Club. Delivery options expanded, curbside pickup exploded as it seemed everyone, who is anyone in retail, was racing to collect the consumers’ grocery spend.
A fact that, IGA President and CEO John Ross, said should surprise no one. When one has stopped building new stores, the thing left to do is drive more customers into your existing ones and food is always going to be a highly popular category. That everyone is trying to capture that reliable source of spend and looking to build the more convenient experience possible isn’t a radical departure from the history of grocery in the U.S. — it’s just the latest chapter of an ongoing story, now pushed by digitization.
And while it might be easy to count small and independent chains out of a race that includes so many giants, he believes that is a mistake.
“When you really talk to customers and ask them about what they want in the grocery experience, they almost immediately noted that they want a shorter supply chain from the farm, to the store, to the table; they want healthier choices; they want transparency about their food and the ecosystem that supplies it. Local providers can really zero in on that very tailored level of individuated services in a variety of ways that really only work for independents.”
The challenge for local providers is to tap into the capacity they have at the small scale and collectively use that data and information and larger even national scale. To really deliver for customers, he said, they need data because really building the right digitally enhance consumer experiences “can’t just build by anecdote.”
“Because what they need to be able to do is roll it out and scale it up and to make that possible, you have to understand what shoppers are doing, what they are buying, how they are behaving online. “
That’s a tall order, and one IGA is tasked with helping them deliver on. But for all the billions being spent in the grocery race today, he noted, independent stores with far shallower pockets have something that their larger competitors find hard to create — a genuine and direct connection to both their shoppers and (in many cases) their suppliers. In a world where customers want to be more engaged than they ever have, he noted, small grocers have a big opportunity to punch beyond their weight class.
“We have to find a way to make the experience easier and more convenient for the shoppers, while meeting emerging needs. If we can do that, I think we will have a great future.”
We certainly hope he’s right – both specifically about the grocery business and everything in general. A great future across the payments and commerce ecosystem certainly works for all of us here at PYMNTS. After all, we need something to talk about in the new year for the latest and greatest in Monday morning chats.
But until then — have a Merry Christmas and a Happy New Year. We’ll pick up the conversation again in 2020.
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