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Virtual Banking: A Guide to Innovation and Partnering

ISBN: 978-1-118-74247-1
240 pages
July 2014
Virtual Banking: A Guide to Innovation and Partnering (1118742478) cover image
Technology is permanently transforming the banking industry, and digital payments are the key

Electronic Payments, Mobile Commerce, and Virtual Banking: A Guide to Innovation, Partnering, and Regulation takes a hands-on approach to competing in the modern banking environment. Former PayPal Head of Financial Innovation Dan Schatt explores the reasons behind the massive consumer migration away from traditional banks, and provides clear, actionable guidance on beating new banking models at their own game. Digital payment is the hottest topic in banking today, and is set to define the future of the industry.

Consumers are rapidly abandoning traditional banks in favor of institutions that are lower-cost and more consumer-centric. Between the pace of financial regulatory reform and the cloud computing revolution, the old banking model is on the fast track to extinction. Electronic Payments, Mobile Commerce, and Virtual Banking provides the information banks need to compete in this new environment, and details the integral implementation actions that will allow them to thrive. The book discusses real-world innovations from banks, non-banks, and up and comers, and the heavy competition from the new outsource bank model. Topics include:

  • The changing POS landscape and the need for digital wallet partnerships
  • Shifting gears to greenfield market opportunities versus non-profitable markets
  • Digital channel best practices for superior customer experience
  • When to outsource, and what capabilities to truly own

Case studies including PayPal, Google, Square, Facebook, Twitter, and more illustrate acceleration of innovation through banking partnerships, as well as the mechanics behind banking's biggest, scariest threats. The trick to surviving the paradigm shift is to embody innovation while providing a superior customer proposition. Electronic Payments, Mobile Commerce, and Virtual Banking: A Guide to Innovation, Partnering, and Regulation provides the inside track on managing the shift and dominating the new marketplace.

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Foreword xiii

Preface xv

Acknowledgments xix

INTRODUCTION

Innovating through Scarcity 1

The Influence of Cloud on Innovation 3

The Influence of Smartphones 4

Big Data = Big Driver of Innovation 4

Taking a Cue from Retailing 5

The Enemy of My Enemy Is My Friend 6

Reconciling Innovation and Regulation 6

In Search of New Payment Revenue Streams 8

New Skill Sets for a New Era 9

A Road Map for This Book 9

Notes 11

CHAPTER 1 Consumer Empowerment Knocking at the Door 13

How Mobile Is Reshaping Consumer Expectations in Financial and Retail

How Mobile Is Changing Consumer Behavior 15

Mobile Is Blurring the Lines between Digital and Physical 17

Mobile Learnings from PayPal and Square 19

Mobile Commerce through Tokenization 27

The Mobile Camera—It’s Not Just for Pictures Anymore! 29

The Mobile Microphone—Offers and Payments through Soundwaves! 30

NFC’s Rebound and the Promise of Host Card Emulation 31

Apple’s Passbook 33

The Apps Phenomenon 35

The Uber-ization of Mobile 36

“Top of Wallet” to “Top of Mobile” 38

The Case of Braintree and Simple 39

The QR Code 40

What Banks Can Learn from Starbucks 41

Leveling the Playing Field with LevelUp 43

From Mobile Banking to Tablet Banking 45

Mobile Models for the Emerging Markets 47

What’s Next? More of the Same 51

Notes 52

CHAPTER 2 Social and Financial Services 55

Maintaining Relationships and Relevance through Social strategies

Digital, Data, and the Future of Banking 58

Social Media Experiences in Banking 60

Gamification 62

Personal Financial Relationship Mapping 63

Capitalizing on Social Banking 65

Moven: Delivering Banking through Social Context 66

Social Banking in Europe and Asia 70

Social Login, Sharing, and Top of Wallet 71

Peer-to-Peer Lending: Blending Social and Banking 73

Beyond the Hype: Partnering for the Future with Peer-to-Peer Lenders 74

Lending Club: A Win-Win for Banks and Their Customers 75

Takeaways for Banks 79

An Investor’s Perspective on Social Banking and the Emergence of Bitcoin 80

Message To Banks: Be a Smaller Part of a Bigger Pie 85

Notes 86

CHAPTER 3 Connected Financial Commerce 89

Location-Based Services, Mobile Commerce, and Digital Wallets

The “Local” Digital Wallet 91

The New Retail Experience 91

Retail 2.0 and Its Effect on Payments 93

Entrepreneurs, Developers, and Financial Services 95

Context Banking: The Next Step 96

Low-Energy Bluetooth, Hardware, and the Future of Commerce 97

iBeacon and EasyPay: The Future of In-Store Payments? 98

PayPal’s iBeacon: Proximity and Context 100

Google Glass for Finances 101

In Search of the Digital Wallet 102

Personal Financial Management 103

Coupons 104

Shopping Tools 104

Loyalty and Prepaid 104

Tickets and Passes 105

The Who’s Who of Digital Wallets 106

Google 107

LifeLock (formerly Lemon Wallet) 108

PayPal 109

Carriers 110

Retailers 111

Square Wallet 113

What’s Next? 113

Notes 114

CHAPTER 4 Innovating with Big Data and Open Platforms 115

Competing in a World of Unlimited Data and Storage

The Rise of Platform Services 121

Application Programming Interfaces (APIs) for Online and Mobile Commerce 122

Coping Strategies for Banks 123

PayPal’s Bold Bet: Unleashing Innovation through an Open Platform 125

App Stores for Banks: Will It Work? 133

What’s Next? 139

Notes 141

CHAPTER 5 Math-Based Currencies 143

How Bitcoin May Prove Transformational to the Financial Services Industry

Entering the Age of Context 143

Intro to Math-Based Currencies 146

Why “Math-Based Currencies”? 147

MBCs Are a Reality 147

History of Digital Currencies 148

Math-Based Currency Characteristics 148

Bitcoin: The First MBC 149

Bitcoin’s Brief History 150

Is It Bitcoin, bitcoin, or Just BTC 150

Bitcoin Is a Powerful Concept 150

How Bitcoin Works 152

Digging Bitcoin 154

Digital Push Payments 156

Counterfeiting No More 156

MBCs Enable Programmable Money 156

Completing the Bitcoin Ecosystem 157

Bitcoin Exchanges 158

Bitcoin Wallets—Where to Store Your BTC 159

Mobile Wallets 159

Cloud-Based Wallets 159

Bitcoin Hardware Wallet 160

Bitcoin Vaults 160

Trading Platforms 160

Bitcoin Use Cases in Payments 161

MBCs as Payment Rails 161

B2B Payments—The Known Counterparty 162

Bitcoin and Consumer Payments 162

Buy Me a Beer 163

E-Commerce and MBCs 163

Getting Harder: Music and Video 164

Challenges at the POS 164

Improving Bitcoin Processes 164

Improving the Bitcoin Protocol 164

Programming Bitcoin for a Special Case: Online Micropayments 166

Wallets 167

Ripple: The Second MBC 167

MBC Use Cases in Banking 168

International Remittance Rails 168

Interbank Settlement 169

Building Trust with MBCs 170

Automating Transaction Policies 171

Moving Ahead with MBCs 172

Conclusion 174

CHAPTER 6 177

The Smart Pipe

Models that Will Survive the Next Generation The Prepaid Model 178

Prepaid Nation: Redefi ning What a Bank Can Be 179

The “Underbanked” and Opportunities for Innovation 184

Stockpile: An Example of Brokerage Innovation Through Partnering 185

MoneyGram: An Example of Innovation through Partnering 186

Innovative Ways to Expand Access—PayNearMe 189

How Innovative Banks Are Partnering for Innovation 190

The CEO-CIO Relationship Driving the Innovation of ING DIRECT Canada 190

A Whole New Era 193

How Banks Can Compete in the Future 194

Three Imperatives to Partner for Innovation 196

A Venture Capitalist’s Look at the Future of Banking 198

Technology as an Enabler and Partner 205

What the Next 50 Years Might Hold 206

Digital 207

Relationship Management 207

Platform and Identity Friendly 208

The Future Bank Bundle: Platform-Relationship-Utility 208

Notes 209

About the Author 211

Index 213

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DAN SCHATT is the former Head of Financial Innovations for PayPal, responsible for defining and executing on PayPal's initiatives with the financial services industry. Schatt has also been an advisor to CGAP, part of the World Bank, and an industry analyst with Celent. Prior, he worked in the Financial Institutions Group at Citigroup. He currently serves as Chief Commercial Officer for Stockpile.

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August 11, 2014
Virtual Banking, by former PayPal GM, explores the future of Fintech and how banks need to respond in era of Bitcoin, digital wallets and big data

Virtual Banking: A Guide to Innovation and Partnering offers a hands-on approach to competing in today’s financial services environment. As a professional running virtually any financial company how can you position your institution to become a customer magnet instead of a repellent? This book is intended for those who would like to understand how to innovate and drive significant positive change in their organization though creative partnering.  Written by Dan Schatt, the former Head of Financial Innovation for PayPal, this vital resource provides clear, actionable guidance for beating the new banking models at their own game.

“Part of the answer lies in creative deal making, Silicon Valley style. New technologies and platforms are now available on a wide scale and those financial institutions that can strike deals with nonbanks can meet their regulatory requirements while offering valuable new experiences that delight customers,” says Schatt. “Virtual Banking also explores the divergent thinking that leads to innovation – how consumers rule the day and governments capitulate when an innovation catches hold.”

Financial services innovation often implies heavy investments in technology or operational process, which may or may not lead to positive, transformative change. Real innovation can be very low cost and leverage existing technology assets and processes, but it can often come in the form of creative partnerships that aren’t always obvious on the surface. An untapped opportunity exists between the tech world and the financial world, which can work together to achieve more than they could separately.

The book is filled with illustrative case studies from such industry leaders as PayPal, Google, Square, and Facebook. These examples clearly show the acceleration of innovation through banking partnerships, as well as the mechanics behind banking’s most credible threats. Virtual Banking gives bankers and anyone determined to tap into the power of digital payments the inside track on managing the shift and dominating the new marketplace with insight such as:

  • Evolving bitcoin, prepaid and retail point of sale ecosystems and how banks can partner with new players
  • What capabilities banks should truly own and which they should outsource.
  • Where revenue may be derived in the future and how to shift gears to focus on greenfield markets
  • Best practices that financial companies can employ on their digital channels that can make their customer experience similar to some of the best commerce websites out on the market today.

Schatt adds, “The new age of partnering and innovation in the financial services arena is filled with brilliant shades of gray. The media would have you believe that any new up-and-comer in the financial services space is a disrupter to banks, but there are really very few pure competitors in the arena. The challenge is to recognize and seize new opportunities of every kind. Any institution a financial services company might view as a disintermediator for banks might just be what’s keeping your financial institution relevant.”

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