"Many banks are still using outdated and inadequate legacy systems that are incompatible with emerging technology and customer demands."

https://www.paymentsjournal.com/outage-at-chase-bank-brings-zelle-payments-to-abrupt-halt/

JPMorgan Chase experienced an outage on Tuesday, which disrupted all Zelle transactions and prompted users to take to social media to air their complaints. Not longer after, Zelle sent a tweet indicating that all systems were normal on their end and said that Chase was having “an issue with payment processing.”  

Although Chase—one of the seven co-owners of Early Warning, Zelle’s parent company—took ownership of the issue, it declined to reveal what caused the glitch and instead announced that the issue had been resolved by midday Wednesday.  

Modernizing Bank’s Legacy Systems is a Must 

Many banks are still using outdated and inadequate legacy systems that are incompatible with emerging technology and customer demands. Unfortunately, this truth is what has played out in full view: real-time payment networks created for app-based payment systems have clashed with banking systems originally designed to process paper checks. This disconnect has far-reaching implications and consequences.  

“These kinds of issues are going to come up. And [they] won’t be fixed until the industry goes to a true real-time processing scheme for their core systems, which is not likely to come any day soon,” Richard Crone, CEO of Crone Consulting LLC told American Banker. “The unexplained outage at Chase and its implications for Zelle point to the challenges of integrating real-time payment systems like FedNow with legacy batch-based bank systems designed over 70 years ago, which have to be adapted to accommodate non-repudiation and real-time processing requirements.” 

Modernizing legacy systems are a significant sticking point for many banks. Not upgrading these systems stands in the way of enhancing the customer service experience and boosting their profit margins.  

“It’s absolutely critical that banks and service providers sync their legacy and newer, digital, real-time payment systems,” said Elisa Tavilla, Director of Debit Payments at Javelin Strategy & Research. “Customers expect a frictionless, fully-functional user experience, and when that falls short, even one time, you risk losing them forever.” 

Why do MC and VISA Charge So Much?

Mastercard and Visa are “open loop” networks. Open loop networks rely heavily on several parties (usually 5-8 players) to complete a simple network transaction. Let’s start with the consumer, the merchant and their banks. The consumer is issued a card by a bank. For example, a Milage Plus Visa card from Chase. In this case Chase handle all things associated with the consumer and they take the risk if the consumer defaults on their credit card bill. When a consumer pays for a product using their card, the merchant has a bank that handles their money.

Then you have several players that work to enable the banks, merchants and consumers to transact using a credit card. They are merchant acquirers, processors, gateways, terminal providers, the networks and the list goes on. Each of these parties get a fraction of every transaction that goes through each of their associated merchants and this can get expensive! Small merchants pay on average 3.5%, just for an in-person transaction. Online transactions (or card-not-present transactions) are even more costly.

So can Mastercard or Visa give away transactions? Sure, they can subsidize transactions for a given period, but even if they wanted to, they could not do so on a long term or a wide-spread basis. At the end of the day, they don’t take any risks but they do “earn” 600 basis points of every every dollar transacted through their network.

So in short, Mastercard and VISA must charge heavily to pay all of the relevant parties their fair share of evergreen fees. Open loop networks like Mastercard and VISA will never be able fully subsidize transactions and that could be their downfall.

China’s Mobile Payment Transaction Volume Hit $41.51 Trillion in 2018

China’s Mobile Payment Transaction Volume Hit $41.51 Trillion in 2018

China has seen an explosive growth in mobile payments over the past five years. Transaction volume reached 277.4 trillion yuan ($41.51 trillion) in 2018, up more than 28 times from five years ago, according to the People’s Bank of China (PBOC).

The total number of transactions made via mobile payment platforms surged to 60.53 billion last year, up from 1.67 billion back in 2013.

https://www.caixinglobal.com/2019-03-22/chart-of-the-day-chinas-mobile-payment-transaction-volume-hits-4151-trillion-in-2018-101395789.html

Does Free Make Money?

We get this question a lot, and it’s a valid question. Today we will explore three ways that free makes money.

Facebook has been in the news lately because they sell data to make money. It has always been understood that Facebook makes money from ads and data, but most people were unaware how much data Facebook was actually collecting and sharing - and with whom.

Facebook’s model is not a new concept, giving free content in exchange for watching a few ads has been around since the early days of newspaper, radio and television. Facebook just appropriated a successful model and started tracking a whole lot more; and that’s where things started to get dicey.

We aren’t picking on Facebook specifically (it’s probably worthy of a blog post unto itself), but suffice to say they didn’t invent the wheel and they served to prove that companies can take the TV and radio model and apply it to online assets and be extremely profitable. Eyeballs for ads is real, very profitable and the easiest way for free to make money.

Another option to monetize free is to deploy a freemium model. Freemium involves giving away something of value for free in hopes that some of your users will find value in upgrading to a paid version. Conversion rates can range from 4%-10% on average, but recently Spotify enjoyed a 27% conversion rate. There are lots of successful freemium model examples, but usually these models are augmented with paid ads to further monetize free.

Another option is to sell data. This option does not have to involve selling personal data like Facebook did or even data that identifies users. It could simply mean selling aggregate data to people who have a vested interest in knowing aggregate habits. For example, a hedge fund wants to know trends ahead of the market, so it would be valuable to them to know that Coke is selling better than Pepsi in specific markets.

While there are other options, many of them border on being dishonest, so we will stick with these three for the moment. Either way, any option you choose, you should look at how your decision will: 1) impact your users; 2) impact your reputation; 3) impact your company legally; 4) impact your ability to sustain growth and profitability 5) impact your team and stakeholders. Whatever route you decide, above all be honest and transparent to all of your stakeholders.

If you know of other ways that meet our requirement of being honest and transparent, please reach out to us!

By Gosh, The U.S. is Falling Way Behind the World re: Payments

Just reviewing some numbers - and maybe they just impress us, but they should alarm U.S. Banks and the credit card companies! Here are a few that standout:

• Mobile payments in China (WeChat Pay & Alipay):

  • 2015: $1 Trillion USD

  • 2017: $17 Trillion USD

  • 2018: $41.51 Trillion USD

• All credit card payments for the rest of the world combined in 2017: $25.1 Trillion USD

• Mobile Payments in the U.S.:

  • 2015: $8.71 Billion USD

  • 2017: $120 Billion USD

• Chinese giants WeChat Pay and AlipPay didn’t start offering mobile payments solutions until 2014. In just four years they managed to process more payments than the entire credit card industry and the US GDP combined.

• 31.6% of the world has a Facebook account and Facebook is prohibited in China, the world’s largest population (1.386 billion people)

• Facebook gained 2.36 billion users in 14 years, whereby it took JP Morgan Chase nearly 150 years and several mergers and acquisitions to amass 80 million customers.

• Alipay amassed the largest money market fund in less than 3 years.

• Visa averages 1,700 transactions a second (peak volume is 9,000) while Alipay alone in 2015 did 87,000 transactions per second (peak volume is 256,000)

Let that data digest for just a minute…

For many this data beckons an obvious question, why the heck is the world’s largest economy (U.S.) sleeping at the wheel? We believe it comes down to one word: Legacy. Legacy behavior, legacy thinking, legacy regulation, legacy rules and legacy networks.

If this data doesn’t excite you, you are probably not a fintech payment geek, but that’s OK, let us know what you think anyway: comments@zapxy.com