Transaction Directory: Predictions 2018

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Predictions 2018

Transaction Directory presents:

Transaction News

Transaction Directory: Predictions 2018

Transaction News

Fintechs: Friends or Foes? By Joe Proto—CEO, Transactis 2018 will be an important year for traditional financial institutions to reestablish their position as payment industry leaders. While many predict that banks will lose even more ground to nimble, less regulated, up-andcoming fintech companies with innovative offerings and backed by huge amounts of venture capital, there is evidence that the tide has turned. Last year’s big question was, “Is fintech friend or foe to banks?” It’s easy to see why most would say ‘foe.’ Fintech startups have been constantly entering the market, making it easier for customers to manage their finances without their bank. Companies like Affirm, AvidXchange, and Transactis have certainly captured the interest of both investors and banks. So what is changing? Many startups have struggled to capture traction in the market. Customer demand is fickle and trends shift overnight. Financial institutions are an integral part of customers’ lives and smart fintech companies need access to banks’ large customer bases for their continued growth. “There is plenty of opportunity for traditional financial institutions and fintech companies to co-exist, said Aman Sharma, partner at Capital One Growth Ventures. “Collaboration is the way of the future and the biggest impact for fintechs will be through working with the incumbents. A noteworthy trend is externalization of banking API solutions, that allow for easier data access, effective communication and deliver faster, efficient financial services products to the end user.” I predict that in the coming year, more fintech companies will want to work with banks, and banks are already noticing the advantages of working with fintechs. “Fifth Third embraces fintechs as partners who can help make us better and enable us to bring differentiated solutions to market for our customers,” said Jeff Siekman, senior vice president and director of payment products for Fifth Third Bank. Banks also recognize that they must not make the mistakes of the past. Ken Chenault recently said banks are at risk of being sidelined in payments, exemplified by their decision to take Visa and MasterCard public. He called this, “One of the biggest strategic blunders of the last 20 years.” With customers turning away from cash Page 2

to emerging payments technologies, traditional financial institutions have lost access to key data from both merchants and consumers. This has paved the way for fintech startups to enter the market with products that reduce payment friction, making it easier for customers to control and use their money. According to CB Insights, as of Q3 2017 over $12B has been invested in fintechs, and this trend will continue as more banks look to increase their own spending on payments technologies. "Banks and fintech providers are slowly learning that each has important resources that the other does not, and so the 'us vs. them' mentality is evolving into more collaborations," said Rick Burke, head of corporate products and services for TD Bank. "Corporate treasurers are coming on board as well. In fact, a recent TD Bank survey at the Association of Financial Professionals conference showed that 31 percent of financial professionals plan to leverage fintech solutions as a way to prepare for disruption in the industry." If 2017 is known as the year banks lost ground in the payments space, 2018 will be the year they gain it back and then some. “When a strong financial institution and an innovative fintech are able to align interests and collaborate to bring market leading solutions to their mutual clients, the combination can be powerful as well as sustainable,” said Paul Simons, managing director, supply chain product group manager for BNY Mellon Treasury Services. “So, it’s not really a question of friend versus foe. The question is really about how these entities can effectively combine their unique knowledge, experience and resources to deliver meaningful results.” Agreed! Instead of competing, banks and fintechs will aggressively find ways to serve customers better together than they either group could do on their own.

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2018 Predictions: Overcoming Payment Vulnerabilities By Steve Gilde, Paragon’s Director of Global Product Marketing Payments technology has evolved rapidly over the last decade, as payment methods have multiplied and become increasingly digitally advanced. Today, there is a seemingly endless variety of ways to pay, including individualized mobile payment apps, all the “pays” (Apple, Samsung, Google Chase, and Walmart), voice-enabled payment technology and contactless cards, to name just a few. And let’s not forget that a significant number of payments in the U.S. are still processed with magnetic stripes. Even though payments technology has evolved, payments testing processes at many financial service companies’ have remained stagnant, with many financial service providers relying on dated methods from last century. A recent Capgemini survey found that 47 percent of organizations do not have the right processes to test mobile applications and 46 percent lack the proper tools. This discrepancy between the digitally-forward payment options available today and many institutions’ limited testing capabilities poses major concerns. The ability to successfully complete a transaction can also be compromised if inadequate testing methods aroused. When a consumer’s payment is not accepted, they can experience a wide range of emotion - from slight annoyance to embarrassment to rage. In today’s social media environment, unhappy customers are all too willing to let others know about these negative experiences. Even an approved transaction with a poor user experience can create enough irritation to impact a consumer’s relationship with the involved payment service provider. In either case, consumers will be less likely to use that card or payment method again, damaging the relationship between the consumer and the financial services company and ultimately having a negative impact on the company’s brand, one of their most important assets. A lack of effective testing methodology is also detrimental to payment security. The industry continues to be plagued with data breaches, cyberattacks and other Page 3

forms of fraud, and this criminal activity is not expected to disappear anytime soon. Inadequately tested payment systems make criminals’ jobs easier, offering them more ways to compromise consumers’ sensitive information. Because of these risks, in 2018 we’ll see more financial services organizations adopt next generation testing strategies. Modern testing tools incorporate automation and virtualization into the testing process to boost efficiency and thoroughness. Instead of QA staff manually conducting tests in a physical lab, these modern testing platforms automate and virtualize the testing environment, more closely aligning with the Agile development strategies many financial service providers use today. In the new year, testing will no longer remain on the back burner, but will begin to receive the attention and resources it requires, at least at institutions that wish to strengthen their reputations and reduce payment vulnerabilities. Implementing proper testing methodology isn’t the only action required to reduce payment vulnerabilities. More organizations will also invest in consumer awareness campaigns aimed to educate cardholders on best practices for avoiding fraud. By leveraging a variety of communications strategies, organizations can better arm their customers with the knowledge they need to protect against payment fraud, while ultimately strengthening customer relationships.

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A New Game Awaits Digital fluency and a thirst for convenience are making the UK’s borrowers more capricious and cost-sensitive than ever, says Richard Carter, Managing Director, Equiniti Credit Services, in this collection of predictions for 2018. Interest rate rises, and new regulations will add fuel to this fire next year, and lenders that can’t keep up will get burned.

Lowest price wins In the digitised age of credit price comparison sites, brand loyalty equals bought loyalty. In 2018, lenders must earn their customers by delivering market-beating products. As interest rates continue to rise, the lenders that can drive down the cost of credit stand to prosper the most. Simply reducing margins, however, makes little business sense. But in a rising market there is a balance to be struck between protecting profit and increasing sales. Some may be willing to take a short term hit to capitalise on the rising market conditions, taking the view that the volume sales justify smaller margins. Adoption of automated and agile credit technologies will help lenders to drive down costs, reducing time-torevenue for new products and enabling savings to be passed on to the customer in the form of more competitive rates. Lenders adjust to curbing enthusiasm

The rise in interest rates are also likely to have a knockon effect on what borrowers use credit for. Recent research from Equiniti Credit Services indicates that borrowers’ use of credit is split equally between funding aspirational items such as cars and holidays, and managing existing debt. To offset rising rates, 2018 will see lenders adjust their standard payment terms, allowing monthly repayments to remain consistent. It remains to be seen whether credit will continue to fund aspirational items at the same rate, especially since the falling pound has already driven up the cost of foreign travel and overseas goods considerably. Application declines will no longer mean ‘no’

Regardless of whether lenders adjust their repayment terms, rate rises will still have an impact on affordability assessments, meaning borderline candidates will be excluded from products they once qualified for. This will trigger an increase in declined credit applications, before customer expectations have time to recalibrate. Page 4

In 2018, lenders will start to turn this to their advantage. Instead of abandoning the customer at the point of decline, they can automatically identify suitable alternatives, ideally from their own portfolio, or from other lenders. Doing so enables them to protect their relationship and ensures their customer doesn’t tarnish their credit score from repeated declined applications. Agile credit technologies hold the key to this win-win scenario, by providing a whole of market view and matching applicants to alternative loan products instantly, at the point of decline. In a market where consumers can identify an alternative provider in a split second via a comparison site the ability of a lender to hold their attention throughout a decline and then convert them to an alternative product is a valuable coup. Contact centres will need to be rethought

Equiniti’s 2014 research report revealed that 61% of consumers preferred a telephone call or face to face meeting to explore a loan application. In 2017, that figure has dropped to just 48%. We can expect this trend to continue next year, reflecting a growing desire for self-service applications. In response lenders should be rethinking their use of contact centre resources next year. As simple queries are increasingly resolved online, the role of contact centre staff will elevate to handle more complex queries, and lenders must prepare their resources accordingly. Outsourcing this function to a dedicated specialist partner is a cost effective and efficient way to manage both sporadic call volumes and complex queries, and ensures all calls are handled by skilled, FCA accredited individuals. PSD2 will change everything Driven by the advent of the Second Payment Services Directive (PSD2) in January, APIs are being opened up across the banking industry, enabling customerpermitted apps and services to access never-before-seen

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A New Game Awaits levels of transaction data. Lenders must embrace this new world. Here, data is the new currency, and the combination of customer-centricity and low cost is the key to attracting – and keeping - new customers. The regulation amounts to EU-sponsored digital transformation in financial services, and outsourcers will play a crucial role in helping lenders keep up, stay relevant and harness their use of new data sources to learn more about their customers and get ahead of the competition.

cant. Sure, social media data will never determine whether to grant or decline a credit application, but as automation and AI technologies continue to be applied to this space in 2018, there is no reason why a lender shouldn’t include social media data in the mix.

The latest blog from Managing Director of Equiniti Credit Services Richard Carter, in which he discusses the impact of digitalization on the lending market, rising interest rates and his predications for the 2018 landscape.

Social media data begins to play a part in credit decision making Thanks to digitalization, the sharp decline in verbal and face-to-face communication means lenders must seek alternative ways to get a sense of who they are dealing with. Social media platforms provide a window into borrower’s lives and give lenders a data source that can be used to contribute to their assessment of an appli-

2018 Predictions: Challenges, Trends and Opportunities for Financial Institutions RLR Management Consulting, Inc. anticipates many key activities and trends in 2018. To start with, we believe that we may see economic conditions deteriorate from 2017 (which was very robust). We believe contributors to this will be an over inflated stock market, continued threat from North Korea, a treat to dissolve middle east peace talks and lower than expected corporate earnings as expectations for corporate earnings will be extraordinarily high. We believe that Merger and Acquisition activity in 2018 will accelerate as it was less than anticipated in 2017. We also see an acceleration in DeNovo banking and in interest to form and purchase bank charters. RLR predicts the first series of Fintech companies will come into banking as the stage has been set by the OCC and activities in 2017. Branch transformation will be at the top of many bank’s priority lists as digital banking continues to grow and expand new transaction channels. We will see branches offering kiosk based services, as well as more do-it-yourself banking and begin to see experimentation with two-way video feed ATM’s. We will Page 5

continue to see a shrinking footprint of brick and mortar as banking needs of millennial customers drive this change. Cyber-Security will continue to be a huge topic, with more effective controls being piloted for implementation due to digital channel expansion.

Customer data, data analytics and CRM solutions will be highly desirable at all size banks. Competitive advantage will be those that have their customer data figured out and can target specific products for specific customers to meet specific needs. Automating and Streamlining inefficient processes will be a priority in 2018 as M&A activity in prior years have not address efficiencies, causing efficiency ratios to rise, processing to take longer and be more cumbersome and customers to be frustrated.

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Payrailz: Predictions for 2018

2018: The year of payments 2018 will be the year of payments. With the developments in ACH that have resulted in faster payments, the industry is poised for growth in all aspects of the payments experience. Previously, the industry had adopted an approach that seemed focused on checking the right boxes to remain competitive with other financial institutions. However, other consumer-focused industries outside of the traditional banking industry have made great leaps forward, and consequently consumers’ expectations around the user experience have grown to include every aspect of their lives, especially payments. It is no longer a competitive advantage to just keep pace with other financial institutions, rather FIs must now look to adopt better tools that will enable them to deliver on the promise of innovation. Consumers are fixated by the idea that technology can simplify or eliminate mundane aspects of their lives. Consumers have become accustomed to the ability to use a smartphone to effortlessly order just about anything with just a few clicks: food to be delivered or cars to drive them across town. To keep up with this universal demand in the coming year, financial institutions must address this cultural “do it for me” expectation with smarter digital payment experiences. FIs will take a more holistic approach There has been a push in recent years to cater to the influential millennial market. Many financial institutions have described how their latest innovations will make themselves relevant to millennials, but missed the opportunity to capitalize on the growing consumer expectations now coming from all generations. With the widespread exposure to technology, older generations are making a concerted effort to adapt and remain relevant in today’s environment. Consumers of all ages are demanding simpler, easier payments experiences, not just millennials. Artificial intelligence The industry can no longer answer tomorrow’s questions with yesterday’s answers. In order to address

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these demands for better payment experiences from all generations, financial institutions will need to look to existing technology solutions that can be applied to consumer payments using a smarter, revitalized approach. Many artificial intelligence solutions can be applied practically to transform the digital payments experience. In 2017, we saw a few banks launch voice recognition software integration with Amazon Echo, Google Home and other digital home assistants. In the coming year, this A.I. technology will be more important to the payments experience and become more prevalent as consumer adoption increases. Financial institutions should also leverage A.I.’s capabilities for predictive modeling to anticipate and automate consumer transactions whenever possible. Finally, financial institutions should make use of A.I. chatbot technology for customer support whenever possible, as this frees up valuable staff support for complex problems and gives consumers the answers to important, but common questions in real-time. Mickey Goldwasser is VP, Marketing for Payrailz, a digital payments company offering advanced bill payment and money transfer solutions to banks and credit unions. For more information, please visit Payrailz.com

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Driving Out Complexity in Payments Relationships

Entering 2018, the idea of vendor consolidation in financial services is dead. The information age along with the technology it has fostered has created an environment where the speed of change and the rate of innovation will require more vendors, rather than fewer, if banks and credit unions hope to keep the pace. Over the last 12 months, more financial institutions have taken steps to address this growing complexity related to vendors. They are instituting best practices for vendor contract management and turning to partners who can help them optimize their relationships with suppliers. In 2018, there are several key areas where banks and credit unions will consider in order to ensure that they keep their bottom line healthy when negotiating vendor contracts: The Earlier the Better. Discussions about critical vendor renewals and replacements are happening far in advance of contract renewal dates. Institutions that lock in today’s prices may be alleviated from the inflation that comes with rapidly advancing technology and compliance burdens. Cards are one popular area for long-term negotiations; financial institutions can strike some good deals due to the battle for branding. The Value in Long-Term Relationships. Changing vendors in critical areas is disruptive and risky. As the complexity in financial services continues to grow, the value of a long-term relationship with a vendor that has served an institution well becomes more attractive. In addition, longer term contracts also can be more economically favorable for a bank or credit union as most vendors will offer discounts that increase as the contract term grows. Consolidation by Area. Though the dream of consolidating vendor relationships across a whole operation has evaporated, there are areas where more financial institutions can reduce the complexity and overhead they have today. For example, over the next 12 months there will be a move to digital banking vendors that provide a single solution that consolidate the functionality provided today by multiple vendors: online, mobile, personal financial management, account opening, Page 7

etc. Look Out for Growth. Card usage continues to rise – EFT, PIN, credit and debit – meaning more institutions will be thinking about the growth they anticipate in these areas when negotiating contracts related to these offerings. If a bank or credit union plans to invest more in PAU (penetration, activation and use) campaigns, the potential impacts there must be considered. During this same period, institutions, as a general safeguard, should take a look at invoices from their supplier as the data contained in them will be useful in assessing the level of growth in the coming year. This exercise can help validate that the volumes on the invoices do not indicate any red flags worth investigating. Remembering the Legacy. Most banks and credit unions have a number of systems that date back years if not decades. These legacy systems often touch a number of areas and are depended on for many critical services and accounting functions. The push to modernize these systems in areas such as core processing and payments will intensify in 2018. When evaluating options and offers from vendors to support this effort, information is power and benchmarks that indicate market pricing are the best place to start. The demands in 2018 are likely to exceed what was experienced in 2017. Change will be a constant, particularly in areas such as payments and digital banking. It is important that financial institutions understand that even in hectic times, when action is needed sooner rather than later, they can level the playing field with vendors by instituting a number of best practices and partnering with companies that have the experience, resources and data they may be lacking. It is not a matter of making the vendor contract management unpleasant or adversarial. And, it will not be when both sides are well informed.

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Tech Investments will Soar in 2018 Financial institutions made sizable investments in technology in 2017 to adapt to consumer expectations. In fact, According to IDC Financial Insights, retail banks in the United States spent about $20.2 billion on hardware, software, services, and internal IT staff to develop and implement digital transformation initiatives in 2017. This trend is expected to continue to keep up with system updates, changing consumer behavior and regulatory changes in 2018. So what will banks and credit unions invest in over the next year and why? Out with the Old, In with the New As legacy systems continue to age out, financial institutions will update their systems accordingly. Many aging item processing systems will be due for infrastructure upgrades in the coming year, encouraging more financial institutions to consider outsourcing processing to technology companies as the cost of maintaining these fossils skyrockets. In the same vein, banks and credit unions will consider migrating from legacy archives to a more consolidated archive for better research capabilities, allowing them to better serve account holders and cut research costs. With an increase in payment innovations and the implementation of a faster payments structure, some financial institutions will explore opportunities to consolidate payment solutions, providing them with improved efficiency and streamlined vendor management. Not only will the payments structure pick up speed, but clearings will become faster through the use of a more decentralized ledger. Consumers Drive Change Technology investments will remain prominent as financial institutions continue to adapt to changing consumer behaviors to accommodate both customers and employees. Consumers move fast, and they expect their banks to do the same. Because of this, more institutions will favor using ITMs over traditional tellers to increase efficiency for their customers, especially community financial institutions. Account holders will also Page 8

become more interested in online-only banking, causing retail financial institutions to rethink their approach to customer service. Banks and credit unions will find ways to offer their customers a more seamless and personalized experience. As a side-effect of this effort, financial institutions will leverage a unified system of digital banking and payments to better understand account holders. Banks and credit unions will not only continue to move towards consolidating online banking, mobile banking and mobile deposit, but they will also seek to consolidate consumer and cash management services to meet account holder expectations. Additionally, consumerfacing automation will continue to thrive, creating new sources of analytical data and increased insight into consumer behavior. And let’s not forget the branch staff. As self-service capabilities become ubiquitous, employees will expect the same kind of functionality they receive as consumers, and financial institutions will migrate from legacy core systems to accommodate the new generation of employees. Expand the Customer Base with Marketing and Acquisition Because of an increased knowledge of consumer preferences, financial institutions will make educated investments in technology and marketing tools as well as acquire other financial institutions to expand the base of customers they serve. Institutions will merge and acquire to access new segments of customers and partner with FinTech companies to maintain their client base. This move with drastically evolve the financial services industry. Additionally, top financial institutions will utilize the investments they made in marketing technology to debut aggressive marketing campaigns leveraging P2P payments, resulting in significant increases in new account openings from young adults at the expense of non-participating institutions. Regulatory Changes Continue Finally, regulatory standards will continue to evolve to favor the financial industry, loosening capital restraints. This will mean an increase in lending which will provide continued economic improvements for the U.S. As standards change, banks and credit unions may invest

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Tech Investments will Soar in 2018 in technology providers that monitor regulations for them, reducing the time they spend on compliance issues. As we forge ahead into a new age of digital transformation in banking, financial institutions must allocate their budget toward technological advancement in response to the evolution of customer expectations and regulation, as well as the aging-out of legacy systems. These investments will enable account holders and employees to have positive in-branch and online experiences. These investments will promote long-term sus-

tainability and create a competitive advantage, especially as consumer interest in online banking rises. Failure to invest in technology may be destructive to longterm sustainability and competitive advantage, especially as consumer interest in online-only banking rises. Murthy Veeraghanta is Chairman and CEO of VSoft Corporation, a global provider of information and technology solutions for financial institutions. For more information on VSoft, call 770-225-7692, or visit www.vsoftcorp.com, or follow them on Twitter @VSoft_Corp.

Digital Marketing Will Come of Age for Financial Institutions in 2018 Financial institutions have made great strides in leveraging digital onboarding technology to better support account opening for mobile-first consumers. That will continue in 2018, but what will be different is that financial institutions will make better use of the data that they already possess within their core systems to enable highly targeted, highly relevant marketing campaigns to existing and prospective customers – and they will do this entirely within the mobile/digital channel. Banks and credit unions will borrow a page from the retail industry by leveraging the digital channel as a powerful catalyst for institutional growth. Just as retailers have invested in providing “the Amazon customer experience” – one that leverages data analytics to make appropriate product recommendations and is thoughtfully designed to discourage cart abandonment by removing friction to make the onboarding and/or checkout process as fast and easy as possible -- we will see financial institutions do the same by marketing new products and services to the right customers at the right time and then supporting a frictionless checkout/ onboarding process for those consumers via their mobile devices. For financial institutions that are in growth mode, better marketing through the digital channel provides a viable method to either establish market share in new areas without the expense of traditional brick-and-mortar

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branch locations; or more strategically plan the future construction of branch locations to meet existing, localized customer demand. Additionally, in 2018 we expect to see bankers look beyond “Share of Wallet” as a metric of marketing success and instead, begin to recognize the lifetime value of establishing a “Relationship Annuity” with their customers – one that is supported by an intelligent approach to marketing, and one that ultimately provides an exponential level of benefit to consumers and financial institutions alike. This is particularly relevant for Millennial customers who are maturing as consumers and are now in need of larger auto loans, mortgage loans, and retirement and college planning services; as well as the emerging, post-Millennial “Generation Z/ iGen” consumers who are now entering the market. David Eads, Founder and CEO, Gro Solutions, www.grobanking.com

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Subscribing to the “Amazon-ization” of Retail Checking Last year we predicted that in 2017 there would continue to be a material move away from unlimited free checking by financial institutions. That has happened. Totally free checking is no longer the difference maker to consumers. Their increased attention to and valuing of the digital banking capability of a checking account has trumped the aversion to paying a reasonable and conditional monthly account fee. Major banks are clearly leading the industry regarding these consumer perceptions. Plus, it is becoming more and more obvious that free checking doesn’t deliver on financial productivity like other account types. Per our consumer retail checking database tracking the financial performance of over six million checking accounts with over 600 million data points, free checking finishes sixth out of eight common checking product types in terms of profitability.

Building off this consumer devaluing of free checking in 2017, 2018 will see a continuing impact of mobile delivery and the emerging influence of subscriptionbased business models, such as Amazon Prime, Spotify, AAA and Costco. This new subscription society is already changing what consumers want their financial institutions to deliver from their checking accounts. Based on recent research from Cornerstone Advisors, 88% of Americans (between the ages of 21 and 72 with a smartphone and a bank account) subscribe to at least one digital fee-based service and 33% subscribe to six or more. Of those that subscribe, the average number of subscriptions is 5.4.

This subscription society influence on what consumers want from their checking accounts beyond traditional benefits and services is revealing, especially among millennials. The Cornerstone research shows that if Amazon offered a checking account with nontraditional benefits like cell phone protection, roadside assistance and non-bank product discounts that all together cost $5-10 per month, over 40% of millennials said they would open this account and a little more than 25% of them say they would close their existing checking account to do so. Page 10

Will totally free checking disappear completely and be replaced by recurring fee checking? No. Smart banks will still creatively use a loss-leader like modified free checking to attract customers into the branch as a simple to understand marketing strategy. However, they will also provide additional, more appealing subscription-based accounts and pricing options for consumers to choose a better account than modified free checking that provides a deeper relationship and more revenue generation. The “Amazon-ization” of checking accounts has already started and will grow rapidly to be a winning strategy for banks, especially community ones, that want to be able to compete against traditional, larger competitors or at some point possibly in the future with subscription-based and value-based nontraditional competitors like Amazon. Dave DeFazio is partner at Nashville-based StrategyCorps, which works with financial institutions nationwide to deliver mobile and online consumer checking solutions that enhance customer engagement and increase fee income. For more information, visit www.strategycorps.com.

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Blockchain: Leveraging The Distributed Network for Better Banking in 2018 By Mike Morris, Systems Partner, Porter Keadle Moore (PKM)

With Bitcoin setting record highs almost daily as 2017 comes to a close, more and more people are taking notice as experts continue to debate the stability and viability of cryptocurrencies. And while Bitcoin’s valuation rollercoaster has been entertaining to watch, the real attention should actually be paid to its underlying technology: Blockchain. As Glen Sarvady, managing principal at 154 Advisors, recently reported: “Do not confuse the blockchain with Bitcoin. The two are not synonymous.” Regardless of Bitcoin’s fate, it is the blockchain technology behind cryptocurrencies that will likely have a lasting legacy, especially for the banking industry. Though initially treated with much skepticism by banks, their views are starting to shift and we see this as a key development for 2018. So what is blockchain exactly? A blockchain is essentially a decentralized, distributed database maintained and updated by a network of computers, where it is secured through encrypted 'blocks' and accessible only through a peer-to-peer network. Think of it as a spreadsheet that exists on multiple computers all at once and, while it cannot be duplicated, regularly updates and can be accessed by multiple users across the network. While global banking systems are still skittish about cryptocurrencies, blockchain’s distributed-ledger technology is proving much more attractive and a real benefit. Banks specifically are starting to recognize the potential solutions blockchain can offer, both in solving current problems as well as the possibilities for new opportunities. Blockchain can provide better security and lower costs for online transactions, which could reduce or even eliminate the need for payment processors and custodians – a major benefit for banks. Permissions are going to be a key factor for adoption. Blockchain networks can be either public or private, but these days, the focus is on the public aspect of the technology, and its anonymity. While this does have its benefits, banks will most likely look to create private networks that can be vetted and more closely monitored and controlled (much to the chagrin of many of the earlier, more zealous users). As the technology becomes more accessible, banks will Page 11

also shift to meet those demands. Going into 2018, we expect to see more real-world applications and use demonstrable cases. As is the nature of the industry, banks require “proof-of-concept” to deploy or launch any new technology initiative. Fortunately, we are beginning to see this, with such announced blockchain investments already in the tens of billions of dollars, announcements of Initial Coin Offerings (ICOs), as well as a surge in patent interest related to these technologies. Though the larger banks often try newer, more diverse technologies, investments this big tend to show a trend that moves beyond experimenting and speculation. Blockchain seems to be here for the long haul and the banking industry could see a lot of disruption in the coming years. For example, six of the world’s largest banks have joined together in designing a new blockchain-based digital currency with a planned launch for 2018. The goal is to create a "utility settlement coin," which will be used to efficiently clear back-end settlement transactions between the banks. As this real-time application proceeds, we expect to see other banks watching closely. Additionally, several of the Federal Reserve’s Payments Improvement initiative proposals suggest blockchain models to improve the country's overall payments infrastructure. Though important, blockchain offers more than security and efficiency. In the banking industry, it seems most likely to be more backend/behind-the-scenes uses that see the earliest commercial successes. While not as flashy as payments, clearing and settlement is seeing attempts to use the blockchain model to help with intrabank transactions and investments. Other areas that could benefit include verification/identity management, trade finance, syndicated loans, and contracts and escrow services. Blockchain technology will continue to see positive movement in the financial services industry for 2018, but it still has a ways to go. However, as more institutions begin to recognize its potential and costeffectiveness and continue to explore its practical uses, this technology will see broad applications and a transformative impact on all financial services, especially banking.

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2018: The Year Consumers Take Control of Their Cards Besides being the year of the dog, 2018 is posed to be the year of card control adoption. These controls allow consumers to dictate how they use their credit and debit cards with functions like card on/off, spending limits and location-based controls. Card controls will become a must-have for all financial institutions to offer because major players, such as institutions like Navy Federal Credit Union, Ally Bank and Tech CU, are joining the card control market and breaches will continue to happen making card protection tools a must have. From breaches to digital issuance and growth in digital payments – mobile wallet pay and e-commerce are both growing at a fast pace and will continue to grow in the upcoming year. The past year has brought multiple security breaches, resulting in an overall feeling of cyber insecurity with the likes of Equifax, Gmail and Arby’s. The harsh reality is that breaches will continue to happen, and should another breach threaten your account, it is important to be proactive about the possible forms of security. Features like location-based card controls and card on/off switches are proactive solutions to staying on top of what activity is happening with your card. In 2018, it will be important that financial institutions offer card controls to their members in 2018 to give the users the ability to stop fraudulent activity immediately, control their spending and have a tool to endure the data breaches as and when they occur. Location-based card controls and card on/off services help the consumer control the use of their cards from an app on their mobile phones. If they only want to allow the card to be used within a certain geographical range, they can draw the parameters on their phone. Also, if a consumer finds that their cards have been misplaced or stolen, they can go into their app and immediately turn off the card. Cybersecurity is a large concern with both consumers and businesses, so the ability to take charge of one’s cybersecurity will be top-of-mind in the coming year. SmartMetric’s recent survey on consumer fraud impact found that 69% of consumers say that being a victim of Page 12

card fraud causes fear regarding personal safety. To battle this fear, financial institutions will leverage their mobile app, making the user the first line of defense if their card is compromised. This benefit is enticing to consumers, as they will feel that they are taking control of their own security, and they can enjoy the ease of controlling their own cards. Similarly it allows immediate action from the consumer that in the end saves both consumer and financial institution from continued fraud. In 2018, Mobile wallet pay and e-commerce will see a more prevalent adoption. It is important that financial institutions find ways to implement these payment solutions to their systems, as consumers will seek out the ease of e-commerce and mobile wallet pay. The double -authentication in a mobile payment app is enticing to consumers, as they can ensure that the payment is legitimate and there will not be fraudulent activity that goes unnoticed. Mobile payment apps are on the rise as opposed to mobile banking apps, as well. Mobile banking is merely another channel to deposit and transfer money between accounts. Mobile payment apps offer an effortless approach to digital commerce, which is more appealing to consumers. Mobile payments are beating out mobile banking because customer engagement is higher in mobile payment apps. The more offerings that the mobile banking app has, the more engaged that financial institution’s customers will be. With payments options, your customers can use the mobile banking apps for more than just deposits or checking account balances. As financial institutions are looking ahead and implementing solutions that entice their customers and benefit their institution, they will be looking to card controls

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2018: The Year Consumers Take Control of Their Cards to give their customers the highest level of customer experience and technology offerings. Mobile Wallets, digital payments, frictionless checkout trends picked up speed in 2017 along with a huge increase in data and identity breaches; both will be the norm in 2018 and beyond. In 2018, the key trend will be for consumers to take back control of both their payment instruments and data. Card control mobile apps and open banking technologies will enable consumers to manage when, where and how payments are being made and open banking will put the power of their money back where it belongs, in their hands. Their finances will not only be better managed with less risk and more secure, they will also be able to the get the best bang for their buck.

# Gary Singh is the Vice President of Marketing at Ondot Systems, Inc., a financial technology company that puts personalized control of credit and debit cards in the hands of the consumers to prevent fraud and decide when, where and how their cards are used.

Predictions 2018 Hyperlinked Articles 10 Fintech Predictions for 2018 – Let’s Talk Payments https://letstalkpayments.com/10-fintech-predictions-for -2018/?mc_cid=2ef8f580de&mc_eid=10a6d82eb9 3 Trends for 2018: Safer Data, Faster Payments, Better Experience – Mobile Payments Today https://www.mobilepaymentstoday.com/blogs/3-trendsfor-2018-safer-data-faster-payments-betterexperiences/? utm_source=Email_marketing&utm_campaign=emna MPT12152017&cmp=1&utm_medium=html_email

8 Predictions for Treasury in 2018 https://www.gtnews.com/articles/8-predictions-fortreasury-in-2018/?utm_source=gtnewscom&utm_medium=email&utm_campaign=newsletter &utm_content=2017-12-18-gtnews-2018-predictionsbnp-paribas-cmu-changingbanks&mkt_tok=eyJpIjoiTjJVMllUZGxZbVV4T0RF MyIsInQiOiJPYXVyMGtOc2syK0pyemNaM2ZWZkd VK2VxQUxVMTlVT3d1WGtFeGVDbm5LMSs1OTV Fb0ZRUWNBbklpek1meHBqYVN5SjlIbE04ajJ3NDF mbldqUW4yOEdYamljcDNlSDltbHRwZkpJWXhxRF poZGpPbWNtcTJSbHBxUkdqU1k0YSJ9

PayPal sets the pace for the payments industry in 2018 https://www.mobilepaymentstoday.com/articles/paypal -sets-the-pace-for-the-payments-industry-in-2018/? utm_source=MPT&utm_campaign=emna&cmp=1&ut m_medium=email&utm_content=20180103

What will be the most significant banking trends in 2018? From challenger banks to white label hubs http://www.bobsguide.com/guide/news/2017/Dec/18/ what-will-be-the-most-significant-banking-trends-in2018-from-challenger-banks-to-white-label-hubs/

Top 10 Retail Banking Trends and Predictions for 2018 https://thefinancialbrand.com/69180/2018-top-bankingtrends-predictions-outlook-digital-fintech-data-ai-cxpayments-tech/ Page 13

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Malauzai: Transaction Directory Predictions By Robb Gaynor, co-founder & chief product officer, Malauzai Conversational Banking Conversational banking will begin to push the envelope in 2018, moving beyond simple voice commands such as “Alexa, what’s my balance?” If you’re not thinking about asking the second, contextual question instead of single question and single response, having bots with more than one personality or how to integrate voice with other devices and channels, you’re already behind. I call it the “Star Trek” effect: When Kirk asked the computer for information, he would get a verbal and screenbased response. The computer told him how far his destination was and plotted the destination on the big screen—voice in, voice and screen out. And the best voice banking solutions will integrate across devices: “Alexa where is the closest ATM?” … “The closest ATM is 1.2 miles away, look at your app for specific directions.” A customer experience of banking that weds all of this together, with a chain of devices working in sync, is no longer just a theory, but in 2018, this is reality. Open API It shouldn’t come as a surprise that in 2018 Open API will be a focused topic of conversation. However, expect the focus of this conversation to shift from accessing data to distribution. Fintech vendors are starved for access to real-live customers. In 2018, the real innovation will emerge as leaders in the space focus on distribution models that connect fintechs with customers and members. Banks will and should play a critical role in this process. Every bank and credit union, regardless of what their IT environment looks like, needs to build APIs and enable their organizations around a marketplace; a market that brings together great fintech solutions and their customers. Business Payments The most successful mobile payments app comes from a single business; Starbucks. Not Apple Pay or Venmo where you can pay everyone, but Starbucks where you can only pay, Starbucks! And more businesses are following suit. In 2018, expect to see this trend continue as more and more businesses publish their own apps. WalmartPay is experiencing serious growth and others such as CVS and Target are jumping in with Page 14

their own payment oriented apps. I anticipate “taking” payments will be a driver for business mobile in the digital banking space. We will move from a focus on making payments to one of helping businesses get paid, and get paid fast. This presents a huge opportunity for financial institutions in 2018 that shift their attention from helping businesses make payments, to instead, helping businesses get paid faster. The real value proposition lies in receivables. Cloud (AWS) By the end of 2018, huge portions of digital banking will have moved to the public cloud and Amazon/AWS is the clear leader in this space. Both technology vendors and financial instituions are going to lead this charge. The regulators are supportive, they call it “cloud-first”. Software companies will be fully committed to being totally in the public cloud. For years, we have been in the “private-cloud” but now things will change. The ongoing debate of whether or not cloud computing can be trusted will continue, but the industry as a whole overwhelmingly agrees the answer is “yes.” There is no question that the benefits of services such as AWS far outweigh the risks in most cases, and our industry is rightfully moving more towards this type of arrangement. We will all save money with the change as well as unleash new capabilities leveraging the vast power of the Cloud, such as AI/Machine learning and federated authentication. Good times are coming!

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2018: The Year of Digital Differentiation

By: Michael Ball, Vice President of markets and strategy, IMM In 2017, eSignatures gained accelerated acceptance universally. Driven by customer demand, businesses continue to shift from paper-based processes to completely digital environments. Within the banking industry, this evolution remains a top priority, and as a result, the interest and adoption of eSignatures will reach a tipping point in 2018. What’s the catalyst driving this surge? Banks’ priorities have shifted as the market has evolved and changed. They are charged with adapting to ever-changing customer demands, while at the same time, streamlining operations which affords the Bank to “do more with less” and drive down costs. Customer Engagement in a Digital Era Customer expectations for how they engage and conduct business with their financial institution is drastically different now than in years past. Banks understand they have to adapt and evolve their models to provide a more modern, digital experience with simplified and convenient engagement. Paper slows down processes and limits how and when transactions can be completed. eSignatures give banks more freedom to serve their customers and meet their needs regardless of their location or the time of day. In 2018, banks will shift completely away from paperbased processes, digitizing customer-facing and internal forms to automate processes and streamline operations. 2017 saw a significant increase in interest from banks regarding adoption of eSignatures, and we expect this number to boom in 2018. eSignatures are an essential component of the complete digital transformation which continues to be a top priority for financial institutions. Automating the Back Office Financial institutions need to change back-end processes by investing in systems that will streamline transaction processing and customer support. To avoid the cost of “catching up”, back-office automation will also become a top priority for institutions next year.

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More transactions can be processed with eSignatures in place – without needing to add staff. Relying on digital documents instead of paper eliminates delays and manual errors associated with traditional paper-based document handling. Additionally, eSignatures streamline back office functions reducing transaction time to minutes, as opposed to the hours, days or weeks it may have previously taken. Building the Best Customer Experience Brand As consumer demand for digital services continues to evolve, banks must find new and innovative ways to deliver products and services when, where and how the consumer wants. For instance, instead of having a customer complete and wet sign a paper form, hand them a tablet to view and eSign. The newer touch screen technology lets employees interact and engage with customers to create a more personable and satisfying financial transaction engagement. A positive customer experience creates loyalty and drives repeat business. For a Financial Institutions to accommodate a consumer’s busy schedule, providing digital services and tools on the channel they prefer and at the times they want, allows institutions to move away from shallow transactional relationships and towards more engaging and rich experiences. eSignatures are the catalyst for Banks to realize their digital dreams.

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Confirm Your Customer: How Strong Authentication Can Lead to More Transactions in 2018 By Sherif Samy, Senior Vice President—North America, Entersekt In 2016, losses from card fraud approached $23 billion worldwide according to the 2017 Nilson Report, and with the rising tide of data breaches and other cyberattacks, that sum is projected to reach $33 billion by 2021. The threat of growing fraud attacks shows no signs of slowing down, but there are steps that banks can take in 2018 to better protect institutions and their customers. When customers don’t feel safe transacting online or via their mobile devices, they will likely explore other options. According to the American Express 2017 Digital Payments Survey: 

37 percent of users abandon online purchases when they do not feel secure;  73 percent of merchants report that their level of fraudulent online sales has increased or remained the same during the past year; and  58 percent of merchants who experienced an online sales increase said that enhanced security features “played a very significant role.” That means confirming customers’ identities without detracting from their user experience is critical for every financial institution. So what safeguards should banks and merchants put into place moving forward to best protect themselves and their customers without negatively impacting the banking and payments process? The answer is as simple as leveraging the power of mobile devices to provide stronger authentication measures without creating a cumbersome user experience. A Strong Connection As more consumers use banking apps on their digital devices, issuers are increasingly required to confirm customer identities and verify accounts during transactions. The traditional model (where banks rely on email confirmation and assume the risk of compromised customer information) hurts the financial institution and diminishes customer loyalty and trust.

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Implementing a well-executed active authentication solution not only reduces fraud, but also increases transaction volume. For one German card issuer, a mobile app security solution with strong, push-based authentication decreased fraud by 95 percent while successful transactions increased by 29 percent in less than 5 months. A more interesting statistic about this implementation is that over the same period the revenue for the issuer increased by 15 percent. Compare that to risk -based authentication, which according to BI Intelligence prevented $6.5 billion in fraud, but blocked $8.6 billion worth of legitimate transactions, thereby effectively stopping $2 billion worth of legitimate transactions. Furthermore, as the value of transactions and the overall volume increased, these statistics reflect overall consumer trust in the technology and the bank itself and hence increase the bank’s direct top and bottom line growth. The Way Forward So where is the US banking market headed? A look at the Revised Payment Services Directive (PSD2) in Europe provides clues, as this framework requires strong customer authentication (SCA) based on the user’s device and either a PIN or biometric feature. The benefits of active authentication, which requires real-time responses to push notifications, accrue to both sides of the transaction: 

Users are engaged and feel in control during transactions;  This empowerment builds trust, leading to more transactions; and  Institutions get digitally signed proof of consent, which supports non-repudiation.

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Confirm Your Customer: How Strong Authentication Can Lead to More Transactions in 2018 Most customers prefer to be involved and engaged in the authentication process; they actively choose security measures, and prefer a visual indicator of these. Banks invest heavily to secure their mobile banking platforms, but in doing so, they often create an environment that detracts from the user experience. It shouldn’t be an “either/or” proposition between security or customer convenience. Successful financial institutions are choosing both, with an active authentication solution that confirms customers and makes their digital banking experience friction-free. Entersekt has

done just that by focusing on enabling innovation and strong customer experience through its secure technology offerings. While we can’t say for certain what impact fraud will have on banking and payments in 2018 and beyond, we do know that when it comes to fraud, it’s not a matter of if, but when. With the proper measurements in place, both banks and customers alike can maintain a positive working relationship and gain peace of mind knowing they’re taking an active stance to prevent themselves from falling victim to the nation’s next big fraud attack.

2018 Tokenization: Moving Beyond Mobile Wallets to CoF E-commerce Tokenization – the process of replacing sensitive data with unique tokens – provided the foundation for the launch of mobile wallets in 2015. By replacing the static card number on a credit or debit card, tokenization established a method for mobile payment apps to create an encrypted, dynamic transaction number, keeping the valuable account data secret from merchant and consumer alike. Today, an area that’s ripe for tokenization is credentialon-file (CoF) e-commerce. CoF e-commerce occurs when a merchant stores card data on file for future use, as for recurring payments or future purchases. By replacing the static card data with payment tokens that can be used only by that merchant, a ‘walled garden’ of information essentially is created. The tokens they are storing can’t be used at other merchants to perpetrate fraud, so they have very little value to those wishing to steal credentials for fraudulent use, and therefore make that merchant less of a target for intrusion. The expansion of tokenization into the CoF ecommerce space will drastically increase its usage behind the scenes, with little effort from cardholders or issuers. The issuer simply must set up tokenization with their card brand so any merchant that becomes a token requestor can receive tokenized data from them, rather Page 17

than the traditional static PAN credentials. As more and more e-commerce merchants make use of CoF, the behind-the-scenes use of tokenization will only become more critical to securing this ecosystem. As the Product Manager for Payment Analytics at CSI, Matt Herren has helped lead CSI’s effort to drive innovation in the payment space. With a strong focus on emerging technologies and how they apply to the financial industry, Matt has employed advanced analytics and data analysis to increase bank profitability through proactive fraud mitigation strategies and card portfolio analysis. Allowing banks to realize industry-leading results and maximize program performance.

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2018 – The Year of APIs By Mark Vipond, CEO at D3 Banking Technology Over the past several years, there’s been a transformation in the way people pay. With non-bank entrants such as Paypal and Venmo and the rise of specific payments apps – like Starbucks – technology providers and even retailers have slowly but surely stolen parts and pieces of the payment experience from financial institutions. These tech companies have historically had an advantage over banks and credit unions because of their fresh, innovative technology and attractive user interfaces. However, what they don’t have is the decades of experience and trust that traditional financial institutions have. Banks and credit unions are trusted to safeguard consumers’ most sensitive information and funds for a reason. In 2018, financial institutions will regain control of their rightful territory – the payments experience. New bank-owned payments networks are already making early progress. However, to be successful, banks and credit unions must be able to facilitate customers’ preferred payment methods. It’s no longer just about cards – consumers want to use new methods and channels to complete their transactions, and if financial institutions can’t offer these methods, consumers have proven they have no problem finding alternative payment providers that will. To meet these expectations, institutions must adopt nimble, API-based architecture that allows them to quickly introduce new features or functionality as customer preferences evolve. This flexible architecture and digital strategy isn’t just important for payment, but for enabling continuous innovation that allows customers to quickly take advantage of new ways to bank as they emerge. Long gone are the days when it was acceptable for banks and credit unions to release product updates just once or twice a year. Instead, as technology advances and new banking features are introduced, institutions must be able to offer those solutions and services to customers in a matter of weeks, not years. This commitment to continuous innovation will allow institutions to remain relevant in their customers’ lives.

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The adoption of flexible architecture and a digital strategy will also help with the recruitment of younger talent and customers, which will be a top priority for banks and credit unions in the new year. In 2018, Millennials are expected to have the highest levels of disposable income of any generation, making it absolutely critical for financial institutions to engage with this segment and understand their unique needs and preferences. And, as experienced bankers continue to retire, these bankers are leaving the industry faster than younger bankers are coming in, creating a concern for the future transition of leadership in financial institutions. To better engage with and attract Millennials and Gen Z as both potential customers and employees, institutions must be able to offer an advanced digital experience both externally and internally. This is another scenario where an API-driven strategy, with the able to quickly adapt and introduce the latest technology, would return its investment in dividends. And, institutions should consider deploying targeted marketing campaigns to reaching Millennials or Gen Z where and how they like to connect, such as social media and YouTube.

Simply talking about an advanced digital strategy will no longer be enough in 2018 – institutions will have to take action, or risk being left behind. By investing in a flexible, API-driven architecture and remaining dedicated to offering the latest innovation to customers when and how they prefer, institutions will be well poised to gain a competitive advantage in 2018 and beyond.

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Creating Efficient Operations To Drive Cost Management From Mark Anderson, CEO of Banc Intranets A year ago, one would have been hard pressed to find someone not talking about the incoming presidential administration and its potential impact on government regulations and policy. Headed into 2018, many of those same questions and concerns remain unanswered. While there has been some progress towards a lessburdensome regulatory environment (i.e. the Consumer Financial Protection Bureau), the current political climate has left many bankers in much the same position as they were 12 months ago. While it’s important for bankers to continue paying attention to Washington’s political environment, and to similarly make their expectations and needs known, at the end of the day what matters to most bankers, their executive leadership and investors is the company’s bottom line: where is money coming in to their business and where is going out? Of course, this is not an easy question to answer and can have multiple interpretations depending on size and scale of an institution. This is why financial institutions are starting to refocus their efforts inward and identify internal changes they can make to increase profit and drive long-term growth. For those forward-thinking institutions, the first place to start this process is in examining how their employees operate on a day-to-day basis. For example, in an organization with 150 employees, an average of 20 minutes is lost per day (per employee) searching for information in a shared network or drive. That’s an average of 250 workdays in a calendar year or 12,500 hours. To put a dollar amount on that, imagine paying every employee $12 per hour. That’s $150,000 in lost revenue, all because employees do not have an easy and efficient access to the information they need to do their job. Reducing waste will be key driver for financial institutions in 2018. Operational costs for items such as paper, sticky notes, pens and more all eat into a bank’s budget and serve as an added expense. With technolo-

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gy, such as iPads or tablets for employees, bankers can reduce long-term costs and make much-needed investments designed to improve how employees work with customers and fellow employees. Even though fintech has not “disrupted” the financial services industry, operational technologies designed specifically for bankers will play a key role in an institution’s efforts to achieve a reduction in costs and increase profit. Employee intranets, customer onboarding programs and even new loan origination systems are all examples of solutions that bankers can leverage to improve efficiencies, reduce waste and thus mitigate expenses. Last year, the team at Banc Intranets predicted that a loosened regulatory environment would lead to increased business for financial institutions. Regardless of one’s political views or expectations, the reality is that it will likely take years for this to occur and have a meaningful impact on the industry. By focusing their efforts internally, banks can make changes now that will have lasting impact down the road. And, whether the industry continues to consolidate, expand or even see the entrance of market disruptors, creating efficient operations for employees and reducing wasteful processes and systems now will drive long-term sustainable growth for any financial institution. ### Mark Anderson is CEO of Johnson City, Tenn.-based Banc Intranets, a leading provider of secure, webbased intranets and directors portals for financial institutions that centralize employee onboarding and training, streamlining day-to-day operations.

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Digital Marketing Trends in 2018 When Social Media became a Thing about 10 years ago, a few marketing folks had a nagging feeling that this would be a game changer (I put myself in that camp). Others thought it would be a fad, and stuck their heads in the sand. For the past 7 years I’ve been training business executives on how to use social media and it’s been an interesting evolution. People’s perception of social media and where they think things are headed have changed. Heads are out of the sand as most have realized that digital marketing is here to stay. In fact, things are moving so quickly now, that people who weren’t comfortable with social media confided in me that they felt lost. The good news is that while the tools are constantly changing, the fundamental concept of social selling remains the same: build trust. Here’s what we can expect in the coming year… Mobile Usage First and foremost, if your website is not mobile optimized, you are missing most of the traffic out there. The Aberdeen Group reports that 57% of mobile shoppers abandon a site if it doesn’t load in three seconds or less. And a page load delay of even 1 second equals 11% fewer page views. Content Marketing Integrated into the Buyer’s Journey Sales Funnel We can use social media as a tool to drive traffic to a website, but if the website doesn’t have content perceived as valuable, it is a waste of time and visitors will abandon the site. Developing a content marketing program that provides valuable information for all stages of the buying cycle will keep people on the site giving companies the chance to convert visitors to buyers (and at least capture their information, like email address).

Focus your content on information that your buyers are looking for during all stages of the buying journey – most buyers are doing their research online before ever making a phone call. Paid-For Social Media (not your Father’s demographics) Now that social media sites like Facebook and LinkedIn provide the ability to target people with demographics way beyond gender, age and income level, paid-for ad-

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vertising should be part of your marketing efforts. That doesn’t, however, mean that Organic Social Media is a waste of time. Much like sales in real life, it’s all about trust. With social media you can find, relate and engage with people in any corner of the world, not just where you are physically. The Marriage of Sales and Marketing Sales and Marketing teams can work together to proactively target prospects. For example, if your sales team is preparing to participate in a trade show with a booth or speaking engagement, you will want to see the attendee list and decide who is on your hit list. Once you have those people targeted, the marketing team can do some investigative searching to see if they are active in the social channels. Is there a blog or tweet that you can respond to? This creates a warm introduction which can pave the way to a nice conversation at the show. If the past is any indication of the speed at which things change, 2018 will prove to be no different. Even if you are in the beginning stages of learning social media, that’s OK – everyone starts at the beginning. Contact me for training, and add social media digital marketing to your playbook in the coming year! Contact me [email protected].

Denise Bahs, AAP is a Social Media Strategist. Her background is in marketing, with more than 20 years in the payments industry. After working for a payments trade association for 8 years, she left to work with technology start-ups utilizing social media to move the needle. Witnessing firsthand how to leverage social media and grow social authority, Denise has helped numerous companies gain visibility and grow their businesses utilizing the social channels. With a few thousand connections/followers, she is a mentor, public speaker and enjoys talking “social”!

Transaction News

Moody's Cross Sector Outlook: Stronger Global Growth in 2018 is Credit Positive for Most Sectors Strong, broad-based global economic growth will benefit most rated sectors in 2018, Moody's Investors Service says in its 2018 cross sector credit conditions outlook. "The improving outlook underscores the strength of the global economy overall," says Moody's Associate Managing Director Elena Duggar. "Global credit conditions in 2018 will be defined by healthy economic growth and a supportive funding environment, which will help to balance against a build-up of longer-term risks." "Nevertheless, secular shifts such as the demographic transition, rapid technological change and climate change will present new credit challenges," adds Duggar. Moody's expects above trend global GDP growth of 3.2% in 2018 and 3.1% in 2019, similar to 2017 and up from the 2.5% growth achieved in 2016. Unlike in previous years, Moody's expects growth to be more broadbased and sustained in the year ahead. Growth in G20 advanced economies is expected to be stable, with growth of approximately 2.0% in 2017, 2018 and 2019, compared with 1.5% in 2016, while emerging markets will grow at a rate of 5.4% in 2018 and 5.3% in 2019, accelerating from the 5.0% 2017 growth and the 4.4% 2016 growth. "Our outlook is more positive overall than last year," says Moody's Elena Duggar. "While there is still uncertainty over trade policy and political risks, these risks have abated somewhat. Also, importantly, we have a stronger sense of the direction and timing for monetary

policy." A healthy global economic environment is setting the stage for a reversal of expansionary monetary policies in advanced economies. The cyclical economic recovery will be accompanied by uncertainty over the duration of the credit cycle amid a build-up of risks to financial stability after a decade of low interest rates. Moody's remains confident, however, that central banks will begin pursuing balance sheet normalization in 2018 and 2019. In the report, Moody's identifies six themes that are likely to shape the global credit environment in 2018 and beyond. They include: growth, financial stability, political and geopolitical risk, technology and innovation, climate change and sustainability, and demographics. Moody's view of technology and innovation, climate change, and demographics take a more prominent role in our assessment of future credit conditions. Rapid technological change, for example, will continue to transform production processes, business models, and government regulation, all of which will impact credit fundamentals. Climate change and demographic trends, such as aging populations, also pose significant medium and longer-term challenges to growth on a global scale. The ability of governments, industries and market participants to adapt to these changes will determine if their creditworthiness remains resilient. The Global Credit Conditions Report is part of Moody's comprehensive series of annual outlooks that analyses the fundamental credit conditions that will drive credit over the next 12-18 months. The series includes reports on sovereigns, corporate finance, banking, insurance and structured finance. Moody's research subscribers can access this report, "Cross-Sector — Global - 2018 Outlook: Credit conditions improve as healthy economic growth moderates financial stability and political risks ," at https:// www.moodys.com/ researchdocumentcontentpage.aspx? docid=PBC_1098109

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Transaction News

How APIs are Paving the Way for Personalized Customer Relationships & AI-Enabled Banking Services By: Suresh Ramamurthi, Chairman and CTO of CBW Bank Developing application programming interfaces (APIs) will remain a major focus for the financial industry in 2018. A growing number of financial services organizations have realized that by effectively using APIs, it is possible to find new ways to provide value for today’s consumers. Traditionally, financial institutions would identify a customer need and then develop a purpose-built solution to meet that customer need. A financial institution can use APIs to assemble multiple solutions from several vendors in a way that delivers true value with a frictionless customer experience. Moving Toward Standardized APIs In 2018, the industry will also see more widespread standardization of APIs, which will require developers and software vendors to follow a specified set of requirements when building them. This will help streamline how financial services organizations engage with and deploy APIs, which can drive more efficient innovation. Financial institutions will also likely begin using standardized APIs to design better risk management systems because API standardization will enhance the safety and transparency of transactions with an established protocol for processes like fraud detection and data sharing via API calls. Giving Consumers More Control Over Finances via Machine Learning and AI Consumers also want more control over their finances than ever before and financial services organizations will begin taking steps to accommodate those expectations in 2018. This will involve using machine learning to gain a better view of trends or patterns in customer behavior. From there, the industry will progress toward using more artificial intelligence (AI) technology. Once financial institutions are able to deploy real-time machine learning and feed that high-quality data into AI systems for deep learning, institutions will have endless opportunities to improve the customer experience while capitalizing on new methods to generate revenue. For example, an API-enabled bank account that utilizes real -time machine learning can determine that a customer has excess cash available and then notify an AI system. The AI system knows the risk profile of the respective Page 22

customer and can present appropriate options to help the customer generate higher income via savings or investments. Personalizing the Bank/Customer Relationship A good way to imagine the future direction of the banking business model is by thinking of Apple’s App Store, where customers can choose from a variety of products and services, selecting the product that best meets their unique needs. From there, the customer can use that product or service through their smartphone or in the case of banking, through the relationship with their financial institution. As a result, with APIs, customers will be able to customize their relationship with their bank or credit union based on their current banking and payments needs. APIs will also help financial institutions keep up with the latest innovations in technology. For example, as smartphone technologies evolve and consumers demand heightened security for their finances, financial institutions can build APIs into their platforms to offer enhanced security measures like voice recognition and other biometric authentication features. Over the next 12 months, the financial industry will continue to evolve and expand the types of services offered for today’s consumers. As APIs become standardized and the use of machine-learning gains more traction, financial services organizations will more quickly develop and deploy products and services that provide concrete value to their customer base.

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Jack Henry: Top Payment Trends of 2018 Operating as a payments partner to approximately 8,000 banks, credit unions and diverse businesses, Jack Henry & Associates supports virtually every payment type and virtually every payment channel. Its team of payment experts identified the following trends for 2018. Topics: Real-Time Payments • The Clearing House will continue to expand its RTPSM network, nearing the point of critical mass. The immediate use cases will be significant for B2B, P2P and B2C payments. • Zelle® will gain momentum and begin to demonstrate results for its partners in the P2P payments space. Zelle will expand beyond P2P with beneficial new use cases such as B2C and C2B. • Real-time payments will achieve significant progress toward the industry goal of ubiquity within the next two years. This progress will propel the industry closer to a real-time banking infrastructure, providing capabilities that are well aligned with the evolving expectations of financial institution clients and how they want to do business. P2P



Financial institution-based P2P payments will become much more user friendly and socially engaging to compete with non-bank competitors such as Venmo, Apple Pay, and Facebook. This also presents a significant opportunity for financial institutions to market and enhance their current mobile bill pay solutions.

Bill Payments • Biller direct models continue to compete against the consolidator model to determine which will become the most used bill pay method. This will benefit the end user as both approaches focus on enhancing the experience, adding payment options, and granting more user control. Mobile-based bill payment services will gain user Page 23

adoption, beginning to catch up with online bill payments. Digital bill payment solutions will also prove beneficial for meeting businesses’ specific needs and growing the small business market, as this particular segment is always on the go and requires payment services that can be accessed from any device or location. User Experience • Deposit disintermediation will continue to increase. Money that used to be stored in trusted, regulated deposit accounts is becoming scattered among prepaid cards like Starbucks, and mobile wallets like PayPal and Amazon, even in P2P services like Venmo. These entities could put financial institutions on the defensive to preserve deposit relationships. • Financial institutions will explore how to stay relevant in light of invisible payments made through account-on-file relationships and voice commerce technology. As Internet of Things (IoT) devices like Amazon Echo, Alexa, and Google Home gain adoption, using voice and natural language processing technologies will become more commonplace and are anticipated to expand to additional connected devices. • Seventy-eight percent of Americans live paycheck to paycheck, and consumer debt is returning to pre-recession levels. Financial institutions will develop strategies to address this and better serve their struggling customers and members. Cards •

Credit and debit card usage exceeded cash worldwide for the first time last year, and that trend is expected to continue. This will create significant interest in and opportunity for credit cards in the community bank space. More community financial institutions will turn to credit

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Jack Henry: Top Payment Trends of 2018 card programs to compete with money center institutions and fintech vendors. Data Analytics • Payment processors and networks will place larger emphasis on data analytics. Progressive financial institutions will begin to develop use cases for this data, and soon invest in technology that will allow them to launch a more formal data analytics strategy. Contact: For more information on any of these topics, or to speak with someone at Jack Henry & Associates, please contact: Amber Bush 678.781.7219 | [email protected]

About Jack Henry & Associates, Inc. Jack Henry & Associates, Inc.® (NASDAQ: JKHY) is a leading provider of technology solutions and payment processing services primarily for the financial services industry. Its solutions serve approximately 9,000 customers nationwide, and are marketed and supported through three primary brands. Jack Henry Banking® supports banks ranging from community banks to multi -billion dollar institutions with information processing solutions. Symitar® is a leading provider of information processing solutions for credit unions of all sizes. ProfitStars® provides highly specialized products and services that enable financial institutions of every asset size and charter, and diverse corporate entities to mitigate and control risks, optimize revenue and growth opportunities, and contain costs. Additional information is available at www.jackhenry.com.

Business Travel Fraud Schemes Technology is Squashing By: Donna Wilczek, Vice President, Product Management at Coupa With business travel spend reaching more than $318B in 2016, fraud potential was at an all time high this year. However, new advances in travel expense management technology combined with proper internal controls were critical in helping businesses reduce fraud and control their travel costs. As we approach a New Year, it's a perfect time to take a look at the three areas of possible fraud businesses can now curtail thanks to smart applications of technology: Mileage padding Padding mileage reimbursements used to be a common way to generate cash. With paper log books, it’s hard to validate that the mileage claimed was actually put on the car, and most businesses don’t spend the time and effort. That leaves it wide open for fraudsters to pad by a little—or a lot. Technology reduces the fraud potential, however businesses must back up the technology with a policy of only accepting mileage submissions that come in through GPS tracking. Fake expenses

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Another way for businesses to ease the burden of expense reporting for employees has been to only ask for receipts over a certain dollar amount, leaving plenty of opportunity to submit false expenses for amounts under the threshold. Expense report technology has made receipt management so easy that it’s feasible and reasonable for businesses to ask employees to take ten seconds to tell them what they spent company money on. Last-minute flight booking schemes Late airline bookings have always presented a fraud opportunity. Savvy travelers know that there are different grades of fares depending on when purchase is made. The closer to travel time they purchase the ticket, the more it costs. Those more expensive tickets are easier to upgrade. Technology has made approval workflows so much smoother that it’s now practical to require pre-trip approval. Fraudsters are endlessly creative, but opportunities in travel and expense reimbursement are becoming fewer and farther between. Anyone looking for perks from expense report fraud will have to look elsewhere if their company uses smart expense report technology.

Transaction News

Key Bundling - The Next Cryptographic Hurdle for ATM Networks Single DES, Triple DES, Public Key Signatures, Signed Certificates. These are some of the mileposts for ATM cryptographers establishing secret keys into ATMs and defending against network “attacks”. In light of crooks getting smarter and computer’s getting faster, we are all in for another change. In Version 2 of the Payment Card Industry (PCI) PIN Security Requirements published December 2014, keys protecting PINs were mandated to change from 3DES to key blocks by January 1, 2018. On May 4, 2017, in deference to industry feedback, a VISA Bulletin relaxed this mandate. Here are the latest dates for key block implementation: June 2019 implementation of key blocks for “internal connections and key storage” June 2021 implementation of key blocks to “external connections to associations and networks” June 2023 implementation of key blocks to “all merchant hosts, POS devices, and ATMs” No doubt these dates are a relief to transaction hardware vendors and software companies still reeling from an EMV hangover. Also notable is the fact that the total implementation of key blocks is spread out over five years – an indication of the complexity and scale of the task. Once you start your investigation you will find that key blocks come in different flavors. There is not one key

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block. Based on the equipment you use and networks and devices you touch, you need to be prepared to use multiple types of key blocks. Another challenge is to determine the level of key bundling support in your current security hardware. Does your HSM support the latest of TR-31 standard, and what version of that key block will it support? Do you need to support multiple versions? Some ATM manufacturers already have Encrypting PIN Pads and firmware utilizing key blocks versus DES. Momentum is building for others to follow. In the near future all ATM networks will need to have the ability to support TR34 and TR31. It is encouraged to those affected to start your homework now. The path will become clearer as the first deadline draws near. TSS has support for TR34 and TR31 and is working with customers and others to help them implement key bundling in their environment. Stay tuned!

Transaction News

Three Reasons Why Effective AR Exception Management will Matter in 2018 Over the last several years the payment industry has seen the introduction of myriad new payment systems. This rapid adoption has challenged traditional thinking when it comes to efficient receivables processing. As the B to B world moves away from paper (more on that later) it is increasingly important to effectively manage the items that aren’t addressed by “straight through processing”. Here’s why that’s going to matter in 2018: Efficient payment processing, but for whom? They’re building new rails but the train station isn’t moving! New payment methods (the rails) generally become popular because they offer a means of convenience for the payer. Whether it’s a tight integration to an AP system, lower cost per transaction or simply an ease-of-use issue the method of disbursement continues to be driven by the organization making the payment. A recent study shows that the top business pressure on AP groups is to enhance visibility and analytics. The lowest pressure? Improving supplier collaboration – that means that the burden of ingesting, interpreting and processing those payments falls on the supplier’s AR team – and that means more exceptions and manual reconciliation as the receivables clerks are faced with making sense of all of the new data. Automation will only get you so far In 2017 we heard about a lot of tools to help with receivables and payment application automation. Many of these approaches are undeniably going to get you part of the way there-that’s true. What many organizations seem to overlook however is that dealing with the 85 – 90% of payments that can be easily matched away may only be addressing 10 – 20% of the real effort. The complex exceptions that require manual adjudication, reconciliation and human intervention are where most AR organizations spend the bulk of their time. The importance of dynamic, image-based exception management is absolutely vital – especially in instances where additional subject matter experts need to provide input on applying payments to specific invoices. The check is dead….long live the check? This may be an oft-repeated trope, but the fact is that the paper isn’t going away! Conventional wisdom is Page 26

that checks are disappearing but for the last 16 months that decline has essentially plateaued. Small to medium sized businesses still like to pay by check (some estimates say upward of 60% of these payments are still done by check) and if any of the data accompanying that check is incomplete it will lead to an exception. Even if we turn this example around to focus on any paper remittance information, there are still very real research and reconciliation tasks needed to complete the exception. There are a lot of buzzwords these days about payment consolidation, buyer portals, remittance standards and the “digitization of payments”. While all of these are important initiatives as business needs evolve, it’s of paramount importance that AR organizations do not lose sight of the need for effective exception management. Companies that are prepared to face an increasingly complex AR landscape will be well positioned not only for 2018, but the challenges that lie beyond. Jon Gage, Manager of Research & Development with Creditron. Creditron is a leading provider of integrated receivables, lockbox and remittance processing software and services.

Transaction News

Strategies for Self-Service in the Branch Will Mature to Quicken Successful Adoption in 2018 Suzi McNicholas, vice president of Marketing, Source Technologies Transaction: an exchange or interaction between people.

Transformation: a thorough or dramatic change in form or appearance. For two words that begin with the same root, they are miles apart in meaning, especially for bankers who are challenged with the changing digital landscape and the effect that technology, and thus, customer expectations, are having on banking. Those who have been successful weave technology and customer expectations together through the power of strategy and there comes a multiplier effect for what bankers are now enabled to deliver for their customers. Transforming the teller-transactions experience through in-branch self-service machines is the winning move bankers are taking and will increasingly take in 2018 to provide an experience their customers have long been conditioned to expect. Industries such as airline and grocery retailers have made self-service ubiquitous. How? They have been able to capture great value with the operating efficiencies that drove the move to self-service under their banners of customer service and match those business efficiencies with an optimal experience for their customers. How did they do that? With a clear vision and strategy, that included clear answers for – Who, Why, What, Where, How and When? Who? Who’s it for? Banks don’t have the luxury of operating look-alike, one-size fits all branches. Is it a metro-branch? Rural? Do you serve retail customers or commercial clients? Unique traffic patterns? What if all of the above is true? Why? The need for new staffing models and overall operating efficiencies drive the why behind implementing in-branch self-service. But, bankers also realize the lift they can provide to their customers with the ability to bust teller lines and quicken the time spent in the branch for teller transactions. In many cases, this idea Page 27

of improving the customer experience drives the mission for self-service implementations. What? Which teller transactions need to be fulfilled using self-service? Where? What’s the nature of the branch and what self -service device is needed to address the majority customers who frequent the branch? Are we trying to create “new place” banking outside of traditional branches with self-service?

How? This is different for every bank and credit union. What resources do we need? What resources do we have? What resources do we need to hire? Which partners have solutions that fit all our needs and can be trusted advisors to help us be successful? When? Short-term strategy is typically created for the most pressing opportunities that surface during a bank’s discovery for transforming branches. This strategy might involve an hypothesis about how we implement X solution for Y specific branches for a first implementation. This gets filed under “don’t boil the ocean” strategy. Long-term strategy governs every decision and investment made in the short-term strategy, so that everything that is possible to leverage from a pilot project technology, spends, partners, wisdom, customer behavior insights - everything can pour into a larger branchwide implementation. As for vision? Simply, vision is – what does success look like to us?

Transaction News

Prepare for An Inversion in the Relationship Between Treasury Department Bandwidth and Strategic Joseph Krzywicki, CTP- Vice President of Business Development—Vizant Treasury professionals, maintaining the status quo in 2018 won’t be easy, and it might cost you. Indicators of corporate optimism such as corporate profits increased by 5.8% Q3 2017 and business travel is at the highest level in recent years signaling increased activity. Impending tax reform may also spur reinvestment and growth. One might predict from these indicators that there is smooth sailing ahead. However, there are counters to these positive trends. Corporate net cash flow fell by 1.7% to $2,231.6 Billion and, for now, 24 of the largest U.S. companies are sitting on $1 Trillion in cash reserves, 80% of which is held overseas. On a positive note, one can predict that the acceleration of new technology will greatly assist business leaders. Curiosities such as blockchain, artificial intelligence, robotics and linked sensors (the internet of things) will become mainstream at organizations that have the expertise and resources to become early-adopters. Consider the example of a retailer with a tainted shipment of fruit that needs to be tracked and recalled as quickly as possible. With legacy technology this identification and location process takes 24-48 hours, with blockchain it takes 14 seconds. On a less positive note the technologies listed above can derail treasury leaders that take their eye off the ball, even briefly. The focus of this piece is not on predicting the underlying technology, benefits and challenges but the impact on people and process, including the change management needed to evolve. Predictable Headwinds: • Customers will demand more. Forrester predicts a 30% decline in corporate customer experience scores as customer expectations are increasing. • The talent gap is widening. University of Oxford study indicates that 47% of U.S. jobs are at risk of automation and in China 77% are vulnerable. (AFP Mindshift) • Legacy mindsets are dangerous. New technologies

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come and go but organizations take years to adapt, if ever. Our prediction is that treasury professionals will react in one of the following ways: • Denial: “EDI was supposed to change the world but we have more paper checks than ever”. • Disruption: Willingness to change but constrained by resources. • Despair: Sense of overwhelming that paralyzes and leads to inaction. For years financial services providers have been preaching to clients about leveraging technology, integration, automation to elevate employee morale, performance, effectiveness and efficiency. Studies like the “Future of Jobs” Report by the World Economic Forum suggest that we are not just talking about clerks and data entry employees but due to the evolution of technology higher level jobs will be impacted as well, for providers as well as practitioners.

Transaction News

Prepare for An Inversion in the Relationship Between Treasury Department Bandwidth and Strategic Predictable Stress Points: • Treasury staffers are performing at a higher productivity and efficiency level, however, the number of FTEs has declined so there are 5 jobs for 3 employees. • Limited resources and increasing demands create a vicious cycle of sacrificing strategic priorities for tactical necessities. • Technology offers benefits but the time, cost and expertise, not to mention risk, required to test and implement is burdensome for most.

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The journey of a thousand miles begins with a single step. A radical conversion for a labor and paper intensive process like Accounts Payable, for example, cannot be “Uberized” overnight. Our recommendation, and prediction, is for business leaders to lay the foundation for migration to best-in-class, leaders need to examine and balance objectives in relation to structure, process and performance. Education and planning need to start now as the goal is clear but the distance to travel remains vast.

Transaction News

Global Card Payments Set to Rise by More than Half to 500bn by 2022 Growth in card usage outpaces growth in card numbers as a result of contactless technology and wider acceptance Increasing contactless usage and rising card acceptance fuel cards boom The total number of card payments worldwide increased by 14% to 310 billion in 2016, notably higher than the 8% increase in card numbers, according to RBR’s Global Payment Cards Data and Forecasts to 2022. In all regions, consumers are increasingly choosing cards to make purchases. RBR has found that while growth in the number of card payments outpaced growth in the number of cards in virtually all markets, local factors were key in boosting specific fast-growing markets. A well-publicised demonetisation exercise in India contributed to a rapid rise in card usage, while high inflation and wider card acceptance have led to the increasing use of card payments in Iran. In Russia too, increased acceptance by SMEs and microenterprises, in addition to loyalty programmes incentivising debit card payments, contributed to the significant rise in card payments. According to RBR’s study, the proliferation of contactless technology and the increasing frequency of contactless payments, especially for low-value purchases, Forecast growth in the number of card payments by region, 2016-2022

have been key to the growth of card payments in many mature markets. In France, both banks and the government have actively pushed the technology to reduce cash usage and encourage efficiency, while the UK has seen a rapid increase in contactless payment acceptance matched by growing cardholder confidence in the technology. Card payments to grow twice as quickly as card numbers RBR forecasts the total number of card payments worldwide to reach 483 billion by 2022, a 56% rise compared with 2016. This is more than double the rate of growth in card numbers, which are projected to increase by 22% over the same period. All regions will see faster growth in card payments than in card numbers. In both the Middle East and Africa (MEA) and central and eastern Europe (CEE), RBR projects the total number of card payments to more than double between 2016 and 2022. People in these regions do not use cards frequently for payment in comparison to North America and western Europe. RBR’s research suggests that financial inclusion programmes and rising card acceptance in developing markets will be a common factor in increasing consumer use of payment cards. In more mature markets, growth will be characterised by local regulations mandating card acceptance for a widening range of merchant sectors, and also by further penetration of contactless technology for lower-value payments. RBR’s Chris Herbert commented: “We have observed impressive growth in card usage across the globe. In developing markets, rising levels of card acceptance and consumers’ growing familiarity with using cards rather than cash as a payment tool, have contributed to high growth. Meanwhile, consumer usage of contactless technology for ever smaller amounts is bolstering growth in more mature markets.”

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Transaction News

Global Card Payments Set to Rise by More than Half to 500bn by 2022 These figures and insights are based on RBR’s study, Global Payment Cards Data and Forecasts to 2022. For more information about this report or to discuss the findings in more detail please email Chris Herbert ([email protected]) or call +44 20 8831 7305.

RBR is a strategic research and consulting firm with three decades of experience in retail banking, banking automation and payment systems. It assists its clients by providing independent advice and intelligence through published reports, consulting, newsletters and events. RBR is recognised as the leading provider of premium research reports on ATMs and payment cards.

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The information and data within this press release are the copyright of RBR, and may only be quoted with appropriate attribution to RBR. The information is provided free of charge and may not be resold.

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