Brett King

Posts Tagged ‘Credit Card’

P2P a force to be reckoned with

In P2P Lending, Social Networking on December 14, 2011 at 09:28

No one could doubt that peer-to-peer lending (or P2P Lending) has landed big time in 2010, but it looks as if the best is just about to come.

The US leader Lending Club will issue more than $250 million in loans this year – greater than the last four years combined – for a total of nearly $450 million since inception.  Their last $100 million increment in their total loan portfolio growth came in just 4 months from the period July through November 2011.  Their returns have been stable throughout the market turmoil of the past few years – thanks in part to their focus on prime credit consumers – with an annualized default rate below 3%.

Prosper has seen 370% year-on-year growth in their business in 2011 lending over $70MM this year and bringing their total to more than $260m to-date , with a default rate of around 5.2%. Compared with BofA whose default on credit cards has been at an annualized basis of around 5.98% this year, down from a peak of 14.53% in August of 2009.

Zopa out of the UK has already lent more than £180 million (US$280m), which means they are now approaching a 2 per cent market share of the total UK retail lending market. The impressive thing about Zopa’s achievement is that their default rates are running at just 0.9%.

So who are lending from P2P lending networks?

If you believe the propaganda from the establishment, P2P lending is risky and only offers opportunistic financing to weak credit prospects – those that can’t get loans from traditional players. However, the reality is something entirely different.

The risk profile of P2P borrowers is often grossly overstated, and often the majority are healthy lenders simply looking for a better deal. That’s why P2P defaults are often as good as, if not better than, the majors.

“We can offer low rates in comparison to our banking competitors in part because we focus only on a select subset of customers — the most credit worthy borrowers — and our fair pricing is commensurate with their risk.”
Renaud Laplanche, CEO, Lending Club

The P2P lenders have also done considerable work on understanding the behavior of lenders, thus they don’t look just at the credit score (a lagging indicator of a default risk), but also at the future likelihood of a default.

“I think our low defaults aren’t just because of P2P but because we built a better credit model, taking more account of over-indebtedness and affordability than banks”
Giles Andrews, CEO, Zopa

These better models are helping P2P to thrive.

Tis’ the season for P2P Lending

There are times like Thanksgiving week in the US where P2P Lending is predictably slower than normal, but there are also times when P2P faces natural growth in demand.

“We’re gearing up for 50% increase in lending in January 2012, now that we’ve proven the viability of our business model.”
Giles Andrews, CEO, Zopa

I met with Scott Sanborn, the Chief Marketing Officer for Lending Club earlier in the year in San Francisco, but I got together with him via phone last week and asked him if there was seasonality to their lender’s behavior.

“We’ve always got a pop in January. Primarily because approximately two thirds of our loans historically are used to settle credit card debt.”
Scott Sanborn, CMO, Lending Club

Last week the Federal Reserve released its latest G19 report on consumer credit. Revolving consumer credit increased marginally (0.5%) for the first time in September of this year, and that trend has continued in October. Revolving credit card has been on the steady decline since 2008, down from a peak of $972Bn to a low of $790Bn in August of 2011. In 2009, that meant that every month saw a decline of close to $10Bn in revolving credit in the US. That trend has changed course in the second half of 2011 as borrowers return tentatively to credit facilities.

Revolving Credit has been on the decline since 2008, but this Christmas is set to rise again

Historically, December and January credit card debt always tends to shoot up due to Christmas shopping habits. Online lending around the end of the year has also been steadily increasing due to the primacy of the online channel, so it’s no surprise that as P2P awareness improves that P2P lending is set to rise this Christmas season too. The difference this Christmas, compared with the last 3 years, is that with revolving credit flattening out the spike in January is stacking up to be the biggest in P2P’s short history.

P2P – Maturing or Mature?

The other difference (in the US particularly) is that we’re seeing more sophisticated investors participating in P2P transactions, meaning that there will be an abundance of cash to support the demand for P2P credit. In fact, the major P2P players in the US are seeing institutional investors, high-net worth investors and the like looking to put cash into P2P. Not just to get a higher deposit rate, but to get that rate with only marginally greater risk – if at all.

Players like Zopa, Lending Club and Prosper are anticipating their largest January yet. In fact, this season is likely to be larger than the 2008-2010 lending seasons put together for the P2P market. If anyone had any remaining doubts about the viability of P2P lending, then I think we can put that to bed this season.

As the song goes… “It’s beginning to look a lot like Christmas!”

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VIDEO: Opportunities to serve the underbanked

In Customer Experience, Economics, Mobile Banking on March 3, 2011 at 09:00

With somewhere between 40-70m underbanked in the United States alone, there are significant opportunities to re-think where these individuals fit in the banking landscape.

Since the introduction of the Durbin amendment the likelihood of more of this segment entering the mainstream banking sphere is further reduced. How will mobile payments and pre-paid debit cards effect this growing segment?

Video Briefing – Opportunities in the Underbanked Space

Mobile NFC payments – there’s an App for that…

In Customer Experience, Mobile Banking, Retail Banking on February 27, 2011 at 23:01

There’s a great deal of debate in the Financial Services community at the moment about the potential impact of NFC or Near-Field Communication technology within mobile phones and how it will effect the payments landscape. The financial services players are generally scratching their heads and although they admit that NFC phones like the iPhone 5, the Nexus S and others are interesting – they don’t see the need for rapid response. After all, the lack of POS (point-of-sale) infrastructure that supports NFC is in itself a reason why a sense of urgency is not necessary. There’s plenty of time to worry about that later. Right?

Wrong!

There’s an App for that…

In July of 2007 Apple launched the iPhone (what we call the iPhone 2G generally today). Since that time I’ve owned each successive generation of iPhone and I now also have an iPad. So what’s the big deal?

The most impressive thing about the iPhone is not necessarily multi-touch, retina display, ease of use, or core functionality, but is unquestionably the iTunes platform that brought us “Apps”. Prior to the launch of the iPhone, we’d never even heard of Apps, and yet today, just 4 years later, here are the stats on Apps:

  • 350,000 Apps for Apple and close to 200,000 for Android
  • 10Billion downloads for Apple, 2.5Billion for Android Marketplace
  • 15.1Bn in Apps Revenue expected for 2011
  • Daily downloads 22million per day – Apple
  • New app submissions/day – 587 (100 games/488 non-games)
  • No of Active publishers/developers – 72,000 on the US store
  • 160m iTunes account holders (that’s 160m credit cards on file)

So from it’s humble start iTunes was always more than just a place to come and download music or TV episodes, it became the core delivery platform for a whole new category of software and user experiences. At 10:26 AM GMT on Saturday, January 22, 2011, the 10 billionth app was downloaded from Apple App Store.

10 Billion Apps in 5 years is pretty impressive

Now, before iTunes, the iPhone and “Apps” there had still been software – both for PC screens and for phones. Prior to the so-called ‘JesusPhone’, there were Java “Apps”, games and so-forth you could buy and download for your phone, but these certainly didn’t become ubiquitous, primarily because the usability wasn’t good enough and there wasn’t a marketplace that distributed these Apps.

So here we are, just a few years later and there’s probably not a single person in the US, UK, Australia, Germany or France who doesn’t know what an “App” is. Worldwide mobile application store revenue is projected to triple to more than $15.1 billion this year and reach $58 billion in three years, according to Gartner Inc. That revenue was $0 in 2007.

And yet, there are bankers out there that still persist in the belief that mobile payments via your iPhone will take years to ‘take off’. In a debate on this via Twitter over the weekend one of the typical quotes was “I can see it, just not for some time…”

Why the App is a great paradigm for NFC

The dominant position from the card issuers and traditional too-big-to-fail banks is that there is already an existing point-of-sale infrastructure in place in the USA, for example, that will take years to replace with NFC or contactless capable terminals. This naturally limits the adoption of contactless payments technology because even though someone has a contactless credit card or a phone enabled with contactless technology, it still doesn’t mean that they can pay – if a merchant can’t accept their payment then it is essentially dead before it starts.

In our Twitter debate over the weekend Rich Clow (@richclow) from Citi came up with a strong analogy likening the existing POS infrastructure to the ‘rail network’ that opened up the frontier of the US in the 1800’s. Without the ‘rails’, without contactless point-of-sale terminals, how exactly will customers make payments using their NFC phones? What’s the good of having a locomotive unless you have rails you can put it on? It’s an excellent point.

Is the lack of 'rails'/POS infrastructure going to limit NFC payments adoption?

Except … prior to 2007 there were no rails for Apps. The App didn’t effectively exist, but that didn’t stop Apple from creating the rails and the locomotive as part of the iPhone ecosystem at the time of their launch. Right now today Apple and Google are working on alternative payment schemes that will circumvent the traditional visa/mastercard POS systems and networks to enable both P2P payments and commercial transactions with merchants and retailers via phones. There may be some hook into the traditional payment networks behind the scenes, but all you’ll need to pay is an NFC phone and wireless network access.

How quickly will payments from one phone to another become ubiquitous? Answer: How long did it take Apps to become ubiquitous?

Put it this way – those out there that think this will take another 3 to 5 years to honestly compete with plastic mag stripe or chip and pin POS terminals, need to change their terms of reference. Apple and Google won’t wait for the rails. They’re going to jump straight to supersonic transport and the banks will still be waiting around for the train to stop at their station. Meanwhile, we’ll be choosing new payment networks as the paradigm for the next generation of commerce interactions.

Goodbye checks, goodbye plastic! If you’re a banker or card issuer, the sonic boom is coming your way…

Online Fraud and Privacy is not that big a deal…eventually

In Retail Banking on August 4, 2010 at 20:34

I hear a lot of individuals in the financial services space expressing concerns about the risk of conducting business online, the lack of privacy in social media, the issues of identity theft and so forth. I’m not sure what these proponents of the ‘high-risk involvement’ model hope to accomplish, but if they realistically think that flagging concerns about privacy and online fraud will make ANY sort of dent in the progress of digital engagement through online, mobile, or social media – their mental health may need to be assessed. The best they can hope for is increased awareness of the issues.

Dealing with the digital landscape as far as payments and identity is inevitable. The issue becomes how to manage your online presence moving forward, and not if you should be conducting commerce digitally or participating in social networks.

It’s easier to commit fraud offline

While we hear lots about online fraud, the fact is that when it comes to things like credit card fraud, it is still far, far easier to commit fraud when a physical card or physical process is involved. Recently I was in London launching BANK 2.0, and at every restaurant where I presented my card, the waiter would come to the table with a wireless POS terminal to present my card. This is undoubtedly because of the simple risk associated with letting my credit card out of my sight. It takes just seconds to run a card through a mag reader and replicate that card physically. Even with CHIP and PIN, which is common throughout the EU, it would not be that hard to shoulder surf your PIN number if I really wanted to.

I used a foreign credit card in the UK, however, so I am not afforded the protection of PIN when I’m visiting the UK. In most instances I was actually asked to show my card to verify the signature, but in reality if someone had duplicated my card, then the signature they’d be using would be one they had created in any case. In the US , there is not even the protection of CHIP and PIN, and the physical processes allow for easy access to copy a credit or debit card.

The fact is, the weakest link when it comes to fraud is always the physical medium. Granted, phishing attacks designed to glean your account number and password for Internet banking is today a major issue, but again the weakest link is not the technology but the customer who willing submits his information to a fraudulent site.

Many markets have already solved this problem through two-factor authentication (TFA). The markets who have moved slower on this innovation, are obviously now reaping the reward for their lack of innovation. It is, in fact, not that fraud is easier online, it is that card issuers, retailers, banks and regulators simply are not keeping up with the behavioral shift to digital and have not leveraged the quite simple technologies that actually make digital more secure.

The US is only now moving to new POS infrastructures around contactless cards, and the fact that the EU still has yet to broadly adopted TFA are just examples of lack of innovation in fraud management. Customers move with innovations in the digital space, banker’s don’t and fraudsters exploit the gaps while they can.

Increasing digital interactions are inevitable – deal with it.

I find it amusing that those that are strongest in vocalizing the risks in online privacy are often those that in reality have the most to gain. For example, while check (or cheque) fraud is less frequent today, the fact is that the check in itself is an outmoded payment mechanism. It is not an efficient way to pay in almost any measure that makes sense today. Checks are cumbersome to carry, error prone, easily corrupted, costly and are increasingly difficult to handle, especially if you are trying to cash a check issued cross-border for example.

I’ve heard bankers argue till they’re blue in the face that checks are here to stay, and yet in the same breath they admit that they don’t know how they are going to continue to afford to process checks and admit data increasingly shows that in developed markets checks are in terminal decline.

So why aren’t banks rushing to embrace person-to-person payment capabilities, improving interbank connectivity, and trying to integrate better, simpler security mechanisms into electronic interactions? The only thing I can figure is that there is so much organizational inertia around traditional mechanisms like checks and TT’s that is often just seen as too hard to change.

The fact is today that no government, no bank, no threat on the planet, could viably stop the adoption of social media, mobile phones, payment technologies like P2P and other such innovations. It is simply a question of how soon – not if.

How digital will be far safer

Commercial interactions in the digital realm are instantaneous, completely auditable, measurable and can occur anytime, anywhere without the requirement of any specific physical instrument, except a browser or mobile phone. The fact that I can pay you in real-time, without any special process or instrument is ultimately the big draw-card.

So how do we make it safe. Embedding payments into the phone is the first step. The combination of the phone SIM, the ownership of the physical platform (handset) and the payment process will be safer than today’s credit card process. However, the simple incorporation of biometrics, the most promising being fingerprint, voice or facial recognition, will make such transactions magnitudes safer than current physical payment processes, including cash.

The likelihood is that Apple, Google or the handset manufacturers will likely be the ones to lead with these technologies, rather than banks working to incorporate such into the platforms. But the patents are already out there, we’re just waiting for the commercialization.

Biometrics are the ultimate solution to digital privacy

What about privacy?

The reality is, I don’t know of one individual who has stopped using Facebook, Twitter, email or their mobile phone as a result of privacy concerns. That doesn’t mean as individuals we should be complacent. The fact is, that we’ll probably end up with two distinct personas when it comes to the digital space.

  1. Our public persona, where we accept a compromised privacy level in respect to our personal details (email, profile, date of birth, etc), and
  2. A secure persona, which we will protect fiercely because of the financial implications or risk.

The biggest risk to our secure persona today is identity theft. Recent twitter hacks, facebook scams, hotmail account takeovers and other examples occur because it is still relatively easy to get someone’s credentials through an App, phishing site, or other such methods. Again, the answer here is that our secure persona needs to be linked to biometrics and not weak mechanisms around an ID and password. I don’t see anyone working on this as yet, but it is the obvious answer and the core technology is pretty much there. We just need one of the big Social Media networks like FB or say Apple with their iPhone/iPad to embed it and it will become ubiquitous fast.

But one thing that won’t happen is a mass exodus away from digital innovations through privacy concerns.