PAYMENTS PLUS - Oliver Wyman
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FALL 2018 PAYMENTS PLUS
PAYMENTS PLUS/ INTRODUCTION FALL 2018
A NEW ERA
Welcome to the inaugural issue of Payments Plus. On behalf of Oliver Wyman,
I am delighted to share a sample of perspectives drawn from our client work
across the industry.
It’s hard to imagine a more exciting time to be in the payments business.
“New” is the lone constant across the board—new entrants, new
technologies, and new business models. Whether you work for a financial
institution, a merchant company, a payments provider (such as a network
or processor), a challenger firm, or a private equity fund investing in the
sector, the dynamics impacting your business today are profound.
Against this backdrop, we are working with clients across the value chain
to drive top-line growth, manage risk, and strengthen operating models.
The examples highlighted in this issue show how we are deploying our
capabilities to improve our clients’ competitive advantage.
As always, we welcome your thoughts, questions and feedback.
Best wishes,
Tony Hayes
Partner, Head of Global Payments Team
PAYMENTS PLUS / MARKET DEVELOPMENTS BIG DATA AND ADVANCED ANALYTICS
FALL 2018
+ CREDIT CARD
+ MACHINE LEARNING
Firms in the payments arena are investing Oliver Wyman recently employed these
aggressively in capabilities that help them glean approaches for a leading credit card issuer.
useful insights from transaction-level data.
Machine-learning techniques are fast becoming We developed account-level forecasting
the norm in applications like transaction fraud, models for all P&L line items and built an
for example. integrated forecasting engine, with the
eventual codebase implemented directly in the
One key challenge for credit card issuers, client environment. This enabled the issuer to
however, is the requirement to explain to generate insights with far more granularity than
consumers the customer-level decisions before, helping improve decisions ranging
they’re making, which limits the use of machine from new-account acquisition campaigns to
learning techniques. Leading issuers are cobrand-partner negotiations.
responding by integrating advanced methods
such as stochastic gradient boosting and LASSO1
as intermediate steps, even in regulatory
models, striking a good balance between
interpretability and predictive power.
1. Least absolute shrinkage and selection operator
PAYMENTS PLUS / MARKET DEVELOPMENTS DIGITAL IDENTITY AND AUTHENTI- CATION
FALL 2018
+ FRAUD PREVENTION
+ CUSTOMER AUTHENTICATION
Authenticating customers securely and Oliver Wyman recently worked with various
efficiently is a significant challenge in the digital organizations to identify best practices and key
payments arena. Despite considerable effort and opportunities in fraud prevention.
investment across industries, losses from stolen
identities and credentials are high—more than For one industry participant, we developed a
$16 billion in the US alone—and rising. differentiated digital proposition combining
elements of ID proofing, multi-factor authen-
Criminals are becoming increasingly tication, and risk-based scoring. For several
sophisticated, driven in part by the growing banks, we benchmarked their fraud strategy,
prevalence of digital and self-service channels. governance, risk ID, and analytics capabilities
At the same time, consumers demand a and identified best practices.
frictionless experience. The industry is looking
for solutions that balance customer experience We see significant opportunity in enhancing
with enhanced security. fraud capabilities for digital payments, in
ways that embed prevention, detection, and
remediation activities seamlessly in customers’
daily interactions.
PAYMENTS PLUS / MARKET DEVELOPMENTS NAVIGATING FINTECH INVESTMENT OPTIONS
FALL 2018
+ PRIVATE EQUITY FUND
+ MARKET DUE DILIGENCE
With billions of dollars being pumped into First and foremost, it is critical to focus on a
FinTech, it’s increasingly difficult for investors narrow consumer or business need to drive
to determine where to place their best bets. interest and adoption. Other markers help
To make matters trickier, global differences in separate the wheat from the chaff and find
regulations, revenue streams, and consumer point solutions with the trust, technology, and
behavior can favor different points within the capabilities to expand into financial services
payments value chain (issuers, acquirers, platforms. With these markers in mind, we
networks, banks, and transmitters). helped the client analyze the payments value
chain deeply across geographies to find
Oliver Wyman recently worked with a large opportunities for outsized returns.
investment fund to deconstruct the global
FinTech landscape and identify attractive
opportunities. Our analysis identified the key
markers of compelling investment opportunities
in FinTech in general and payments in particular.
PAYMENTS PLUS / MARKET DEVELOPMENTS MERCHANTS EXPANDING INTO FINANCIAL SERVICES
FALL 2018
+ MERCHANT
+ GROWTH STRATEGY
As merchants continue to seek new and Oliver Wyman recently worked with several
innovative ways to deepen customer merchants to identify new and enhanced
relationships, many are expanding the suite financial services they can offer to their
of financial services they offer to customers. customers. We found opportunities for
enhanced cobrand offerings, point-of-sale
For customers, the benefits of merchant- lending products, working-capital lending
based financial services include greater products, tailored prepaid offerings, and more.
convenience at checkout, the ability to stage
payments to fit their needs, opportunities for Of course, financial services is a mature market,
greater discounts and rewards, and, in some so merchants trying to enter need to figure out
cases, the ability to make a purchase at all. For which of these capabilities can amplify their
merchants, offering new and enhanced financial unique value proposition. What works for one
services enables deeper relationships with might not help another. We provide the tools
customers, drives stronger loyalty, provides merchants need to make the critical decisions
new sources of fee income, and creates new necessary to seize these opportunities.
opportunities for core business sales, which
can result in greater top-line revenue growth.PAYMENTS PLUS / MARKET DEVELOPMENTS THE FUTURE OF CASH AND ATMs
FALL 2018
+ CHANNEL STRATEGY
+ SCENARIO MODELING
There’s no question that card and digital Oliver Wyman recently worked with a major
payments are growing strongly, but how is this bank to refresh its ATM channel strategy. Looking
growth impacting consumers’ current and future across millions of customers, we profiled the
use of cash? And, in turn, what is the expected demand for ATM services, how this varies by
future demand for the channels that handle cash, customer segment, and how this has changed
namely ATMs and bank branches? over time. With the bank’s leadership team,
we analyzed different potential approaches
There are two competing schools of thought, to satisfy this demand, spanning bank-owned
yielding radically different conclusions with ATMs, third-party branded ATMs, and surcharge
respect to a bank’s channel strategy and capital reimbursement, and the associated tradeoffs
investment plans. One view is that electronic between customer experience and bank
payments will drive a significant shift away from economics.
cash, and this will enable a more asset-light
physical distribution footprint. By contrast, the Our customer-centric lens moved the debate
other side argues that cash will remain prevalent away from opinion and toward leveraging a
for the foreseeable future, and hence so will robust fact base. We helped the bank shift focus
ATMs. from the ATM channel’s P&L toward approaches
that maximize customer value.PAYMENTS PLUS / INSIGHTS
Oliver Wyman continuous- MOBILE PAYMENTS
ly invests in a broad range
With smartphone penetration nearing ubiquity, the time may
of proprietary analysis to be right for the US to transition from using plastic cards to using
develop new insights. Our mobile devices to make payments at the point of sale.
intellectual capital draws
from primary research with The launch of Apple Pay in October 2014 was seen as a potential
consumers, small business- tipping point, with broad adoption by the largest banks and
es, issuers, and merchants, growing merchant acceptance. Together with Google Pay and
as well as exclusive partner- Samsung Pay, consumers can now load their payment credentials
ships with a number of data into essentially every phone in the market.
providers.
INSIGHTS
OLIVER WYMAN DIGITAL &
FASTER PAYMENTS STUDY
There are myriad views and forecasts about mobile payments,
but most tend to lack analytical rigor or grounding in empirical
facts.
Oliver Wyman’s Digital & Faster Payments Study collects data
from a large, representative set of financial institutions on the
most critical developments in mobile payments, ecommerce
and faster/real-time payments.
Our 2018 data set includes 59 financial institutions, spanning
everything from large national banks to regional and community
banks and credit unions. Collectively these organizations
represent approximately half of the entire banking market.FALL 2018
STRONG GROWTH IN …BUT STILL A VERY SMALL
CUSTOMER ADOPTION… SHARE OF PAYMENTS VOLUME
Across all three major providers, the number Despite strong growth, mobile
of customers provisioning a payment card payments remain a very small share
into a mobile wallet is doubling year-on-year of total spend
TRANSACTION MIX FOR A TYPICAL CARD ISSUER
12.2%
Card present Card-not-present
6.3%
3.5%
0.8%1.5% 0.6%1.3%
0.2% 0.2% Mobile pay
Apple Pay Samsung Pay Google Pay
2015 2016 2017
~80% of all tokenized credentials Mobile payments at point of sale are
are in Apple Pay wallets less than 0.2% of total card spend
~$3 MM est. ~400 MM
Paid by financial institutions to Mobile payment transactions,
Apple in Apple Pay fees in 2017 with debit cards, in full year 2017PAYMENTS PLUS / METRICS
Oliver Wyman tracks the US CREDIT CARD ISSUER
performance of payments
organizations across mul-
METRICS, 2018 Q2
tiple metrics. In this issue,
CHASE CITI
we show the performance
OUTSTANDINGS
of the largest US credit
card issuers. Outstandings ($BN) 145 137
YoY growth 3.6% 4.5%
Market share 14.8% 14.0%
CREDIT QUALITY
Annualized net charge offs 3.26% 3.74%
YoY change 0.25 % 0.17 %
Percent subprime 14.6% 33.0%
METRICS
SPEND VOLUME
Quarterly spend ($BN) 174 108
YoY growth 11.0% 6.8%
Market share 18.8% 11.7%
REWARDS COST
Rewards cost (bp spend) 184 181
YoY change 12 8
DISCLOSED OR ESTIMATED FINANCIALS
Revenue ($BN) - 3.7
Pre-tax income ($BN) - 0.9
Pre-tax ROA - 2.64%
YoY change - 0.48%
NOTES:
• Some data points are inferred or calculated using Oliver Wyman proprietary analysis
• Fields are left blank where insufficient data were available to calculate a reliable metricFALL 2018
Metrics are for consumer credit cards, corporate cards, and private label cards.
All information is derived from publicly disclosed data.
BANK OF AMERICAN
CAPITAL ONE AMERICA EXPRESS* DISCOVER WELLS FARGO U.S. BANK BARCLAYS
101 95 78 68 37 31 25
8.5% 4.4% 12.1% 9.7% 3.9% 5.9% 1.3%
10.3% 9.7% 8.0% 6.9% 3.7% 3.1% 2.5%
4.72% 3.16% 2.40% 3.33% 3.60% 3.31% 4.30%
0.39% 0.30% 0.43% 0.40% 0.07% 0.00% 0.78%
32.0% 13.5% - 18.0% 21.1% - -
89 67 195 35 19 41 -
17.4% 8.4% 10.0% 9.0% 7.3% 8.3% -
9.6% 7.2% 21.1% 3.8% 2.1% 4.4% -
113 195 - 131 174 130 -
6 0 - 11 15 0 -
3.9 2.7 3.7 2.1 1.3 1.0 0.9
1.1 0.6 0.9 0.8 0.5 0.3 0.2
4.36% 2.58% 5.34% 4.99% 5.57% 3.37% 3.30%
0.37% 0.34% 0.52% 0.80% 0.64% 0.11% 0.37%
* For American Express, estimated financials are for consumer only (whereas all other metrics are for consumer and corporate cards).
Note: 2018Q1 is used instead of 2018Q2 due to reporting limitationsPAYMENTS PLUS / EVENTS
SEPTEMBER 12-14 MERCHANT ADVISORY GROUP
Denver 2018 ANNUAL CONFERENCE
The Merchant Advisory Group (MAG) is the premier association
for merchants to discuss payments topics
Beth Costa and Rob Mau will host clients and
debut new white papers
24-26 PAYTHINK
Austin
Tony Hayes will moderate a keynote panel discussion on
“Insights & Perspectives From Industry Leaders in Debit”
as well as the annual “Network Showcase”
Cosimo Schiavone will chair the conference’s fraud
and security track
EVENTS
1-3 INSURETECH CONNECT
OCTOBER
Las Vegas
Oliver Wyman presents InsureTech Connect, the leading
FinTech event for the insurance market
Rick Chavez will deliver the opening keynote, addressing new
digital business models, payment applications and provider/
FinTech partnerships
4 THE MOST POWERFUL WOMEN IN BANKING
New York
Oliver Wyman is proud to honor some of its top female consultants
and applauds the accomplishments of leaders across the industryFALL 2018
OCTOBER 21-24 MONEY 20/20
Las Vegas Aaron Fine is a featured speaker for “FinTech’s Unsolved
Mysteries: New Revenue Models Beyond Credit”
Tony Hayes will moderate an Oxford-style debate:
“The Blockchain Will Replace Payments Platforms”
Rob Mau will moderate a panel on
“The Uberization of Business Payments”
Elizabeth St-Onge will participate on a panel,
moderated by WNet, on "Women in Payments"
13-14 CITI’S 2018 FINANCIAL
NOVEMBER
New York TECHNOLOGY CONFERENCE
Tony Hayes will discuss developments in
FinTech and bank strategies
28-30 SMALL BIZ
Nashville
Vivian Merker will moderate a keynote panel with bank executives
on the future of small business banking, covering how different
financial institutions are managing toward a digital future across
deposits, lending, payments, and relationship managers
29-30 BLOCK|FS
New York Inderpreet Batra will lead a session on using blockchain
technology to capture new opportunitiesPAYMENTS PLUS / READING
Oliver Wyman publishes
a broad range of perspec- White Paper
tives and points of view The Appropriate Use of
Customer Data in Financial
across industries. All of our Services
reports can be accessed on Prepared in collaboration with Oliver Wyman
September 2018
our website.
Click on the image to view
the complete report, or
download via our website
Making Payments Work for You: The Appropriate Use of
at www.oliverwyman.com. How Merchants Can Optimize Customer Data in Financial
Payments for Growth Services (in collaboration with
the World Economic Forum)
REPORTS
US SHOPPERS’ APPETITE
FOR DISCOUNTERS
ONE YEAR IN, SHOPPERS PLEASANTLY SURPRISED BY LIDL’S OFFER
Cryptocurrencies and Public US Shoppers' Appetite for
Policy: Key Questions and Discounters
AnswersFALL 2018
ENGAGING THE
WORKFORCE
IN DIGITAL
TRANSFORMATION
A NEW MODEL TO ENABLE
YOUR DIGITAL STRATEGY
1
Engaging the Workforce in Set the Pace: A New Method Preparing for a Cyber Attack
Digital Transformation: A New for Breakthrough Process
Model To Enable Your Digital Improvement
Strategy
THE CURRENT ACCOUNT
CONUNDRUM
FOLLOW THE MONEY
Authors
Ashley Cunnington, Partner, London
Rene Fischer, Partner, Frankfurt
Oliver Plant, Principal, London
Philipp Bulis, Engagement Manager, Berlin
The Current Account Next Generation KYC: Optimizing Winner Takes All in the Battle
Conundrum: Follow the Money Customer Experience While for E-Wallet Supremacy
Improving EfficiencyPAYMENTS PLUS / READING
Celent, a division of Oliver
Wyman, is the leading sub-
scription research and advi-
A REAL-TIME HUB FOR A REPLACING CARDS WITH
sory firm focused on finan- REAL-TIME EVERYTHING
FUTURE
ACCOUNT-TO-ACCOUNT
PAYMENTS FOR SHOPPING
HOLD YOUR HORSES
cial services technology.
Gareth Lodge Zilvinas Bareisis
14 March 2018 August 2018
A Real-Time Hub for a Replacing Cards with Account-
Real-Time Everything Future To-Account Payments for
Shopping: Hold Your Horses
CELENT
ADDRESSING THE CARDS US PAYMENTS IN THE
LEGACY CHALLENGE CLOUD
A RESPONSE TO UNCERTAIN TIMES
TOP 10 APPROACHES
Gareth Lodge
18 April 2018
Zilvinas Bareisis
July 2018
Addressing the Cards Legacy US Payments in the Cloud:
Challenge: Top 10 Approaches A Response to Uncertain TimesPAYMENTS + BRAND PAYMENTS + DIGITAL PAYMENTS + STRATEGY PAYMENTS + OPERATIONS PAYMENTS + TECHNOLOGY PAYMENTS + PARTNERSHIPS PAYMENTS + DUE DILIGENCE PAYMENTS + DATA & ANALYTICS PAYMENTS + RISK MANAGEMENT PAYMENTS + CUSTOMER EXPERIENCE PAYMENTS + ORGANIZATIONAL EFFECTIVENESS
Oliver Wyman is a global leader in management consulting with offices in more than 50 cities across 26 countries Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. Email: payments@oliverwyman.com Web: www.oliverwyman.com
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