Summation

Digital First Culture
Why Consumers Use Banks
The Future
Execution

It would be a big mistake to treat the U.S. like China, Europe or any developing nation. The U.S. once had state-of-the-art technology, but most nations have leapfrogged the U.S. significantly over the past decade. This can be attributed to many factors, but mostly it can be linked to the pragmatism of foreign lawmakers, the U.S.’s slow response to updating banking laws and technology, and the lack of legacy infrastructure in places like Africa and Asia that allowed them to build from scratch.

The U.S. has weighty challenges. Legacy behavior has encouraged banks to become complacent as a matter of course and has forced them to adopt new technologies slowly. This type of behavior has put U.S. banks decades behind. While no one is raising the alarms on American banks and their unpreparedness just yet, in 2010 no Chinese banks sat in the top 10 largest banks by assets; today Chinese banks occupy the top 5 positions, while the U.S. occupy numbers 6 & 9.

Digital First Culture
U.S. banking executives support antiquated regulation to help keep Fintech startups from disturbing their comfortable reluctance to adopt new technologies and sit behind regulation and legacy. In fact, some regulation was created specifically to deter Fintechs. To be fair, banking executives, have their hands tied and their reluctance to change comes from their inability to change. They own a paper company in the digital age.

Most think it’s easy to just convert from paper to digital, but it’s not about digitizing the paper process, it’s about rethinking how things are done. For example, let’s take checks. They are instruments for banks to exchange money from one person’s account to another. Instead of looking at why people even use checks to understand if there could be a better solution, banks simply decided to make paper checks digitally cashable. Thinking digital first means that banks would look at the underlying problem with checks for the bank and their customers. Checks are paper intensive, expensive to “cash”, wrought with fraud, and time consuming for all involved. Digital first might have led the bank to create an electronic token that can be delivered to any person anywhere via a smart watch, a mobile phone or simply by telling Alexa to send money to XYZ. As you can see it’s not enough to just change the paper world to a digital world, things need to be restructured from the ground up with a digital first culture. A digital first approach, doesn’t just bring innovation, it enables people to look at the real underlying problems. By and large, most banks don’t understand that concept.

Consumers and merchants alike are demanding digital first solutions, but U.S. regulation has kept many entrepreneurs at bay and have largely left change up to the banks. We believe that change is happening and it will be rapid. Expect consolidation, massive acquisitions and many financial institutions to be “Netscaped”.

Why Consumers Use Banks
By and large, consumers use banks as a safe haven for their money, to take loans and as a payment mechanism to distribute their cash. A safe haven really means backed by a government entity (like the FDIC), so we will discount that for the moment. When it comes to taking out a loan consumers rarely go directly to their bank anymore. Instead, they go to their mortgage broker, auto dealership, credit card provider or companies like Affirm to get what they need. Even though large banks are still likely involved in giving the loan in some form or another, they no longer own the customer. Thus, it can then be believed that the main differentiator for banks or a disruptor will be in the payments distribution mechanism. We believe this to be true and the assumption can be backed with hard statistics from Asia, Africa and the EU.

Let’s take a look at China again, as an example. The numbers for Alipay and WeChat Pay are outrageously staggering. $41.51 trillion USD was processed by only these two companies in China, while the big credit card companies processed just $6.021 trillion USD in the United States. Let that digest for a minute.

Here are some additional facts that should rock US banks and prove our point: Visa averages 1,700 transactions a second (peak volume is 9,000) while Alipay alone in 2015 did 87,000 transactions per second (peak volume is 256,000); and even more staggering is how fast these networks have grown. Alipay grew 200m users in a 12 month period and in just four years it amassed the largest money market fund in terms of assets in the world at $211 billion and added 114 million customers in a single year. It took the largest of banks more than two centuries to reach a fraction of that volume. Are you starting to get the picture?

We believe the differentiator comes down to deploying an easy and friendly money distribution methodology that provides a desired benefit for the customer and just simply makes sense. It’s really a pretty easy value proposition: get payments from one place to another as fast as humanly possible with the least amount of friction.

This beckons the question, why hasn’t this happened in the U.S.? If we could sum it up in one word, that word would be ”legacy”. Legacy laws, legacy thinking and legacy technology. As we said above, U.S. banks merely retrofit paper processes to the digital world and look to lawmakers to protect their legacy behavior. That is akin to making electronic messaging faster by making email illegal and making postal trucks faster. This is all done under the guise of taking a conservative approach, but if history has taught us anything about banks, it’s that they are not in fact conservative when it comes to anything - except for regulation and process. This is why China, Asia, Africa and even the Europeans are kicking American @ss when it comes to banking.

If the U.S. financial system thinks it can isolate itself from these trends, it is poorly mistaken and the whole system risks getting Netscaped. The credit card companies see the wave coming and have invested in overseas payments companies, but fear has kept them from experimenting on U.S. soil. The fear of cannibalizing their existing revenue at home and weakening their oligopolies are surely deterrents, but more so open-loop networks are simply handcuffed. That leaves American Express or a technology based company to fill the gap and we don’t see American Express going after their discount rates any time soon.

The Future
There is pent-up demand with millions of retailers unhappy with the current arrangement. Yet, no one has given merchants a solution to supplant or even augment the credit card solutions. It’s clear that they do not need motivation or a reason, just a path forward. We believe free payments driven by data to augment a legacy system is a good catalyst for change.

The future is about being embedded and ubiquitous, when it comes to payments, consumers only care about ease of use, cost and benefit of use.

It’s clear, users want a benefit if they are to use a different payment solution, and solutions like ApplePay don’t go far enough. The “I can leave my wallet at home” value benefit is nice when you forget your wallet, but it’s a solution without a real problem. In the digital first realm, we believe making a transaction should come with the benefit of combined experiences. An example of a combined experience would be helping a user decide where to eat and then making the reservation or preordering for them. Once they are finished eating they could then pay by touching a button or by telling their wearable or phone to pay the bill. In the shared ride home, they could dictate a review for the restaurant. We believe this is the future of payments. Ask yourself, who owns the customer at this point? Do you think Visa with their maximum 65,000 transaction per second could keep up with this demand?

Execution
Out of the gate, we are not looking to replace existing solutions, we plan to augment what merchants already have. If merchants wants to grow their network, increase revenue and save money, they will promote Honey. We believe our value proposition and ease of use will vault Honey into the merchant stratosphere quickly. We built Honey for this and we are planning on it. After all, man did put a man on the moon. For more information contact us at info@movehoney.com

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