SPEAKER_02 0:00

Welcome to this episode of Tempest Talk with Disney and Even. Let's jump right in, make a payment, and happy Wednesday, Jason.

SPEAKER_01 0:24

We have another scorching hot day here in Southern California. And if I'm being honest, if the AC wasn't on high in here, I'd probably need a change of clothes by the time we were out of here.

SPEAKER_02 0:33

It's so funny when you Californian natives talk about scorching hot. I spent five years in Arizona. People used to ask me what it's like during the summer. I said, get your hairdryer out, put it on high, blast yourself in the face with it. That's Arizona in the summer.

SPEAKER_01 0:48

I've spent a little bit of time in Arizona this summer, and I think your analogy there is pretty much spot on. So, Jason, let's jump into today's stories. As fintech are feasting on open banking, how should FIS fight fraud? Next, reserve requirements are on the rise as merchants struggle to survive. And last, contactless conversions continue. Insight from our expert guest, Cessie Bonzi with Blue. Jason, last week we discussed how FIs and fintechs, who used to be competitors, will potentially start to partner up due to COVID-19. These FIs that are adopting open banking allow fintechs to integrate with their APIs to provide management and payment apps that check the bank's customers' data. But why is it important to partner up with a fintech that has effective security in place?

SPEAKER_02 1:33

Hayden, absolutely. Open banking solutions are on the rise. And for banks that haven't implemented it yet, it's one of the hottest topics we're having. I think it's important as banks are considering opening up their core banking platforms that they have to remember that you can't sacrifice security for functionality. FIs, regardless of what services they're offering, need to remember they need to continue to satisfy know-your customer and anti-money laundering requirements. The last thing a bank wants is a gap in their account opening process that allows for money to be laundered under stolen or fictitious identities or for their customers' funds to be stolen. Automation is key in these types of solutions. Banks need to develop and deploy out-of-wallet identification solutions and use trusted third-party databases to validate the identity of the individuals and businesses that are opening new accounts. As the industry continues to move faster to real-time payments and remittance solutions, there's less time for fraud to be stopped. We live in a world where wire transfers used to be what criminals used to steal funds once they compromise an account. Now that there are so many alternative payment methods, the number of attack vectors is on the rise. The cross-channel risk between payment instruments is more extreme than it's ever been. And for banks, the security of their infrastructure and customers' data and funds has to be at the forefront of their partnership decisions.

SPEAKER_01 3:05

FinTech partners that monitor customers' accounts for signs of money laundering will seem to have an advantage in gaining a bank's trust. And the speed of open banking can be as much of a problem as it is an improvement, since there will be less time to stop fraudsters from sending funds. But Jason, how can fintechs catch these criminals before they have a chance to transfer these funds and stop fraudsters in their tracks?

SPEAKER_02 3:27

Well, I think it's as much on the fintechs as it is on the banks. Banks need to make sure that they're dealing with security savvy partners. Prior to the open banking revolution, most fintech revolved around card payments. And the card processing space has the PCI Security Council, which does a fairly good job of enforcing a minimum level of security. However, other payment rails are significantly more lax. I've seen banks that have a one-page checklist for onboarding new ACH customers, and that's the type of thing that's gonna get them in trouble. I'm all for open banking and faster payments, but the entire supply chain is only as strong as its weakest link. Banks that are going to play in this banking as a service space need to make sure that they have the proper security knowledge in-house to vet their downstream partners. They need to have safeguards in place so that if a downstream fintech solution is compromised, the FI has mechanisms in place that ensure that customer funds don't vanish before their eyes.

SPEAKER_01 4:29

Well, on the topic of safeguards, the economy is slowly beginning to thaw from its freeze-up due to COVID-19. But most card accepting merchants are struggling with chargebacks caused by canceled trips and non-delivery of goods. But some are struggling with the demands from their merchant acquirers for more cash to fund the reserve accounts.

SPEAKER_02 4:46

I've seen this in many industries, Hayden, travel and entertainment being one of the hardest hit. First, let's cover what a reserve account is. Often, third-party payment providers and banks will require higher risk merchants that have a delay from the time they are accepting the payment to the time they are providing the service to post a cash reserve to cover chargebacks in the business risk. Let's face it, the world was not prepared for anything like COVID. Consumers wanted refunds for trips they couldn't take. Merchants wanted to hold on to the funds for future delivery. It became a cash flow nightmare for the whole industry. And third-party payment providers with concentrations in travel and entertainment verticals are also feeling the pain. As chargeback rates rise, third-party payment processors often land on their bank's radar for increased chargebacks, which often makes the banks ask questions, and rightfully so. We're all gonna have to work together throughout the whole supply chain to review the increase in chargebacks and deterioration of financials in order for everyone to survive.

SPEAKER_01 5:53

I understand that anticipated or actual transaction losses can make processors demand more cash for the reserve accounts. And traditional practice has been for acquirers to give the merchant three to five days to come up with the cash. But usually, as a failure to supply the cash, the processor might hold back settlement proceeds. So, Jason, what do you do as a merchant if you are not in a position to fund more into the reserve accounts?

SPEAKER_02 6:17

Well, first and foremost, my advice is for merchants to talk to their payment processing partners. Be upfront about the issues you're experiencing, and in most cases, they will work with you. Payment processors are really gonna have to look at the underlying reasons. Was the business in trouble before COVID? What are they doing to satisfy their customers now? Just like many banks froze mortgage, card, and auto payments, the payments industry is gonna have to accommodate their merchants and work with them to resolve these issues. As we discussed in the past, chargeback mitigation companies are not the solution for this type of issue. But understanding the merchants' challenges and putting a plan in place is what needs to happen. Most merchants that were not having chargeback issues before COVID are most likely good merchants that got unexpectedly hit just like everybody else. And it's important for payment processing partners to remember that merchants need access to their cash to pay employees and vendors, and putting additional burden on them makes their chances of recovery harder.

SPEAKER_01 7:18

Let's talk about a trend that continues to be on the radar: contactless payments. Jason, I know you've been working with Blue on a number of initiatives over the past six months.

SPEAKER_02 7:27

Yeah, absolutely. SECI Bonzi and Blue have been some of my favorite people to work with, primarily because they are about as close to being on the bleeding edge of payments technology as possible. And we both share a passion for really creating disruptive and exciting technology. Sessie, I'll turn it over to you. Why don't you tell us a little bit about yourself and Blue?

SPEAKER_00 7:53

Thanks for that, Jason. I made the foray into payments about 13 years ago. I was practicing as an attorney working with different companies in the Bay Area down here in Los Angeles as well on their payment strategies, both domestic and abroad. And I really found a huge gap in between what I saw was happening from the mobile payment sector and the online payment sector, and what was happening at the point of sale or merchant acceptance. It didn't really make much sense to me why there was such a lack in innovation. And that's how the formation of my company Blue came about. We really are focused on driving new and innovative technologies into the merchant acceptance space and really driving contactless or touchless transaction experiences where you really don't need anything besides whether it's a mobile device or a wearable to be able to complete a transaction. From the merchant's point of view, you need as less hardware as absolutely possible in order to run your entire business. And that's really the foundation of where we see the market moving from now and into the future.

SPEAKER_01 8:48

Awesome. Well, Cecil, in previous episodes, we have discussed how it is no surprise COVID-19 is driving the push to contactless and online payments. So, as an expert in the space, how are payment companies helping small businesses convert to the new normal of online and contactless payments?

SPEAKER_00 9:05

Wow. So this is really exciting for me because this is something that we've been really pushing for the last several years. And unfortunately, it took a global pandemic for people to understand how valuable uh having an omnicommerce payments experience for your customers is. And we see a lot of companies in the payment space being able to provide online retail shops or eShops, online gateways, being able to pull inventory and quickly try to get merchants on board to sell their merchandise online because before COVID-19, you know, the majority of transactions were offline or they were face-to-face. And with COVID-19, with social distancing restrictions, being able to transact face-to-face could be an absolute business killer for a small business. For us in particular, we really saw the ability to stand up an online gateway or an online eShop for a merchant as a primary means of continuing their business during this crisis. You know, it's not an easy process. A lot of merchants aren't familiar with how to do that, how to create an online platform, how to what shopping cart to use, what gateways to use, how do you process payments, what's Apple Pay, what's Samsung Pay, what's Google Pay? So all of these things are actually new to a lot of small businesses who are used to just taking transactions on a hardware terminal. So I think there's a there's a large educational curve that has to happen, a large learning curve that has to happen for small business merchants. And then for technology service providers, the onboarding experience has to be, you know, almost seamless, where it doesn't take much work for a small business to get their online processing business growing.

SPEAKER_01 10:35

Well, now that social distancing is here to stay, and with so many people worried about their health and safety, what does that mean for POS terminals and hardware that is touched by thousands of people in just one day?

SPEAKER_00 10:47

Yeah, I actually really love this. I don't love it because people are terrified of payment terminals, but I love it because this is something that we've attacked tirelessly in the future. That hardware terminal that's sitting on the countertop in many different locations, it only needs to do one thing and it needs to route transactions. It just needs to be dumped. And the fact that we still have terminals around today where you have to slide your card or tap your card or dip your card in order to complete a transaction, we think is a legacy point of transaction, a legacy point of commerce. You know, we really feel like with COVID-19, people are becoming aware that this device is actually, it can be dangerous, right? You have thousands of people touching it every day. You have merchants who are taking people's cards and then inserting them into those hardware devices. And so I think you're going to see a complete transition from these hardware devices to touchless payment technology, whether it's contactless or whether it's Bluetooth. And so for us, you know, that's really the foundation of what we're trying to drive into the market, which is Bluetooth-enabled mobile payment transactions, whether it's from a mobile device or wearable. I think QR code as well is going to see a lot of uptake from the touchless commerce perspective. But we think Bluetooth payments will be the most ubiquitous way to avoid customers having to interact with those little legacy terminals.

SPEAKER_02 12:05

Well, Sassy, I know you and I probably talk every day at almost all hours of the day. And one of the common themes of our conversation is routing payment transactions here domestically. Very frequently, you're talking to me about some of the really exciting things you're doing with Bluetooth and contactless. And I know you're also very focused on global markets and have deployed some of these solutions outside of the US. What are some of the advantages of using Bluetooth for contactless payments? And what can you tell us as to what you're seeing from an adoption perspective outside the US?

SPEAKER_00 12:45

Absolutely. So I think Bluetooth is really exciting because of the ubiquity. I mean, we have 10 billion smartphones and wearable devices deployed around the world, and all of them, all of them have Bluetooth connectivity embedded within them. So when you're talking about the ability to route transactions or move transactions in a quote unquote face-to-face scenario, most everyone has a device capable of transacting over Bluetooth, which is the exciting part for us. It doesn't require a significant hardware implementation on behalf of the merchant in order to transact. If you have a tablet or a mobile phone that has Bluetooth, you essentially have all the hardware you need in order to transact. Second, I think, is is choice, right? And so when you're actually just routing transactions, it doesn't matter how you want to pay between the merchant or the customer. So if I'm in Africa and the primary means of uh value exchange is mobile money, I can exchange mobile money using Bluetooth. If I'm in Europe or if I'm in New Zealand or Australia, some of the locations that you know we're having discussions now, and open banking is now the primary means of value exchange, then I can move transaction bank to bank between myself and the merchant in real time, all over Bluetooth. Or if I'm operating here in the US, you know, where our primary means of uh value exchange is card base using the card schemes, then that value exchange can happen using the card schemes and and you know the existing card infrastructure to process those transactions. So across the board, it really doesn't matter what value type or payment type you want to use, it can be moved safely and securely over Bluetooth. You know, whether it's a few feet away from each other, you know, six feet social distancing, or whether it's you know, a couple of feet inside of a drive-thru at a drive-thru location. Bluetooth can still have the capabilities or the ability to move data over those short or long distances. So it's a really versatile method of payment that supports all the different types of transaction methods that we're seeing evolve around the world. And we're really excited to be part of those discussions going on right now with the different banks and acquirers, telcos uh across the world.

SPEAKER_02 14:51

That's awesome, Sassy. And I know we've been collaborating on some really exciting projects and pilots that we're not quite ready to discuss with the world yet, but we'll certainly have to get you on a future episode and uh we'll go into to more detail on how Blue is reshaping contactless payments.

SPEAKER_00 15:11

Absolutely. And I can't wait and looking forward to it.

SPEAKER_01 15:14

Well, Sassy, thank you for joining us on this week's episode of SenseChat. But Jason, I think you know what time it is. It's time to make payments makes sense. Give me those takeaways.

SPEAKER_02 15:24

Banks, don't sacrifice security for functionality. Vet your fintech partners like you would your own internal systems. Merchants, have open dialogue with your payment processing partners about COVID-related chargeback issues and have a plan for resolution. They'll be willing to work with you. ISVs, pay attention to contactless technology coming through the pipeline and make sure it's on your roadmap if you want to stay relevant.

SPEAKER_01 15:49

Thanks for joining us today. And if you've got a topic you would like us to discuss, follow and message us on social media at SenseChat. And as always, we would love your feedback. Aiden out.