What are the main concerns for merchants and issuers these days? Security, digital strategy and e-commerce. Anna Milne speaks to Glenn Fodor, SVP and head of strategic intelligence at international processor and acquirer First Data
There is no doubt the payments world is fast-changing, which has led to not a small amount of concern among payment outfits large and small about carving out a new niche.
Without meaning to imply the business world is all schadenfreude and profiteering on weakness, it would be wrong not to highlight the fact that the changing payments landscape, and the fear and trepidation it can inspire among its stakeholders vis-à-vis their future relevance in it, is a rich source of revenue for the likes of massive global processors.
All this talk about the opportunity for banks and new payment and account service providers is secondary to the palpable opportunity for those with the nous, wherewithal and mettle to be the first to offer guidance on navigating new waters, and to offer new digital services that keep the regulators, if not at bay, at least adequately placated.
With the advent of digital, and therein the lightning pace at which this new scene is being set, ripe pickings are there for the taking in the form of consultancy and compliance advisory services.
And seeing as the new scene is being driven in part by European regulators and the second Payment Services Directive (PSD2), and will resonate across the Atlantic, who are we to decry such opportunistic enterprise? But do not take it from us; take it from the horse’s mouth: Glenn Fodor, SVP, head of strategic intelligence at First Data.
“Disruption is good for the industry because then providers which can’t figure this out on their own are going to come to their processor or technology provider for answers and technology solutions to figure all this out,” Fodor explains.
“Confusion is good for us at the end of the day. It causes merchants and banks to come to us and ask, ‘What are you seeing? How can you help us?’
“That’s a conversation we’d like to have all day long. If you’re a bank, you are thinking, ‘How do I manage the fintech landscape on one hand against the regulatory oversight landscape that I have on the other?’ That’s fair game whether you’re a US bank, or a European or beyond bank.”
Most of First Data’s, and indeed Fodor’s time is spent with merchants or issuers. They all look to the processors to understand what to expect from PSD2 and the landscape in general. They want to check they have the right approach, the right online banking and mobile setup, and the right products and services. They look to the processors for these answers.
“If you listen to the conference calls of First Data’s peers and competitors, everybody is of the view we’re going to figure this out.
“Security is the underpinning of every conversation: How do we keep this secure? How do we keep it locked down? Protecting the customer data – again, that’s another conversation we love to have, because we think we have the best security solutions, be they for merchant or issuer.”
Security and e-commerce
Merchants are worried about the shift from offline to online. Is their online strategy coherent? Do they have the right solutions in place?
Security presents possibly the largest challenge to businesses, and with that, the greatest opportunity for the likes of First Data. And there has been an exponential growth in e-commerce.
Put simply, given the rate at which fraudsters are developing and getting better, stronger and more powerful, can First Data and its competitors keep up?
“We think we can and we think we do. We’ve spent a lot of money investing; we have a crack team. We’ve hired people from the National Security Agency, the CIA, the Department of the Treasury, and the Department of Defence. We think we’re ahead of the curve here, and it’s one of our fastest-growing product segments,” Fodor confirms.
“As I like to say, ‘No good deed goes unpunished,’ because with this fast growth in commerce comes super-fast growth in fraud and mishaps like that,” counters Fodor.
He goes on to explain fraud and bad behaviour are growing, and that the dollar amount of fraud is growing faster than e-commerce overall.
“So, again, a good place for us to be, because that’s where we come in and provide them the security solutions. That’s, first and foremost, what merchants are asking about,” says Fodor.
One of the major themes in First Data’s 2017 rhetoric is connected commerce. How soon are things going to get ever more connected?
“Now. People ask me what’s the next big thing in payments. I say connected commerce, that’s the next big thing. That’s the e-commerce of tomorrow.”
The burning question therefore is can the banks compete? It is a tired question according to Fodor, and he does, of course, have a vested interest. Banks are going to be phased out “not at all”.
Fodor adds: “People like to talk about that time and time again. If, by chance, the regulatory environment eases and interest rates go up, that’s going to help banks.
“It’s going to drive more operating profit at the end of the day, thanks to interest rates – again, perhaps free up some compliance spending. All this leaves more money for investments. Digital is going to be one of the key differentiating factors for banks in the new age.
“That applies to all things digital. In the past when you look at how banks competed, they competed on services, interest rates, price, high-touch interactions with their customers. All of this defined and allowed them to differentiate themselves.”
The new differentiator these days, it seems, is digital prowess. It is true, most consumer banking surveys show that 60% plus of them prefer to work with a bank in an online or global channel.
Having that robust online banking system, global banking system, integrated mobile payments offering, loyalty and rewards offering, is keys to setting themselves apart from the other banks.
“We are seeing that in the merchant world. For example, in the US there’s a merchant called Panera, a boutique sandwich shop, probably one of the first merchants of its kind which came out on its earnings call to Wall Street. When they come out on a Wall Street earnings call, you know they’re for real, because they’re on the stage for all their investors to see.
“Our digital strategy and our digital prowess are allowing us to take share from our competitors,” Fodor notes. “In the early 1990s Bill Gates said, ‘Banks are dinosaurs, they can be displaced.’ Fast-forward about 20 years and, having invested in a fintech startup, came his quip of, ‘I vastly underestimated how complex banking was.’ He came around to the realisation that it’s really tough to unseat these folk.
“Banks have plenty of things to worry about, but they’ve shown time and time again that they can fend off the competition. As long as they have a coherent strategy, and are in touch with the market and the trends, they can eke out a very good, if not fantastic, existence.
“There is something to be said for having the money and the trust. At the height of the financial crisis surveys were taken of banks, and still when asked who they trust with their money, consumers answered, ‘I trust my bank’,” Fodor explains.
“There was the headline stuff concerning hatred towards banks, but the consumer mindset was, ‘At the end of the day, if I have to put my money somewhere, when everything goes to hell, I know it’s going to be safe with the bank.’
So, we love [banks’] chances, and love working with them. About half our business comes from the banking side.” In terms of social commerce and how important it is to focus on the upcoming generation, Fodor explains that, in the main, doing everything on digital is a “leap of faith” for consumers, likely to be adopted by the 18-30 age group and “not a chance” by the 30-plus age group.
He argues that all the wealth and spending is in the 30-plus category, so while keeping an eye on the upcoming demographic is important, the priority is to keep the main revenue group sweet.
“Do we need to make a big bet this moment? No. The beauty of what we do and how we build our systems is that the core infrastructure can be transported to new emerging technologies. So you build once and scale it across other interfaces.
“I’m not saying there won’t be another dollar investment if social commerce takes off, but nothing changes the essence of our scaled bedrock foundation of platforms; we go about our business doing the processing as we always do.”