The decline of the bank branch

According to the Campaign for Community Banking Services the rate of UK bank branch closures has accelerated, with banks on track to close around 650 branches this year, following 500 in 2014 and 222 in 2013. The report uses a number of different metrics to suggest that the decline in branch numbers is a completely negative phenomenon.

The banks are closing branches because their usage is declining in favour of technology. Whilst banking apps tend to be quite limited in their feature set (legacy banks have yet to work out how to transform their businesses into digital centric organisations), they do enhance customer engagement. As the banks improve their online account sign up processes the need for branches declines further.

Cash handling for shops is an issue when branches close but also an incentive for shops to focus on card payments. In smaller towns many retailers are reluctant to accept cards because of their perceived cost to the business (I’ve had many conversations with small retailers about the benefits!). However the fall in interchange rates should reduce this concern, provided retailers understand it.

A quote from the CCBS report is telling:

“Neither Santander, TSB nor new entrants like Metro, Handelsbanken UK and Virgin seem interested in filling the voids being created by the Big 4’s closures.”

The reason is clear; the challenger banks are not interested in opening lots of branches because branches are not the opportunity in retail banking.

From the perspective of helping banks reduce their cost base and reorientate their business towards a digital engagement model the closure of branches is both logical and a positive reflection on the move to digital. New app centric challenger banks will put increasing pressure on the legacy banks and unless the legacy banks adapt to the digital world they risk being left with an increasingly unprofitable customer base.

When payments misses a trick

I’ve lost count of the number of times I’ve written about how innovation in payments must reduce the friction in the transaction process if it is to have any chance of succeeding and capturing the attention of consumers.

Apple Pay in-store generally meets this criteria, assuming your bank is signed up and you accept the usual contactless limit restriction of £30 (in the UK) in most stores. Once all the banks are signed up and the limit restriction is gone, Apple Pay will feel like a truly frictionless payment experience, especially using Apple Watch. A couple of weeks ago I got an insight into the future of in-store payment when I bought a MacBook Pro using my Apple Watch – an expensive test and even the Apple retail employee said it was a first for him!

Fill Up & GoLast week I signed up for Shell’s new Fill Up & Go payment app which allows you to pay for your fuel at the pump using your iPhone. I duly downloaded the app, created the required two different Shell accounts (work that one out!) and added my PayPal credentials (that’s how the payment works). The process was awkward and fraught with errors and if I hadn’t been a dedicated payments professional I would have given up long before the end. However having eventually got there I jumped in the car and went to the local Shell station to buy some petrol. No QR codes in sight – apparently it’s not operational yet although the QR code was there in July and I have a photo to prove it. So not only a poor sign up process but also a failure to deliver at the point of sale. One bizarre point that caught my eye in the instructions is that apparently you have to remember to only scan the QR code on the pump from inside your car because you’re not allowed to use your phone outside your car (really!). What Shell ought to be doing is implementing Apple Pay at the pump – but then of course you’re not allowed to use your phone outside your car!

Before launching, payment providers need to step back and look at what their application actually means for consumers and whether it addresses the friction issue.

Payments acceptance confusion at the point of sale

Historically card acceptance in-store was fairly straightforward. You knew if shops took cards because they had a sticker in the window; if they took cards you were safe with Visa and MasterCard and if you were lucky they also took American Express.

The arrival of contactless payments brought greater payments convenience at the point of sale but also confusion. Consumers were now faced with a new way of paying with cards and having to determine if the option existed in their store of choice. Sometimes the card reader has a contactless label on it, sometimes the LCD display shows contactless acceptance, sometimes it’s necessary to ask for contactless to be enabled for the transaction, sometimes the card reader looks like it’s a contactless terminal but contactless hasn’t been enabled on it. What’s happened to taking friction out of payments?

Recently I discovered another twist in the contactless acceptance story. Some stores that accept American Express, do not accept American Express for contactless; it’s Chip and PIN only. And it’s not just small stores where this is a problem; I recently discovered this in WH Smith after battling with a self-serve contactless terminal.

The arrival of Apple Pay in the UK has further highlighted the chaos around card acceptance in stores. Displaying the Apple Pay logo in-store should mean that consumers can always pay with Apple Pay; however to make an Amex Apple Pay payment, the store must also accept Amex cards and accept Amex for contactless. Plus, thanks to Consumer Device Cardholder Verification Method, Apple Pay does not need to be restricted by the £20 contactless limit for cards; however so far it seems that only Apple’s own stores and Pret a Manger have lifted this limit. Other stores will do so over the next few months but again it’s a muddled landscape for consumers.

I guess this all makes perfect sense to people in the payments industry but to the consumer who just wants a simple way of paying in-store? Definitely not. It’s confusion like this that sets back the case for moving away from cash and cards for in-store payment. The payments industry needs to do more to take the friction and frustration out of payments by removing point of sale confusion around product acceptance.

Apple Pay in the wild

Much has been written about the launch of Apple Pay in the UK; how it works, where you can use it, which cards are supported and so on. But what’s it like to use in the wild? Setup is very easy – especially if the card already stored in your Apple / iTunes account is issued by an Apple Pay partner. Adding additional cards involves snapping them with the iPhone camera, adding the CVV2 number and waiting for activation. A couple of times the card expiry dates were incorrectly recognised so one to watch before confirming card details. My American Express cards activated with no additional steps, my NatWest card required an additional authentication step via a code sent by SMS.

Using Apple Pay in-store is straightforward, especially with the iPhone. The Apple Watch is a little tricky as there’s a knack to twisting your wrist so the Watch face is over the contactless reader but you avoid smacking the face of the Watch on the reader and risking damage!

So what makes paying with Apple Pay better than just using a contactless card? Apart from the novelty value of paying with my Watch, there are two important elements for me.

Transactions are more secure – the retailer does not receive my card details so there’s no risk of them being stolen from compromised point of sale equipment or elsewhere. Each transaction is tokenised so there’s nothing useful to steal.

Realtime transaction alerts to monitor spending are important and can avoid later disputes. American Express already offers real time transaction alerts via iPhone Passbook notifications. Recently I was double charged in-store for a chip and PIN purchase; despite the terminal confirming the transaction was successful, the retailer assured me the till showed it hadn’t gone through so asked me to try again. I was able to show him a double transaction on my iPhone (and yes both transactions did settle later).

There’s still a long way to go with Apple Pay. Removing the £20 transaction limit and installing contactless readers in stores that typically process higher value transactions will massively increase the utility of Apple Pay as a payment method.

I’ve not yet had the opportunity to pay in-app – that’s my next challenge! Securing in-app card transactions, which are inherently susceptible to fraud via stolen card details, will be transformational in reducing online card fraud.

What sets Apple Pay apart from every other mobile or wearable device I’ve tried for payments is that it does feel it’s been designed with the consumer in mind.

Apple Pay comes to the UK – at last!

Apple Pay NatWestAs everyone now knows, Apple Pay launches in the UK in July. If you have a card from a participating issuer and an iPhone 6, 6 Plus or Apple Watch (paired with an iPhone 5, 5C, 5S, 6 or 6 Plus) you can pay in store at contactless card terminals. In app you can pay using an iPhone 6 or 6 Plus or iPad Air 2 or Mini 3. So far my experience of using my Apple Watch to pay in store has been limited to Starbucks (using the Starbucks app) so I’m very excited about using it in lots more stores!iPhone6_Watch_iOS9_Wallet_NatWest-PRINTiPhone6_Watch_iOS9_Wallet_NatWest-PRINTiPhone6_Watch_iOS9_Wallet_NatWest-PRINT

Apple has clearly done a good job getting a critical mass of card issuers on board at launch with most of the major issuers committed, either at the start or soon after. At launch American Express, First Direct, HSBC, Nationwide, NatWest, Royal Bank of Scotland, Santander, Ulster Bank cards will be supported. Bank of Scotland, Halifax, Lloyds Bank, M&S Bank, MBNA, TSB will follow.

Apple Pay AmexObvious omissions are Barclays and Capital One. Whilst Barclays has its own strategy around Pingit and also contactless wristbands, it is still a curious decision not to sign up at the start and one that will annoy many customers. Both Barclaycard and Capital One in the U.S. support Apple Pay which just goes to show how fragmented banks and payments markets are!

There are around 400,000 places that support contactless payments in the UK. It appears that most of these will limit Apple Pay transactions to the usual £20 contactless transaction limit (£30 from September), despite the superior authentication offered by Touch ID. However some retailers will not be bound by the limit, as in the U.S. I suspect that some contactless terminals will not support Apple Pay, especially early generation models. Currently neither my American Express nor Capital One cards work for contactless payments via any Caffe Nero terminal I’ve tried (Chip and PIN is fine and contactless elsewhere works). These terminals are old and seem to be incompatible with newer contactless cards.

Apple Pay HSBCApple has a handy summary of the key places where you can use Apple Pay, both contactless and in app Apple Pay stores.

Whilst Apple Pay is not truly disruptive because it uses the existing card scheme payment rails, it moves consumers along the journey of mobile device payment acceptance whilst improving transaction security. For consumers, frictionless payments moves a step closer.

The Apple Watch works for me

As soon as I saw the Apple Watch launch event last year I was curious what I’d make of the Watch. I haven’t worn a watch for several years – a very basic device that had been replaced by my iPhone. However as phones got bigger it became increasingly inconvenient to pull out my iPhone to check the time or look at a notification; so the arrival of the Apple Watch seemed like auspicious timing.

My early impressions are that despite being a 1.0 device it works extremely well. As has been pointed out the software has a few rough edges, especially around some third party apps which can take an age to load. However the native apps plus a select few third party apps make the Watch a convenient extension of the iPhone. The trick is not to put too much on the Watch; keep notifications to the essential ones and don’t install apps you don’t really need on the Watch.

In the first week my favourites:

  • Seeing who a message is from or who’s calling, without pulling out my iPhone is so convenient.
  • Taking a brief call (as long as there’s not much background noise) or replying to a message is simple.
  • Tracking activity without the need for a separate (and somewhat flaky) device and in a more comprehensive way is excellent.
  • Receiving notifications for spend on my Amex card is a useful security check.
  • Unlocking my Macbook by tapping my watch is a time saver, thanks to MacID.
  • Quick check if it’s going to rain in the next hour, thanks to Dark Sky.
  • Quick access to my most used passwords, thanks to 1Password.
  • And it’s quite handy to be able to glance at my wrist to see the time!

So what’s missing? The biggest omission for me is the lack of Apple Pay in the UK. Once Apple sorts out the UK banks and the Watch can be used for payments its utility will be transformed.

And now I’m not so dependent on using my iPhone for quick checks, a 5.5” display iPhone 6 Plus becomes a practical possibility.

So now everyone’s a payment expert!

Last week I received a letter from Capital One regarding my cashback credit card. The letter indicated I would no longer receive cashback on my card; something of a disappointment as it was worth a few hundred pounds last year. The explanation of the change read “Changes in our industry mean it is no longer sustainable for us to offer cutback on your card. This is because the fees we receive when you use your card are reducing”. Seems fair enough; Capital One are earning less money so something has to give and it’s my cashback!

However, heading over to the EU website things start to become a little clearer; “The European Commission welcomes the adoption by the European Parliament of a Regulation capping interchange fees for payments using consumer debit and credit cards and improving competition for all card payments.”

In fact I was aware this EU proposal had been under discussion for a couple of years and we can now see one result of this market intervention. The intention is apparently to encourage merchant adoption of card payments and reduce the prices merchants charge consumers but my cynical side questions how well this will work in practice!

  • Am I really going to pay less in stores or will those stores keep their savings?
  • How can the EU possibly know the correct rate for interchange?
  • How does cutting card margins help banks offer attractive and competitive products in the market?
  • How long until banks impose annual fees on most credit cards?

As an aside, apparently the change still requires formal approval by the Council of the EU but Capital One clearly thinks it’s inevitable.

Most American Express cards fall outside the terms of the cap as they don’t use interchange fees. Here’s hoping the cashback on my Amex card survives!

Time to switch your bank account?

Changing banks is one of those activities that most people seem to avoid. Despite the industry moving to seven day account switching, the number of customers switching bank accounts in the UK is virtually flat and according to the Payments Council, in 2014 there were only 1.2 million switches. The recent FCA report (Making Current Account Switching Easier) states:

“Since September 2014, annual switching volumes have begun to fall back and by January 2015 were 16% higher than when CASS was launched and only 2% higher than the November 2012 peak in switching volumes using the previous switching mechanism.”

The report from the FCA on the effectiveness of the Current Account Switch Service suggests this is because of consumer inertia and awareness and confidence in CASS being low. My experience of using CASS last year was good. Apart from a lot of paperwork that had to be completed, my switch went through as planned, with no errors. The FCA has suggested that account number portability would improve the situation but as the current system works it’s hard to see that spending a huge sum of money on making switching simpler will make a difference.

The Payments Council publishes data each quarter showing gains and losses by bank. Whilst the legacy banks are net losers (as expected) it’s impossible to build a clear view of challenger bank gains because some of them (e.g. Handelsbanken, Metro Bank) don’t provide data and others are included under parent brands (e.g. First Direct and M&S are included under HSBC). TSB data would be interesting as with 630 odd branches and a ‘new’ brand on the high street I would expect it to be making an impact but the most recent figures include it under then parent Lloyds. Last year TSB added 500,000 new accounts, many presumably from other banks.

I see the biggest barrier to encouraging consumers to switch banks being consumer inertia, driven by a perception that most banks are similar, both in products and service. We have yet to see much market differentiation via product differentiation. Whilst there are some excellent ‘challenger’ banks out there, their profile is often very low and their range of accounts limited; some like Aldermore and Charter only offer deposit accounts. As the challenger bank market grows and the number offering current accounts increases, consumers will have more choice of where to switch. Digital banks like Atom and Starling plus the RBS spin-out Williams & Glyn will add to the choice. However ultimately it will be up to consumers to show their banks what they think of them; identify more appropriate organisations for their banking needs and move their accounts to competitors.

You can read the full report here.


Keeping your gadgets safe – Waterfield Padded Gear Pouch

Waterfield label

I’ve been a big fan of Waterfield gadget cases for several years. The quality is always excellent and the range of designs imaginative and functional. Over the last few years I’ve used a number of Waterfield cases for iPhones and iPads and all the tech paraphernalia that goes with them.

Waterfield is an interesting company. Everything they sell they make themselves in Padded pouch exteriorSan Francisco. Products are manufactured in small production runs allowing for customisation of materials and colours. They only sell direct so rely on word of mouth recommendations to grow.

Recently I purchased their Padded Gear Pouch as I wanted a case for my iPhone, Kindle, Beats earphones, Mophie battery charger, power plug and cables which would also offer some protection. I picked the waxed Padded pouch interiorcanvas with brown leather trim version which is a great finish (it also comes in ballistic nylon). The interior of the case has two small and two long padded pockets. The front pocket is for items like cables that don’t need the same level of protection as it doesn’t have as much padding. Both zippers are self-locking so can’t open accidentally. As I discovered, you can pack a lot of stuff into the Padded Gear Pouch!

As Waterfield are based in San Francisco you have to pay for international shipping to the UK but even with that additional cost the products are good value.

Next on my list – their Bolt Briefcase!