Evolving Business and Consumer Behaviors Related to Spending and Payments

Transcription:

Chana Schoenberger (00:08):

So I am welcoming up to the stage with me right now, two esteemed panelists who are going to talk about the evolving business and consumer behaviors related to spending and payments, and they're people who represent the two sides of the business consumer and the business side. So I have Jyotsana Jagadish, who is the Head of Corporate Products and Services and Commercial Banking, and recently named also the Head of Digital Banking at TD Bank and Christine Roberts who is the EVP and President of Citizens Pay. So welcome.

(00:46):

Okay, so you two are from the two sides of the business. Christine, you're from consumer, and Jyotsana, you're from business and also everything digital. So let's talk about what common issues between the two of you are you dealing with now as the technology moves forward, and what sort of partners did the two sides share? Jyotsana, you want to start?

Jyotsana Jagadish (01:06):

Yeah, absolutely. I think thematically between business payments and consumer payments, they're really kind of two sides of the same coin. And I say this because a lot of the trends that we're continuing to see in consumer payments continues to influence how businesses think about payment acceptance and payment disbursements. I think it's now pretty common knowledge as we think about the effect of the pandemic and what that did to consumer payment behavior, that acceleration to digitization, the acceleration to contactless, the continuing decline that we're seeing in cash and check.

(01:41):

Although check payments may be not as fast as we'd like to see. A lot of those trends are really manifesting themselves and how businesses think about accepting payments. However, and going back to the first point I made thematically, the challenges and the opportunities are the same. Both businesses and consumers want safe, stable, reliable, and faster payments. And so as we think about the products and the solutions that we're designing and iterating on at the bank across both consumers as well as businesses, making sure that top of mind, the safety and soundness of our payments ecosystem is top of mind. And that means a couple of different things. It means ensuring that we have actionable real time fraud insights that we can provide customers and they have kind of more control in a self-service fashion on how they want to action those insights. That's a big priority of ours.

(02:38):

From a stability and a security perspective, we kind of talked a little bit about making sure that our systems and the infrastructure that we're providing 24 by seven, by 365 through RTP obviously Fed now is becoming an increasingly important rail for us to think about. But more importantly, I think when we talk to businesses, they care less about the rail and they care more about what am I trying to solve for and how is the bank enabling me to solve for that? And that's kind of a big area of focus of ours. And then the last thing I'd say is around the personalization of these payments. So there's a lot of conversation around generative AI and the use cases of generative AI and the underlying data and how that empowers businesses or banks to make more personalized choices for business payments as becoming the new reality. As we pivot to ISO in 2025 and beyond, we're going to see a lot of the harnessing of the data that travels with the payments becoming a bigger and more important value driver in the payments ecosystem for businesses. So those are some of the considerations that we're thinking about more on the business side, but that's really driven by the trends that we're seeing in the consumer payment space.

Chana Schoenberger (03:52):

Interesting. Okay.

Christine Roberts (03:55):

I'll start with ditto on the consumer side and everything that Jyotsana said is happening with consumers directly as well. I think the two pieces that I would add to that though, in addition to the security and the fraud components and the safety aspects of it, consumers and businesses are looking for more transparency, making sure they truly understand what am I borrowing or how am I spending, when am I done? How much am I fully paying? Versus what we had previously seen is more of a, if you made a payment for the next 20 years, this is what you would spend. And so there's a lot more consumer sentiment around wanting much more transparency in conditions, in payment structures and what's happening there. And I think the second piece is opportunities for more point of sale, and that's both consumer and small businesses. In small businesses. They are consumers, they're used to instant transactions, they're used to instant acceptances, and so the ability for them to be able to transact with different types of payment structures at point of sale is starting to be more of a requirement of both consumers as well as small businesses.

Chana Schoenberger (05:13):

That makes a ton of sense. It's interesting what we were saying about fraud. So at lunch today, a bunch of folks from all over the country and everyone had a story about fraud. Either they had been a victim of fraud, and of course these are all payments professionals or they have a family member, a friend who's been the victim of fraud. This is just something that people deal with now we're all used to it, and you are right. In fact, 71% of businesses, and this I think is a McKinsey survey, 71% of businesses have been faced with or have been dealing with some type of payment fraud.

(05:48):

It's not higher.

Jyotsana Jagadish (05:51):

The level that we're seeing this issue become commonplace is unprecedented. And you think about what the impact of AI is going to continue to do for the fraudster, which is personalization and being able to take over voice or visual biometric authentication. So the level of fraud that we anticipate will continue in this space is a real threat. And I think the opportunity for us as banks and payment providers and technology companies is how do we really lean in to get one step ahead using data that we know and trusted validation data sources, et cetera, to get one step ahead of the fraud stores and really preventing that payment fraud, which is frankly kind of very much top of mind.

Chana Schoenberger (06:37):

Yeah, it's staggering. Huge.

Christine Roberts (06:40):

It's huge and it's even bigger than, I mean it's probably over 75% for consumers at this point. I mean myself, I had three times this year alone, people have tried to open checking accounts at various institutions in my name and had everything except for my cell phone number, and that's the only thing that saved me from those accounts being opened. And so the technology behind fraud and fraud prevention I think is where many of us are putting all of our efforts because us from a credit standpoint with consumers, it's obviously as important if not more so important to ensure that we're extending credit to real people, the AI components aside.

Chana Schoenberger (07:18):

Right. It's a little scary. Okay, so can you give us an example of a project or partnership you've worked on in the last year and how it's going and what sort of pitfalls you've had to overcome to make it work?

Christine Roberts (07:34):

So we're fortunate, right? We operate and partner with some of the top merchants in the country. I'd probably say one of my favorite partnerships that we have today is with Best Buy, we're changing the dynamic around how people purchase technology with 'em and have introduced the Upgrade plus program, which allows consumers to pay off a MacBook and several other products over a three year period. They can turn it in, upgrade to the next one and continue with payment structure and not have to go through credit checks and credit structures again and again so they can use a line of credit structure with an installment payment. So it's a fixed payment, it's a fixed APR, et cetera. And so I think it's interesting because consumers are starting to adopt shelf life with particular types of products, and so being able to create a new way to pay for technology versus you put it on a credit card and then after three years it's obsolete, you got to go put it on your credit card again, allows people to create accounts to use for particular types of purchases.

(08:42):

In this case a MacBook we're talking to others about, maybe it's around other types of appliances or other types of things that now have shelf life because of technology. So it's been very positive from a consumer perspective. I say that pitfalls is even within our merchant platforms, the payment rails, the POS rails, they haven't quite caught up to adapting outside of just credit card or debit card. And so there's I think a lot of opportunity for us to continue to work in expanding that infrastructure because consumers want multiple choice at checkout. They see it online and they don't translate quite as well that in-store and online can be in our two different things. And so buy now, pay later, pay over time type of payments need to be available at a checkout from a choice standpoint for consumers and say for small businesses, right? They're looking for the same thing. So lots to do.

Chana Schoenberger (09:42):

That's interesting. Okay.

Jyotsana Jagadish (09:42):

So I'll touch on a product that we just recently launched, which was tap to pay on iPhone for small business customers, and it was a really exciting product to launch primarily because we were early to market in this space. So after I think Chase, we were the second bank to launch this native experience in the TD mobile banking app, the key driver for us was really to start to think about micro merchants, how they're operating and then how do you make that payment acceptance so seamless within that checkout process. Whether you are a photographer, a farmer's market, you've got to stand there whether you're a freelancer, how do you make these micro merchants that are their first ability to accept a payment so seamless, all integrated into their digital and mobile experience is really what we got really excited about from this capability perspective, I think we've done some great work.

(10:47):

The only results of this solution has been incredibly outstanding and encouraging. Where I think we've really hit a nerve with customers and we've seen that is historically think about the whole payment acceptance process, like which business doesn't want to get paid and get paid really fast. And historically, when you think about merchant acquiring, that's a multi-step process, which a lot of fintech's have kind of come in and started to disrupt that model. And so we said, well, why shouldn't we as that trusted advisor for our business customers really kind of play in and take a more active role in that space? And we've partnered with a couple of fintech's and technology providers to really make a strong statement in that space and being able to onboard near real time merchants to accept payments and start transacting all kind of natively on their mobile phone is where we think payments is headed for small businesses, no different than what we think where it's going for the consumer space. I think back to Christine's point, where's the opportunity is how do you tie the online to the offline? Meaning you've got someone standing in front of you and you want to accept a payment. You've made it so quick for that payment to settle directly into your tea bank account and you don't need to wait for a dumble to ship in your mailbox and then to attach it and download an app. It's all instant provision in your mobile banking experience. That's what we're offering customers today. But how do you take that a step forward and then integrate that into a customer? Also sending and distributing invoices online and wanting to accept payments online, how do we create that integrated ecosystem experience is really what we're after next and we're making some really good progress. We actually just last Friday piloted our small business insights dashboard also in our digital banking experience, really making a positive step in starting to really integrate all of those experiences that customers have across a variety of channels and bringing that onto a single platform. So that's all the work that we're doing at TD for the benefit of small and micro businesses through our digital banking lens, and we're really excited about that early momentum that we're seeing.

Chana Schoenberger (13:05):

I'm reminded of a mom I know who was responsible for the cookie sales for her daughter's girl scout troop, and she was sort of sick of people saying, oh, I'd love to buy a box of those if I don't have any cash on me. So she bought a reader and just had it at the cookie table and it was like, oh yeah, well, you could tap.

Jyotsana Jagadish (13:24):

Yes. The Girl Scouts are definitely, they're a client of ours and we're very excited to be able to offer them to have to pay so that next time you're buying cookies or just tapping your card and not pulling out cash.

Christine Roberts (13:35):

Well, I think too, Venmo and Zelle are becoming a commonplace payment structure. Also similar working with school, my daughter's drama, so the whole drama festival and parents were coming to pay for tickets and nobody had cash. What is cash? We're very quickly stepping into, I think if you look at Europe and other parts of the world, they have been predominantly cashless for a number of years. And I think to Jyotsana's point, the pandemic kind of pushed us further than we were used to, but I think more importantly, they pushed us further than we were ready. And so we've been playing a little bit of catch up to make sure that everybody's infrastructure can support the amount of payments that are now going through a Zelle, a Venmo alternate payment structure, which is great in many respects, and I think for the consumer as well as for the small business, it's here to stay, right? They're not, I think a lot of people thought after the pandemic, people would revert back to their old ways of doing things, and that's not happening. If anything, it's continuing to accelerate.

Chana Schoenberger (14:47):

I just think it's funny because I was based in Tokyo as a foreign correspondent 15 years ago, and it was completely, every phone there has an NFC chip and it was completely standard to pay for all of your train tickets and even your karaoke with the NFC chip and your phone. So you just put it down on the turnstile and walk right through, or you, you'd walk into the karaoke lounge, put your phone down, and it would immediately load up your song because you wouldn't want to have to wait for your song to load. You want to sing it right now. And it's only last year that Omni came in in New York City. Yes. All this time I came back from Japan and I've been manually swiping a card.

Jyotsana Jagadish (15:25):

As a payments we kind of tell you, I started dabbling in mobile payments and NFC in 2012, so between that and the last couple of years to actually be able to just swipe through those turnstiles with your watch, it's been a little game changing for us New Yorkers. I find it funny too that I pay of course with my watch for everything, and at least once a week a cashier in New York will say to me, oh, I've never seen someone do that before. And I'm like, really? I saw, I think half the people I've seen here today have some sort of a smart watch and we're all using it for payments. That's what it's for. Amazing. There's a lot of markets still to penetrate.

Christine Roberts (16:08):

I think it's generational also, right? I think your Gen Z, your gen alphas, they don't even see payments the way our generation would have and they don't understand. I talk to my kids about making sure they have their card with them and they're like, mom, I got my phone. And I'm like, well, what if they don't accept the phone payment? You need your card. And they're like, well, then I won't buy it. I was like, okay. Yeah. But I think you're hitting on a really important topic, and this is the generational trends we're seeing, which is I think increasingly, I think it's about 80% consumers today coming out of the pandemic have used at least two different types of digital, mobile, digital and mobile payment experiences, which I think is quite staggering, being in this space and looking for that curve of when do you start to get ubiquitous subduction and mobile payments. I think we're there also, and that translates into how many businesses are accepting contactless payments. Because back to your example, if you're a small business and you're not able to accept a tap in pay and the only option that you have is cash, most people are not carrying cash, are you losing that sale? And that is, I think becoming incredibly transformative to how businesses start to think about this adoption of contactless payments. So I do think we're starting to see a large amount of ubiquity in this space. And the last thing, I was actually reading a McKinsey report earlier, which is where I'm getting all of my stacks and trends.

Chana Schoenberger (17:43):

As well, you should have good research?

Jyotsana Jagadish (17:44):

It was also around this consolidation of apps, which I think is happening significantly both on the consumer side as well as business side, which I think presents a great opportunity for banks. So the more number of apps that exist to make payments, whether it is your Apple Pay or Samsung Pay or Google Pay, you've got a plethora of wallets. How do consumers really start consolidating that activity across a smaller number of apps that give them more functionality to do the concept of the super app that we've been talking about for a while now? I do think that that is becoming the next frontier banking and financial services is how do we get what is that race to the super app that allows consumers to do maximum functionality in an integrated place where their data, the insights, the richness of their financial lives is really reflected back to them?

Chana Schoenberger (18:40):

When you were talking about generational differences, I mean the interesting thing is that the Gen Zs and the younger ones I have teenagers, they do not understand what the grownups are so stressed about privacy, they don't get it. Why would I not give my cell phone number email and three other pieces of personal information in return for a little digital do dad? I mean, of course I want the animated cartoon character.

Christine Roberts (19:08):

They have a very different mindset towards you. Think about it, social media I think has changed the entire dynamic of sharing. You share every aspect of your social media life on social media and that to the younger generation, what we're finding through research has actually kind of transcended into other aspects. It's not just about the picture life, if you will. It's about all information that they are willing to share. And so I think if you go back 15 years, we all have the general privacy concern. You couldn't say certain things to consumers or let the consumer know that you knew about them because of their privacy issues. That doesn't exist anymore. And so they're okay with keeping that open and being open to the public about all the different information. Where I think to Jyotsana's point that's going to become part and parcel is they're looking for what they call instant choice.

(20:08):

And so as part of, I'll share information, but I want choice of what you're going to do with it and what I get for it, and then how can I use it? And a lot of what our consumers are asking for today is I'll become a customer of yours, but I don't want to just use your product. I want to be able to choose how I pay within your product. And it may be a TD card within a citizen's app. It may be Venmo within a citizen's app. And so I think to Jyotsana's point, the super app becomes a instantaneous merging of information because they don't see why that has to be separate and in different places.

Jyotsana Jagadish (20:51):

I think it's giving customers, the philosophy I've always had in my career around payments is you have to give customers choice, choice to operate the way they want to in the channel they want to. And I think when we've seen look at the difference between products, solutions, and companies that have far exceeded adoption relative to those that haven't, I think the big difference has been the ones that give customers choice. And when you let the consumer decide how and where and when they want to use it versus controlling that experience for them, I think has been kind of that key difference. And I think that's kind the philosophy that we have at TD as well, which is we want to be where our customers are and give them the choice and flexibility to operate our products and solutions in the way that they want.

Chana Schoenberger (21:38):

Or they just won't come. Yeah. What about this move towards instant payments? So there's been a lot of talk about this on the regulatory level. What do you think this means for your business?

Christine Roberts (21:57):

So I think, and this is where probably Jyotsana's world and my world is a little bit different, right? From the consumer standpoint, from an instant payment perspective, number one, it's still about choice. They want to be able to choose instantly. Are they going to use buy now, pay later, pay over time, credit card, debit card, ACH, right? And so how does that all come together as an ecosystem for a consumer? I don't know that the regulators have looked at it. They're still looking at it in silos, and I think from a regulatory perspective, they're going to start taking a look at it as an ecosystem and how does that interrelate? And that would also go along with fees, right? And policies and procedures and disclosures, and all of a sudden, how does that come together? So I think the regulatory environment will start looking in that direction. I think the other place as well is that a lot of these payment vehicles affect a consumer's credit, and I don't think that the credit bureaus and the credit environments have caught up to where we stand today with all these different payment methodologies, what it truly means to a consumer's free cashflow, and then the banks on the backside having to catch up with, for lack of better term, the math. So if you think about it, the CFPB released a study that said for traditional buy now pay later, which are those pay in fours, a heavy user, which is probably about 15% have over 40 buy now, pay later on the go at any one time. Well, if you're a bank extending a car loan to that consumer, those are not reported in a credit report and that is a consistent outflow of cash. Should it be, I don't know, would they have used their cash the same way? So from a math perspective, we as an industry have to catch up. I think from a regulatory environment, the CFPB is looking for that to be reported and included, so the bureaus have to catch up, the lending institutions have to catch up, and then the consumer has to start looking at their entire financial picture and how they're paying in a different, I think it's going to be a little bit different. I think the regulators are really going to look to come down though from a regulatory environment on the transparency, the disclosures and the connectivity to make sure that consumers are not overspending.

Chana Schoenberger (24:18):

Interesting thing about the data that came out recently on buy now pay later is the bifurcation between high income and low income consumers. So the high income consumers look at this as, Hey, it's free financing. I can buy a subzero fridge or a snowmobile and some big ticket item and I don't have to pay extra for that, but I can pay in four. And whereas the lower income consumers are using this for groceries and they don't have the money now, they're probably not going to have it for payments for now. It's sort of a way where you can see them falling deeper and deeper into debt, which is a much bigger issue. You're the one extending it, correct?

Jyotsana Jagadish (24:56):

Yep. I think on the business side, to answer your question, I think the instant payment conversation is really tied to the use case and in the use case both on the collections as well as the disbursement. So which scenarios do businesses have the need to collect instantly and have the funds settle instantly in their account? That is one part of the equation. And of course, I've never heard a business say that I'm okay getting paid late. So I think that merchant settlement as an example, is a great use case.

(25:29):

Dealer financing that TD has implemented with real-time payments is another use case. So I think there's certain use cases where we're seeing the need for the instant payment that drives real business and commercial value that's taken significant adoption in the industry. I think the real time payments use case TD has for our auto finance business is actually kind of third largest in the industry by volumes today. Just kind of speaking to the nature of there's a demand and you fill that demand and you're able to then really drive adoption on the disbursement side, I think again, it goes back to the nature of the use case. Is it emergency payroll? Is it the kind of insurance company looking to pay for disaster or relief payments? Is it the gig economy, e-commerce company looking to differentiate by paying their workers on a near instant real-time basis?

(26:27):

So I think what we're seeing is that on the business side, the concept of instant payments is really driving business models where businesses are trying to differentiate by attracting workers, by attracting customers, and driving that stronger engagement model within that community, I think are the use cases that we're seeing. And I think that the last thing I'll say around instant payments is the ecosystem around what supports a robust instant payment model has to be in place, which is all of the real time fraud. The risk, I think the self-service kind of controls that you provide customers. So there's a lot of focus that we have in building and making sure that there's a robust infrastructure to support the use case of instant payment collections or disbursements for business customers.

Christine Roberts (27:16):

I think the upside there though, in that need for better fraud and the connectivity on the payment side is there's a stronger partnership and opportunity between larger financial institutions and fintech's and the fintech's from a fraud FinTech, not a lending or deposit FinTech because their ability to iterate and their speed to market structures are faster, bigger than a lot of our institutions can do, right? We have really smart technology people, don't get me wrong, who from a deposit standpoint, hands down are the best, but because fraud AI is going so fast, I think this is really leading to a great opportunity for fintech's to partner within larger institutions in order to help cover, quite frankly what is really a speed track on the fraud standpoint and how much faster we're going to have to be ahead of the fraudsters.

Chana Schoenberger (28:15):

Great. Okay. I'm going to pause here and see if anyone from the floor has questions. There's a microphone.

Christine Roberts (28:22):

We can't see anybody though. Yeah, we can see, right? Are so bright.

Chana Schoenberger (28:25):

Otherwise I've got a lot more questions I want to ask. Yes, hang on. Here comes a mic.

Audience Member (28:39):

Hey guys. Thanks. I was curious to hear. Perfect, thank you. Given the Visa MasterCard settlement that just came out a couple days ago, the 30 billion settlement, I was curious to hear your thoughts around its impact on consumer behavior and how merchants will give those savings to consumers or how would that impact purchases?

Jyotsana Jagadish (29:12):

I think this is a very recent outcome. I think a couple of days old with this Visa and MasterCard settlements, I can't really comment on the full extent of the impact. I do think, look, at the end of the day, I know merchants are incredibly price sensitive of, and as you think about some of the aspects around what I think as consumers we're all seeing, which is surcharging and the ability to pass on some of those transaction costs is becoming, I think almost normalized now is really a reflection of where I think some of the trends around card acceptance and merchant acceptance fees is heading towards. At the end of the day, I think that there is an infrastructure here that is built to provide safety soundness protections to merchants, and obviously there is kind of an ecosystem in that model that needs to be sustainable.

(30:12):

And beyond that, I do think we're going to continue to see merchants really press on. And I guess the piece that I'm really interested to see is does this shift behaviors for merchants to drive towards more either debit or cash transactions? Because we're seeing this day to day, which is I walk into a grocery, into a coffee shop and they'll say, well, if you pay by cash, we're not going to charge you the 3%, but if you pay by car, you're going to get charged the 3%. And so it kind of feels a little ironical. Since we're all trying to drive towards cashless transactions, I'm hoping that we get to kind of a happy medium here, which is we're still kind of depending on the secure digital rails that exist within the electronic payment ecosystem while making this ecosystem work for merchants as well as for consumers.

Christine Roberts (31:08):

I also don't necessarily think it's going to translate to the consumer. I think the merchants will get different pricing than what they get today, but I'm hesitant to say that the consumer will realize the benefit, I guess is the way I would say it.

Chana Schoenberger (31:28):

Yeah.

Christine Roberts (31:29):

We've got, look, we were in a tough economy. Everything costs more than it did three years ago. And by the way, I'm not coming out against businesses not passing it on to the consumer, so please nobody quote me in in anything. But I think businesses have a right to earn money. They have the right to pass on their costs to consumers. I'd like to believe that lower costs with credit cards would lead to better pricing for consumers. I'm just not so sure we're going to realize that.

Chana Schoenberger (31:56):

Yeah, and the other dynamic going on here is that we cover Washington pretty closely. We have a whole team base there covering bank and financial regulation, and it is definitely a fact that the government at this point in time is laser focused on anything that they see is disadvantaging the consumer at the expense of any business at all. So you've seen this in what they're calling the junk fee campaign, but you see it a lot of other places too.

Christine Roberts (32:24):

We can have another meeting on junk fees.

Chana Schoenberger (32:28):

Go to junk fees.

Christine Roberts (32:29):

Junk fees.

Chana Schoenberger (32:31):

Okay. One more question if there is. Okay. Alright, I've got the last question then. Name one type of payments tech that is working really well right now and one that is not working. Not a specific vendor, just a type. Oh, I could say, I think the push to debit use case I think has worked really well and effectively for businesses and consumers and I think we've seen great adoption in the industry around this use case. It really helps solve an important need where no one who knows their account number and routing number. I don't, but I certainly have my debit card and you can pull it out and provide the business entity that information to get the funds directly on my debit card. I think we've seen strong industry-wide adoption on push to debit rails, which I think has served businesses very well. It's not working so well. I don't know. I think in general the US payments industry is evolving around faster payments and I think in pockets we've seen strong adoption and in pockets maybe we're continuing to see adoptions. I wouldn't say it's not working well. I think we're just on kind of an evolutionary curve of instant payment and faster payment adoption in the us.

(33:59):

Great.

Christine Roberts (34:01):

I think I would agree that some of the newer technologies that are allowing folks to pull in ACH information during a transaction at point of sale as well as online to allow people to transact through their checking accounts faster and easier for the consumer, I think is something that's definitely improving the customer experience and quite frankly, not just at point of sale, but further down the line when you are debit card has to get changed out five times and you have to go and update that information right in 15 different places that you can't remember and things aren't getting paid for. So I think there's a little bit more of a trend towards that, which I think is really fantastic. I also think one of the trends from a payment perspective is the ability more for the under eighteens, right? So there's some products out there right now from a, it's not necessarily technology, but there's products out there right now like a green light that allows more financial freedom and controls between families, which I think are really important in teaching great behaviors from a payment perspective, money usage perspective for the next generation, I would think what's not working well is probably some of the more antiquated components.

(35:15):

We still have systems that within the financial services, the larger financial services realm that haven't caught up to the API structures and technologies in order to create more interconnectivity. I think that's just a natural evolution, but it hampers our ability to go faster.

Chana Schoenberger (35:34):

Great. Wonderful. Well, thank you so much. We are in the red, so we're going to get off the stage on the red. Appreciate you coming up here with me. Thank you so much.