Chuck Hounsell is senior vice president payments at TD Bank, leading the development and implementation of payments strategies. He’s responsible for the payments capabilities of the bank’s businesses across North America, and is a member director of the Canadian Payments Association.
I’d like to thank Chuck for agreeing to an interview on the very first morning of Sibos 2015. What follows is a discussion about financial technology, prepaid cards, authentication technology, and blockchain.
At TD Bank, what are the fintech initiatives you’re finding yourself responsible for?
Fintech is obviously attracting a lot of attention. The $12bn that has already been invested into the space – that’s a lot of money going into startup companies. And with the kind of regulations and directives that are coming, banks need to be more open to allow data and transactions being handled by third parties. It’s about starting to think from the beginning – how the industry is going to be reshaped, figuring out what a bank really is, and what role they’re going to have in the financial services industry of the future.
And what do you think are some of those trends that will shape the financial services industry of the future?
I think there’s a lot of people who want to be able to do private transactions over a private network. Starbucks is an example of a private network that can be expanded to others. Another example is the prepaid cards network, which is acting as a private network on an open network, where it carries a network affiliation. PayPal is basically a private network sitting on top of a bunch of different networks. Everybody is trying to be present at the transactions, and ensuring there’s a role to play in the transactions. We don’t want to be just a funding element, and we don’t want to be just a data element – we want to have a presence in the transaction. So the question is, how do we add value in those transactions.
Without adding cost.
Yes, without adding cost. We’ve been inspired by firms such as LevelUp in Boston, which is basically taking up a strong position while running a mobile wallet model. It’s not the model that I love so much as the position, which says: we are going to not charge for the merchant acceptance beyond our costs, and we’re going to make our money from creating new ways to add value to merchants. Its model is a long game with an interestingly fresh approach to making money. Banks need to consider how they’re adding value and how they can be rewarded for that.
How can you possibly go about creating these types of customer-centric pricing models?
When we look at what we have to do, we break it into a couple of things. Firstly, data monetization, with models based on amazing amounts of data. Creating value out of customer data is a crucial step. Secondly, the notion of authentication. The banks have a robust KYC, and they know who the customers are. They have really solid methods of identifying customers. If we take that and make it even stronger, with biometrics and other technologies as they evolve, we can make it easier for customers to do things with the bank, and others. This could mean providing evidence that you are who you say you are, but also sharing data attributes that you’ve decided you want to share, and ultimately monetizing them.
I recently read an interesting piece on TD Bank experimenting with wristband technology for authentication.
We participated in proof of concept with Nymi Band. This band measures your heartbeat and creates a baseline of authentication. You are perpetually authenticated as long as you’re wearing the band. It’s just one of multiple biometric authentication methods that are going to be rivalling each other for the right solution, but it’s good to get learning about these technologies.
I need to ask you about blockchain technology because there’s so much talk going on about banks taking part in blockchain-based innovation. Where do you see that fitting into what you do on the payments side?
I would agree that blockchain has a role in the future. What exactly that role is is a great question. We’re engaged in trying to figure out how we can really use it, to deliver better services, to speed up services and to reduce the cost of services. It may be that the blockchain is used for logistics, or a book of record, or a trading platform. It has many possibilities, which in turn has the community very excited. It isn’t yet clear how we’re going to use it, but we can anticipate it will be utilized to make changes to business models we participate in.
We need to determine the best applications, likely those that have many parties and can benefit from distributed ledger, and can be delivered cost-effectively on a bank-grade platform. They will have to be the best solution to solve a real problem and remove friction.
How can the fintech firms and banks work together to deal with some of these challenges?
Banks have almost a sacred responsibility when it comes to KYC and providing liquidity, and those aren’t things you can delegate. In fact, many fintechs are relying on banks to deliver those things, I believe. How do you take the value of what fintech offers and the value of what banks really offer, which is a customer base, liquidity and KYC, and bring them together? Maybe we should spin it the other way around. Perhaps banking could be seen as a platform where fintechs can be participants and deliver value-added services to customers as part of our platform. Is banking a platform or is it a ‘content’?
I’m really, really glad to hear that thinking, because it’s essential for all players in the ecosystem to work together. And banking as a platform could be, in fact, the future of financial services. Do you see opportunities right now for startups to work closely with TD Bank and get started on that future?
Yes. The bank has created a fund to enable us to make strategic investments in fintech companies we want to do business with. We have a team that works with startups, executing proof of concepts, articulating business models and determining how it can add value to our customers. We see working with the right startups as something we could really benefit from.