Mobile in the time of digital

Stephen Greer

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Feb 4th, 2016

Bank of America recently announced that it would triple spending on its mobile app. While no exact dollar amount was given, it made me wonder: what exactly does that entail?

In the past, Celent has praised the Bank of America mobile banking apps as some of the best out there. The bank has been going strong with its digital strategy for years, even closing branches and reducing overhead to drive adoption. Bank of America recently added features like touch ID, debit card toggling, two-way fraud alerts, and more to its app, and has been outspoken about the desire to personalize the digital experience. Its commitment to new features and functionality is reflected in the comments and ratings on iTunes and Google Play. Shown in the graph below, the bank´s mobile banking adoption has been steadily growing, with a growing share of deposits.

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Source: BofA Annual Reports/ Investor Presentations

So again: what does “tripling” mean when talking about an app that has obviously been well-funded for quite some time?

As digital assumes a larger role with the business, the funding required to build a digital customer experience will extend beyond the reaches of mobile. The capabilities many consumers demand can be difficult if not impossible without significant effort on the backend to align technology. Banks are starting to realize this, building out unified digital platforms that streamline the architecture and better position institutions to offer truly modern, data-driven, and value-added consumer experiences. These kinds of initiatives can often run in tandem with larger cultural and multi-channel efforts.

In the press release for the announcement, Bank of America said it was launching a digital ambassador initiative which, similar to the Barclays Digital Eagles program, will see front-line branch staff reskilled to be able to assist with digital channels. The bank is also launching cardless ATMs later this year. I´m assuming the coincidence of these announcements is anything but, and that the funds for “mobile” will largely be dispersed over (or fit into) a wider array of strategic digital initiatives. Institutions need to create a solid digital base within the institution, bringing in culture, personnel, and technology across all channels and lines of business to start transforming digitally.

Banks are being challenged by the notion of “becoming digital.” Many have reached the point of recognizing the inevitable digitization of the business model, and are in the throes of decision making that will determine how equipped they are to appeal to the new digital consumer. Most institutions are experiencing these growing pains, and very few have committed to digital at the level demanded by customers.

If Bank of America is indeed tripling its budget just for mobile, then I´ll be very interested to see the kind of features the bank develops over the next few years. Yet there´s a lot that goes on to make the front end look good and spending more on the front will mean more spending on the back. Mobile banking is a significant part of digital banking, but remember that it’s only ONE part. While new functionality gets the headlines, it’s what’s under the hood – culture and backend – that truly matters.

Cardless ATMs and disappointing mobile wallet adoption

Bob Meara

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Feb 3rd, 2016

While I’m an outspoken advocate of financial services technology, I have been a bit of a curmudgeon when it comes to mobile wallets. My skeptical attitude reached an apex when I dropped my smartphone in a glass of merlot several years ago and hasn’t recovered. Had my smartphone been my mobile wallet, embarrassment would have been the least of my problems. Said simply, I just don’t see a compelling use-case for most consumers. Until they arise, I expect industry press to continue to publish stories of lackluster adoption. There have been many. One in particular caught my eye.

A recent article in Digital Transactions makes my point in its opening statement, “The introduction of cardless ATMs, which rely on a financial institution’s mobile wallet instead of a debit card to make an ATM withdrawal, could help further the adoption of mobile wallets and mobile payments.” Said another way, if the industry offers consumers enough reasons to configure and use a mobile wallet, adoption may eventually result. This doesn’t sound remotely compelling to me. I can hear the rebuttals now.

In defense of Bank of America, BMO Harris, Chase, Peoples Bank and other institutions that have invested in cardless ATM access, physical debit card usage at the ATM could pose an annoyance to mobile wallet adopters, few that they are. With ATM usage roughly twice the customer penetration of mobile banking (below), the last thing banks need is a reason for customers to be dissatisfied with their ATM experience. In my opinion, that’s a more compelling rational for investment than some vein attempt to bolster mobile wallet adoption.

US P12M Channel Usage 2014Source: Consumers and Mobile Financial Services 2015, U.S. Federal Reserve, March 2015

In the article, one banker summed up the challenge associated with mobile cash access this way: “We found the biggest struggle is explaining what it is and the benefit it offers.” If the biggest struggle is communicating a compelling value proposition, then maybe the value proposition isn’t compelling. I don’t think it is – at least not yet.

Please don’t misunderstand, I think cardless cash ATM access is a reasonable initiative, but not for the reason stated in the article. I applaud efforts to better integrate retail delivery channels, and ATM cash access is a baby step in that direction. Combine cardless ATM access with other capabilities such as broader P2P payment mechanisms, geo-location and a merchant-funded rewards program, and mobile wallets begin to look compelling. Until then, banks have a bevy of higher priority initiatives to deliver in my opinion.

But, even if my bank enabled cardless cash access, I still wouldn’t abandon my physical wallet. In the event of another tragic merlot mishap, traditional ATM cash access might be a real life-saver.

The paradox of digital payments

Feb 2nd, 2016

At Celent we run a couple of Banking research panels – one on Branch transformation and another on Digital – where any US-based bank or credit union can participate in surveys we administer on a regular basis. Last week we published the report with findings of our survey we conducted in November 2015 on Digital Payments. 42 institutions participated and answered our questions on:

  • How important are digital payments in the context of other priorities?
  • What has been the industry’s experience with digital payments?
  • Where is the industry in its EMV migration journey?

The survey results highlighted the paradox of digital payments:

  • Nearly everyone thinks that digital payments are important, but only 13% view it as strategic priority, aim to lead and invest accordingly. 63% aim to be fast followers and another 23% only invest to stay on par with peers.
  • 71% of participants agree that financial institutions (FIs) should offer branded digital payments (e.g. own digital wallet), but they are more likely to participate in third party wallets, such as Apple Pay, Android Pay and others, than to invest into their own HCE wallets – 46% have no plans for HCE.

So, what should the FIs do in digital payments? Accept that “payments are disappearing” and focus on ensuring that their payment credentials are available for customers to use wherever they want them or fight back with their own branded wallets? Does it have to be an “either/ or” choice? Can they/ should they do both? What are your thoughts?

P.S. Our panels are open to any FI in the US – Celent clients and non-clients – and we share the results report with all respondents. If you’re a banker and would like to participate in future Digital Panels, please contact info@celent.com.

Trying to increase stickiness isn’t worth it

Dan Latimore

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Feb 1st, 2016

Customer acquisition is top of mind for many incumbent banks. They want to win new customers and prevent the loss of profitable current relationships. Received wisdom is that increasing “stickiness” will help customer retention. Based on a wonderful natural experiment in the UK, I contend that the resources currently being used to increase stickiness could better be used elsewhere. Even when switching is made as easy as possible, people just don’t do it! Let’s look at what’s happening in Britain, a country with many cultural similarities to the US.

Banks spend a lot of time trying to get customers to switch

Banks grow their retail account base by acquiring customers with one of three traits:

  1. They’re arranging their first bank account ever.
  2. They’re opening a second account in addition to an existing one elsewhere.
  3. They’re setting up a new primary account to replace an old account.

In the third case, customers switch because they move homes, because they’re dissatisfied with their incumbent, or because there’s a significant enough action (merger, branch closure) that causes so much inconvenience that they’re motivated to do something. Banks, anxious to defend their customer base against attackers trying to poach their profitable clients in this third scenario, spend a lot of time thinking about ways to make their account sticky (e.g., through bill pay).

The UK has made it as easy as possible

The United Kingdom has eliminated most barriers to bank account switching. In effect, stickiness is gone. Regulators have mandated that a bank switch over a consumer’s standing orders and the like to the newly chosen bank, without fees, within seven days. UK regulators are trying to increase competition and awareness to ensure that consumers receive the best banking deal possible.
As Payments UK says on its website:

Launched in September 2013, the Current Account Switch Service is a free-to-use service for consumers, small charities, small businesses and small trusts that makes switching current accounts simple, reliable and hassle-free.

The service aims to increase competition in the high street, support the entry of new banks in the current account marketplace and give customers a greater choice when switching from one bank or building society to another. It is backed by a Current Account Switch Guarantee, and UK banks and building societies covering almost the entire competitive current account market offer the service.
All aspects of the Current Account Switch Service (CASS) are now managed and owned by Bacs, the company responsible for Direct Debit and Bacs Direct Credit in the UK.

Enabling this one-week switching process was enormously costly for the banks, who, it’s fair to say, did it only under duress.

But people still aren’t switching

And yet, the switching rates are well below what was projected, even after most barriers have been completely eliminated! And it’s not because consumers don’t know about it: 72% of respondent have heard of the Current Account Switch Service, and 75% said it would be easy to switch banks. And it’s not because it’s not quick: more than 99% of switches are completed within the seven working day timescale, and 72% of responding consumers said it would be quick to switch banks. All of this is according to BACS itself, as of January 2016.

There’s a great deal of back and forth between regulators and banks about what the true switching rate is; the crux is definitional, distinguishing between “active” and “funded” accounts on the one hand, and “manual” vs. “automated” switching on the other. What’s clear, though, is that switching hasn’t increased significantly despite having been made much simpler and easier, and that overall rates remain low, between 1.8% to 3.0% per annum (depending on definitions). Perhaps more significantly, switching rates haven’t increased over time. And the churn rate (“the ratio of account openings to the stock of existing accounts”) remains at roughly 7% [p.15, Personal current accounts, Market study update, Competition & Markets Authority, 18 July 2014]. The graph below based on BACS data shows that the number of account switchers in the UK remains flat to slightly declining.

UK Account Switching

Even “Challenger Banks,” new banks that UK regulators are actively encouraging to increase competition, have seen little very little uptake to date. That may, of course, change over time, but it’s likely to be a decade-long process since consumer behavior changes so slowly.

 

Potential explanations

The CMA report reference above prosaically speculates that “competition being more limited than it would otherwise be” could be due to “…customers’ belief that there is limited differentiation between providers, and the complexity in [Personal Current Accounts] charging structures results in low switching.” [p. 17]

I think that’s a good bet, and I’d go even farther: customers know the foibles of their current bank, and while they may be unhappy with it, they at least know what to do and what to avoid. They don’t know the ins and outs of the alternative banks, and don’t think that they’ll be much better. In the absence of a markedly better alternative, inertia sets in and they remain where they are.

Lessons for banks

There’s been a longstanding hypothesis that customers stay with their banks because it’s too inconvenient to switch. A related hypothesis is that if it were only easier to switch banks, more customers would do it. After more than two years of data from the UK, I contend that both hypotheses are wrong. And they’re likely to remain wrong for at least the next three years: customer behavior just changes too slowly.

So what does this mean for incumbent banks? I’d offer three key takeaways:

  1. Stop spending so much time on making your offerings sticky; they’re likely already sticky enough and your efforts could be better spent elsewhere (like delighting your customers).
  2. Don’t invest in making it easier to switch to your bank; that’s not what’s holding customers back, and again, your efforts could be better spent elsewhere.
  3. Continue to please your profitable customers, and enlist them as your allies. Consider refer-a-friend programs, for example
    The account switching experiment in the UK offers valuable lessons, and we’ll continue to monitor the situation.

Banks and Fintech: friends or foes?

Jan 28th, 2016

The question in the title of this post has become a rather hot topic lately. Earlier this week, I was kindly invited to join the panel on “what’s hot in Fintech” at Citi’s Digital Money Symposium, and it was one of the central questions we debated as a group. My colleague Stephen Greer has also discussed Bank-Fintech relationships on these very pages, for example, see here and here.

The question is not necessarily new. Back in 2011, I wrote a report titled Innovative Payment Startups: Bank Friends or Foes? In the report, I looked at companies presenting at the inaugural FinovateEurope and concluded:

“Banks have little to fear from this particular group of payment innovators. Some solutions actively support the established payment systems, in particular cards. Others are expanding the market by enabling payment transactions in places where they may not have been possible before.”

There is no question that the pace of innovation has increased in the last five years since that quote. However, today we also have many startups and Fintech companies that are actively serving banks with their technology tools (from authentication and fraud management to back- and middle-office systems). Others, such as Apple partner with banks to develop propositions that “wrap around” a card transaction.

In the last few months, we have also noticed an increase in stories around collaboration between banks and Fintech. Most payment unicorns (private companies with valuation of over $1bn) achieved their impressive scale and valuations mainly by competing with banks in a specific niche and focusing on being the best in class in that area. Often, it is in merchant services, such as those provided by the likes of Stripe, Adyen, Square, and Klarna, while TransferWise is successfully attacking banks in the international payments market. Yet, even among the unicorns there are those that have chosen to partner with banks, such as iZettle which has partnerships with Nordea, Santander, and other banks in Europe. TransferWise, a unicorn that has long been positioning as an alternative to banks, is now partnering with LHV, an Estonian bank, to offer its service via the bank’s online and mobile channels, and is rumoured to be in discussions with “up to 20 banks” about adopting its API. The Wall Street Journal recently quoted Ben Milne, the CEO of Dwolla, as saying, “Time humbles you. Working with banks is the difference between running a sustainable business and just another venture-funded experiment.”

It has become fashionable to pronounce the death of banking. The disruption caused by Fintech is supposed to blow the old-fashioned banks out of the water. Of course, we acknowledge the disruption and recognise that banking is changing. We simply don’t agree that banks will disappear — at least not all of them:

  1. Today’s smartest banks will figure out a way to stay relevant for their customers.
  2. Some of today’s disruptors are becoming banks (e.g. Atom, Mondo, Starling in the UK)
  3. Both Fintech and banks are starting to acknowledge the value they each bring to the relationship and will learn to collaborate effectively.

My colleague Gareth Lodge and I have just published a series of reports on reimagining payments relationships between banks, retailers and Fintech. Commissioned by ACI Worldwide, the reports take a perspective of each party and explore this topic in a lot more detail. Just like a family is locked into a set of relationships, banks, retailers, and FinTech form a payment ecosystem that we believe is more symbiotic than many would want to admit.

Is the tablet banking honeymoon over?

Stephen Greer

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Jan 25th, 2016

Only a couple years ago, as mobile banking was growing rapidly, and the conversation around development strategies was at its height, tablets played a prominent role in channel strategies at the largest and most digitally mature institutions.

The consumer interest in tablets over the last year or two, however, has plateaued—even waned. Tablet is nowhere near dead, but sales have started to level off. According to ABI Research, tablet sales experienced a 19% YoY decline in growth from 2014-2015. There are a few reasons for this:

  • Tablets have low replacement cycles: Tablets aren´t being recycled at nearly the rate of phones. Partially this has to do with wear and tear—tablets typically sit at home, aren´t charged as often, and aren´t dropped nearly as much—but likely a bigger reason is the lack of major advancements in hardware.   There simply hasn’t been a new tablet feature in the last couple years for which consumers are choosing to shell out another $400-600 (or more).
  • Phablets have taken over as the preferred device: consumers are increasingly going for phones that can provide the screen space of a tablet with the mobility of a smartphone. Phones have been steadily growing in size to meet this need. Phablets can provide the processing power to accommodate the needs of consumers for less.
  • Tablets haven´t carved out a distinct enough use case: It´s still unclear to what extent tablets are devices of leisure, business, lifestyle, etc. There´s the Surface 4 and others that are starting to seriously go after the laptop market with a full operating system and keyboard, but the best-selling tablets on amazon are all those with small screens and cheap price tags.

Celent´s discussions with banks have largely echoed this change, moving to a broader understanding of digital strategy and what it means to be “mobile.” It´s not that tablets aren´t important—far from it—but banks have limited resources dedicated to digital channels, and institutions should be thinking about prioritizing development where the opportunity is highest. A recent Celent report on digital transformation showed that more than 65% of banks cite resources and availability as a barrier to digital maturity.

So what’s a financial institution to make of all this?

  1. Use responsive design: A bank may have been able to manage native apps when there were only a handful of devices, but that´s no longer the case. Responsive design has evolved to the point of being able to provide the same look and feel through an experience automatically tailored to the user´s device.
  2. Think about the consumer-facing branch tablet: This could be roaming personnel in the branch, tablet-like ATMs and kiosks, or as a way to streamline the on-boarding process.   The characteristics of tablet interfaces should influence design in other channels.
  3. Design the right app if large tablets are going to continue to be a priority: As the form and function of smartphones and tablets begin to move closer together, institutions will have to reassess where the full tablet experience sits within its strategic digital priorities. The consumer-facing tablet experience may need to reflect the evolving use case.

Celent will continue to discuss the role of tablets in financial services going forward, but the conversation around mobile banking will reflect the larger digital channels picture, rather than tablet vs smartphone vs. online banking. We feel this is more in line with the way the market is moving.

Large FIs spent $25M rolling out failed risk management frameworks during the 2000’s. So why try again?

Joan McGowan

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Jan 19th, 2016

Large financial institutions spent in excess of $25 million on rolling out failed enterprise risk management frameworks during the 2000’s. So why try again?

Well for many obvious reasons, the most notable of which has been the large scale failure of institutions to manage their risks and the well-editorialized consequences of those failures. The scale of fines for misconduct across financial services is staggering and damage to the banking industry’s reputation will be long-lasting.

Major Control Failures in Financial Services

blog
Source: publicly available data

Regulators and supervisors are determined to stop and reverse these risk failures, specifically, the poor behavior of many bankers. Regulators are demanding that the Board and executive management take full accountability for securing their institutions. And there is no room for failure. This is the only way that risks can be understood and, hence, managed across the enterprise.

There is no denying that risk management frameworks are hard to implement but Celent believes the timing is right for the industry to not only secure their institutions and businesses but to innovate more safely and, slowly, win back the trust of their customers.

My recently published report Governing Risk: A Top-Down Approach to Achieving Integrated Risk Management, offers a risk management taxonomy and governance framework that enables financial institution to address the myriad of risks it faces in a prioritized, structured and holistic way. It shows how strong governance by the Board is the foundation for a framework that delivers cohesive guidance, policies, procedures, and controls functions that align your firm’s risk appetite to returns and capital allocation decisions.

Corporate digital delivery channels and the customer experience

Patty Hines

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Jan 14th, 2016

Celent feels (and others agree) that it’s important that banks deliver an omnichannel digital customer experience, but the term means different things to different people. Based on our own research, we believe that omnichannel is about delivering a customized but consistent financial institution brand experience to customers across all channels and points of interaction.

An omnichannel experience is even more critical when delivering services to corporate clients. Each client has a unique set of business and technology requirements based on their corporate treasury organizational structure, geographic footprint, and treasury technology sophistication. A consistent financial institution brand experience is important to corporate clients, but the experience needs to be tailored to each client segment’s unique needs. For the largest, most complex organizations, an even more bespoke and customized experience is critical.

With banks investing increasing amounts of capital in technology incubators and startup accelerators, the pace of innovation in digital channels continues to grow. But for corporate clients, innovation isn’t about incubators, accelerators, or hackathons. Innovation is about simplification — increasing usability, straight-through processing, and digitization.

As outlined in the new Celent report, Tailoring the Customer Experience: External Forces Impacting Corporate Digital Channels, the competitive environment, regulatory climate, economic conditions, and technology impacts are shaping the evolution of corporate digital channels. But emerging technologies will have the largest impact.

External Forces

Corporate digital channels are just one component of a complex treasury technology landscape, but a critical one. Corporates maximizing the efficiency and transparency of digital channels today are enabling and preparing themselves for innovative technologies for the future.

Customer engagement: how little things make a big difference (one analyst’s experience)

Bob Meara

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Jan 13th, 2016

Typically, analysts opine based on analysis of industry data, informed by product demonstrations, telephone interviews and occasional focus groups. This time, I simply share my own experience at a top-5 US retail bank to illustrate how even seemingly little things may have significant customer impact – both favorably or unfavorably.

This past weekend, I had a document needing to be notarized. Both my spouse and I had to sign the document and we had a busy weekend agenda. Recalling that as an account holder at a top-5 US bank, notary public services would be free of charge, I planned to visit a convenient branch in-between Saturday morning events. What could be easier?

Recalling this bank was one of the relatively few that offered digital appointment booking, I thought it brilliant to book an appointment, rather than taking my chances upon our arrival at the branch. Plus, I was looking forward to getting up-close and personal with the appointment booking workflow. The bank’s appointment booking application was marvelously easy to navigate, but to book an appointment; one had to select an area of interest. This is a reasonable and beneficial requirement, because selecting an interest area ensures the subsequent meeting occurs with someone with requisite knowledge. The problem was that notary services wasn’t listed in the drop-down menu of interest areas. No appointment for me!

Without the ability to book an appointment, I sought to make sure the branch nearby to our other activities would be open when we were available. Back to the bank’s website. Easily done, except for the repeated “Make an Appointment” buttons staring at me upon nearly every mouse click, which at this point served as an irritant. It caused me to think. On one hand, well-done to the bank for making the ability abundantly obvious. On the other hand, why no appointments for notary services. Are such needs rare, or does the bank only invite appointments for direct revenue-generating activities?

The closest branch was no longer offering Saturday hours, so we trekked to another branch that was a bit out of our way, arriving just past noon. Being a Saturday, I expected it to be busy, but was unprepared for what I saw. Three staffed teller positions were active. All offices were conducting meetings and there were four people waiting in the lobby – complete with restless children which we were happy to entertain.

To “speed service”, I was invited to check-in. The process wasn’t exactly high-tech. It consisted of a clipboard resting on a small table with space to write my name and time of arrival. Most of the previous names were scratched out with a combination of black and blue ink, so I figured our wait time would be acceptable. User impressions aside, I was struck with the notion that this very large bank had no consistently gathered information about why customers visit their branch, if they were actually served or not, or what their wait times were – unless some poor soul transcribed all our scribbles into a database. Not likely. Maybe that’s why they don’t offer appointments for notary services.

After about a 10-minute wait, we were greeted by a well-dressed young man offering to assist. He quickly affirmed his ability to perform notary services and asked what it was that we needed notarized. I presented him our 1-page quit claim deed, whereby he apologetically replied that, while he was a notary, the bank was not able to notarize deeds. If only we had another sort of document, he would have gladly helped us.

At least, he offered an alternative for us – driving back to the UPS Store next to where we hadbeen. No wait + $2.00 and we were done. We didn’t even need an appointment.

I learned an important lesson that day.

Silicon Valley? No, Chilecon Valley

Juan Mazzini

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Dec 29th, 2015

In previous blog posts regarding fintech in Latin America my position was, and remains, that one of the reasons for being behind is that it lacks of a “Silicon Valley” equivalent.

Efforts to create a fintech ecosystem, as Finnovista is doing, become a good alternative to overcome the absence of a geographical pocket of innovation. Particularly consider the market fragmentation of Latin America comprised by 19 countries, some of which have 3M inhabitants to Brazil having +200M. People in most countries may speak the same language but markets are far from being similar just for that.

Under (or against?) these circumstances, Chile is working to become Latin America’s Silicon Valley. One of its most attractive initiatives is “Start-Up Chile”, created four years ago to transform the Chilean entrepreneurial ecosystem. It began with a question: “What would happen if we could bring the best and brightest entrepreneurs from all around the globe and insert them into the local ecosystem?”

The initiative offers work visas, financial support, and an extensive network of global contacts to help build and accelerate growth of customer-validated and scalable companies that will leave a lasting impact on the Latin American ecosystem. The idea is to make the country a focal point for innovation and entrepreneurship within the region. Start-up Chile, with only four years, is a start-up itself but it has a good starting point and great potential:

  • Chile has demonstrated for years its entrepreneurial spirit, with Chilean companies competing successfully in various industries (air transportation, financial services, and retail, just to mention a few) and a stable economy.
  • This year two Chilean start-ups were the winners of the BBVA Open Talent in Latin America: Destacame.cl, aiming to financial inclusion by creating a credit scoring based on utility payments; and Bitnexo which enables fast, easy and low cost transfers between Asia and Latin America, using Bitcoin.

While other countries and cities in the region are working in offering support to start-ups, it seems Chile is leading the way. Hopefully this triggers some healthy competition in the region, which in the end will benefit all.

In the meantime, let’s meet at Finnosummit in Bogota – Colombia next February 16th. Join financial institutions, consultants, tech vendors, startups and other digital ecosystem innovators, to learn how startup driven disruption and new technologies are reshaping the future of financial services in the region. Remember to use Celent’s discount code C3L3NT20% for a 20% discount on your conference ticket.