Would You Go Shopping To Your Bank?

Apr 17th, 2014

This week I saw the news that Bank Zachodni WBK in Poland, part of the Santander Group, “embedded an extensive m‑commerce marketplace into its mobile banking & payment application.” The users can log into their mobile banking app, and from there shop at a variety of merchants embedded in the application. According to the announcement, “the purchase is made with one click only and all user’s financial data is protected by the bank. Customer does not have to trouble with attaching multiple credit cards, remembering shops’ logins or learning their functionalities (all shops and financial services share one unified UI); a delivery address is already stored.”

Poland is a very innovative market in payments, from being one of the leading markets on contactless POS penetration to working on solutions for payments directly from a bank account (e.g. IKO). This is yet another example of creative thinking in payments and commerce, and the bank should be applauded for its innovation efforts.

But is this the right model? I can understand the attraction to banks: the opportunity to earn additional revenue while giving more reasons for your customer to use your app. It might make sense for the merchants as well. If payment is processed directly from a bank account rather than a card, they are likely to have lower costs. And one-click purchasing might increase the conversion rates, a crucial metric for success for online merchants.

The big question is whether customers are prepared to view their banks as online malls where they go shopping across a broad range of retailers. What can such a bank mall bring over and above individual merchant sites? O2 Wallet in the UK has tried to build a similar mall, by enabling shopping at selected merchants directly from the wallet, but has recently shut down to re-think its strategy. Nectar, a multi-merchant loyalty scheme, also has partnerships with many online sites, including leading brands, such as Apple, Argos, Currys, Debenhams, and, until recently, Amazon. If the customer goes to the participating retailer’s site via Nectar website, they would earn Nectar loyalty points for their shopping. As much as I like my Nectar points, I can never remember to go to their website first; I either go to the merchant website directly or Google to find what I am looking for…

My view is that such a model may work for small local merchants, which need help to be discovered and lack ability to build an online/ mobile presence themselves. Combining with a single sign-on, unique offers and one-click checkout you get a viable proposition. It is much more difficult to imagine a customer going to Amazon or another leading brand via his bank.

Understandably, banks want to play a bigger role in the broader commerce, not just payments, and will continue to experiment with different models. Ultimately, it will be consumers and merchants that will determine what works best for them. What do you think is the right model for banks?

What does Digital mean to you?

Dan Latimore

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Apr 15th, 2014

Celent held a client roundtable on the subject of “Digital.” We had a sneaking suspicion that there wasn’t a lot of consensus on what that word actually means, so just prior to the event we asked participants “to list three words or initiatives that you associate with digital in your organization.”

Here’s what we found: of 30 responses from 10 people, only two terms were mentioned twice: “mobile” and “customer experience” (which isn’t quite a single word). Every other word was unique.

Digital WordCloud

I find this fascinating: there’s no agreement on what digital means, and yet it’s one of the hottest topics in financial technology today. How are we going to deal with this issue when we can’t even agree on what it is? We’d suggest that defining what digital means in your organization is a vital first step to refining your digital strategy.

My colleague Will Trout has also blogged on what we found during our roundtable.  You can find his thoughts here: http://wealthandcapitalmarketsblog.celent.com/2014/04/12/celent-roundtable-exploring-digital-in-financial-services/


Real-time Payments: Different questions, funnily enough, get different answers.

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Apr 6th, 2014

Bob recently posted some views on the same day ACH – as always, great points, well made. Somehow, in Twittersphere, some of the comments got attributed to me, and from that some of those have got re-interpreted as me being anti real-time payments. As my daughters would say, whatever! That’s not the point of this blog.

What really struck me was the fact that some saw Bob and I as having different opinions. I would say that I don’t believe we do (at least not in the majority of the issues), but that we were addressing different questions, and, unsurprisingly, end up with different answers. To crudely paraphrase Bob’s post, he quite rightly points out that the business case, based on today’s business, doesn’t stack up. Secondly, he points out that consumers don’t really want real-time payments – how many of us wake up with the urge to make a payment?!

Let’s pose a different question, the one I’ve been primarily discussing. If you were starting with a blank piece of paper, would you replicate what we have, or would you build something better and faster? A no brainer.

Second question. The current system is roughly 25 years old – do we think that the same system will still be good enough in another 25 years? The answer is again obviously no.

No-one in the industry who’s close to this thinks that this isn’t going to happen. The questions we’re really asking are when, what is the trigger, how quick and how soon (i.e. incremental improvements or big bang)? Interestingly, there seems to be less discussion on how, with ACH seeming to be the default. Whilst I’m not suggesting that ACH isn’t an option or even where the majority of other systems have developed worldwide, it’s interesting in that there are already real-time systems in the market, running primarily on card backbones.

The answers to those questions are still much for debate. And who gets to answer them even less so. One noticeable difference compared to some countries is the governance of payments in the US. I believe – and please correct me if I’m wrong – that there is no single body who could regulate and dictate such a change. Equally, there is no body managing the future direction of the payments industry. Which, considering that in revenue terms, the US payments is bigger than both the US hotel and US airline industry *combined*, is both remarkable and perhaps something of a risk to the industry. As the US faces more regulation in the same way as many other regions around the world already have, a joined up, united front would seem an absolute need. We may not all agree when we need real-time, but I’d be curious to know whether we agree on the need for an overarching payments body to protect our interests going forward.

This blog is written on the eve of Nacha Payments, and the real-time topic is already dominating the discussions before the event has even started. The Nacha announcement has been met with a wide range of responses, but with more than a few suggesting that Nacha has both over stated their position, and that the solution misses the point. The week is shaping up to be very interesting.



It’s so easy for bank marketing to take a wrong turn

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Mar 26th, 2014

Yesterday I came home to a strange voicemail from ING Direct Canada. I decided to phone back right away because I noted the following 3 things about the message:

  • The toll free number provided was nowhere to be found on the bank’s web site
  • The message left was with regards to “my profile and information”
  • The reference number left on the voicemail was my online banking user ID

I called back the main toll free number provided on the bank’s web site. After a brief hold I was transferred to an agent who looked me up in their system. I was told that I had to be transferred to another department and that yes, the message that I received was legitimate. The person I was transferred to was polite and friendly and wanted to sell me an investment. WHAT???

The good news for the bank is that they got me to call back right away. The bad news is that I don’t even know or care about what she offered because I was so thrown off by the voicemail. I had questions. Why was I being directed to a toll free number that I can’t find on the bank’s web site or through a Google search? Why were the details of the voicemail so mysterious? Why was my user ID being divulged over the phone as a reference number? All of my comments were noted and the rep apologized. Granted I’m not a typical customer, but it’s customers like me that can help make a difference when it comes to these issues (or so I would hope!).

There’s a lot that banks can learn here – on the security front and on the marketing front. This is particularly relevant in an age where banks are so focused on marketing and offers that are based on data:

  • You can have great data, but it’s useless if you don’t master things like privacy and security
  • Customers should always be directed to call back a primary telephone number that can be easily validated. Banks are so cautious about email communication with clients – they should be just as cautious with telephone communication
  • Under no circumstances should a user ID ever be divulged. It’s a key piece of an authenticated login. It of course takes a couple of other pieces to login but that’s not the point – why give away any pieces of the puzzle? Furthermore, if a bank or customer were to suffer a breach, a fraudster could attempt to gain access to other account credentials by leaving a convincing voicemail containing a user ID (that obviously did not happen here).

I welcome your thoughts and comments.

UPDATE 4/7/2014:

I was contacted by ING Direct last week. They have informed me that they will no longer use a user ID as a reference number. Kudos to them for reacting quickly and switching around the process.

The Most Important Three Little Words in Payments?

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Mar 25th, 2014

No, not “I Love You” or “Buy Celent Research”. But That, Which and May.

The long running saga around Durbin interchange fees took another twist last week.

To recap, a group of merchants (knowns as NACS) sued the Federal Reserve, arguing that the Durbin rule it had imposed exceeded the authority granted by Congress to the Federal Reserve.

To many peoples surprise, in July 2013, U.S. District Judge Richard Leon upheld that opinion and ruled that the Federal Reserve did not comply with the Durbin. The opinion was generally harsh on the Fed, with the judge writing:

“The court concludes that the [Federal Reserve] Board has clearly disregarded Congress’ statutory intent by inappropriately inflating all debit-card transaction fees by billions of dollars.” The judge also ruled that the Federal Reserve failed to ensure that merchants enjoy access to “multiple unaffiliated networks” to process each debit-card transaction, as also required by the Durbin Amendment.

In short, the judge ruled that the Fed needed to re-write the Durbin amendment.

In January 2014 the case went to the US Court of Appeals, with literally billions of dollars at stake. Last Friday, March 21, saw the panel overturn the initial ruling, and the Durbin Amendment stands. This is a significant victory for the Fed and the banking industry, and major blow for the retailers.

So why the title of this blog? In their decision, the judges severely criticised the quality of the drafting of the report. In particular, the use of the word “which” instead of “that” became central to the decision.

That’s two of our three words.

It reminds me of the issues in implementing the Payment Services Directive in Europe. The PSD was published in French, German and English. Understandably, the numbers of words varied between documents. But oddly, so did the numbers of paragraphs. That was the first issue – a belief that not everybody was working to the same document. With English the business language of many of the international banks, and English being spoken more widely than the other two languages, more countries used the English version as their starting point. And that’s where the trouble began. The word “may” was used widely throughout the document – over 200 times. The nuances of English language education meant that some read the word as permissible; some read it as optional; whilst other again assumed it meant they had to. A simple word, but very important differences in understanding. The consequence is that the next draft of the PSD is trying to address issues that it never assumed would be issues!

Three simple words which (that?!) most of us probably never think about yet had billions of dollars in implications!

Reflections from BAI Payments Connect

Mar 21st, 2014

Last week I had the pleasure of attending BAI Payments Connect. It is one of those events that has always been on my radar but for one reason or another I never had the opportunity to go. And I was very impressed with it all, particularly with the quality of the conference sessions, which seemed to have been well curated by the organizers.

The event was just the right size – not too big to be overwhelming, and not too small. It also had the right balance between “new and shiny”, i.e. things that will matter tomorrow and “down to earth”, i.e. issues that matter today.

With four parallel tracks, there was no way to attend all the sessions. As a result, I didn’t attend too many sessions in the fraud or payments operations & check image tracks. So below is definitely not a full summary of the conference, but just a few of my personal key takeaways:

  • Real-time payments are firmly agenda for the US. There is still much debate about what ‘real-time’ really means and what is the best way to achieve it, as indicated by Bob Meara’s blog about the same-day ACH initiative. At the conference the Fed representatives shared the results of the public consultation on payments system improvement. The Fed received about 200 responses. More than three quarters of respondents agreed that ubiquitous participation, confirmation of good funds and both speedy payment settlement and delivery of information would be important. However, many also suggested that near real-time confirmation of good funds and notification are more important than near real-time posting to end-user accounts and interbank settlement. And opinions certainly were divided on how to achieve near real-time delivery of payments. Some advocated limiting any future faster payment options to credit (push) payments to help prevent fraud. The Fed is going to work on defining and prioritizing the US payment system improvement initiatives and expects to communicate these plans in a paper to be published in the second half of 2014.
  • PIN debit networks are continuing to promote PIN-less debit transactions, including at the POS. Visa and MasterCard implemented signature-less transactions at merchants a few years back and raised the limit to $50 in 2012. PIN debit networks responded by also allowing PIN-less routing for transactions under $50. PIN networks tend to have lower interchange rates, but also lower overall fees to stay competitive for the issuers. Nevertheless, it was intriguing to hear one credit union CFO saying that their revenue per transaction declined from 114bps to 94bps. While some of the decline can be attributed to a rising share of PIN-less debit transactions, another reason is PayPal. Having managed to convince a large number of customers to register their bank account as a funding source, PayPal now tops the ACH transactions, above billing, for that particular credit union. Which is related to the next point below…
  • Decoupled debit is not dead. While some decoupled debit initiatives, most notably Tempo, have disappeared off the market, PayPal and ACH cards, such as Target Red, are arguably very similar products. With retailer-led mobile initiatives coming into play, such as MCX, “decoupled debit”, i.e. replacing a card transaction with direct debit on a bank account, may have a meaningful impact on the growth of card transactions.
  • Bitcoin: forget the currency, focus on technology. This is the same message I already highlighted in my recent report on Top Retail Payment Trends, but was reinforced again in a hugely informative and entertaining presentation at the conference. Blockchain, a distributed open public ledger with appropriate cryptography, could be used to prevent “double spending” of any digital asset, not just money.

I also wanted to thank the organizers for the opportunity to share the stage with executives from Bank of America and Cardlytics. I had the privilege to interview them about BankAmeriDeals, Bank of America’s card-linked offers program. There is certainly a lot of interest in card-linked offers in the US banking community. In fact, the audience made my job very easy; after a few introductory questions and comments, they had so many questions that we could have easily spent another hour discussing them.

Finally, such events are always a good place to meet up with existing and potential clients and I had a number of very interesting discussions with them. Vegas is a long way from London, but it was a worthwhile trip.

Is the ACH the Best Path to Faster Payments?

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Mar 19th, 2014

Yesterday, NACHA issued a press release announcing initial steps towards same-day ACH. This is a second attempt at accelerating ACH payments. Rather than a “big bang”, this second attempt advocates a phased approach, inviting banks to invest in three projects instead of one. The sentiment seems worthwhile, but I’m not convinced that this is a good idea.

In considering faster payments, there are many considerations. Among them: what exactly needs to be faster and who is the customer? Who stands to benefit from faster payments?

What Needs to be Faster?
Particularly in the case of real-time payments, it is important to distinguish:
1) Notification of payment
2) Payment guarantee/ funds availability and,
3) Settlement

In my view, accelerating 1 and 2 are more important than 3 and less costly to bring about.

Who is the customer?
Who would stand to benefit the most? Many assert strong and growing consumer demand for faster retail payments. We see more interest than demand, particularly if costs are factored in. Celent surveyed over a thousand US consumers in August 2013. In part, we explored payment expectations. With little variation across age demographics, more consumers expect instant confirmation of payment (59%) than expect real time gross settlement (42%). Other factors weigh more heavily than speed.

When I Pay
Source: Celent survey of US consumers, July 2013, n=1,053

In my view, merchants and regulators are more invested in faster payments than are consumers. Faster payments mean earlier access to funds (retailers) and less systemic risk (regulators). That’s why most systemically important payment systems are RTGS.

Faster payments are a certainty – in time. What’s far from certain is how it comes to be – what rails are used. Some advocate using the ACH. I disagree. Moreover, I find the current dissatisfaction with the ACH amusing. Designed as an efficient, electronic, float-neutral payment system, the ACH is highly effective at fulfilling its designed purpose. More recent demands on the ACH, while not without efficacy, have also resulted in increased cost and complexity. Same-day ACH, in my opinion, is simply not compelling. If enacted through a rules change and offered optionally at a premium price, it may succeed, but would result in precious little use. Real-time ACH would be altogether different – a fool’s errand in my opinion. The ACH works splendidly when used as designed.

An analogy if I may. The NACHA press release stated: “The Network has always served as a foundation upon which we can build and innovate to meet the growing needs of today’s users and those of tomorrow.” That sounds a bit like inviting telco’s to build more phone booths in response to consumer’s demand for mobility. The “square peg in a round hole” analogy may work as well.

I’d love to hear your views.

Apples and Payments

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Mar 17th, 2014

Apple seems to be getting a lot of attention from Celent recently – Zils’ most recent report was called Apple in Payments, and  a number of us have blogged about various aspects, including a blog post from myself last month.

This weekend made me think again about the subject, though not perhaps to benefit of Apple.

On March 10th, Apple released IOS 7.1. At first, it seems all so simple:

“iOS 7.1 is packed with interface refinements, bug fixes, improvements, and new features. Apple CarPlay introduces a better way to use iPhone while driving. And you can now control exactly how long Siri listens and more. Getting the update is easy. Go to Settings. Select General. And tap Software Update.”

What is becoming apparent is that the update is not without its flaws, to say the least. My iPhone, for example, lost half its charge in under an hour, doing nothing. Whilst battery life has never been the iPhones strong point, this was taking the biscuit! Twitter and internet forums have seen significant amounts of discussion on the issues, and it seems to be impacting a large number of people. What was noticeable is that most of the fixes transformed the iPhone to, well, just a phone. Suggestions included turning off apps, turning off search, deleting various elements – in short, many of the reasons why we bought iPhones originally.

So why this post?

I’ve had a fair look around, and 7 days on, I’ve not seen any help or even comment from Apple on this topic, nor a promise as to when they’ll fix it. Now cast your mind back to some of the recent banking outages, where systems went off-line for a few hours, and the outcry that ensued.

On one hand, we’ve spent thousands of dollars on technology that doesn’t work as promised, and there seems to be little material damage to the business; but in banking, we (generally) pay nothing yet expect far higher levels of service and availability, and, at least in the UK, the bankers get hauled in front of the politicians to explain themselves if anything goes wrong.

That’s the fundamental challenge that banks have – all their technology has to always work, on every platform, for every product, and be backward compatible with everything. But Apple controls ecosystem, both the platform and the device, and both are less than 5 years old. Perhaps we ought to take a moment and think: actually, banks are doing remarkably well, all things considered.



Thoughts on a conference: Retail Banking 2014

Dan Latimore

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Mar 14th, 2014

I’ve just spent an extraordinarily useful day at a banking conference, Source Media’s Retail Banking 2014, in Orlando  (http://www.americanbanker.com/conferences/retail/).  Great sessions and great attendees (plus the chance to get out of Boston’s snow) made the journey worthwhile.

Many of the memes of the day  (in no particular order, and with no claims to exhaustiveness) reinforced the views that Celent has been talking about over the course of the last year.

Attendees were extremely interested in branch optimization. The sessions that I attended were standing room only; the other tracks on Digital Banking and Innovations in Banking were not.

Every banker mentioned customer-centricity within 30 seconds of beginning their presentation. Spurred by the realization that they need to up their game (see the next point), banks are beginning to reformulate strategies by putting the customer front and center.

Other industries are posing a threat to banks. Apple, Google, and Amazon, together with a host of smaller new entrants, have begun to be recognized as a credible threat by mainstream bankers, not just financial futurists. Some banks doubt that they’ll be able to compete, and we’d agree – IF they don’t do anything differently from how they’re doing it now.

Simplicity and Focus are critical for banks going forward. They’ve been used by new entrants to attack banks’ weak spots; incumbents must respond by being easy to work with and by concentrating on what differentiates them.

There was great energy throughout the day; let’s hope that banks continue it over the coming year.


Banking by Appointment – Bring it On!

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Mar 13th, 2014

Last week, Wells Fargo promoted new banking by appointment via outbound e-mail marketing. I say it’s about time! Here’s how it appeared:

Wells bank by appointment

Online appointment booking is just plain smart. It’s also overdue. For years, consumers have been able to schedule appointments with healthcare providers, hair dressers and restaurants – why not banks? The idea makes sense for several reasons:
• It provides an easy call-to-action as part of marketing communications.
• It helps banks balance staff capacity with sales and service demand.
• It allows front line staff to be prepared for customer meetings, rather than reacting on the spot as customers approach.
• It is clearly preferred by some consumers and minimizes wait times. Celent surveyed US and Canadian consumers on two occasions in 2013 and found them highly digitally-driven – except when they had something substantive to discuss. Then, they preferred face-to-face interaction.

Preferred method of engagement
Source: Celent US consumer survey, June 2013, n=1,033
Q: “If you had an important topic you would like to discuss with a banker, how would you prefer to do so?”

In my opinion, effective online appointment booking capabilities would be:
• Omnichannel – offered in multiple channels for engagement via multiple channels, not just the branch
• Integrated to existing calendaring applications to be low-friction for both consumers and staff
• Set up to automatically remind consumers of their appointment and easily revisited in case a change was needed. This should minimize no-shows.
• Tracked – rigorous measurement of appointment booking and subsequent results is key to continual improvement.

I’m wondering why this functionality remains a rarity among retail banks.