The Resurgence of NFC

Dec 11th, 2014

This is the time of the year when we begin to cast our eye back to 2014 as well as forward to 2015, and reflect on the top trends we are seeing in the market. One of the constants over the last few years in our annual Top Trends in Retail Payments report (coming up again in January 2015) has been our commentary on the ups and (mostly) downs of NFC and contactless payments. Yet, for the first time in years, it genuinely feels that NFC has finally taken a large step towards establishing itself as a major technology standard in mobile payments.

Without a doubt, the biggest event in payments in 2014 was the launch of Apple Pay. Having resisted NFC for so long, Apple has finally added NFC capability to its latest devices, such as iPhone 6, thus opening up NFC to iOS. And, in a typical Apple fashion, it didn’t just add a bit of hardware, it created a fully-fledged solution with unparalleled user experience.

However, the first few weeks after launch seem to have confirmed our concerns that Apple Pay was not going to be an overnight success. While the early news was encouraging with more than 1 million credit cards activated in the 72 hours following the launch, so far too few consumers are actually using Apple Pay. According to the InfoScout blog, 90.9% of iPhone 6/ 6+ users have never tried Apple Pay, and only 4.6% of those who could use Apple Pay during Black Friday, actually did.

This has prompted some commentators to announce the death of Apple Pay and argue that its fate will be the same as that of many other attempts to revive NFC. The future of the payments industry remains hard to predict and the NFC “nay-sayers” may yet prove to be correct. However, we see a number of signs to be optimistic, both about Apple Pay and NFC adoption overall. The ongoing US migration to EMV and growing consumer awareness and adoption of new devices over time will help boost Apple Pay usage. More importantly, globally, as Apple Pay launches internationally and more banks become aware of Host Card Emulation (HCE) technologies, the issuers will have genuine options to deploy NFC solutions.

Of course, contactless and NFC payments, even when they do gain mass adoption, are not going to be the only mobile payments option in the market. However, if for so many years it felt that the NFC land has been gripped by a long and harsh winter, we expect that it will feel a lot more like spring in 2015.

#EmotiveBanking

Dan Latimore

Post by

Dec 7th, 2014

I’ve just returned from my last conference of the year, the excellent and intimate NetFinance Interactive held in rainy (sic) San Diego. I’ve been talking about the importance of emotions, feelings and the ineffable in banking for the last two years, and this conference was the first time that this theme has been widespread among presenters and in conversation. Perhaps the tide is finally turning.

Why is this important? Money and finances are an intimate and emotionally fraught topic, like health. Do you prefer a doctor who clinical and dispassionate, or one who’s sympathetic and caring? Now just apply that to your banker.

Back in June I compared googled “I love my bank” and “I hate my bank.” My hypothesis was that the hate would blow love out of the water. I was spectacularly wrong:

141207 Love-Hate my Bank

As of December 6, it’s changed a bit; 110mm haters to 318mm lovers, or a ratio of 2.9x.

But why is this? It seems so counterintuitive. My new hypothesis is something of a good news / bad news scenario for banks: customer expectations are so low that when they’re positively surprised on the upside, they’re so flabbergasted that they just *have* to tell someone about it.

The lesson for banks? Look for opportunities to surprise your customers. Great service when they least expect it will get you noticed and deepen customer loyalty.

Tags:

Industry Consolidation in Financial Services

Post by

Dec 2nd, 2014

Celent recently released two reports looking at the state of banks and credit unions: And Then There Were None: The Disappearance of Community Banks and Catch CU: The Ongoing Evolution of the Credit Union Market. The analysis within each report shows a clear trend towards industry consolidation. The number of commercial banks in the US is declining rapidly, from 11,462 at the end of 1992 to 5,809 in 2014, while credit unions in the US went from 10,316 in 2000 to 6,491 in 2014. As the industry consolidates, the majority of institutions disappearing are disproportionately coming from the lower tiers. For banks, the point at which institutions see rapid decline is around $300 million in assets and below. For credit unions, that number is around $50 million and below.

The figures below provide a broad summary view of what´s happening in each industry. For every asset tier, the CAGR for inflation-adjusted deposit and institution growth is charted along with the difference between the two. Asset tiers with a negative difference between the growth of deposits and institutions are declining on a per institution basis. This is an effective summary when assessing the health of a tier.

Picture 1

Picture 2

Banking is obviously becoming more complex, and competing is no longer a matter of opening a branch, setting up an ATM, and accepting deposits. The past 10 years have seen the rise of internet banking, bill pay, know your customer (KYC), Office of Foreign Assets Control (OFAC) compliance, mobile banking, consumer and business remote deposit capture, branch capture, and much more. Most small institutions don´t have the resources to stay on top of it all, and the requirements to “keep the lights on” leave pockets dry for modern customer facing applications and services that have become crucial to growing deposits.

Is the consolidation good for the industry? What role will small banks and credit unions play in the future? Is further consolidation inexorable, or will the industry soon meet a healthy equilibrium? Feel free to comment.

 

Moven inks deal with TD Bank – For PFM?

Post by

Dec 1st, 2014

The rumors have been swirling for some time now that Moven was going to sign up a Canadian bank. This was announced today and I read about it in The Globe and Mail. Curiously, the article is titled, “TD Bank helps its customers pinch pennies with new app.” What does this mean exactly for Moven and TD? Is TD going to start a digital only bank/account or are they merely going to add PFM capabilities? It’s not clear to me if this will require the opening of a new account or not. I’m also not clear on if this will be a separate app or if it will be integrated into the existing TD apps. It is however quite clear that TD is honing in on PFM capabilities.

“We’ve been interested in [personal financial management], but adoption is very low.”
– Rizwan Khalfan, SVP and Chief Digital Officer, TD Bank Group

The Canadian banking scene is super conservative, so this is no doubt an interesting move. This deal can provide great opportunities and also comes with some challenges.

Great opportunities:

  • Banks absolutely need to try new things. Kudos to TD for taking a leap here in an effort to innovate and try something new. Their recent mobile wallet announcement is another great example.
  • Canadian consumers could benefit from new, exciting and useful mobile tools. The Canadian mobile landscape has been pretty quiet, with the most recent “innovation” being the launch of mobile remote deposit capture by some of the banks. There have been interesting mobile payments announcements (e.g. RBC and Bionym), but not much as it relates to classic banking.
  • Consumers need help managing their money and turn to their bank for advice. Our US consumer survey and Canadian consumer survey point quite clearly to this. Americans and Canadians prefer to use bank provided tools to manage their personal finances.

Possible challenges:

  • Adding features to TD’s simplistic mobile app could present technical and user experience challenges. Moven has a keen focus on the user experience. The existing TD smartphone app – well, not so much. TD’s Canadian tablet app is slow and buggy. We could not even install this app on our Android test tablets due to compatibility issues. This leads me to believe that TD will either completely overhaul their app or release Moven as a separate app/account.
  • Most PFM endeavours have not been very successful when it comes to customer adoption. Will Moven and TD manage to figure out how to get customers on board and actively using PFM? This is going to be extremely challenging. Celent has done all kinds of research on PFM and will be publishing a fresh report on this topic in the new year. The report will encourage banks to take a completely different approach to PFM – stay tuned for our insights on this topic.
  • The viability of a digital only bank is questionable. Can Canada or the United States sustain a digital only bank? Is there a future for the neobanks? See the following blog post for our viewpoint on this. The Canadian bank switch rate is quite low overall, though it is quite high (13% in 2013) for the 18-25 year old segment. Neobanks have a place, though they will have difficulty being successful in the near term.

Overall, I think this is a great announcement. I love the fact that TD is going to try something new here, and attempt to shake up the market a bit. I’m looking forward to seeing how this one plays out.

Can’t Wait for the US to Migrate to EMV: The Musings of A Visitor

Nov 26th, 2014

Usually, during the Autumn season, I make a few trips to the United States for conferences and client visits. This year was no exception and I have recently come back from two trips to Las Vegas and San Antonio. EMV migration in the US was high on the agenda during both visits and I came back with two takeaways: 1) the US market is finally serious about EMV and preparations are going full steam ahead and 2) I am glad it is happening.

All the data breaches at retailers, from Target to K-Mart Sears, have spooked the market and stirred it into action. Some of the major challenges, such as reconciling EMV with Durbin/ Reg II, have been resolved – on November 4, Vantiv announced it became the first US acquirer to successfully complete a debit EMV chip transaction compliant with Durbin. Most of the issuers are in the planning stages and beyond, even with debit. On September 30, Bank of America became the first major US bank to announce that all new debit cards with be EMV, while existing cards would be replaced at expiry.

I am planning to soon publish a report on the US EMV migration, which will discuss what is happening in the market now and will address a number of questions we frequently get from clients, including some of the more advanced EMV topics, such as scripting, PIN management and multi-functional cards. In this blog I just wanted to share a personal story.

Until the cards and terminals migrate, the fear of fraud at the US retailers is palpable, to the point where it is starting to impact consumer experience. During my brief shopping break I wanted to pay with my UK-issued chip card. As the amount was over $75, I was asked for a customer ID. I offered my UK driver’s license, which the cashier started diligently copying by hand onto the printed receipt. As it was a foreign license, he wasn’t sure which was what, so had to call his supervisor to check what exactly he should be copying. When he was done, I thought that would be the end of it, but unfortunately, I was mistaken. The cashier then took my card, placed the receipt on top it and started rubbing it with a pen to get the imprint of the embossed details on the card! Apparently, he had to do it because the amount was actually over $150… I could scarcely believe this was taking place in the 21st century… On a separate note, I must admit, 10 years of EMV in the UK made me deeply suspicious whenever at a restaurant I have to hand in my card and the waiter just runs away with it. In Europe, the waiter brings a handheld terminal to the table, I enter my PIN and the card never leaves my sight.

I am not saying that this is an everyday experience for all US consumers these days. Perhaps I happened to go to a retailer with particularly strict anti-fraud policies, or they recognised a foreign card and wanted to take extra precautions, or I was simply unlucky. But I did not enjoy the experience. This is also not a smug boast how “we have it better here in Europe.” I actually think that the US is a hotbed of innovation and creative solutions emerging from the US such as Apple Pay are pointing to the future of what lies ahead for many of us. However, EMV will help with the “here and now.” Of course, there will be a learning curve for the US consumers as they get used to new chip cards, and there will be teething challenges during the migration, but it will be worth it for the market as a whole. And as a regular visitor, I just can’t wait for the US to migrate to EMV.

GPS, Musicians, Analytics and Banking Culture

Post by

Nov 20th, 2014

Three things came across my Twitter feed the same afternoon. Consider the following and see if you think they are related:

“When we depend too much on our GPS, we lose the will and skill to explore.”
Tom Peters via Twitter, 20 November 2014

“A creative person is by definition inefficient. She/he is wandering along odd paths, backtracking; the life well-lived is mostly detours.”
Tom Peters via Twitter, 20 November 2014

“Using analytics in decision-making requires banks to think more like musicians. If you start jamming, maybe something cool will come out, and it will sell a million records.”
Yours truly as quoted by Penny Crossman, Bank Technology News, 19 November 2014

First, I must say that by including my own comments among those of Tom Peters, I am in no way suggesting that my thinking is on par with his. It is not. Rather, my Twitter feed lit up since American Banker published the article referenced above, Bank CEOs Fear the Data-Driven Decision, and Peter’s tweets seemed both humorously consistent and coincident with Penny’s article as well as my previous blog post. What in the world do they have to do with each other? A common element emerges when viewed through the lens of organizational culture.

Consider the culture in which you work. Is it a get there using the shortest path every time with no wrong turns (e.g., GPS) culture? Does it tolerate taking a longer route (even occasionally) to explore and better learn one’s surroundings? Does it value the unfamiliar? Does it encourage and reward learning new music? More radically, does it celebrate creative discovery beyond established norms? Are you even permitted to improvise, or are you directed to always play from the sheet music? If so, your organization likely won’t enjoy much innovation.

As it relates to becoming a data-driven organization, banks need to learn how to be good at both using the GPS and at improvising – with discernment. Each approach has value. Too many senior managers in financial institutions, however, have never experienced the kind of culture that tolerates the “test and learn” way of using analytics. Instead, it seems strange and uncomfortable. It’s not easy to do things so differently. That’s why culture is such an important element in the skilful use of data analytics specifically and innovation more broadly. Technology may be an enabler or even a disrupter, but without a culture that values and rewards new ways of doing things, investment in the best technology will disappoint. Another quote to finish today’s post:

“While there are many challenges [to becoming an analytical company], the most critical one is allocating sufficient attention to managing cultural and organizational change. We’ve witnessed many organizations whose analytical aspirations were squelched by open cultural warfare between the “quant jocks” and the old guard.”
Thomas H. Davenport and Jeannie G. Harris, Competing on Analytics, HBR Press, page 124

The Challenges of the New Neo Bank

Post by

Nov 12th, 2014

Since the launch of neo-banks like Moven, Simple, and GoBank, financial institutions in the US have been avidly monitoring their popularity. Some have written them off as non-starters; others have praised them as disruptors. In recent months, however, the neo-bank model has hit a few stumbling blocks that call into question the promise of the digital-only model, and gives credence to the sceptics. GoBank recently announced that it was going to stop allowing account opening via the mobile device. Users will now have to purchase an account opening “kit” from a store, adding significant friction to the process. Simple has experienced a number of issues related to payment scheduling, the “safe-to-spend feature,” and service outages or delays. Moven received $8 million to begin moving their app overseas in an effort to garner higher adoption.

The promise of these new start-ups was a drastic improvement on customer experience, ditching traditionally stale financial services with improved digital offerings, social media integration, and a familiar/casual communication style. Yet these recent issues serve as a reality check for the neo-bank model—when your value proposition is customer experience, technical issues look 10x worse.

It´s far from clear what will happen to these new market players, but Celent envisions a couple of different paths over the next few years.

  • Neo-banks are acquired and rolled into larger digital channels offerings: I wrote earlier this year about banks acquiring technology companies, thereby acting more like tech companies than traditional banks. The neo-bank model and acquisition of innovation are not that dissimilar, and BBVA´s acquisition of Simple is the conflation of both strategies. Through acquisition, BBVA is able to jump the steps of creating a culture for digital channels innovation, establishing a customer base (albeit small), and aligning internal resources required to launch a new service. There aren´t many neo-banks, but digital channels start-ups are numerous. This could be the way forward for institutions that are struggling with adapting the existing operating model to digital financial services.
  • Traditional institutions begin offering their own neo-bank, digital-only services: Fundamentally, there`s nothing truly disruptive about a neo-bank. There´s no secret algorithm, intellectual property, or disruptive idea at work, and many banks are more than capable of offering similar levels of service. Indeed some of them have already begun offering digital services through a separate digital brand. Examples globally include NAB´s UBank, ASB BankDirect, Banamex´s Blink, Hello Bank by BNP Paribas, and Customer Bancorp’s new mobile brand. With new brands, and often new platforms, these banks are testing the digital model. This should satisfy a growing number of digitally driven consumers, as well as provide a clear path for banks looking to move accounts to more digitally-focused services.
  • Neo-banks never become viable stand-alone business models, but they influence the way banks think about digital channels: Currently, most neo-banks aren´t banks–they rely on other institutions to handle the deposits, making them simple prepaid services with additional functionality. The reliance on third-parties is becoming a bottleneck for delivering the value neo-banks have come to represent. Without diversified financial offerings that encompass the entire financial need of the consumer, these “prepaid” services are pressed to create enough value to validate adoption. This is a major question when assessing viability.

There´s even a fourth scenario that could play out over a longer period of time: neo-banks become the primary way digital natives interact with financial institutions as they mature into adulthood. No matter which scenario plays out, neo-banks have undoubtedly moved the conversation around user experience and digital channels forward in a way that would not have happened otherwise. They are setting the bar high, with the big question being whether they will be able to gather the adoption needed to make their services sustainable.

What do you think? Will the concept of neo-banks have a place within traditional banking?

Wearable devices and the future of authentication

Post by

Nov 11th, 2014

There is a lot of hype around wearables (smartwatches, fitness bands, etc.) and they may have all kinds of interesting potential. This potential, particularly for banking is still to be determined. However, I believe that there is a great opportunity for certain wearable devices to provide strong authentication and enhance the user experience (see this blog entry). Examples are starting to trickle out:

  • RBC recently announced that it has partnered up with a firm called Bionym. Bionym offers a wearable device, the Nymi Band, that can be used for authenticating you to all kinds of products, devices and services (see this video for potential use cases). The device will take the user’s electrocardiogram and use it for authentication purposes. RBC and Bionym are going to test ECG authenticated payments at the point of sale. Sounds pretty cool to me! The Nymi band is a $79 product that can be ordered on Kickstarter.
  • Last week, at the AFP Conference, Online Banking Solutions (OBS) showed me a demo of how they are using a smartwatch to authenticate corporate online banking transactions. When the user performs a certain function, an alert is sent to the smartwatch (the demo was shown to me on a Moto360). The user then has to interact with the watch in order to confirm or reject the transaction.

Much of this is obviously still experimental. It is however highly innovative, and a step in the right direction to killing the password.

Highlights from Money 20/20

Dan Latimore

Post by

Nov 7th, 2014

I’m on my flight back from Las Vegas and thinking about how to encapsulate the highlights of Money 20/20. Its third year was the biggest yet, capped at 7,500 people (not counting the Fire Marshals patrolling the hallways). At many conferences I’m able to distill several distinct themes; this time, the overwhelming impression was the emphasis on …

PARTNERSHIP

Celent’s been talking about the need for banks (and others in the ecosystem) to partner better for quite a while. At Money 20/20, the word was on everyone’s lips. Discover, Visa, and a host of others mentioned their eagerness to team with other members of the ecosystem to drive more activity in ways that are better, faster, and/or cheaper.

Some other random observations:

  • The big four U.S. banks sent an average of 40 attendees, with the high being 55 and the low being 30.
  • MCX said that CurrentC is in pilot with merchant employees in several cities, but missed the chance to show us a demo. And as an interesting counterexample to the partnership theme, Visa told us that they “look forward to MCX presentations so that they can learn what’s going on.” I’ll stop there.
  • Customer Experience continues to be a big theme
  • There was way too much emphasis on Point of Sale terminals – and why does every POS terminal still look like it came from 1985 (Poynte and Clover being two exceptions)?
  • What happens when there is no Point of Sale, like with Uber? (Incidentally, I wish I had a dollar for every time someone has used Uber as an example over the last twelve months – I’d be on my way to Tahiti)
  • Facebook is doing some really interesting things on the commerce side: if they identify a group of profitable customers who have a certain profile (e.g., mid 30s, likes dogs and hiking), they can go find other Facebook users with the same profile.
  • Security, as always, was a hot topic

One of the things we do is attend conferences so that you don’t have to. If you’ve got questions about this or other events, please let us know.

AFP 2014

Nov 6th, 2014

I just arrived home from Washington, D.C., where the Association For Financial Professionals – a leading society for treasury and finance professionals in the US – held its annual conference.  It was interesting that the AFP decided to hold its conference in Washington – the first time it has been held in AFP’s hometown – during the run-up to the 2014 mid-term elections, and it was clear that the town was abuzz in activity as Election Day came near.

I’ve been to many AFP conferences during my days at Metavante, but had taken a few years off, and so I was interested how AFP was doing as the economy continues its 5-year crawl out of recession.  Was I surprised!  I was amazed and encouraged how strongly the conference has bounced back since the dark days of the late 2000s, and the vibe reminded me of the recent SIBOS 2014 in Boston, where bankers and tech vendors competed for the attention of … well, bankers.

Perhaps reflecting the post-recession environment in which US corporates operate, I noticed little talk of traditional cash management topics like optimized sweeps or new investment vehicles.  Rather, most of the buzz seemed to be around risk management, Big Data, and treasury dashboards.  It was clear that treasurers are moving to embrace technology to automate routine operational tasks, provide analytics-driven insights that are hard to capture using Excel spreadsheets, and help treasurers see through the fog of data to prioritize their work.

Should Excel spreadsheets be getting nervous?  It’s too early to tell, as they are still the dominant tool in use in treasury departments.  However as treasury technology vendors continue to migrate their offerings from high-priced licensed solutions to flexibly-deployed SaaS offerings, many companies will find it harder and harder to justify holding off on treasury automation.

We’ll continue to study the situation and will hope to bring back some interesting examples and use cases of companies making the leap into full-scale treasury automation.