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

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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

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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

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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

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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 …


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.

The Clearing House and Real-Time Payments

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Oct 30th, 2014

The game is afoot!

The announcement from The Clearing House regarding real-time payments last week came as no surprise – indeed, it felt inevitable. The Federal Reserves’ significant work around the topic, and their clear determination that it would happen, seems a clear indication that they wouldn’t rest until it was delivered. The question then is how will it be delivered.

The Feds conclusion from its consultation was that new infrastructure would be required, rather than re-using existing infrastructure. This posed two questions

1) would the Fed build it themselves?

Or 2) do they would expect someone else to build it, and how would that actually happen?

We dismissed question 1 pretty quickly – it would have created a monopoly (just about the only in US payments), and the experience of the Fed Same Day service perhaps highlighted they weren’t perhaps best placed to deliver. Who does that leave?

Having already nailed their flag to the mast with their Same-Day proposal, and stating that they believed that this was adequately fast and would complement a real-time solution, Nacha was unlikely (at least at this juncture) to put themselves forward.

Some seem to have considered the Fed comment about not re-using debit card infrastructure as something of a swipe at PayNet. Given the number of banks already connected to it, and the work around the rules and business model, we think that this rather underestimates what PayNet can do.

CME look to have thrown their hat in the ring, with their investment in Dwolla. Whilst CME claim Dwolla is real-time, it isn’t as the chart on Dwolla’s own website even says itself. Yes, in some instances, but equally, it can take up to 4 days. Unless, of course, there is exciting news coming from Dwolla soon….!

There are a few other names being mentioned as waiting in the wings – we’ve certainly heard lots of rumours about who else is preparing to announce, though have seen no hard evidence so far.

So does this mean that this is a slam dunk for The Clearing House? Not quite.

First, to the point around monopolies, we don’t believe the Fed will be satisfied with just one infrastructure, unless it also has a significant shift in policy in mind.

Secondly, the Clearing House proposal is very high level. Whilst we’re not saying it won’t be suitable, we’ve yet to see enough to be confident that it will be. The Clearing House has a strong track record in this regard, so we think its just a timing issue.

Thirdly, as the proverb suggests, whilst you can lead the horse to water, you can’t necessarily make it drink. We’d define success in this instance as wide-spread uptake. We’re less clear as to how that will happen – will Clearing House Members be mandated to use? Incentivised? As my recent report on real-time payments sets out, the success is in large dependent on how well it is positioned in relation to other payment choices, and how well it is product managed.

One thing is for certain though. This won’t be my last blog on the topic – there will be plenty more to happen yet!

Asian Vendors Looking to Pivot

Dan Latimore

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Oct 29th, 2014

I’ve just returned from a two-week swing through Asia, with stops and roundtables in Tokyo, Singapore, Melbourne and Sydney. Along with my colleague Neil Katkov I was fortunate to meet a large number of clients and market participants, both banks and their ecosystem partners, in a series of more than two dozen meetings.

In each country Celent hosted a half-day session on digital innovation. Attendance was good and discussion spirited; digital and omnichannel is a topic that every bank across the region wrestles with. Their service providers, too, are keenly interested in the topic.

What struck me as particularly noteworthy, however, was that a large number of providers are trying to reposition themselves in the marketplace. Their (legacy) brands are extraordinarily strong, which is a blessing and a curse. Brand strength is great, but when it’s associated with a technology that’s in decline, and not yet associated with new areas of investment, then vendors are put in a difficult position because they don’t get the calls associated with that new fintech. A common question for us was, “how do I get the message out about this new solution I’ve developed?”

There’s no one answer, but I’d suggest to banks that they cast a wide net when looking to address their new technology problems; many of their historical partners are learning (or at least trying to learn) new tricks. That their marketing (broadly defined) has yet to catch up shouldn’t dissuade banks from seeing what new solutions they have to offer.

Are security fears hindering corporate mobile banking adoption?

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Oct 27th, 2014

Corporate mobile has been a popular topic for a number of years now. While many banks have launched solutions, corporate adoption has stagnated. 66% of respondents to a Capital One survey  indicated
“security challenges with sensitive corporate data” as their number one barrier to adoption. There are other reasons for slow adoption of corporate mobile, but this one is quite interesting and can be challenging to overcome.

Should banks and corporations be concerned about mobile banking security? Is it a real threat at this stage? The short answer is that security should always be a concern — there are all kinds of real threats out there. However, it’s important to quantify and understand the risks and myths associated with current threats. At this stage, I would argue that security is an often overlooked BENEFIT to corporate mobile banking. It provides an additional layer of security; when executives receive mobile alerts, they have the ability to intercept potentially fraudulent transactions in near real time. A sandboxed app can also be quite helpful. I can go on and on here, and encourage you to read more about it in, Corporate Mobile Banking Update: Adoption Conundrums and Security Realities.

Do the benefits outweigh the risks? Should banks be investing in corporate mobile given these adoption challenges? There is a chicken and egg situation; it’s quite difficult for banks to prioritize mobile investments when corporate adoption simply isn’t there. Celent believes that all banks should be investing in digital infrastructure that encompasses online, mobile, and tablet banking. Each of these touchpoints should leverage common components and banking modules (e.g., ACH, wires, etc.) This infrastructure should allow banks to eventually support mobile. Banks don’t need to deploy actual mobile solutions immediately, but should be poised to rapidly deliver when customers ask for it. Customer demand should dictate when banks invest their hard-earned IT budgets in corporate mobile apps and solutions.

I’ll be at the AFP Conference next week, drop me a note if you would like to meet to discuss this topic.

Banks vs Fin-Tech Start-Ups and the Digital Transformation Race

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Oct 22nd, 2014

The digital transformation in financial services is about the move from the physical to the virtual world, from person-to-person interaction toward person-to-machine or machine-to-machine.

It is Celent’s view that Integrating and coordinating among disparate and siloed delivery channels will be critical to satisfying ever-increasing customer expectations. This in part encompasses looking at how financial institutions relate with their customers and ecosystem, but also about the underlying infrastructure and processes required to provide a digital experience. It also encompasses re-thinking how a branch should look like and what services it should provide as an integral part of the customer experience.

In this context I had the chance to moderate a panel during last week Next Bank Americas. With the participation of Hugo Nájera Alva – Head of Digital Banking at BBVA Bancomer, Miguel Angel Fañanas – Director of Corporate Customers and Multinationals in Telefonica Mexico, Héctor Cárdenas – CEO and cofounder of Conekta (, and Martin Naor – partner and CEO of Infocorp, we discussed about the digital transformation in the financial industry.

What an excellent moment to do it, along with the BBVA Open Talent that looked into promising fin-tech and digital life start-ups.

I wanted to take this opportunity to share with you some of my take aways from this panel:

  1. Banks have a harder time reconciling digital with their legacy platform and infrastructure, and how they have been doing business for many years. Fin-tech start-ups instead are born digital, without any legacy, but they need to be careful not to build one for themselves as they grow.
  2. Technology doesn’t seem to be the constraint for becoming digital, neither is budget. Banks have much more resources and still we are seeing some interesting start-ups in different aspects of banking disrupting with much better digital propositions. Banks instead need to push the digital concept across the organization, and very tied to the concept of innovation, they need to make fundamental changes in the culture of the organization. This is what banks such as BBVA are trying to do though their Innovation Centers, open API’s, Hackatons and fostering an ecosystem of fin-tech startups in Americas and Europe, and why they partner with Next Bank to propel those.
  3. Digital also needs to reach to those customers that are still analog. This requires banks to re-imagine their branches and provide solutions that leverage the digital components but understanding the customer engagement required. Banks are quite better positioned than fin-tech start-ups in terms of physical presence, though it is no longer acceptable for banks to continue to open (or update) branches under the old branch paradigm.
  4. Banks need to better understand what customers really want, and that is not necessarily other financial product, but maybe help with administering their finances, banks helping them to save money, helping SMEs make more business, even expand globally. These are the type of issues fin-tech start-ups are tackling today. Banks have tons of information but they need to become smarter in how they use it and what new services can they offer to their customers. It is also important to look at how customers use technology in their everyday life to find ways of making banking more convenient.
  5. You just don’t claim that you are going to be more digital and then magically wait for that to happen. There is a lot of effort involved. In cases such as BBVA, acquiring Simple is part of such effort. Understanding the bank limitation in terms of its culture is also important to define what is feasible and what not. Reaching out to understand what the ecosystem is doing, actively engaging and participating to come up with a better digital vision has become an imperative today.

Overall and subjacent to the digital transformation race there is still an open debate whether fin-tech start-ups are a partner or a threat to banks. My take is that they are more a threat than a partner in the long run, but they need each other in this initial stage so partnering seems a good starting point. In the long run banks should incorporate those ideas that work; otherwise they will be cornered to a role where they just process transactions for those companies that dominate the relationship with the customer. The implications of this scenario are daunting for banks.

What do YOU think?