I have to admit, I have app-envy.  Owning an old Windows 6.1 Motorola mobile phone, I look on with a certain longing at my friends, colleagues and fellow airplane passengers who enjoy endless, happy hours with their iPhone/Android/Blackberry ”iBeer” apps. I am even more jealous of their mobile banking apps, which seem to me the coolest retail banking technology ever.

But truthfully, I am beginning to get a bit dizzy contemplating the options that await once I finally trade in my current mobile device.  At the last count I saw, the iPhone App Store had 120,000 apps.  This got me to thinking about the plight of banks offering mobile solutions, which are increasingly feeling the pressure to keep up with the app explosion.   A very quick check on Wikipedia revealed the following:

• There are about 6 versions of the iPhone OS (operating system), with a new one in beta
• Since April 2009, there have already been 3 versions of the Android OS
• There are at least 30 versions of the Blackberry OS, more if you include those for the Canadian market — I stopped counting, but see for yourself.
• The Windows Mobile OS has been around for a while, but it’s probably safe to say that phones with 5 or 6 versions are still in use
• Let us not forget the Palm and BREW OS’

Yikes…  Undoubtedly, more of the above will come.  I’m no developer, but common sense dictates that this is a lot for a bank to keep up with.  Prioritizing, developing, maintaining and owning apps for a myriad of operating systems and mobile devices has got to be daunting and expensive.  In recognition of this, some banks are just creating apps for the iPhone, which often constitutes a large number of mobile banking users.  But what about addressing all the other phones and OS’ out there? 

It would seem to me that a bank has two choices to keep up with apps. The first is to outsource work to a vendor, whether a full-on mobile banking technology vendor, or an app “development shop”.  The second is to provide a minimal level of apps (say, just for the iPhone) in the nearer-term, and wait for a “post-app” era in the longer-term.  HTML 5 may have the potential to enable mobile browsers to offer the same functionality/integration with a phone’s native capabilities (e.g., locationing) that apps currently perform.  In either case, both banks and vendors have a lot to think about in terms of development roadmaps.

Again, I’m no developer.  I would love to hear from our readers.  Are apps here to stay?  Will HTML 5-enabled browsers eventually usurp apps?  Is there some other approach that can replicate the attractiveness of apps?

Remote cash capture (RCC) is the deployment of secure, validating currency accepting and recycling equipment (aka smart safes) at merchant locations coupled with information reporting and provisional credit mechanisms. Such equipment has been in use for nearly 15 years in the US as a means to improve merchant cash cycle control. The advent of bank-offered provisional credit based on validated currency residing at the merchant location has been a relatively recent phenomenon with the first implementations in 2004.

Its emergence has caused a surge in interest and adoption of these devices. The offering of provisional credit by participating financial institutions has significantly improved the merchant business case for remote cash capture. But, the float benefits involved are secondary. The primary benefit of provisional credit is its enablement of wholesale reengineering of the cash cycle within merchants and between merchants, armored couriers and banks cash vault networks. In the process, RCC removes the substantial cash handling burden historically carried by bank branch personnel, largely without the assistance of meaningful automation. In short, RCC is a win-win-win wherever the merchant business case warrants.

Remote cash capture relies upon four components.

1. Secure, in-store safes that accept, validate and count currency with a high degree of accuracy and dependability. Such safes have been available since 1995, but have only recently been linked with banks for provisional credit.
2. Same-day electronic transmission of the precise safe deposit information to central treasury and optionally, the merchant’s financial institution.
3. Ability and willingness for the financial institution to grant ledger credit for remotely validated cash. A growing number of banks are offering provisional credit based on the validated currency. Commonly, cash logistics providers guarantee the funds, covering any losses resulting from discrepancies discovered following physical cash verification.
4. Associated cash logistics servicing. This includes armored cash pick-up, change order servicing, web based reporting, deposit aggregation, virtual vaulting and equipment maintenance.
   

   RCC's many Moving Parts

Closed-Loop System
Historically, RCC has been a closed-loop approach to cash management. Each armored courier’s solution is proprietary. One provider’s safes will not communicate with another courier’s information system. As a result, interested financial institutions must invest in systems integration and file validation and testing efforts to get in the game. To do so with multiple armored couriers requires additional cost and ongoing overhead. As a result, only a few dozen banks have participated, and only the four largest armored couriers.

Fiserv is about to change all that.
Deposit Manager from Fiserv is a device- and transportation- agnostic solution, which means banks and retailers have the freedom to choose devices and service vendors based on the needs of each retail location, regardless of geographical footprint. With Deposit Manager, Fiserv owns the IT infrastructure, just like they do for ATM monitoring. This may be a game changer for RCC.

With Fiserv’s device and transportation agnostic solution:

• The barrier to entry for regional armored couriers will be significantly lowered. This will likely increase competition for RCC solutions at the courier level, improving service levels and settling prices.
• A significant number of smaller banks are likely to enter the fray.
• Service dynamics are likely to become fluid across the board. Historically, the armored couriers were in the driver’s seat, with the banks playing a secondary role – mere providers of provisional credit. Now, banks may start selling RCC while capturing the cash processing business too, rather than conceding it to the couriers. The couriers may evolve to play the lesser role – mere transporters of cash. Should this occur, participating banks could capture more than just deposits with RCC.

This will be very fun to watch! Thanks to a systemic change in how RCC can be delivered, the business case for participating banks may be a rosy picture over the coming few years. Wouldn’t that be a welcome surprise?

Changes to Reg E will have a dramatic impact on the economic of free checking and checking in general. Let’s first look at the main points of the new rules:

1. Consumers must explicitly opt in to overdraft charges for ATM and one time debit card  transactions for both new and existing accounts.

2. These accounts may still have overdraft on checks, ACH transactions, etc. INDEPENDENT upon the decision to opt in for the ATM and one time debit card overdrafts.

3. There are no exceptions for non-real time payment lag issues. If the bank authorized the payment and at settlement the payment is now an overdraft, banks can’t levy fees.

4. Debit holds will remain as is. If a gas station places a debit hold on an account for $75, and the customer gets $40 worth of gas, the bank can make the debit hold unavailable. Regulators feel that these holds are more appropriately dealt with in payment systems rather than banking systems.

What does this mean to banks?  There will be less overdraft fee revenue; much less.

According to the FDIC’s Study of Bank Overdraft Programs, POS/debit overdraft transactions accounted for the largest share of all insufficient funds transactions (41.0%). Banks will need to adjust their business models to make up for this revenue. Is free checking now likely to disappear? Will product bundles now become the standard offering with a credit card, line of credit or mortgage cross subsidizing the checking? I’ll be pondering these questions in an upcoming report.

This also presents a compelling reason to move to real time systems. If the bank is not able to calculate available funds in real time, it now becomes the bank’s problem rather than its customers’.

An avid follower of the mobile banking/payments space, I’ve recently been struck by similarly-themed analogies about mobile payments, which are worth keeping in mind (especially by us industry analysts).  To be more specific, for mobile payments to work anytime soon, they have to be easy.

The first and perhaps most meaningful illustration of this point has been the phenomenon of text-based payments for the earthquake relief efforts in Haiti. As many of our readers are already aware, a $10 donation can be made to these efforts, very simply by texting (for example, texting “Haiti” to 90999).  The $10 donation shows up as a charge on one’s phone bill. Done, simple.  Mobile Crunch aptly described this process as being as easy as “dropping a quarter into a slot” — well put. The proof of the power of being easy is that by last Friday (Jan 15), $11 million in donations had been received via text donations alone.  At $10 per transaction, that comes out to about 366,000 mobile payment transactions per day – how else in the U.S. do you find so many mobile payments?

Another argument for mobile payment simplicity, and a recognition that we aren’t there yet, came from an unlikely source — Fiserv, a major banking technology player with mobile offerings. In an on-line recording of a Q&A session, Calvin Grimes (Fiserv’s mobile solutions manager) made the point that, “if use of your mobile device to pay for something is harder than pulling out a piece a plastic, consumers aren’t going to adopt it”.  Calvin goes on to state that consumers will need some form of a value-add (e.g., mobile coupons, reward redemptions) to carry mobile payments forward.  This makes total sense.

The lesson from the Haitian experience is that consumers’ ability to use existing form factors and interfaces makes mobile payments incredibly easy, with rapidly-spiking adoption as a result.  Adoption of mobile payments approaches that require consumers to buy, learn and acclimate to new mobile devices, software and interfaces will obviously take much longer.  Having said that, it will be interesting to see if the current wave of text-based donations ultimately serves as a “tipping point”, ushering in consumers’ awareness of mobile payments.

Celent has been receiving a truckload of IT spending questions. This is no surprise, and we usually receive these inquiries at this time of year. Things are a little bit different though this year as after a rough 2009, folks are curious as to if the figures are on the uptick in 2010. I wrote up an article for Bank Systems & Technology in late December that provided a preview.

The good news is that our annual IT Spending report series has been released and all the juicy details can be found inside. The short answer is yes, bank IT spending is on the uptick. North America is a perfect example. Although there was a decline in North American IT spending growth (from 3.1% in 2008 to a mere 1.7% in 2009), it is now on the uptick. IT spending growth is expected to be 2.2% in 2010. North American bank IT spending will grow from US$50.3 billion in 2009 to US$51.4 billion in 2010. It will continue to grow over the next few years to reach US$55.2 billion in 2012.

Although 2010 has the potential to be the start of a turnaround, let’s not forget that there is still plenty of uncertainty in the industry and we are not completely out of the woods.

I encourage you to read the following new reports and I welcome your questions and comments.

• IT Spending in Financial Services: A Global Perspective (January 2010)
• IT Spending in Banking: A North American Perspective (January 2010)

Corporations are asking for more and more capital allocation. The numbers easily reach the Billion Euro/ Dollar sphere, and no single bank has the appetite to take on such a risk alone.

The likely future model is one of a syndicated marketplace based on a technology platform, into which financial institutions, private capital funding, insurers, and logistic service providers will plug to provide collaborative supply chain finance services.
We foresee a number of such platforms to appear in the next 2 to 3 years, branded by very large banks. Such banks will play the leading role (e.g., decide services, pricing, risk appetite), representing the main reference point to smaller FIs.

Bottom line for banks
Those who want to play the game must decide, today, which experienced solution providers to partner with. It’s most unlikely this game can be played alone (i.e., build and run the platform).

Bottom line for corporations
The perspective of a “one-stop” shop for open accounting and trade-related services is taking shape. Instead of passively “sit and wait”, we recommend decision makers to proactively check the plans of their major reference banks and establish programs to influence the results at their benefit.
SEPA has shown that corporations must take an active role in, apparently, bank-only related matters.

*** This post was mentioned as one of the favorite banking technology-related blog posts in Bank Systems & Technology’s Honor Roll: This Week’s Top Banking Blogs (Jan. 10-16).
***

In December, the UK Payments Council announced a 2018 target date for closing all cheque clearing operations in the UK. With some alarm, a few clients have asked Celent if the Council’s actions might signal similar forthcoming action in the US. And, if so, what are the implications? This post makes several observations.

The UK Payments Council correctly notes that “cheque use is in long-term, terminal decline”. Having peaked in 1990, check volume has declined some 40% over the past five years. Thus, the Council’s decision amounts to taking a proactive stance toward hastening the decline in checque usage – a decline already in its 20th year. It aims to seek voluntary actions among financial institutions to provide modern (electronic) payment alternatives and to educate both consumers and businesses in the process. And, the Council’s decision isn’t definitive. 2018 is a simply target date, with thorough analysis ahead before anyone “pulls the plug”.

So, what about the US?

First, a little perspective. Check usage is in decline throughout all developed economies, with differences in the start and rate of decline. The figure below compares annual check dollar value (versus GDP) alongside the percent electronification of non-cash payments across multiple countries. Over the time period analyzed, the US and Canada had the highest relative check dollar volume. The US is well behind the UK – at least a decade – in overall usage and rates of decline. So, if the UK Payments Council initiative is to be replicated in the US, a target sunset date of 2028 might be a comparable starting point. Don’t hold your breath in other words!

In addition to being a full decade behind the UK, the situation in the US is different along multiple dimensions. Here are a few:
o The UK is a much smaller payment system with comparably few banks. It is fundamentally easier to get 12 UK clearing banks to agree than 8,000+ US banks and a roughly equivalent number of credit unions.
o The UK already had a highly concentrated processing infrastructure in its’ Intelligent Payment Systems Limited (IPSL) entity. Not so in the US. While operational consolidation is well underway, there is a comparatively long way to go. Such consolidation is an inevitable economic result of the unit volume decline.
o The UK had no Check 21 equivalent. It uses a rough equivalent of Electronic Check Presentment (ECP) called Interbank Data Exchange, or IBDE. The IBDE was set up by the 12 UK clearing banks in 1996 as a system to electronically exchange cheques and clearing balances, but the original items still travel physically from collecting to paying banks. Thus, the pain of declining check volume is likely greater in the UK since physical processing remains a requirement.

Checks are dying a natural death in the US. Financial institutions would do well to invest in long-term care for checks through image infrastructure, widespread distributed capture and electronic statements. It’s too early to be shopping for headstones just yet.

More information about the UK Payments Council can be found at:  http://www.paymentscouncil.org.uk/

Late last week the Huffington Post published an article called, Move Your Money: A New Year’s Resolution. It’s an interesting read, and is attracting a lot of attention in the online world. The folks involved went ahead and setup a web site, www.moveyourmoney.info. This site allows individuals to search for a community bank in their neighborhood.

Can this site and popular article persuade the masses to move away from large banks? I think it is making a lot of people think more seriously about their banking relationship but I doubt that it will have a noticeable  impact on the large banks. I also think it is a great way for community banks to market and promote their offerings. Celent identified a trend back in late 2008 that pointed to consumers opening up additional accounts at smaller financial institutions. This practice is still ongoing.  This doesn’t mean that consumers have severed ties with large financial institutions. It is more of  a step toward increasing personal financial security by spreading funds across multiple banks and establishing secondary banking relationships.

What intrigues me the most about the Huffington Post article is the interest it is generating both online and offline. I was quoted in the American Banker this morning regarding the social media implications of the Move Your Money campaign. Influential web sites, bloggers, etc. have the ability to pass along powerful messages to the public  and persuade decision making. Banks can do the same as many have the audience, but they aren’t exploiting the potential. They need the right mix of message, products, customer service and pricing. A tall order for  banks, particularly some of the the larger ones.

The European Commission has set up an expert group (EG) on e-invoicing with the task to establish a European Electronic Invoicing Framework by 2009.
Last November the group published its final report, and I am already hearing comments that argue on the merit (and, consequently, on the substance) of the document.
Apparently a number of political issues have “polluted” the work of the group, leading to counterintuitive decisions objected by some group members themselves (read ‘Annex 2-Dissenting minority opinion’ in the report).

While waiting for the results of the call for consultation, where “Contributions are particularly sought from SMEs, large enterprises, service providers, standardisation bodies and public authorities“, it is my feeling that we will hardly read the harsh comments I collected just in the past few days from corporate and vendor representatives:
• The EG had a shallow 3% corporate representation. It was all banks, politicians, and vendors.
• The final report conclusions penalize innovators and give time to laggards to catch up. There is a creeping suspect of “hidden agendas” and potential conflicts of interest.
• The results did not match the objective to “contribute to the removal of current barriers to the take-up and establishment of intra-community (crossborder) e-Invoicing solutions” (source: Mandate Of The Expert Group On E-Invoicing).
That is, the proposed e-invoice content standard, the UN/CEFACT Cross-Industry Invoice (CII), is way to be a de-facto international standard. Most optimistic predictions see its maturity not before than 2012.
• Why not use UBL as an interim content standard? It does work and it is used, for instance, in the PEPPOL project, another EU initiative to facilitate EU-wide interoperable public eProcurement, where electronic invoicing plays a prominent role.
• There is no mention of actionable items that can be implemented immediately. Especially SMEs are left with no guidance on what they could do while all the recommendations in the report are implemented.

Bottom line: The lack of clarity and the suspects of conflicts of interest will force corporates to slow down/ stop investing in e-invoicing projects.
From their side, corporations must take a more proactive role and refuse the temptation to let others “do the work”. SEPA has proven that failure is behind the corner when some stakeholders do not participate since the beginning to initiatives that impact their financial supply chain (i.e., payments in the case of SEPA; invoices in the case of the Expert Group).

I’d love to read your opinion and feedback.

Over the past few years, much media and industry attention has been placed on the use of mobile NFC payments in Japan.  Typically, Japan is portrayed as a mobile NFC “nirvana”, a shining example of how the rest of the world will eventually adopt NFC.  This portrayal is backed by some big numbers:  33 million NTT DoCoMo subscribers with the osaifu keitai (mobile wallet) service, the majority holding a Suica (public transport-based) payment card, and to a lesser degree, the DCMX e-credit card.  Other mobile carriers also offer osaifu keitai, mostly for Suica use. 

Over the past few years, I too have watched Japan with great interest regarding mobile NFC.  I travel to Japan quite often (4 to 5 times a year), and while I’m there, I make it a point to notice how many people are using mobile NFC at train/subway turnstiles, or at convenience stores.  Through these amateurish visual surveys, I’ve come to a conclusion:  very few Japanese are using mobile NFC payments. 

Mind you, my personal survey findings are that the overwhelming majority of Japanese commuters are using plastic card-based NFC.  However, I’m just don’t see Japanese commuters and shoppers using mobile NFC.  And although my survey methods are anything but scientific, I can tell you that my findings are consistent every time I make a trip to Tokyo.  During my latest trip (last week), conversations with industry insiders provided anecdotal info which seem to confirm my findings — mobile NFC isn’t taking off, and some players may actually be losing money from it.  DoCoMo may have 33 million osaifu keitai subscribers, but the number of actual active users is a mere fraction of the total.

So mobile NFC players outside Japan have reason to take heart — they’re not alone in waiting for the market to take off.  As in Japan, the challenge will continue to be to find ways to encourage consumers’ use of mobile NFC, as a way to generate sales “lift”.  Simply replacing an existing payment form factor (e.g., mag-stripe or NFC plastic cards) with a mobile form factor for the same payment types and amounts will place a damper on mobile NFC growth.  Japan, the supposed mobile NFC nirvana state, deserves our attention more than ever.