Finovate Spring: A Focus on the Practical

Finovate Spring 2017 has just finished up in San Jose; go to the Finovate blog at http://finovate.com/blog/ for an official list of the best in show winners. My focus isn’t on individual companies, but rather the broad themes that I picked up from 59 presenters over the course of two days.

Themes

1. Practicality
There were few gee-whiz, wildly futuristic presentations. Practicality ruled: companies focused on improving processes and delivering better outcomes. Solutions weren’t necessarily sexy or mind-blowing, but potentially more useful in terms of delivering reliable if unspectacular results.

2. Employee Efficiency
What’s more practical than making employees more efficient? Very little. Presenters automated processes, improved learning, and took the drudgery and time out of many manual tasks.

3. Artificial Intelligence / Machine Learning
One way to make employees more efficient, and increase that efficiency over time, is through AI technologies like Natural Language Understanding and Natural Language Generation. To improve those, apply machine learning over time.

4. APIs / AsAService
Another way to bring new ideas to market quickly is to tap into others who’ve already built the solutions. APIs are a key way of accessing many of these pre-built products, some of which were offered as a service (think Family Office As a Service, etc.)

5. Customer Experience
In line with what banks have recently been telling us, improving the Customer Experience was top of mind for many customers. Whether making an interface more aesthetically pleasing, eliminating friction, or speeding feedback, a keen focus on enriching interactions was evident throughout the event. I’d point out that the vast majority of solutions focused on the mobile experience, so much so that it almost doesn’t merit its own mention (but, since this didn’t used to be the case, it’s worth being explicit).

Observations

1. The presenting roster was down to 59 companies from 72 last year in San Jose. While more digestible, frankly, it made many observers wonder whether this was an early sign that the fintech frenzy is moderating.

2. Other technologies that didn’t make the headlines but were present include Analytics, Biometrics, and Lending / Mortgages.

3. I’m always interested in the dogs that didn't bark. Two technologies completely absent from the roster: Apple Watch and Blockchain. Others that were surprisingly underrepresented included Voice, Payments, Branch, and Financial Inclusion. As is my practice, I jotted down a few words associated with each presentation; the results are below.

If you’d like to discuss what we say at Finovate, please be in touch and we’ll arrange some time.

The 2017 Ford GT and FIS Connect 2017: Innovation on Display

As sharp-eyed Celent retail banking subscribers know, I'm an avid collector of good analogies.  

I like analogies because they can inject simplicity into the most complex discussions of financial technology, and make abstract concepts become more concrete and accessible to the casual fan of technology.  My favorite and I believe useful analogy for banking system engineering is that of automobile engineering, an industry that has a similarly colorful past and has been marked by fits and starts of innovation over the past 120 years.

Fast forward to 2017 and the launch of the new Ford GT, a modern-day supercar with a heritage dating back to the early 1960s, when the Ford GT40 won the grueling 24 Hours of Le Mans four times in a row.  The new GT has a starting price of $450,000 before options, creating a very exclusive club of future GT owners when production began last December.  The Ford GT showcases Detroit's recent focus on platform engineering — the configuration of common unibody structures and drivetrain components to create unique products that can appeal to disparate customers. 

In the case of the Ford GT, platform engineering has been taken to a new extreme.  Powering this new supercar is a retuned version of the workhorse 3.5L six-cylinder EcoBoost engine that powers the pedestrian Ford Transit commercial van, the Explorer and Expedition SUVs, and the Flex crossover as well as several Lincoln models.  In these applications the engine tops out at 380 horsepower, which is impressive but hardly qualifies for world-class supercar status. 

In the case of the setup for the GT, the same basic EcoBoost engine has been retuned to generate 647 horsepower, enough to propel the GT from zero to 60 miles an hour in just over 3 seconds.  The fact that a single engine — albeit in modified form — can power a $20,000 van and a $450,000 supercar is testament to the power of platform engineering, the new architectural model that is widely used by Detroit today and is largely responsible for driving new innovative models for consumers, and new levels of profitability for the automakers.

The same architectural strategy is being employed by bank technology giant FIS, who held its 2017 FIS client conference two weeks ago in Orlando. 

Most industry observers have focused on FIS’s preoccupation of late with its integration of the SunGard corporate banking and capital markets products with FIS’ existing retail-oriented bank IT solutions.  While this focus is understandable, it has obscured the fact that that FIS continues to drive forward its own platform engineering strategy, an enterprise architecture strategy that will in time allow FIS to capitalize on its position as owner of a large stable of core banking platforms – from the large bank Systematics platform to the Horizon community bank platform, and all bank sizes and markets in between.

As Ford has shown with its 3.5L Ecoboost engine, FIS's long-term goal is to create build-once, deploy-everywhere core banking components that can be configured in various ways to support the need of a small community bank, boutique wealth manager, or a high-scale retail bank.  FIS’s core banking "brands" (Systematics, Horizon, IBS, Profile, etc.) won't be going away anytime soon, but what these solutions look like under the covers will change, as individual silos of code will give way to common enterprise banking system components that align to these brands through differentiated bundles of features, functionality, pricing, and service.

The glue that will connect FIS's collection of existing systems and newer enterprise components is a growing library of system APIs that are catalogued and distributed through a new enterprise API Gateway.  The API Gateway not only offers RESTful services to third-party applications (like an online banking or mobile payment services), but also supports integration between FIS's own individual systems. 

Let's say you're a Miami-based community bank that would like to serve the deposit needs of high-wealth international clients?  You can contract for FIS's flagship outsourced banking solution IBS and pull in foreign currency account functionality through an API call to FIS’s multi-currency Profile core banking system.  Retail delivery systems like branch, teller, and call center would continue to function as they currently do, so from the bank’s perspective it would appear that the old workhorse IBS suddenly developed multi-currency capabilities.

Over time, the old model of a bank licensing a discreet software stack will give way to a menu–driven model in which the bank's precise requirements are met though constructing a composite of functionality from a number of FIS solutions, presented to the bank and its clients through a single UI and providing seamless integration through the API Gateway.  This is FIS's version of Ford's platform engineering strategy, the technique that allows a simple utility van and a $450,000 supercar to be powered by the same basic engine.

By showcasing the API Gateway at the 2017 Connect client conference, FIS has signaled to the market that it has moved from the concept-phase to the implementation phase of its enterprise strategy for core banking systems.  While it will take a number of years before FIS's vision begins to manifest itself through consistent product delivery, the approach makes sense. 

In fact, it makes a LOT of sense.

Through increasingly bold acquisitions over the past 15 years, FIS has established itself as an industry leader primarily in terms of market-share.  What is welcome news is that FIS is apparently not satisfied simply with market leadership, and is seeking to assert newfound technological leadership as well.  The devil is as always in the details, execution is key, and all of the other management truisms apply here, but my instinct is that this can be big, and I wouldn’t bet against them.

Banks aren’t Alone in their Omnichannel Unreadiness

In December, Celent surveyed a panel of North American banks and credit unions to assess the current and likely future state of retail and business banking channel systems. The report is chock full of fascinating insights. Among them is a rather sobering self-assessment of banks' omnichannel delivery capability

A recent experience renting a car painfully demonstrated that banks aren’t the only ones that have a ways to go.

7:00 AM…

Me: Visited the company's website. Easily searched and located a car at a location very close to my home. Quickly booked the automobile and received an e-mail confirmation promptly. The web site displayed the location of all area locations and recommended this one based on its proximity to my known location. Reservation for 2:00 this afternoon. So far so good.

10:00 AM…

Enterprise called and left a voicemail indicating there were some “qualifying details” we would need to discuss prior to my 2:00 PM reservation.

10:30 AM…

I returned the call. The problem was that I reserved an intermediate size car and none were available – just large SUVs and 15-person passenger vans. That relevant information was not conveyed in my otherwise stellar digital experience with the brand.

  • Me: “What about other locations?” I asked.
  • Agent: “I can see what they have on the lot, but I don’t know the plans they have for them. Unfortunately, I can’t book for you. Feel free to call other locations yourself and see which ones may have an intermediate size car for you.”
  • Me: “You mean I have to dial for dollars around Greater Atlanta to find an intermediate size car? Your web site indicated availability and gave me a confirmation. What’s up?”
  • Agent: "Sorry, but that's a long story. Look, if you’re okay driving a large SUV, I can give it to you at an intermediate rate. Would that be okay?”
  • Me: “I think so. It’s not what I want, but I’ll take it.”
  • Agent: “Do you need a pick up also?”
  • Me: “Yes, please – just prior to 2:00 – thank you”

1:30 PM…

The phone rings again, it’s Enterprise. This time, it is the location calling, not the contact center.

  • Agent: “Sir, we have a problem with your rental reservation. We don’t have any intermediate size cars at this location.”
  • Me: “Yes, I know. I spoke with your colleague at 10:30 this morning. You agreed to rent me an SUV at an intermediate price and pick me up prior to 2:00.”
  • Agent: “Do you know who you spoke with?”
  • Me: “I’m sorry, no. I didn’t get his name”.
  • Agent: "Was it a man or a woman?"
  • Me: "It was a male colleague of yours, but I don't recall his name."
  • Agent: "Was he from this location?"
  • Me: "I don't know. By the way, why whould I care?"
  • Agent: "Well, I've been pretty much the only one working at this location all morning."
  • Me: "Thanks for sharing, but what does that have to do with my reservation?"
  • Agent: "I'm just trying to find out who you spoke with."
  • Me: "Why is that relevant? I have a reservation and we have an agreement – and it's almost 2:00."
  • Agent: "I dont think he was supposed to do that."
  • Me: "So, are you going to rent me a car, van, SUV or whatever for an intermediate rate or not?"
  • Agent: "Yes, sir, we'll do that.
  • Me: "Great – see you in a few minutes".

A few days later…

Atlanta traffic kept me from returning the rental during normal business hours. Handily, there are provisions for after-hours drop-off. The rental is processed the next business day and costomers receive a final receipt via e-mail.  That's the plan, anyway. It's been several days and no receipt. After calling the store, I was told the e-mail system has been down.

My bank looks very good about now.

Congratulations to All Celent Model Bank 2017 Award Winners!

Many of us at Celent just came back from a busy and exciting week in Boston. Undoubtedly, the highlight was attending Celent's Innovation and Insight Day on April 4th, where we celebrated achievements of the Model Bank and Model Insurer award winners.

The rain and clouds couldn't obscure spectacular views from the State Room overlooking the Boston harbour. And they certainly didn't dampen the mood of nearly 300 attendees representing banks, insurers and technology vendors from at least 15 countries around the world.

Craig Weber, Celent CEO, opened the day by presenting compelling evidence that financial services are more important than many celebrities. He was followed by an insightful presentation from Andy Rear, chief executive of Munich Re Digital Partners. The programme then split into parallel Banking, Insurance and Wealth and Asset Management tracks before reconvening again to close with a series of debates between Celent analysts on three topics: Internet of Things, artificial intelligence and blockchain.

During the Banking track we presented Model Bank awards, and discussed the winning initiatives and why they stood out from all others. As regular readers of this blog know, this year we introduced specific named awards with only a single winner for each award. I would like to offer my personal congratulations to all of our Model Bank 2017 winners:

Winner

Award

Alior Bank S.A., Poland

Emerging Technology for Consumers

Banco Original, Brazil

Consumer Digital Platform

Bank of America, USA

Risk Management

BMO Bank of Montreal, Canada

Process Automation

Capital One, USA

Emerging Technology for Businesses

CBW Bank, USA

Banking as a Platform

Citi, USA

Open Banking

Credit Suisse AG, Switzerland

Payments Replatforming

DenizBank, Turkey

Lending Product

Emirates NBD and ICICI Bank, India and UAE

Most Promising Proof-of-Concept

FGB, UAE

Corporate Banking Digital Platform

Idea Bank S.A., Poland

Small Business Digital Platform

India Post, India

Financial Inclusion

IndusInd Bank, India

Fraud Management and Cybersecurity

Millennium BCP, Portugal

Branch Transformation

Mizuho Financial Group, Japan

Consumer Banking Channel Innovation

National Australia Bank, Australia

Core Banking Transformation

OakNorth Bank, UK

Banking in the Cloud

Radius Bank, USA

Product Innovation

The Royal Bank of Scotland, UK

Employee Productivity

YES BANK, India

Payments Product

And of course, congratulations to Caixa Bank, our Model Bank of the Year 2017! The keynote presentation by Àngels Valls on how Caixa Bank has embraced digital was the highlight of the I&I Day for many of us in Banking – thank you! Finally, congratulations to Celent Model Insurer award recipients.

Each of the award winning initiatives is published as a case study and available to Celent research clients by following the links above. In addition, we also published an overall Model Bank 2017 report, which discusses how the Model Bank programme has changed over 10 years and reviews the content themes across all nominations in 2017.

We intend to run the Model Bank programme again later this year, so keep an eye on the announcements when the new submissions window opens. We have no doubt that you are all working on exciting things and hope that you will consider submitting your initiatives for 2018 awards. In the meantime, enjoy the case studies and let's celebrate the Model Bank winners of 2017!

Emerging Innovation in Banking

Over the past few weeks we have been previewing various content themes we will be discussing at our Insight and Innovation Day in Boston on April 4th. I would like to finish this series of posts by looking at the new Model Bank category we introduced this year – Emerging Innovation.

When we added this category, we weren’t quite sure what to expect, but we certainly hoped to see the banks’ efforts at the “bleeding edge” of innovation. We were very pleased with the number and quality of such nominations, which spanned the gamut of the hottest topics today. Many of these truly outstanding stories are still in relatively early stages, but all are very interesting and pointing to the future of banking.

Model Bank nominations in 2017 showcased the banks’ efforts in the areas at the forefront of innovation in banking:

  • Innovative customer engagement: the most innovative banks go where their customers are; for example, banks are experimenting with ways to engage their customers directly from social media platforms via chatbots and other tools. They are also looking to introduce new channels, such as wearables.
  • Artificial intelligence (AI): Model Bank submissions demonstrated the diversity of AI technologies and their applications:
    • Driving a virtual agent capable to have a written exchange with the customer via a chatbot, or to even hold a verbal conversation on the phone.
    • Powering a robot to support customer engagement in physical branches.
    • Deployed behind the scenes as a tool to help the customer service agents.
    • Helping determine the best marketing offer for the customer.
  • Biometrics: banks are stepping up their efforts to deploy biometric authentication in their bid to provide customers more convenience while ensuring security. They are expanding beyond fingerprints and are experimenting with other modalities such as facial and voice biometrics. And it’s also not just for consumers – banks are beginning to use biometrics in the corporate banking context as well.
  • APIs: we already spoke about APIs when describing Open Banking, but want to highlight this again, given the importance of APIs. While banks in Europe must open up because of regulation, leading banks around the world are not waiting for the regulators and are starting to provide API-based access to their services to others. And some banks are pursuing a “marketplace banking” strategy seeking to position themselves as a banking platform in the centre on which third parties can build a myriad of discrete services. 
  • Blockchain: given how many banks have started exploring blockchain and other distributed ledger technologies, we were hoping to see some nominations describing their efforts in this space. We were not disappointed and received initiatives ranging from collaborative efforts around cross-border payments and trade finance to “solo” efforts of a single bank using blockchain to manage employee incentives.

We will be discussing all these topics and more at our Insight and Innovation Day next week. It is also the time when we announce and award all the Model Bank winners, including our Model Bank of the Year. We are in the final stages of preparation and are very excited! The event has been sold out for weeks, so if you haven't yet registered you might be too late… If you have registered, we are looking forward to welcoming you there, although if your plans have changed, please let us know so that we could invite those on the waiting list. See you in Boston!

Celent Model Bank Awards 2017: The Legacy Perspective

We’re less than two weeks away from this year’s Insight & Innovation Day!

Once again my presentation of the Model Bank Awards for Legacy Transformation will serve as the only barrier to the much anticipated announcement of Celent’s Model Bank of the Year Award for 2017.  This is my third year speaking at our Insight & Innovation Day conference, and this is my third year “bringing up the rear”.   I’m not sure if this status reflects on the critical importance of Legacy Transformation, in the way that “Actress in a Leading Role” presages the much anticipated “Best Picture” Award at the Oscars.  More likely, this simply reflects the reality that most banks consider Legacy IT as boringly reliable and not very…well… sexy. 

Legacy IT is a term that most bankers associate with mainframe-based core banking systems (CBS) – systems that have never seemed to get much respect.   Most bankers place Legacy IT on the “pay no mind” list, thinking about CBS platforms as much as they ponder the Ethernet cables traversing the space in the ceiling above their cubicles.  This pay-no-mind approach seems to work well, until the day when the bank experiences a massive payments screw-up, or a systems availability issue arises, triggering a Greek chorus of blame from the press and industry pundits — "damn those aging back-office systems"!  

Given my tempered expectations, I was astonished at the number and diversity of very interesting projects that were nominated for Model Bank Awards for 2017. If this year’s nominations are any indication of what’s going on in the market, it appears that banks are finally looking to transform legacy IT from something they simply have to live with to something from which they can create competitive advantage.  Of course, CBS platforms will continue working in the background to support the bank’s strategic mission – the perennial nominee for “Best Supporting Actor/Actress” rather than “Best Actor/Actress” – but it’s also very clear that innovations like real-time payments and Open Banking will only go as far as the bank’s back-office systems will carry them.

My review of the various nominations we received this year reflects a shift in how large FIs around the globe are viewing CBS transformation:  while traditionally CBS renewal was viewed as addressing a “problem to be fixed”, increasingly it’s becoming an “opportunity to be seized”.  The old view of CBS projects was driven by the simplistic notion sense that COBOL was bad simply because it was old.  To the extent that a bank’s motivation was based simply replacing the old for the sake of modernity, it explains why many CBS renewal projects have been abandoned or never attempted at all.  I’d personally prefer my bank to be running on an old and well-maintained system than an new and poorly designed banking system.

The important nuance here is that if a bank cannot achieve internal consensus around the issue of legacy CBS, it’s relatively easy to continue to kick the can down the road – which is what many large and strategically important global banks continue to do.  On the other hand, the banks included in our group of Model Bank Award nominees view CBS renewal through a different lens, one that considers CBS renewal as an enabler of operational agility, a catalyst of back-office efficiency, and other important positive benefits.  Thus, few references were made this year to "old versus new", but rather to things like “delivering banking services anytime, anywhere, at scale and using technology to relentlessly drive efficiency”, as one Model Bank Award nominee articulated the emerging opportunity for CBS renewal.

Reflecting the diversity of the Model Bank Award nominations we received for Legacy Transformation, this year we will be making three separate awards for innovative projects that are powered by innovative CBS platform implementations:

  • Legacy Transformation:  This Award winner exemplified the long-term approach that CBS transformation demands, particularly for the large banks, and demonstrated that legacy transformation is not a sprint measured on a quarter-by-quarter basis but a marathon that takes many years to take root.
  • Banking in the Cloud:  Casting aside conventional doubts and concerns about the security and regulatory acceptability of cloud services, this Award winner built its entire stack of banking services wholly in the cloud, and thus serves as a model for other banks to observe and emulate in time.
  • Financial Inclusion:  CBS transformation projects are typically aimed at increasing organizational agility and reducing back-office IT costs, however this Award winner has demonstrated the social impact of building modern IT platforms in reaching the unbanked with a growing array of modern banking systems.

I’m looking forward to presenting these very worthy winners with their Model Bank Awards, while also sharing my observations regarding how the conventional view of Legacy Transformation needs to evolve along with all of our thoughts and preconceptions regarding the importance and nature of innovation in banking.

Challenges Facing Organizations in the Current Risk Environment

The Association for Financial Professionals (AFP) recently published its 2017 AFP Risk Survey Report of Survey Results. The survey, supported by Marsh & McLennan Companies (Celent’s parent company), provides a snapshot of the challenges organizations face in the current risk environment. Responses from 480 senior-level corporate practitioners (primarily based in the US) formed the basis […]
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Needless Controversy in the Branch vs. Digital Debate

In a previous post I argued for the enduring importance of human, face-to-face contact in financial services. By the reactions I received, you’d think I was purposefully inciting controversy. One influential industry observer thought I was irresponsible in advocating inaction. Another wrote a lengthy and snarky rebuttal. Others took issue with my comparing retail banking […]
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Celent Model Bank 2017 Awards: The Payments Preview

This is the next instalment of our Model Banking preview blogs, and it’ll come as no surprise that I will focus on Payments. Reading and evaluating the Model Bank entries is always fascinating. It’s also somewhat frustrating too at times – payments, covering so much territory, often ends up with the tricky task of comparing […]
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Celent Model Bank Awards: Fraud, Risk Management, Process Automation and Flub-Free

It is my privilege to be part of the judging panel for Celent Model Bank Awards for 2017 for the following three categories: Fraud Management and Cybersecurity – for the most creative and effective approach to fraud management or cybersecurity. Risk Management – for the most impressive initiative to improve enterprise risk management. Process Automation […]
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