Archives for April 2009

Finovate Roundup

I had the opportunity to attend Finovate Startup in San Francisco earlier this week. It was a great event with a slew of fintech companies showcasing their wares to the captive audience. Each company was given 7 minutes to live demo their product – not an easy task. I’m very much a hands-on person so I appreciated this format. The demos were great and I got a pretty good feel for each firm’s product. The audience was a mix of vendors, press, analysts, financial institutions and VCs. I was surprised and disappointed to see how few banks were in attendance. Only 17% of the attendees were from financial institutions, and 40% of the FI attendees were from a single institution. Banks need to do more with regards to innovation and this event is a perfect place to learn more, and formulate thoughts and ideas. It’s also a great opportunity to look for vendor solutions that will improve feature/function, customer experience and overall competitiveness. While many of the startups offer their solutions directly to consumers on the web, there are a good number of firms that would be quite happy to sell their product to a bank. Some takeaways and trends from the show: PFM is where it’s at. I was amazed at the number of PFM solutions that were showcased at Finovate. Vendors include, moneyStrands, Wesabe, Mint, Jwaala, and greensherpa. I am a big proponent of PFM (see the following blog entries ) and was happy to see the emphasis. However, the market cannot sustain this many vendors and some will have trouble staying alive. PFM is expanding beyond budgeting and tracking. A number of vendors (Mint, greensherpa, Rudder, and Simplifi) demonstrated solutions that provide a picture of a consumer’s financial health/viability and financial planning. Grades/rankings are provided and customers can see where they need help and can plan for the future. BillShrink demonstrated an impressive solution that can help consumers save money on their wireless bills, gaz, and credit cards. Lending related solutions are gaining popularity. Tight fisted banks are driving consumers to a variety of places and P2P lending companies are capitalizing on this. Vendors here include, Prosper (now reopened), Lending Club, People Capital, and Pertuity Direct. Other vendors showed off lending and credit related offerings. These include Know Before You Apply, Credit Karma, Home-Account, ZimpleMoney, and SmartHippo. Payments offerings. A number of companies had payments solutions – SmartPay, HomeATM, Moneta , and Tempo Payments. Mobile Solutions. iPhone apps were the talk of the town (some live, some in development). Mobank demonstrated a neat e-commerce iPhone app. Not enough emphasis on security. Only 2 security vendors were part of the mix. Aradiom with a soft token for mobile phones and mobile banking, and Silver Tail Systems with their forensics solution. I was worried about the security of some of the solutions that I saw at Finovate. One vendor, Tempo Payments actually showed a form that contained a full SSN – not something you ever want to request or display online! The audience was given the opportunity to vote for best of show. BillShrink, Prosper, Silver Tail Systems and Simplifi were selected (in no particular order). Look for an upcoming Celent report authored by yours truly that examines the fintech space and what it means for banks.

The Need for Legacy Work Culture Transformation?

It has been quite some time since the core banking trend hit the Indian banking industry. Almost all the top banks in India have implemented the core banking makeover in their systems and moved towards “Anytime, Anywhere” banking. But, the obvious question arises. Have the banks really moved, in spite of their marketing campaigns saying so? I recollect an incident where my colleague wanted to apply for the online banking service from the bank in which he was maintaining his salary account. Despite being one of the largest banks in India and one of the first banks in India to start the core banking transformations, he was informed that he can apply only in the branch in which he had opened the account! If the bank was indeed centralized and had implemented the “Anywhere” banking concept as advertised, why would the specific branch matter?

The culprit is not in the IT systems implemented in the bank but among the people using it. IT transformation has been the buzzword in the banking industry in India. But, the transformation of the bank is not brought about by IT alone. Business processes, policies and more importantly the work culture of the bank matters the most. I remember reading an interview of a CEO of one of the banks in India, where he mentions that a major challenge that the bank is facing is in changing the work culture of the bank. The current work culture has been inherited from decades of protectionist regime that the nationalized banks have enjoyed. The systems and processes are indeed very bureaucratic. Performance-based work culture has yet to find its place within the nationalized banks.

Fortunately for the banking industry, the liberalization and the emergence of private and foreign banks have started changing the outlook of the bank employees. With even nationalized banks gearing for major rebranding exercises, maybe it is time for them to look into their internal policies and instill corporate culture as well. The true transformation happens only when the legacy processes and policies are changed along with legacy IT systems.

NCR’s Mobile Deposit Move

On 28 April, NCR announced its integration of Mitek Systems’ ImageNet Mobile Deposit to its’ APTRA Passport imaging platform. The NCR decision follows integrations already completed by J&B Software and RDM Corporation. This was a smart move on NCR’s part in our opinion. Others are sure to follow. Mitek announced its ImagNet Mobile Deposit platform in January 2008 and followed with announcements of Blackberry support in September 2008 and Apple iPhone compatibility in October. To be sure, Mitek is pushing the envelope with remote deposit in an environment where the industry is barely adept at small business RDC using specialized check scanners and “consumer capture” is largely offered among credit unions alone. But all this is changing. In our opinion, mobile remote deposit is destined to succeed for two reasons: convenience and device ubiquity. Apple shipped 2.3m iPhones in 2007 and 13.7m in 2008. RIM boasts about 25 million BlackBerry subscribers through February 2009. The world is quickly going mobile, and mobile banking is riding the wave. Bank of America alone boasts well over a million mobile banking users (June 2008). Apart from risk concerns, why wouldn’t mobile RDC be an obvious feature for select mobile banking users? We’re not alone in expecting mobile remote deposit to catch on. In research derived from a Fiserv-sponsored online survey of roughly 300 customers in October 2008, one third of respondents see a need to offer mobile deposit capture services to their business customers. The majority of respondents indicated that businesses that sell products and services at the buyer’s location (such as home appliance repair businesses and food and beverage distributors with trucks in the field) are their primary target market for mobile deposit capture. We agree. Banks would do well to launch mobile RDC first to business clients while there may still be fee income to be had. But banks clearly aren’t rushing into mobile RDC as they had with RDC’s original incarnation. Caution is understandable, but scoffing is short sighted. Celent’s position is that viability of mobile check deposits rests on four requirements: 1. Client usability – the application must be fast, simple to use and provide reasonably consistent performance despite widely varying lighting conditions, steadiness of hands and check stock characteristics. Obviously, mobile deposits introduce greater variability in image characteristics than images captured on specialized scanners. 2. Operational viability – even the most enriching user experience would be for naught if mobile deposits wreak havoc in the back offices of deploying financial institutions. 3. Security – image and data transmissions would need to be secure. Any security vulnerabilities would prove disastrous. 4. Broad device support – part of the value proposition for mobile deposits rests on not having to invest in image capture devices. To provide some direct experience in using ImageNet Mobile Deposit, Celent requested a test account from Mitek and experimented using the authors AT&T Tilt device. Installing and learning the simple application took no longer than 15 minutes. Sample deposits were performed using a mix of personal and business checks after lining out the check codeline for security. Overall user experience was favorable – even for this novice camera phone user. And, the image analytics appear to have been up to the task. With intentional carelessness toward lighting, contrast and steadiness of hand, resulting check images appeared Check 21 ready. Mobile RDC is clearly a nascent market, and banks have lots on their hands these days. But sitting on the mobile RDC sidelines may leave banks wishing they hadn’t.
Checks captured on the author's device with intentional carelessness

Checks captured on the author's device with intentional carelessness

Whither Mobile Healthcare Banking & Payments?

Over the past weeks, I have been increasingly intrigued about the convergence of healthcare and mobile technology. Through various published articles and vendor briefings, it is apparent that it will only be a matter of time before the healthcare space (which is relatively slow to adopt new technology) will present an opportunity for mobile phone-based features. Various applications of mobile technology in healthcare have already been piloted or launched. Of these, two consumer-facing tools have caught my attention (although I’m sure there are many more out there). The beauty of the first mobile tool is its simplicity. Specifically, it is the use of SMS/text messaging to send reminders to patients to do a number of things; take/refill meds, schedule an appointment, check blood glucose levels or even go for a 15-minute walk. Two-way text messaging could be used to ask for self-administered blood pressure readings. Chronic disease and control of it are often behavioral-based, and reminders can be valuable disease management aids. The second mobile tool is access to EMRs (electronic medical records) or PHRs (personal health records). EMRs and PHRs have been in the news quite a bit lately, as they are a core focus area of President Obama’s healthcare reform efforts. Although there has been some debate about EMR/PHR cost effectiveness, reports from healthcare providers are beginning to indicate that such records do indeed increase efficiencies and decrease error. Although medical record access through computer terminals will be the norm, mobile phones would be a natural technological extension, allowing access nearly anytime, anywhere. Such access may mean life or death in some emergency situations. Despite these clear paths to healthcare/mobile convergence, the union of healthcare and mobile banking & payments is still murky. It is likely that mobile healthcare banking will mirror the general mobile banking space — i.e., it will be a mixed bag. In other words, mobile healthcare banking will gain traction or spin its wheels where retail mobile banking has already done so. That is, mobile healthcare banking will likely be adopted for informational purposes, such as looking up balances and transaction histories. However, things will be much different for mobile payments. As is the case in the mobile retail payment space, usage will be anemic given that business models have yet to be defined and that it is not entirely clear how mobile payments would be advantageous to merchants (i.e., healthcare providers) and banks (i.e., HSA custodians/administrators). My view is that mobile healthcare payments will be used far less than any mobile retail payments, given that that low-value transactions and mobile coupons (the oft-cited targets of mobile payments) do not apply.

Diebold Integrated Services Quest

I was one of many attending Diebold’s Integrated Services Day held on April 15 at its’ headquarters in Canton, Ohio. After 150 years of business primarily as a hardware manufacturer, Diebold last week announced that its business model is shifting away from products toward integrated services. Over the next five years, Diebold will strive to have 75 percent of its business coming from the servicing side of the business, up from roughly 50% in the current year. While not entirely unique among ATM manufacturers, Celent finds this move significant on two levels. For Diebold, the move is a smart one, with hardware sales growth increasingly challenged across the globe. NCR and Wincor Nixdorf are seeing similar dynamics. The larger attraction lies in a new business model for ATM deploying financial institutions. In today’s capital starved environment, Diebold’s move replaces significant capital expenditures with more easily obtained ongoing operating funds. Its move comes when envelope free ATMs are being deployed by a growing number of banks. Deposit automation ATMs are becoming more attractive as banks truncate checks at points of first presentment across the enterprise. In that environment, traditional envelope deposit taking ATMs – particularly remote ones – incur disproportionate servicing costs. Diebold’s move strengthens its position versus independent service operators that have comparatively little experience with the new machines. Collectively, Diebold, NCR and Wincor Nixdorf are making it easier for financial institutions to replace aging “cash dispenser” ATMs with more capable self-service devices.

From Connectivity Hubs to Collaborative Infrastructure

The current economic climate forces corporate treasurers to be more tactical and have an even more direct control of cash operations that determine the value of corporate liquidity. From an organizational perspective, this calls Treasury departments to move to centralized structures, enabling a better response to efficiency demand and cost control. From a technology point of view, the drive is toward a centralized repository of data, to more effectively manage and consolidate credit exposures. The purpose of this brief article is to analyze how technology is evolving in the continuous pursuit of ensuring key priorities for Treasury: data consolidation; process optimization; and visibility. Indeed, an ecosystem of suppliers, buyers, banks, data providers, and trading partners can be properly integrated by a centralized platform that offers process optimization and workflows, together with connectivity and collaboration. I like to call such a platform a “Connectivity hub”. Financial supply chain transactions, going from accounts payable and accounts receivable processes, to EIPP (electronic invoice presentment and payment), to electronic invoice and settlement, are connected through gateways that link the internal (i.e., corporate) and external (i.e., trading partners; banks; service providers) financial flows. An example of this is Sungard’s Avantgard Collaborative Financial Management, described as an “underlying connectivity platform [which] acts as an integration layer, allowing suppliers, buyers, banks, vendors, data providers and other external stakeholders to improve velocity of cash and improve response time. This infrastructure acts as a backbone for supply chain management & financing”. This, also, creates an infrastructure platform on which the corporate Treasury manager can plug additional players of choice. But, because of company size (e.g., multinational) or industry sector (e.g., commodity-driven), group treasurers are faced with the need to expand the basic front-, middle- and back-office treasury management system (TMS) functions with more advanced “best of breed” processes. An integrated set of best of breed solutions that support treasury transformation can be applied to the existing TMS in two ways: • Company-centric: Plug & play the applications through the gateways of a Connectivity hub • Process-centric: Embedded as integral components of a TMS Collaborative Infrastructure I like to call this second scenario a “Collaborative Infrastructure” because it moves from the concept of a platform that creates gateways to a set of solutions provided by a compound of trusted partners. Wikipedia defines an infrastructure as “the basic physical and organizational structures needed for the operation of a society or enterprise”. With corporate Treasury being the beneficiary, a “collaborative” infrastructure opens the platform to a network of catalyzed stakeholders (i.e., suppliers, buyers, banks, data providers, and trading partners). The portfolio of services available to the single company is immediately expanded to the entire set of connections, thanks to an extended network of associated entities that maximize their level of participation to the infrastructure, according to a dynamic of progressive collaboration. To validate the concept of the Collaborative Infrastructure, I can mention “Wallstreet Treasury” from Wall Street Systems, which creates a “Treasurer’s Desktop”, and offers access to additional core Treasury services via integrated partner offers, enriching its own set of TMS applications: • Fides: Global bank interface solutions • Speranza: Bank account management services • Reval: Hedge Accounting • 360T – Trading platform for enabling electronic trading ensuring the best prices and also improving the STP (Straight Through Processing) element of the solution • Misys – Confirmation matching system for automatically verifying the deal details against the bank system Bottom line: market commentaries predict that the current economic turmoil will see first signs of recovery by 2010. Once fully out, corporations will reward treasury offices that have demonstrated ability to maintain a cash positive financial profile. Treasury will move to a more strategic role, and investments in technology will be focused to enrich its application portfolio, traditionally (and culpably) kept too lean and basic. Corporate treasurers will need a more robust system to support them in this new responsibility, where best of breed applications and services will make the difference. I believe that the future will be promising for those solution vendors who will aggressively target the market offering Collaborative Infrastructure-type of solutions. They will put business processes at the center of attention, and will envision the corporate client as an element within a wider ecosystem of stakeholders, where the value will be generated by collaborative efforts and community of intents. The true competitive differentiation will be in the set of partnership solutions that will compose the Collaborative Infrastructure mosaic, where the objective will be to cover the widest portion of processes that fall under the control of a corporate Treasury office.

Social Networks Are Not Secure!

I just returned from the RSA Conference in San Francisco. The turnout was quite strong and its encouraging to see the emphasis being placed on security and anti-fraud measures. I attended an interesting session on the security risks presented by social networking sites (e.g. Facebook, Twitter, etc.). Although the presentation was quite basic, it got me thinking about the risks that banks (and their customers) face when they start dabbling with social networking: Fake Sites and Social Engineering. Many banks have decided that they would like to have a presence on Facebook or Twitter. What they often don’t realize is that there may be a few fraudsters out there (or money hungry brand squatters) who will register usernames that contain Bank XYZ’s brand. They may actually call themselves Bank XYZ or they may select a derivative such as BankXYZ_Page. They then have the ability to do one of 2 things:
  • Pretend they are Bank XYZ in order to steal customer information and credentials. I can see this happening on Twitter where a fraudster could setup a fake customer service page. Or a phishing site that looks just like Twitter or Facebook. When a customer makes contact the fraudster could attempt to ask for username/passwords, social insurance numbers, birthdays, addresses – you get the picture. Twitter can be a great tool for banks (see my post on What Banks Can Do With Twitter), but it can also present great danger to unsuspecting customers. This is where customer education comes in. It needs to extend to the risks posed by social networking sites.
  • Sell the handle back to the bank. A squatter may just want Bank XYZ to buy the username they grabbed from them. This is not a new practice – we saw this occur in the early days of the web when domain names were being squatted. This is now moving on to social networking sites. Banks should reserve their brands on Twitter and Facebook (even if they don’t want to use them) and keep on the lookout for fake pages.
Compliance Issues. I wonder how many bank compliance departments are actually aware that their institution has a Twitter page. How is the bank logging interactions on Twitter (they probably aren’t)? What can banks disclose on Twitter and what issues can they address with customers without veering from bank policies? These are all issues that need to be explored. My recommendation is to redirect and reply to questions that come up on Twitter via other mediums such as email or phone. Banks are entering uncharted waters when it comes to social networking. It’s important to get out there, just make sure to proceed with caution and keep educating customers about the risks presented online.

Oracle acquires Sun

Does Oracle want to own the entire stack from top to bottom just like IBM? IBM has numerous hardware offerings with the iSeries, pSeries, and zSeries. They have proprietary operating systems for each platform, and numerous databases that run on these platforms. IBM offers software infrastructure such as applications servers and enterprise service bus. Oracle has strength here since the BEA acquistion. This puts Oracle head to head with IBM in too many areas to count. Hardware sales are different than software sales with different margins and business models. This is a huge step for Oracle. One also wonders what will happen to MySQL, the open source database that Sun acquired that competes with other open source offerings as well as the Oracle database. This could run into some regulatory hurdles. Oracle has a voracious appetite for growth and they have now acquired their way from the top to the bottom of the software stack.

Too much of a good thing can be…horrible

Banks have been gobbling each other up during the crisis as the strong take over the weak and the big take over the small. Mae West once said, “Too much of a good thing can be wonderful.” I think in this case she’s wrong. Regulators in Australia agree. I was reading in the Australian Financial Review (14 April) that the chairman of the Australian Competitor and Consumer Commission (ACCC), Graeme Samuel, has indicated that the most recent bank consolidation of WestPac and St. George may well be the last one to pass anti-competitive muster. “The risk is with four big banks…we end up with less than intense workable competition.” “We would be looking at further mergers very, very closely indeed. I can’t stress how closely we’d be looking at it. We would not accept at first or second blush the proposition that to not allow this merger would lead to instability to the market. “ In an upcoming Celent report, Too Big to Bail: Banking in the Developed World, Celent will be examining the concentration of the banking markets across the developed world. Two questions face regulators: Are banks getting too big to provide an competitive environment in their home markets? Are banks getting too big to the point that a government wouldn’t be able to bail out the bank? I encourage you to look at the upcoming report.

6.3.09: Celent 2009 Banking Innovation and Insight Day

Celent Senior Analysts, Banking Group This event is free for Celent clients and invited guests. Please click here for more information.