Archives for June 2009

7.15.09: Celent Banking Roundtable Tokyo 2009

Celent Senior Vice President Neil Katkov, Asia Research Group Celent Senior Vice President Bart Narter, Banking Group This event is only open to Celent clients. Please click here for more information.

USAA’s Mobile Remote Deposit Capture Initiative

A Different Kind of Bank: Why you’ll Never Need a Branch Again” was the title of last evening’s USAA Webinar merchandizing its mobile banking initiative. USAA was the first bank that we’re aware of to deploy remote deposit capture to consumers in any meaningful scale. With three years under its belt, USAA now supports well over 150 thousand active users on its Deposit@Home product. For perspective, this is more than ten times the number of RDC clients of any other US bank. Now, it’s at it again – this time, enabling mobile banking users to deposit checks using suitably equipped mobile phones. Scoffers are quick to point out that USAA is an anomaly. Indeed it is. USAA Federal Savings Bank serves 5+ million members – all from a single branch in San Antonio. Well, not exactly. The bank happens to have a single branch in San Antonio. Obviously then, USAA cannot rely on its branch network as many banks do to serve its customer base. With assets of $35b (March 2009) and nearly triple the industry average deposit growth over the past three years, USAA appears to be doing just fine without an expensive branch infrastructure. Its transaction mix is rather unlike most banks. Already, USAA has over 1 million mobile banking users, and the service is barely eighteen months old. USAA’s ambition with its mobile banking and mobile deposit service is simple- to make it convenient for its members to bank with USAA whenever and however they wish. Hmmm, that sentiment sounds remarkably similar to that offered by a large number of what we might call traditional retail banks also investing in self-service delivery channels. Observing USAA’s initiative begs the question; will mobile remote deposit capture become broadly adopted by retail banks just as internet and mobile banking has? Mobile RDC is both a great concept and an operationally sound approach – at least the Mitek powered solution is. It represents a powerful way to migrate significant transaction volume from branches to a low-cost self-service channel. In our research, Celent found that nearly 90% of teller transactions involve checks, and a full third are simple check deposits. Why not empower consumers to deposit checks themselves at a fraction of the cost of teller transactions?


We think most banks will pass on the idea. Why? Because mobile RDC is disruptive. It may delight millions of consumers, but it also would challenge the status quo among retail operations organizations, forcing rapid change in ways few banks may be prepared to embrace. USAA doesn’t have this problem. Over a short period of time, USAA has transformed what was once a significant competitive disadvantage (no branches) into a compelling competitive advantage. Its membership and deposit growth proves it. Retail banks need to pay attention.

Investments: HSAs’ Superfluous Feature

I am currently in the process of wrapping up Celent’s latest round of HSA (health savings account) benchmarking. The report is due out shortly, but I thought I’d share a “sneak peek” of one of the report’s most surprising findings. In the latest round of our benchmarking study, we asked banks and HSA administrators a new question, about the percentage of HSA accounts that had an investment balance. When I tallied the responses, the results were startling. Among the major players (Top 25 Banks, Specialists), the average percentage of accounts with investment balances was 2% and 1%, respectively. Wow. All that functionality for practically nothing — the investment options, sweep functionality, card processing (for investment sell-offs), reports, etc have been developed, but with almost no takers. The reasons for this lack of investment pick-up are reasonably clear. First, there is the general performance of the economy and stock markets, which is scaring away many people who may have previously considered investing their HSA funds. The second reason is that the average HSA balance is about $1,500, which is below the balance thresholds (often at $2,000 or more) that many banks set for investments. The little secret behind high thresholds is that banks often make more money from deposit balances than from investment balances. In follow-up interviews, many of the benchmark participants acknowledged that the number of accounts with investment balances was extremely low, but that investment features had to be offered anyway. Simply put, investments are considered the “price of entry” in the HSA RFP process. Seems like a “lose-lose” proposition to me. Without investments, HSA players can’t bid for employer business. With investments, HSA players pay to support a hollow feature. Given the current economic situation, I doubt we’ll see any improvement anytime soon.

Corporate Banking in Asia is Heating Up

The press seems to focus a lot of its coverage on competition for retail banking business in Asia, but from where I sit it looks as though the corporate banking side is at least as hot, if not more so. One reason is that retail products and services are already fairly well developed in the region, leaving much of the action on the retail side to the marketing and branding of increasingly commoditized offerings. Corporate banking services, on the other hand, are still developing. There is a lot of room for improvement in the way banks in Asia are packaging and delivering their corporate banking services. This is particularly true for transaction banking services, including cash management, treasury, trade finance and supply chain management products and services. The large global banks have been investing heavily in developing comprehensive suites of services, often on a worldwide basis; many banks in Asia are now starting to see the value in developing a full range of transaction banking services for their corporate customers. I was recently invited to speak at an event in Hanoi, Vietnam for Asian banks organized by Citi, where this trend was readily observable. The venue was packed with managers from banks throughout Asia, large and small. They came to see what Citi had to offer in the way of web-based delivery, global payments solutions, trade finance and supply chain finance services, etc etc, and to think about how to offer these services to their corporate clients. Many banks in the region are likely to use the white labeled services of global banks such as Citi, ABN AMRO or HSBC, to name a few. Banks will be faced with choices in what mix of services, both outsourced and home grown, to offer in their particular market. I was struck by the number of banks I spoke with at the conference that were feeling challenged in developing their strategies for corporate banking services. Celent has followed developments and strategies in transaction banking for some years, and is now covering the market from the corporate side as well with our new corporate treasury research service. I look forward to working more closely with banks in Asia as they consider their options in this rapidly developing area.

Financial Technology Startups: Giving Banks a Run for Their Money

At the end of April I had the opportunity to attend Finovate Startup in San Francisco. I already blogged about my experience the day after returning. I also decided to writeup a report on financial technology startups – that report will be coming out next week. I decided to produce the report because much of the competition (to banks) and innovation in the financial services sector is coming from non-banks. The report singles out the innovative startups that Celent believes will have an impact on the banking space and/or the consumer market (many of these startups bypass the bank channel and market their products directly to consumers). Celent has selected the following companies to profile in this report: I am curious to hear your comments on these firms as well as your thoughts on innovation in the banking industry. Please feel free to post your comments and interact!

Wal-Mart wants your DDA customers; well only 25% of them.

The inverted bell shaped curve in DDAs.

The most profitable DDA customers are those at the top of the scale who keep large balances and provide low cost deposits, and those at the bottom of the scale who keep very low balances and generate NSF or overdraft fees. They subsidize the other half of customers in the middle who neither keep large balances nor bounce checks.

DDA account profitability

Why is this important? Competitors are slowly chipping away at both the top and the bottom of the markets. Direct banks are offering high rates to lure away the balances. Most people know about ING Direct or E*Trade Bank. On the bottom end of the balances the General Purpose Reloadable (GPR) card is making inroads and the 100 pound gorilla of mass retailing, Wal-Mart is moving into this space in a big way with their 3/3/3 pricing: That’s $3 to buy the card, $3 to load cash onto it, and $3 per month. With Wal-Mart’s aggressive pricing and huge retail presence, this move could move GPR cards out of the ethnic neighboroods and niche markets and into the mainstream. Main street banks should take note.

A no-brainer for banks is to offer GPR cards to those who don’t qualify for a checking account. Do banks want to wait for Wal-Mart to take their customers or move them to a more suitable product themselves? Wal-Mart is persistent and wants to be a power in financial services for years. They don’t want all your customers, just the 25% with low balances and high profit.

In Search of A Mobile Payments Business Case

Despite not having researched the mobile banking & payments in quite some time, I’ve recently been in closer contact with this space, including Celent’s I&I Day (see Jacob’s post below) and conversations with a number of industry players. Through this renewed contact with mobile, I’ve been reminded of the addage, “the more things change, the more they stay the same”; specifically, the lack of clarity around a business case for NFC/proximity/contactless mobile payments. Back in February 2008, I presented at a NACHA conference focusing on mobile banking/payments. At that conference, I raised a number of questions for the industry to answer, including the following: ” In clear, concise and material terms, what are mobile NFC payments’ value propositions?” My latest interactions with the mobile industry have shown that this question is still valid, but nonetheless mobile NFC payments are still considered to be the holy grail. Maybe I’ve been out of the loop too long and am missing something. Next week, I will listen in on a presentation that promises to explain the NFC business case. If any of this blog’s readers would like to reach out to me with their answers to the question above, by all means do so!

ACH: The Glory Days may be Over

NACHA and the ACH have been on a roll for most of the decade, posting impressive network transaction growth rates year after year. From 2000 through 2008, total ACH volume (network + off-network) has almost tripled from 6.9 billion to 18 billion transactions. But from our perspective, the Glory days are nearing an end. This can be seen in the recently released Q1 2009 network volume statistics, with total network volume up just 1.9% versus year ago. Prior to the invention of check conversion SECs (ARC, BOC, POP, RCK, TEL and WEB), the ACH was used almost exclusively for recurring transactions. Indeed, it was designed specifically for this purpose. Network volume was dominated by cash concentration activity and prepaid credits (direct deposit of pay checks) and debits (recurring bill payments). But after years of promotion, the growth engine slowed to an idle. Then came check conversion, beginning with POP introduced in 1999. The collective check conversion introductions have produced impressive results. Through 2008, check conversion activity accounted for 38% of total network volume (32% of total ACH volume), up from just 6% in 2002.
Check Conversion has Rapidly Become a Significant ACH Contributor

Check Conversion has Rapidly Become a Significant ACH Contributor

For the multiplicity of eCheck SECs, the vast majority of check conversion volume has come from ARC and WEB. ARC was adopted by a significant number of large billers and retail lockbox operators because, at the time, ARC offered compelling savings versus paper check clearing methods. WEB has been propelled by PayPal transaction activity, with significant growth over the past two years in particular.
ARC and WEB Dominate eCheck Volume

ARC and WEB Dominate eCheck Volume

But, what lies ahead for check conversion? We see growth, but a far cry from the glory days gone by. In large measure, this is a direct result of the inexorable decline in consumer check writing. There are at least two additional factors. • Electronic bill pay will likely continue to grow at 5% to 7% annually for the next few years, but a good portion of that growth will cannibalize ARC volume as electronic initiated payments displace ARC conversions of mailed remittance. • Even though POP and BOC will see continued adoption by retailers, the resulting ACH volume will be unimpressive.
POS eCheck Volume will Decline Amidst Continued Retailer Adoption

POS eCheck Volume will Decline Amidst Continued Retailer Adoption

This likely outcome is perhaps why NACHA and the network operators have begun merchandizing same-day ACH. We provided a position on that initiative in an earlier post, Same-Day ACH: Whose Interests Would be Served?

2009 Banking Innovation & Insight Day Roundup

Celent held its 2nd Banking Innovation and Insight Day last Wednesday. The event was a great success, and attendance was up 10% over the 2008 event. That’s a mighty impressive feat given current economic conditions. The Celent/Oliver Wyman team delivered very interesting and captivating presentations:
  • We opened up with a great presentation by Celent SVP, Bart Narter, who gave a comprehensive summary of the top technology trends in the banking space.
  • Celent Senior Analyst, Red Gillen, captivated the audience with his review of the healthcare banking space. This was no easy task as Red’s presentation was just after lunch
  • Oliver Wyman Partner, Aaron Fine, gave the audience a fresh perspective on deposit gathering
There were also 2 interactive panel discussions. Both had a great set of panelists
  • Alternative Payments Go Mainstream, moderated by Bart Narter. This eclectic group provided an innovative take on the payments space and explained how the market is evolving:
The event concluded with the Model Bank Awards. I had the honor of handing out awards to the 18 banks who were selected for our recent Model Bank Report. We would like to thank those that attended, and we look forward to seeing you all next year! If you would like to submit a nomination for the 2010 Model Bank Report, we invite you to visit

Celent’s anti-money laundering vendor report: 2009 update

Celent’s AML vendor evaluation reports have become something of a de facto standard, referenced by banks and regulators around the world. We began covering the sector in 2003, and are about to start work on our 3rd edition of the report. AML has not gone away as a concern for banks; indeed it has expanded, across both banking tiers (reaching down into community banks and credit unions in the US, for example) and across geographies (I recently spoke at an AML conference in Malaysia that drew over 500 delegates). The behavior detection technology that underpins AML software has also expanded its boundaries within the financial institution. Celent has been behind the “enterprise risk” approach, that is, consolidating AML and anti-fraud efforts, since our first AML report back in 2002. But until the last few years there were few real-life examples to point to. Recently, however, financial institutions have become increasingly concerned with fighting fraud, including fraud committed by customers as well as employee fraud. And a growing number of firms are beginning to take a wholistic approach to these issues. So this time around our report will take an enterprise risk approach as well, by including in our evaluation the anti-fraud products of the AML vendors. We’re calling it “Evaluating the Vendors of Enterprise Risk Management Solutions 2009.” We’ll be starting research on the report this month, beginning with qualifying vendors for inclusion in the report. The last edition evaluated 19 vendors and was 100 pages long. As the market has shifted, with new products emerging and others fading from sight, there may be some shuffling in order to keep the field of vendors representative of the marketplace. And although we are constantly looking at this space, we’d welcome any comments on vendors we should consider that we may have missed. As a reminder, the AML software providers evaluated in the 2006 edition of the report were: Accuity, Ace Software Solutions, ACI Worldwide, Actimize, ChoicePoint/Bridger Insight, Experian/Americas Software, Fortent/Searchspace, FircoSoft, LogicaCMG, Mantas, Metavante/Prime Associates, Fiserv/NetEconomy, Norkom Technologies, Northland Solutions, SAS Institute, Side International, STB Systems, Top Systems, Wolters Kluwer Financial Services/PCi