Archives for July 2009

Pitney Bowes’ RDC Initiative – when will banks engage?

Pitney Bowes and Jack Henry & Associates (JHA) have teamed up to offer remote deposit capture (RDC) to small businesses. JHA’s ProfitStars division is providing the solution. The relationship was announced in May. E-mail marketing has begun among Pitney Bowes installed base of postal meter customers. The bank-neutral solution branded Click Deposit provides bundled scanner fulfillment support and processing for a monthly fee starting at $39.95. The lowest cost option supports up to 150 checks per month. Businesses having higher check volumes would be invited to join at higher monthly rates – as high as $149.95 with several options in between. All plans require a 3-year commitment which includes leasing the Panini MyVisionX-30 scanner. The solution optionally provides an AR extract suitable for QuickBooks users. Click Deposit customers enter a merchant processing services agreement with JHA which is, of course, riddled with mention of Check-21 and ACH terms that perhaps one in ten thousand small businesses would understand. JHA underwrites each merchant and assumes the associated deposit risk. Funds availability is not specified in the agreement, only that funds may be delayed at JHA’s discretion. Merchants are liable for fraud, loss due to duplicate presentment, NSF and proper safeguarding of original items once scanned per the agreement. All reasonable terms in our opinion. In part, the agreement is lengthy because deposits are processed using both Check-21 and ACH rails. All deposits are aggregated at one or more presentment banks that clear items using image exchange. Individual DDAs at the multiple banks of first deposit are then credited using the ACH. Celent finds Click Deposit a solid service and a logical extension to Pitney Bowes existing solutions on terms that are currently competitive to what most banks are providing. The big difference between Click Deposit and individual bank solutions (beyond the incidental use of the ACH) is that Pitney Bowes is actually selling the product. It will, no doubt, enjoy this advantage for some time as most banks remain slow to introduce remote deposit capture to the small business segment. Longer-term, Celent expects competitive offers at lower monthly pricing utilizing less capable (and expensive) scanners aimed at small businesses with low check volumes. As the market matures, low total solution cost and access to efficient distribution channels will be of growing importance. In the absolute, Celent finds this a significant initiative. Pitney Bowes enjoys a large installed base and support infrastructure well-suited for Click Deposit. Banks that have not yet awakened from their slumber need to realize that the market is not standing still. Despite the troubling economy, a number of new, bank-neutral solutions are close aboard.

The More Things Change…

Many of our readers are aware that I am increasing my research of the mobile banking & payments space. Although I haven’t had the chance to look at this area in over a year, the mobile NFC payments space (at least in the U.S.) remains in a state of limbo. Of course, during the last 15 months there have been technological advances, standards agreements and a spate of pilots. However, the real culprit behind the lack of progress is the same problem that I witnessed over a year ago; the business model among the ecosystem players (banks, payment brands, merchants, mobile operators, handset/chip manufacturers, OTA provisioners) has yet to be sorted out. To boil things down quite a bit, the central issue is how the additional costs of mobile NFC payment technology (mainly the cost of the NFC chip) will be shared or recouped by ecosystem players, particularly the mobile carriers. The mobile carrier business models in discusssion have been and continue to be 1) “virtual” card activation fees, 2) “rent” on the mobile device or 3) a share of the “virtual” card interchange fees. What has changed since I last investigated this space is that the loud and clear message from the banking community to the mobile carrier community is that model 3 (sharing of interchange) is completely off the table. This is because the justification simply isn’t there (this business model is analogous to card plastics manufacturers asking for a share of interchange). Furthermore, given the dire straits of the banking industry and the unproven long-term prospects for mobile NFC payments, the negotiation leverage pendulum has swung toward the banking community — in other words, banks aren’t exactly chomping at the bit. From where I sit, if mobile carriers want to gain any sort of additional revenue stream from mobile NFC payments, they’re going to need to be flexible with their business model expectations.

Customer Service on Twitter – Proactive or Reactive?

A flurry of banks have joined Twitter and setup their presence in an effort to communicate with customers, market products and solve customer service issues (see my blog entry on What Banks Can Do With Twitter). It’s a great idea and has made many customers quite happy, particularly if they get an instant response to a problem they are encountering. As Twitter evolves and more people join the fray, a new type of user has emerged – the anti bank. A slew of Twitter users have emerged with the sole purpose of tweeting about how much they dislike their bank. I have noticed a growing trend of twitter user names comprised of “bank name” followed by the word “sucks.” I did a quick search to test my hypothesis and was quite surprised at how many users popped up with this naming convention. I found anti-bank users for BofA, Wachovia, Wells, SunTrust, Chase, TD Bank, etc. It appears to apply to credit unions as well (e.g. Navy Federal). Many of these have just a few followers, while others have a large following. For example, @BankOAmericaSux has over 1,200 followers! The goal of this post is not to single out these banks, but rather to point them to what they should do:
  • Banks need to monitor for new anti-bank Twitter Users. More anti-bank users will pop up and their follower base will grow. It is important for banks to manage their brand and make sure their company name is being used appropriately. Banks also need to watch for username squatters who will try to social engineer credentials from unsuspecting customers (see my post, Social Networks Are Not Secure!)
  • Banks should reach out to followers of anti-bank Twitter users. It’s one thing to be proactive when dealing with a customer who approaches you on Twitter, it’s another to go after those who are expressing and publicizing their problems. Banks need to reach out to these people and solve their issues before they draw too much negative attention to themselves or get into a “United Breaks Guitars” situation.

It’s impossible to make everyone happy, but if a bank has established a Twitter presence they need to understand and react to these types of situations.

Flavor of the month

As I tour Asia there seems to be a consistent trend. Most banks in the Far East are taking a new look at wholesale services such as trade finance and cash management. The top global banks are beefing up their offerings. Top tier national banks are thinking about whether to build their own capabilities or partner with some of the global players. I have come across banks in India, Malaysia, Singapore, and Japan who are all saying much the same thing. Speaking to a top bank in Malaysia, “We don’t consider Malaysian banks as our competitors, but want to compete with the big global players.” What is driving this trend? Business isn’t booming in Asia, but it hasn’t ground to a complete halt either. Banks are looking to both gather deposits and generate fee-based revenue. Cash management fits that bill rather nicely. This isn’t an easy business and requires global infrastructure in one way or another. One way would be to partner with a global bank and use their capabilities. Another would be to build the technology infrastructure and find local partners in each market where the bank chooses not to establish international branches. Because so many banks are expressing interest, I am concerned that the market will become too crowded, driving margins down. If a bank wants to get into this business it needs to understand where it will play and why it will win. Banks haven’t yet thought that through.

SmartyPig is Social

I love innovation, particularly when it takes place in the financial services industry. It’s what prompted me to write my most recent report, Financial Technology Startups: Giving Banks a Run for Their Money. I have been following the activities of SmartyPig for some time now, and I must say that I am taken by their approach. Deposits are held at West Bank (FDIC insured) for US customers, and at ANZ for Australian customers. In addition to the high interest rate they offer, SmartyPig takes advantage of social media and networking.
  • SmartyPig takes advantage of social media. The firm makes excellent use of Twitter, Facebook, Vimeo, etc. to get the word out, provide demos, keep in contact with customers, and recruit new ones. They run frequent contests on Twitter, and maintain a blog that discusses issues related to saving. CEO Mike Ferrari was profiled recently in a BusinessWeek article on CEOs Who Use Twitter.
  • SmartyPig facilitates social banking. One of the most interesting aspects of SmartyPig is the ability to publicize your savings goal. If I am saving (for example) for an LCD TV, I can invite my friends and family (by email) to contribute to my goal. Users can also place a SmartyPig widgets on their Facebook or Myspace page as part of this process.

SmartyPig’s approach is interesting and different. NetBanker recently reported that deposits in the US have reached $100 million. This is an impressive feat, and is no doubt due in part to the attractive interest rate offered by SmartyPig (currently 2.75%).

Banks have a lot to learn when it comes to social media and banking. SmartyPig is a great example of a non-bank in the financial services space that has integrated social media into it’s day-to-day business. I am currently working on a new report on social media in banking. Stay tuned for additional details.


Visa Trying To Pick A Mobile Winner?

Last week, Visa announced an alliance with Monitise plc, a major player in the mobile banking & payments space. This announcement was significant given that the mobile banking & payments space is very hot these days, and continues to be billed as “the next big thing” in payments. From Visa’s perspective, Monitise’s allure likely came from its implementation track record (Monitise’s solutions are being used by hundred of banks) and international scope (Monitise operates in the US & the UK, with projects in the works elsewhere). With this, Visa basically gave a very weighty blessing of Monitise’s solution, which will undoubtedly gain the attention of Visa’s card-issuing financial institutions. As if the alliance wasn’t already enough of an endorsement, Visa simultaneously announced that it intended to make a minority share investment in Monitise. This move was extremely rare for Visa, which usually relies upon market forces to come up with the best card-enabling technologies. It would seem that Visa is not shying away from trying to make a mark in this area of considerable industry attention. The alliance and investment raise a few key questions: 1. What kind of “macro SLAs” will Visa make Monitise put in place? E.g., what kind of functionality has to be available? When? Ready for what counties? 2. How will this influence/suppress the efforts of Monitise’s mobile banking & payments competitors (such as ClairMail, Fidelity, Firethorn, First Data, Fundamo, M-Com, MShift, Sybase, etc.), who themselves may need to directly or indirectly work with Visa? 3. Is this a precursor to an enventual majority holding or even acquisition?

The convergence of cash and trade: a quick analysis

At Celent we are recording a constant trend among financial institutions to concentrate their cash management and trade finance offerings. This falls under the umbrella of Global Transaction Banking (GTB). That this interest is driven by a business imperative becomes immediately evident when we learn that, for instance, Deutsche Bank has experienced a 20% increase of its GTB market share in the last year. The need to build/ grow/ maintain the customer relationship is the main driver of this convergence, as identified by our factual analysis. From a bank’s strategic perspective, cash management services are offered to ensure customer “stickiness” (i.e., loyalty and retention). Market evidence shows that it costs 5 times as much to generate a new customer vs. maintaining an existing one. Therefore, customer stickiness is an imperative that can be secured through an appropriate relationship management. Cash management, therefore, is a strategic driver for a bank to properly govern its relationship management policy. Our analysis proves that also the provisioning of trade finance products and services leads to better manage the customer relationship strategy of a bank. Trade finance is typically considered a short-term funding exercise. Hence, it presents a very appealing low risk profile. Trade finance is purely based on transactions, since it is founded on the movement of physical goods, easily traceable and visible, especially with new technologies available (e.g. RFID- radio frequency IDentification). The financial value chain tied to transactions leads to transaction banking, a generally accepted stable revenue source for banks Market statistics show that the number one reason for a corporate to buy transaction banking services from a bank is intertwined with the level of relationship and confidence it has with that bank. And this, once again, closes the loop on the relationship management strategy of the bank. The process described is depicted in the figure below. Bottom line Cash management and trade finance are converging in the financial sector because they both support a bank’s customer relationship management strategy, a key competitive differentiator in the current business scenario. blog-picture

Strands makes a dent in PFM for large banks – ING is newest client

moneyStrands is an online PFM tool that is available to consumers online. While moneyStrands offers a slick, easy-to-use site, it is but one of many players battling in the crowded PFM space. Its largest differentiator is that it boasts BBVA as a client (BBVA also invested US$24 million in the firm in December 2007). This large bank client is a great jumping off point for the firm to market its offering to other banks looking for a PFM tool. This has apparently payed dividends as on June 30th, Strands announced that it has signed up ING in the Netherlands. The offering is currently in private beta at ING. This is clearly a major win for the firm. My first experience with Strands’ moneyStrands product was at the Finovate Startup conference in late April (see blog entry). Strands has also been profiled in our recently published report, Financial Technology Startups: Giving Banks a Run for Their Money.