Archives for October 2009

IT spending and top banking trends for 2010

Earlier this afternoon I hosted a very well attended webinar on IT spending. The webinar went over the data and trends that I published in the January 2009 report, IT Spending in Banking: A North American Perspective. We just kicked off the next round of research in preparation for the 2010 IT spending report and I am pretty excited. It will certainly be interesting to see how the figures have changed and to build out forecasts for the next few years. The banking team is also working on an updated set of top banking trends to be included in the report. This is a very strategic topic, and an extremely popular Celent report. In addition to the North American report, we will be updating our flagship IT spending report, IT Spending in Financial Services: A Global Perspective. The most recent version of the global report can be found here. Both reports will be published to Celent.com in January, so stay tuned!

BBVA Compass is on the Right Track with Overdraft Fees

To help customers avoid fees and more easily manage their finances, BBVA Compass is joining a growing number of large US banks announcing policy changes. Specifically:
  • Eliminate all overdraft fees when a customer’s account is overdrawn by $5 or less
  • Provide new customers the choice to opt-in to overdraft protection at account opening
  • Actively promote its Savings Overdraft Protection service which became available in February 2009.
Such transparency and fee moderation will help US banks regain public trust. If more broadly adopted, they may also stave off regulation working its way through congress. But neither regulation nor policy changes get at the root of the problem. Lost in the debate over overdraft fees is the notion that they are 100% avoidable – by not overdrafting in the first place. It’s unclear what fraction of account overdrafts are unintentional. Some activity may in effect be intentional short term lending. Some well-placed tools to help consumers better manage their finances may actually address the root cause. Since balancing one’s check book ledger against monthly statements appears to be a lost art, what can banks do to help account holders stay ahead of the game? BBVA Compass is on the right track. It recently announced that it will be piloting a program that will provide new electing customers a text message alert when an overdraft occurs on their account. The new program is expected to begin shortly in four test markets. BBVA Compass expects to roll-out the service to its remaining markets across its seven-state footprint by the end of the first quarter 2010. Mobile banking customers won’t be able to say they weren’t well informed. Customers can create alerts to receive text messages when account balances dip below preset balances. They may also text their bank for real-time account balances prior to making a debit card purchase. And, should an overdraft occur, they’ll know about it immediately and be able to take action to prevent its reoccurrence. Will moves like this persuade congress to retreat from the legislation proposed by Senator Dodd (D-Connecticut) earlier this month? Not likely. Further demonizing banks is too attractive for a congress battling historically low approval ratings. US retail banks will have to learn to do more with less – by fiat.

The Most Wonderful Time Of The Year

For our U.S. readers, most of you have begun (or are about to begin) your healthcare enrollment process. Once again, we will have to face the daunting task of trying to understand the myriad of complex benefit designs among the differing health plan options offered by our employers. The whole process is as fun as, well, a gall bladder operation. This time of the year has a special meaning for the healthcare banking industry. It is the brief period of time after most product development & marketing efforts have taken place, and when attention is turned to how many employees/consumers sign up for high-deductible health plans (HDHPs). Of course, HDHP enrollment is the leading driver of HSA growth, so HDHP numbers provide a pretty good clue about the direction of the HSA business. For the near-term, the healthcare banking industry just received some good news — General Motors (GM) will only offer HDHPs to its 24,000 salaried employees for the 2010 plan year. GM’s decision is likely a bellweather for a shift among large, iconic employers — more and more will move from offering HDHPs as an option, to offering HDHPs exclusively. This should come as no surprise, as employers are expecting health care costs to go up by 6% in 2010 and HDHPs usually come with lower costs to employers. As explained in Celent’s report, HSA Acquisitions: Hare-Like Market, Tortoise-Like Dedication, we expect HDHPs to grow by about 25% in 2010 over 2009. An important question is whether or not the near-term will impact the long-term, especially in the context of health care reform. As I’ve written in the past, a key indicator to watch is Congress’ definition of minimally-sufficient coverage. Right now, the Senate’s default definition is that health plans must cover a minimum 66% of the average person’s healthcare costs. It is generally felt that an HDHP (excluding contributions) would only cover 60% of average healthcare costs. As such, HDHPs don’t meet the definition threshold and are under some threat. At the same time, in his keynote healthcare address to Congress last month, President Obama promised that, “…nothing in this (healthcare reform) plan will require you or your employer to change the coverage or the doctor you have. Let me repeat this: Nothing in our plan requires you to change what you have.” Before signing any bill that could potential diminish the role of HDHPs, President Obama now has 24,000 more people to consider.

Wholesale banking taking the driving seat

Some recent quarterly bank results show that profits are shifting to the wholesale domain. To adapt their IT infrastructure and make it resilient to this business trend, banks should look for a reference in the automotive industry. Volvo, Scania, Iveco, Hitachi, are manufacturers of special purpose/ heavy duty vehicles (e.g., buses, trucks, excavators) and are all doing relatively well in a business characterized by a relatively low variability in production demand, and targeted customizations (e.g., accessories). The model life cycle is around 10 years. At the opposite, manufacturers of commercial vehicles (e.g., automobiles) such as GM, Chrysler, Fiat, Toyota, are in bad shape. Market wants continuous upgrades, newer versions, with a product shelf life of about 3 years. The wholesale banking marketplace can be illustrated by the first class of manufacturers: a profitable business based on low risk transactions (i.e., financial supply chain) and targeted customizations (i.e., structured finance). Retail banking is, instead, associable to the commercial vehicle manufacturers, as it is based on customer intimacy and product variability, with shrinking profit margins. Let’s now push this concept forward, and use it as a reference to analyze the influence of the production model on the investment in infrastructure. That is, plant equipment, R&D investments, and manufacturing capabilities for automakers. Information technology for banks. Truck-makers compete on product/ service feature differentiation (e.g., duty life efficiency; equipment functional richness; near-real time spare parts management). The highly engineered and specialized product sets that characterize their business require a mostly-internally-owned infrastructure. Commercial automobiles makers compete on body design, price, and lifestyle options. The supporting infrastructure which allows the production of common-chassis-platform (i.e., no difference under the hood), cost-effective, full-option vehicles is generally outsourced to external partners. Moving to the banking parallel, the IT infrastructure for wholesale must support mainly low-frill, user friendly, heavy duty back/ middle-office transactions processing platforms. Wholesale banking profit is linked to internal effectiveness. Indeed a significant similarity with the truck makers’ universe. Retail banking demands an IT infrastructure that handles front-office portal-like platforms, where the norm is continuous change, touch-and-feel to ensure customer loyalty, and competition from non-banks (e.g., retailers, postal services). Profit is linked to internal efficiency and customer loyalty. Not too distant from the experience of the consumer auto makers class. Bottom line for banks In order to better serve your customers’ needs, plan to outsource IT (i.e., minimize costs) for your retail business, and build/ partner (i.e., increase effectiveness; leverage partner’s expertise) for wholesale. Bottom line for corporates Be informed on your bank’s IT investment plans, and use this as an indicator of their true propensity to deliver customer-centric value. Question to the reader Do you see this as an area that deserves more investigation and research?

Business Swindled Online – Who is to Blame?

I recently blogged about why Businesses Require Better Protection Online. The writeup was based on a warning from the FDIC that was aimed at businesses who bank online. Last week, a firm called Genlabs Corp. had $437,000 fly out of their account. Username, password, and token were compromised as fraudsters gained access to the account. Yesterday evening, Brian Krebs from the Washington Post blogged about the story and provided some additional updates. Turns out a Genlabs computer became infected with a trojan horse that, “allowed the attackers to re-write the bank’s login screen as displayed on the employee’s computer, so that the credentials were intercepted before they could be sent on to the bank’s actual Web site.” A forensics expert who examined the computer determined that standard Windows-based scanning tools were unable to detect the infection. This raises some interesting questions about who is responsible for this mishap. The fraudsters are obviously the criminals, but catching them and recovering the funds is another story. In the meantime, who is responsible for the loss of funds?
  • If Genlabs had software protection (that did not spot the infection) should they be held responsible? Would it matter if their software was up-to-date?
  • Should the anti-virus/malware software company be responsible if their tool was unable to detect the infection, but a competing software tool could (hypothetical)?
  • Should the bank be held responsible since their online security had been compromised?



It’s an interesting discussion topic, and I invite you all to express your thoughts.

11.19.09: Celent Banking Webinar: Trends in Corporate Banking: Separating the Hype from the Reality

Celent senior analysts Enrico Camerinelli.

This event is only open to Celent clients.

Please click here for more information.

AFP Conference Highlights and Review

I spent most of last week at the AFP conference in San Francisco. Although attendance seemed to be rather dismal (I am still waiting to hear some actual figures), it was a great conference for me with very productive meetings. Most of my meetings were centered around online corporate banking and payments – hot topics these days. It did give me great satisfaction to learn that the estimates we came up with for IT spending earlier this year are on the money. IT spending on wholesale/corporate banking is skyrocketing (see the report, IT Spending in Banking: A North American Perspective) and some of the figures shared with me are staggering. I will actually be hosting a webinar on Bank IT spending on Oct 29th for those of you who are interested. Aside from IT spending growth, I noted several trends:
  • Next generation online cash management solutions are here. Bank of America, Citi, and some of the software vendors showed off some great online cash management solutions. For more info see my recent blog post, Peeking Out From Under The Hood – Next Generation Online Cash Management.
  • Online cash management will continue to evolve. Analytics, social media (primarily closed groups for corporate clients), interactive online training/education, desktop and online widgets, and MUCH more will start to peek out in 2010. I will cover some of these trends in the next iteration of our IT Spending report (due out in January 2010) as well as a future cash management report.
  • Payment hubs are transitioning from concept to reality. There has been lots of talk about payment hubs over the years, with few compelling live examples. Solutions that clean up the mess of back-end systems coupled with clean, simple and intuitive front ends are on the horizon.



Any other trends worthy of noting? Please feel free to chime in, your comments are welcome.

Mobile P2P Hurtling Mainstream, Just Not Here

On the heels for of my most recent mobile banking/payments report (The View from the Mobile NFC Finish Line: Bank Economics in a Mature Mobile NFC Payments World), I have turned my attention to the developing markets in Africa, Asia and Latin America. One striking finding is just how quickly mobile P2P payments have spread, beyond the launches of industry “stars”, such as M-PESA in Kenya and G-Cash in the Philippines. By my rudimentary count, there are mobile P2P solutions in 23 markets on the African continent, either in pilot or full roll-out. Keeping in mind that M-PESA was launched in early-2007, just 2 1/2 years ago, this is truly amazing. Not only are mobile P2P payments expanding their coverage area, they’re going deeper too — users are in the millions in Kenya, some countries have multiple/competing offerings, and B2B use cases are emerging. This growth stems from the core benefits of efficiency, financial management and security that mobile P2P delivers. This rapid spread in Africa is due to the dominance of a couple of multinational players. Specifically, MTN and Zain are MNOs (mobile network operators) that provide mobile services in various countries. Their approach has been to offer mobile P2P payments in one “incubator” market, and then quickly roll out the same service to other markets. Another multi-national player, Nokia, is also about to enter the fray with its Nokia Money services. In Asia, most MNOs tend to be narrower in national market scope, and thus geographic spread is not snowballing quite as quickly. However, this may be of little concern, as the populations of such Asian countries as India and China provide plenty of market depth. In all markets, increased competition and economies of scale will bring about lower pricing, speeding along mobile P2P adoption even faster. From a developed market perspective, such opportunity certainly has to be tantalizing. No doubt, many players are trying to figure out how to replicate it in industrialized countries. However, during the course of my research, I have found it very hard to draw any meaningful business relevance between what is happening “over there” vs. “back here” — disparities in payment infrastructures, banked populations, financial sophistication and income levels cause mobile P2P’s benefits to resonate far too differently.

Single view of the customer

At the Bank Systems and Technology Executive Summit in Pasadena, I had the opportunity to spend time with many bank technology executives. They had many insights I would like to share: 1. The single view of the customer needs to happen from both the front end (customer experience, cross sell, etc.) and the back end (risk). While in the past the focus has been on the former, the latter is now every bit as important. 2. The mortgage crisis isn’t over. There will be a large number of mortgages that will reset in the coming year. Those that are underwater are likely to default. 3. Customer retention has never been more important. The key is to retain the profitable customers. Do you know which customers those are? 4. Some well positioned banks may make some bold moves for growth. Those that haven’t been impacted by the crisis have the ability to pick up other institutions or customers. Times of great change create great opportunities.

On-Line Bill Pay Making Its Way To Healthcare

During the last couple of months, I’ve noticed increased interest, queries and activity surrounding on-line bill pay for healthcare payments. Given increased healthcare costs paid by consumers and the fact that we normally receive bills for medical visits after the doctor’s appointment (i.e., we don’t make full payment at the medical facility), on-line bill pay makes perfect sense — like “traditional” on-line bill pay, healthcare on-line bill pay can be fast, convenient and less expensive than using stamps & envelopes. The industry seems to be moving in a supportive direction. Many of the HSA custodians with whom I am in regular contact offer on-line bill pay as part of their HSA programs. In fact, in Q2 2009, Canopy Financial reported that on-line bill pay spend ($160) outweighed HSA card spend ($98) among its customers’ HSA programs. Earlier this week, Intuit announced its Quicken Health Bill Pay solution this is designed to be patient bank- and health insurance plan-agnostic. I am aware of at least one other solution that is planning to enter the same space. No doubt, healthcare on-line bill pay still has a long way to go:
  • Most patients are probably not aware that this payment option even exists. Also, in the broader, retail banking world, on-line bill pay is only used by 40% – 50% of households, so healthcare version will unlikely ever apply the entire population.
  • There is a trade-off between advanced functionality (e.g., e-bill presentment, auto-posting to healthcare providers’ systems) and integration efforts.
  • The healthcare banking industry may lack enthusiasm for ACH-based on-line bill payment, as it cannibalizes card interchange opportunties
  • Healthcare on-line bill payment is discreet from retail banking on-line bill payment — consumers suffer the inconvenience of needing to visit a minimum of two sites to meet all their bill payment needs
Nonetheless, I expect this form of on-line bill pay to grow, as it will be driven by healthcare providers’ increasing needs to improve patient collection processes, shorten receivables and reduce bad debt.