Archives for November 2009

The Canopy Aftermath

Many of our healthcare banking readers have by now heard of the recent turn of events at Canopy Financial, a tech vendor offering CDH (consumer-directed healthcare) account processing platforms for banks and health plan carriers. As has been reported in TechCrunch and the Wall Street Journal, serious allegations are being made regarding financial report falsification. It has been reported that members of senior management have resigned/stepped down and the majority of employees have been let go. The company’s web site has been reduced to a single contact page. How the allegations will be pursued and decided will be done by appropriate parties within the legal system. In the meantime, there are a number of business questions that come to mind. First, what will become of those banks that were Canopy’s publicly-stated clients? Sovereign Bank and Wachovia were listed as clients, but they have largely exited the HSA scene (Wachovia was taken over by Wells, Sovereign by Santander). Canopy’s fate will therefore be more relevant to customers still in the HSA space, such as Comerica and Fifth Third (as well as BCBS of Michigan). This news has got to hurt for such clients, as they are now in the throes of the health plan/HSA open enrollment cycle. Second, who will benefit most should Canopy permanently shut down? Competitors such as ConnectYourCare, DST, HealthEquity, Lighthouse 1 and FIS/Metavante must obviously be watching this situation closely. However, given the allegations against Canopy, the installed account base may be far lower than has been publicly stated previously. Third, will some party (a competitor? a customer?) try to acquire Canopy’s IP? As was reported in Celent’s January report, “Processing Health Savings Accounts: Paths to Success“, Canopy has strong technology — other industry reports have also looked favorably upon Canopy’s products. Surely, the platform that Canopy developed over 4 years has got to be worth something to somebody.

Research Agenda 2010

I am planning my next year’s research agenda. I have identified a number of interesting topics to work on, for which I’d appreciate your input: how would you vote for, in order of priority, given the following titles? a> Transaction Banking for regional banks b> Strategies for Trade Finance c> Processes, People, and Technology in Transaction Banking d> Status of electronic invoicing e> Demistifying TSU f> Procurement and Finance: the two sides of the working capital optimization equation g> Cash advisory services from banks h> State-sponsored supply chain finance programs i> The ROI of interoperability Happyo to provide more information/ clarification where needed.

In house or outsource: A request for input

To run in house or outsource? At some banks this is a religious question. At others it is not even a question at all. Finally at some it is an ongoing debate. Celent hopes to write a report about this topic analyzing data across a wide range of US banks. The questions we ask? What are the key drivers for a lower efficiency ratio? Does outsourcing help more at a smaller bank or a bigger bank? Does outsourcing work better at a retail oriented bank or a business oriented bank? Is there any connection at all between efficiency ratio and the model under which the bank deploys its IT infrastructure? This is a genuine question and we will explore the answers with hard data and rigorous data analysis. Are there other questions around this topic that should be posed? I am actively seeking suggestions.

Intuit’s Check Solution for QuickBooks: Resistance is Futile

Since remote deposit capture (RDC) made its debut several years ago, 90% of client adoption has been at the hands of financial institutions offering generic solutions. Once primarily aimed at retaining treasury management clients, 60% of financial institutions surveyed in August 2009 now cite deposit gathering the primary objective of RDC. But alongside banks, non-financial institutions have embraced RDC and are entering the market with bank-neutral solutions. The most recent example is Intuit’s Check Solution for QuickBooks introduced with the latest release of QuickBooks in late September. These channels are emerging for one compelling reason: opportunity. Celent sees three specific advantages inherent in many of the non-financial institution sponsored solutions. 1. Solution Differentiation. Third party software vendors can provide highly integrated workflows beyond the generic solutions most financial institutions are likely to deploy. Integrating RDC solutions with vertically focused applications provides conspicuous advantages. 2. Developed Sales Channels. Demand for RDC is greater than financial institutions collective ability and/or willingness to fulfill. Third parties seeing this opportunity are maneuvering to fill demand. In many cases, each of these third parties bring with them substantial client bases, brand equity and some degree of customer loyalty. Consider Intuit with its 4+ million QuickBooks customer base. 3. Customer Preference. A number of scenarios are friendly to bank-neutral solutions. Large property management firms with properties in multiple states, for example, are compelled to have banking relationships in each state. A single, bank-neutral solution is likely preferable to buying several solutions, one from each bank. The prevailing attitude among financial institutions concerning these emerging third-party solutions is casual. Among respondents to Celent’s August financial institution survey, only 25% expressed concern. 15% welcomed the advent of third-parties who would do the “heavy lifting” as long as the bank retained the deposit relationship. rdc-competition Is this an appropriate response given the market position of Intuit? We think so. The compelling value of Intuit Check Solution for QuickBooks doesn’t lie in reducing trips to the bank, but in making all aspects of receiving and posting payments fast and easy. RDC has become one of many integrated components in the QuickBooks payments ecosystem. In this regard, banks can’t compete using generic RDC solutions. Resistance is futile. Banks can learn from Intuit by integrating RDC into applications they do own – internet and mobile banking solutions. If it is all about deposits, then banks would do well to prepare for the likelihood that the majority of deposits may soon be collected via RDC – directly or via third parties.

12.3.09: Cloud Computing, Software as a Service, and Technology Outsourcing

Celent senior analyst Jeff Goldberg

This event is free to Celent clients and the media. Non-clients can attend for a fee of USD $249. Celent will contact non-clients after they register for credit card information.

Please click here for more information.

Demystifying Social Media and Next-Generation Online Banking

Last week, just in time for the BAI Retail Delivery conference (see my conference summary here, and Red Gillen’s great P2P payments observations here), I released a report called, Demystifying Social Media and Next-Generation Online Banking. The report has been receiving a lot of attention as social media is a subject that is on the minds of many financial institutions. The overwhelming majority of banks don’t understand or know what to do with social media. Social media activities need to be blended into a bank’s day-to-day activities and customer relationships. They also need to be integrated into online banking and a bank’s website presence. The days of pushing data and information out to the consumer are over. It’s now a two-way street, and banks should capitalize on the stream of data, information, and interactivity that is headed their way. Some banks are doing this, most are struggling. This is a subject that banks cannot ignore. The report presents several scenarios and gets into detail about what banks should and shouldn’t be doing on Twitter, Facebook, communities, their own web sites, etc. The report also provides details about how non-banks in the financial services industry are harnessing social media. This is described by presenting a case study on SmartyPig, a firm that has blended social media with next-generation online banking. I encourage you all to take a look at the report. I am of course interested in your feedback and comments. Please feel free to post them here.

P2P Going the Bill Pay Way (Well, Someday…)

Following Jacob Jegher’s recent post, I’d like to add some observations from the BAI conference, regarding P2P. This functionality, which has been talked about for years, is usually portrayed in “social” or “casual” P2P context (as American Banker puts it, the “let’s split the dinner bill” crowd). Usage has been low, partially due to consumers’ lack of awareness or of use case understanding. In fear of oversimplifying, there are a couple of systematic reasons for low usage too — the lack of a seamless network effect (i.e., anyone can send money to anyone, without registration processes), and the lack of a direct bank-to-bank (i.e., no intermediary) transfer capability. Among the rash of P2P announcements, there appears to be 3 distinct models adopted by tech vendors to overcome these systematic barriers. The first is a bottom-up model, creating a network among bank clients — Fiserv and CashEdge/Firethorn fall in this category. Another model is to help banks interface with PayPal, but without registration and intermediary requirements for P2P senders — FIS and S1 appear to be taking this route. The final model is to leverage the payment brands’ networks to move money directly between banks — Obopay tried a version of this with MasterCard and ClairMail is in now in a position to support Visa’s future efforts. It will take a while before we find out which model will win, or if there will be multiple models at the same time. A deciding factor will be the tricky (and expensive) matter of raising consumers’ awareness and understanding of use cases. Because of this, bank-agnostic large brands (e.g., MasterCard, PayPal, Visa) with healthy marketing budgets will be in the best position to to move the market. The question is how much they’re willing to do so — as consumers are extremely sensitive to pricing, it’s not clear how much revenue P2P holds for industry players (especially in comparison to traditional merchant markets). The recent wave of press releases may provide a hint of the future revenue opportunity and consequential marketing efforts. There was scant mention of consumer pricing in the releases, as most tech players will leave this up to the banks. This sounds to me like a recipe for fees initially being charged, but with eventual migration to near $0 pricing (“customer retention” being the argument to offset banks’ costs…). Hmmm, on-line bill pay redux?

SEPA’s sDD (small ‘s’, big ‘DD’)

The end date for the application of the Payment Service Directive (PSD) just expired on November 2nd. The transposition of PSD into country legislation was presented as the last hurdle before the full deployment of SEPA Direct Debit (SDD).

The European Payments Council (EPC) keeps on confirming a successful kick-off, where to-date 2,607 banks, representing about 70 per cent of SEPA payment volumes, have signed up to the new schemes of the SDD services.

There are no evident signs of significant uptake by banks, least by corporates.

What we perceive from banks, in reality, is an investment strategy focused on applying new direct debit schemes at local level, with a country-by-country piecemeal approach.

This is why I think we should refer to an ‘sDD’ implementation.

A small ‘s’, because in reality the spirit of SEPA is being betrayed, and a big ‘DD’, because each bank is looking at its own backyard and developing ad-hoc DD schemes.

Bottom line for banks

Get involved with corporate representative bodies (e.g., EACT- European Association of Corporate Treasurers) to guide your investment strategy and select key countries.

Bottom line for corporates

Get your banks explain in practical terms how they intend to deploy their SDD (i.e., ‘Big S’) services.

Question to the reader

Is this an area that requires further investigation?

Read Celent’s existing research reports.

Live From BAI Retail Delivery

I arrived in Boston on Tuesday for the BAI Retail Delivery conference. I have been attending this conference for a number of years and it typically provides me with a good stream of exciting and innovative information and solid meetings. While my calendar is booked solid, and I have had good meetings with clients and prospects, BAI has been a bit of a letdown in terms of new and innovative announcements. I must admit that I am not terribly surprised by this given the state of the retail banking industry. The state of the industry has also taken its toll on conference attendance. While I have not seen registration numbers for the show, the exhibit hall is noticeably smaller and banks attendees are few and far between in a sea of vendors and solution providers. Additionally, several large vendors have decided not to set up shop in the exhibit hall this year – NCR and Diebold are prime examples. One of the most bizarre announcements at the show came from Suntrust and Moneta. Moneta is attempting to take on Paypal in the eCommerce world. Their service allows customer to pay for goods at online merchants using Moneta. The challenge is that Moneta simply doesn’t have a large enough presence at merchants or a recognizable brand. It is highly unlikely that they will be able to oust the credit card or Paypal as the payment vehicle of choice. Having Suntrust as a partner will not improve their chances. A few key themes have emerged from the conference however that are worthy of mention. Here are a few that I have selected: P2P Payments have invaded the banking space and the mobile channel. Paypal’s X Innovate conference is taking place at the same time as BAI. Part of me thought I was at the Paypal conference with the number of P2P payments related press releases that came out. Paypal has opened up a set of APIs and announced an offering dubbed “Paypal X.” This brought out a couple of releases at BAI: S1 has teamed up with Paypal to deliver a mobile P2P payments solution FIS partners with Paypal to integrate P2P functionality into online bill payment Paypal isn’t the only one at work here: Cashedge and Firethorn also announced a mobile P2P offering Fiserv plans a P2P payments service Bank PFM solutions are on the way. It would have been nice to have heard some major announcements from banks regarding PFM. Not all is lost however as a few banks did make me aware of their near term PFM plans. The only PFM related announcement that caught my eye was Geezeo teaming up with iPay. It’s an interesting move as Geezeo attempts to gain traction and differentiate in a crowded market. In related news, Intuit announced that Quicken online users will be migrated over to the solution.