Archives for March 2010

What happened to SEPA (Direct Debits) lately?

The whole reason why SEPA was so slow to move on, according to banks, was that everyone was expecting the PSD end-date (November 2009) to arrive. After which, everything would have run swift and smooth. “Give us an end date” banks said, “and things will happen”. The PSD end-date has come and passed, and I still see almost nothing happening in SEPA-land, besides hearing the very many reasons from banks why SEPA is still at the starting blocks. Especially regarding direct debit payments (SDD). Ironically enough, the end date conundrum risks to become another nail in the SEPA coffin. Just some of the most recent statements help (regretfully) clarify my assumption. From the PSD official document: Mandatory reachability obligation of SDD (only for ‘Core’ DD, not ‘B2B’): • Transition period until November 2010 for payment service providers (PSPs) in national euro direct debit schemes. • PSPs outside the Eurozone: November 2014. This one from the “European Parliament resolution on the implementation of SEPA” (March 2009): • [SDD shall start] not later than 31 December 2012. This other one is from the EC “Feedback on the public consultation on possible end-date(s) for SEPA migration“, (September 2009): • There will be same (italics by me) migration date to SCT (credit transfer) and SDD. • The date will be the end-2012 or end-2013. An April 2009 EPC newsletter reads, instead: • One migration end date for both SCT and SDD. • Consideration should be given to the normal investment cycle of 3 to 5 years (my comment: that is, not before 2013-14). • When a new country joins the euro zone, it should implement SEPA rulebooks by the latest 5 years after the adoption of the euro. Finally, the “coup de theatre” from the June 2009 Payment system End-users committee’s (EUC) position paper on SEPA DD: • No legislation on SEPA end dates without the resolution of all outstanding issues. • The setting of arbitrary end-dates by legislation would result in a failure (again, my italics) of SEPA. • End dates for the three SEPA products should be considered separately (ditto). Bottom line: An end date is not the most important thing for corporate users to get SEPA up and running. It is apparently for banks. So, if banks are supposed to listen to their clients, shouldn’t it be about time to put aside the end date debate and start doing something REALLY serious about SEPA? Like, for instance, listen?

5.13.10: Celent 2010 Banking Innovation and Insight Day

Celent senior analysts, Banking Group This event is free for Celent clients and the media. Non-clients can attend for a fee of USD $495. Celent will contact non-clients after they register for credit card information. Please register by Thursday, May 6, 2010 to guarantee your space.

Please click here for more information.

Beefed Up PIN-Steering

Some recent shopping trips demonstrated to me that the payment card interchange battle between merchants and card issuers/payment brands is taking a more aggressive turn. This intensified battle is not limited to the halls of Congress, it is also taking place on the front lines, in retail stores. As many of you already know, merchants prefer consumers to use PIN-based transactions, due to their relatively low acceptance fees. For this reason, many merchants have begun to undertake “PIN-steering” — the use of POS devices to encourage the use of PIN debit, or at least make it more of an effort to use signature debit/credit. A common example is the POS device asking you to “Please enter your PIN” immediately upon swiping your MasterCard- or Visa-branded debit card. Implemented correctly, this PIN-steering can be quite effective. My recent experiences provided some interesting examples. The first was at Whole Foods, where I tried using my contactless Visa debit card, hoping to speed up check-out (I was late for a party). I tapped the card on the contactless reader just above the POS device, and the transaction was interupted by the device asking me to enter my PIN. Yikes, this utterly destroyed the whole point of using a contactless card. This is bad news for Visa, but not as bad as when Best Buy took the more draconian PIN-steering measure of ripping out its contactless terminals last January. The other example was perhaps more intriguing. While in the self-check out line at IKEA, I swiped my airline rewards credit card. Since I used a credit card, there was no POS device prompt asking me to enter my PIN. However, a message did pop up, letting me know that if I used a debit card instead, I would receive a 1% discount. Wow, I really had to think about that one… I ended up using my credit card anyway, as I was too frazzled to do the math in my head comparing the 1% discount vs. the value of the airline points. According to the Nilson Report, the weighted average acceptance fee is 2.06% for a credit card, 0.74% for a PIN debit card — a 1% discount is more than offset by lower interchange. This math allows IKEA to implement the best PIN-steering measure of all — money in consumers’ pockets.

Component or All-In-One?

As I work with banks across the globe I see two different philosophies of core banking design: The first is the component philosophy, where banks buy best of breed components and link them together, frequently with point to point integrations, more recently using SOA. The second philosophy is the universal or integrated system that does most of what a bank needs, but not necessarily everything, and not necessarily in the best way possible. I see the pendulum swinging towards integrated systems in many markets. Most of the core banking activities are in developing markets where banks may be starting from near green field installations or have simpler requirements than a top tier bank in a mature market. They choose integrated solutions for their easier implementation and integrations, as well as generally simpler and lower cost operations. These products have matured to offer much stronger functionality than in the past, growing with their existing customers and maturing with further investment. Most of the activity around the best-of-breed components is around the SOA or the glue that links these systems together. Managing point to point integrations is an exponential problem as the complexity of the systems and the number of systems grow. This solution is appropriate for the largest banks in home markets, where product complexity is high and the bank is already well along this path. In this type of environment, finding the best path to integration is the greatest challenge. SOA helps this process along, but making hard business decisions about standardizing data and processes at the bank are what really make this possible. The BIAN initiative and IFX attempt to create standards and frameworks as do a number of technology vendors. To summarize, most of the activity in the integrated space is around improving functionality in the universal system. Most of the activity in the component space is around more easily integrating using SOA and industry frameworks. The analogy to stereo components is not a bad one. Do you want the integrated system? It plays CDs, has a tuner and can fill a small room with decent sound. The features and functionality of these systems are improving smartly over time. If you need to fill a large room with high fidelity sound, integrated with your DVD player to create a home theater, the component system is appropriate. It will cost more, be harder to set up, but deliver superior sound. In these lean times, I think the integrated system will gain ground.

Online Appointment Scheduling – Great tool or Gimmicky Feature?

Last week someone pointed out a new feature to me on the Bank of America web site. If you enter the location finder tool, you are given a subtle option to “schedule a small business appointment.” The feature isn’t available for all branches and is being targeted at those branches that are equipped to handle small business needs.


Once you click to schedule the appointment, a new window opens and you are asked a few simple questions.


After filling out the form, the user is directed to a new screen where they select an appointment date/time from a calendar.


The final screen asks the user to input their contact information and confirm the appointment. This is an interesting move by Bank of America as it provides an automated tool to small businesses while focusing on the importance of the relationship between the bank and the business. The problem is that this tool is buried within the branch location finder and is not tied to the small business section of the bank’s web site. Perhaps it is still a very new tool and is not fully rolled out, but it would make sense to have it properly integrated within the appropriate sections of the web site and mobile banking offerings. Bank of America has the right idea with this tool and I expect other banks to follow with similar offerings. I welcome your comments and am curious to hear what you think of this initiative – please feel free to post your comments and questions. I am starting to see a lot more emphasis on small business banking in 2010 and this is just the tip of the iceberg. I am currently working on a small business online banking report, please stay tuned for more info.

Business Online Banking Risks – Banks Need to Proactively Educate Customers

I just returned from the Digital Insight National Client Conference in San Antonio. I was invited to speak on social media for banking, and I also took some time to attend several of the sessions. One of the sessions I attended was a panel discussion with a group of four commercial businesses. These middle market firms discussed various cash management and online banking issues and described how they run their businesses. Eventually the discussion turned to security and the moderator asked the firms about their security best practices. Each firm described their setup and one of the businesses described a fraudulent incident where a keystroke logger was installed on a computer used for online banking. Three out of the four panelists were unaware of the rash of business online banking fraud that has hit the market (see my blog entries on this here and here). I asked the panel if their financial institution had contacted them recently to make them aware of some of the risks, or if their financial institution had implemented new policies or solutions that they would be required to adopt. The answer of all four businesses – a flat out no. Their banks had not contacted them recently about anything related to security. Needless to say I was not entirely surprised, but I was frustrated by the situation. Business banking is very much about relationships. Banks should be investing in these relationships and at the very least should be providing educational tools and support to their customers. Given what is going on in the market, security education isn’t an option but a strict requirement. Even with the various warnings and advisories that have come out it appears that banks aren’t doing enough to proactively educate their customers. There is a lot at stake and just this week several agencies have issued an ACH and wire fraud advisory. I agree with most of the points of the advisory. However, there is nothing mentioned regarding security education in the section called, “Actions for Financial Institutions.” Additionally, the recommended best practice for businesses is to use a dedicated computer for online banking. This is completely unrealistic and counterproductive. Before you know it we will all need to have separate computers to login to facebook, another to send email – you get the pictures. This scare tactic also has the potential to reduce business online banking adoption. Proactive and ongoing security education, smart practices (e.g. setting dual approval, limits) coupled with multiple layers of security solutions can solve a good chunk of this problem.

Is There An App For That?

As I wrote earlier this year, I have a confirmed case of iPhone envy. As I scan industry news, that sense of envy is getting stronger. This is because lately, I have been noticing iPhone apps that are leveraging what I believe is a credible role for mobile devices in payments — i.e., the ability to receive/present data that encourages purchasing behavior. For example, Starbucks and Target are using mobile devices to enable users to access promotional discounts, ads/news and even “soft” versions of prepaid cards. The adoption of mobile functionality by such well-recognized brands is bound to raise consumers’ awareness that mobile phones have a role to play at physical points-of-sale. It appears that retailers are not only using apps, but SMS/text and mobile browser modalities as well. tide-and-blackberry Yes, I know this is not an iPhone… In the case of iPhone apps, a consumer that shops at both Starbucks and Target has to go to separate locations (e.g., the web site, the web site, the iPhone App Store, etc.) for downloads. Looking ahead, I wonder if the app distribution model may need some “tweaking”. Retailers such as Starbucks and Target enjoy powerful brand equity and the temptation will understandably be for them to create their own, discrete apps. Because of this, Starbucks and Target aren’t the first and won’t be the last retailers to launch their own apps. However, disparate apps will likely impede consumer awareness and adoption (as well as create a highly-cluttered iPhone deck). Consumers are eventually going to want a lot more simplicity, and to be automatically updated across all their favorite retail brands. A retailer aggregator app might make a lot more sense, one that consumers instinctively access at POS. If this were to happen, it would create interesting real estate for “top of wallet” reminders or promotions (“use your ABC debit card and get an additional 5% off”). Hmmm, I wonder if a bank would be interested in something like this… As I’m not (yet) an iPhone user, I’d like to hear from our iPhone-using readers — are there any apps available that do a good job of retailer aggregation and open the possibility of promoting a payment type?

Overdraft Fee Assault: Debacle or Dream Come True?

Recent changes in Reg. E requiring banks to institute mandatory opt-in provisions for courtesy overdraft programs weren’t a big hit with most banks – for good reason. NSF fees comprised 74% of total fee income collected by US banks in 2007 according to the FDIC, amounting to nearly $30 billion. Right or wrong, NSF fees grew to become an important contributor to checking account profitability among US banks. rev-per-acct This occurred alongside the growth of “free checking”. The end result was a bifurcated model for checking account profitability. A small number of high fee and high balance customers have subsidized the majority of low balance customers with limited NSF behavior. The latter customers used to pay monthly maintenance fees, but those vanished with the advent of free checking – along with the perceived value of bank services. The end result was unfortunate in a way. A majority of banking customers received banking services essentially free of charge and didn’t appreciate it, while a small minority of customers paid significant NSF fees (ostensibly due to their own negligence) and ended up offended. In addition, differentiating became difficult with most every bank offering generic free checking. There has got to be a better way to do things. Bank of America announced significant changes in its overdraft policy this week. Going well above the call of duty, Bank of America announced it will effectively eliminate overdraft fees caused by debit card transactions (through denial of those transactions) while preserving courtesy overdraft on check or ACH transactions in a highly transparent manner. Customers will also be able to obtain emergency cash at ATMs with explicit fee notices. Moves like this are likely to go a long way in restoring trust and confidence among consumers. Good brand building in other words. But, there’s more to this opportunity than brand building along. It may come to play that free checking as US consumers have known it will largely disappear as a result of the Reg. E changes. Opinions differ on the matter, but the associated revenue loss will be certain – and substantial. Many banks will be quick to seek alternative fee revenue. Savvy banks have a golden opportunity to use the heightened public awareness of bank fees to their advantage. The debacle can instead become a dream come true – an opportunity to redefine their value proposition. It won’t be easy, but opportunities like this don’t come around very often.

Credit Card Fraud and The Social Web

Last Friday I got a call from the fraud department of my credit card company asking me about several transactions. None of them were made by me and I declared them to be fraudulent. We went through the usual motions – card cancelled, new card will be sent in the mail, I am not responsible for the fraudulent transactions. I didn’t think much of it all, but did wonder where the fraud originated from since this is a card that I rarely use. Yesterday I saw a tweet from @Monoprice talking about an investigation they were conducting due to customer complaints about credit card fraud. Interestingly enough, I had made a couple of recent transactions at Monoprice (I am a total gadget guy, and this is the best place to get HDMI cables) and started to wonder if this could be the source of the fraud on this occasionally used card. What interested me about this situation was how the web was being used for status updates and how this can make or break the reputation of a business. When I got the call from the credit card fraud department, I had no idea where the fraud originated from. I happen to follow Monoprice on Twitter and noticed the update. They have a large following on Facebook as well and decided to use these sites to keep their customers informed. Should Monoprice have contacted me directly to inform me that I may have fraudulent transactions on my account or rely on mass communication channels like Twitter and Facebook? Or, should the fraud departments of the credit card companies be taking care of customer communication? My take is that it’s good business for merchants to use channels like Facebook and Twitter to communicate with the public. I am also very thankful that the credit card fraud department picked this up. At this point, Monoprice has yet to confirm that there was a breach of some sort. In fact, their preliminary investigation shows that no credit card information has been stolen from them (see the message on The fact is however, that exposing the possibility of a breach to the public yielded a slew of people who experienced credit card fraud after shopping at Monoprice (see the posts on Facebook). This likely is not a coincidence. It will be interesting to see how this plays out and if the public will ever even find out if an actual breach took place. However, now that all the dirty laundry is out hanging on Facebook, it will be hard for this merchant to balance the merits of the social web with the damage to its reputation.

4.20.10: Celent Banking Webinar: Processes, People, and Technology in Global Transaction Banking

Celent senior analyst Enrico Camerinelli

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.