Archives for May 2010

Thinking Beyond “Dumb Payments”

Years ago, while an employee at Visa, I was told by my manager that for commercial card payments, “the value is in the non-financial information”. In other words, the value of a commercial card transaction is in the enhanced data that helped corporations with decisioning. On the other hand, financial settlement (moving money from Point A to Point B), is assumed and thus holds little perceived value. Over the past months, my research in Japan, Apple’s patent filings and a presentation by Geoffrey Moore have reminded me of my manager’s words, but applied to mobile retail payments. I’m now convinced that the mobile payment value-add will be enhanced data used for consumer decisioning, not moving money. Specifically, this will mean using mobile technology to guide consumers in real-time to understand which products to buy, at what discount, where to buy them, when, for how many reward points, at what price and importantly, with what payment types. Despite what the mobile future holds, banks and payment brands do not appear to be positioning themselves to play a role in consumers’ payment decisioning. Rather, it appears that they are focusing their mobile payments efforts on what they know best — financial settlement. Their announcements about NFC pilots and mobile technologies relate to new ways of moving money from Point A to Point B. Don’t get me wrong, I am sure that NFC payments and mobile wallets will work fantastically. However, coupled with decisioning, financial settlement will become an afterthought. Put more crassly, financial settlement without prior decisioning intelligence is in danger of being regarded as a “dumb payment”. In the past, banks’ and payment brands’ lack of a decisioning role wouldn’t have mattered — no company had such a capability. However, the combination of the mobile channel with technologies such as merchant aggregation/promotion engines, user analytics, cost comparison tools, location-based services, bar code scanning, etc. means that it’s a matter of time before there is a company (think PayPal, Apple, Google, Verizon, foursquare) that will play a payment decisioning role. It is the banks’ and payment brands’ decision whether or not to play in the decisioning game. However, if properly-executed, payment decisioning would eliminate consumers’ need to choose a payment/bank brand — this choice would be made for them by the likes of PayPal and its ilk. Although this won’t hit critical mass anytime soon, it still cannot be a fun thought for the financial services industry. Going forward, I’ll be very curious to see if it thinks beyond its financial settlement-centric role.

10 Reasons Check Volumes will Hasten their Decline in the US

It’s certainly no news flash that US check volumes have been declining. Depending on whom you talk to 5% to 7% annual rates of decline (checks written) over the past few years seems likely. Another Federal Reserve check study is in the works this year to add precision since it has been since 2007 since the last data point. That Federal Reserve sponsored study concluded there were approximately 33 billion checks written in the US in 2006, down from nearly 38 billion in 2003. But what will the future hold? The tendency is to assume past performance is a good predictor of future results. In other words, many expect this rate of decline to continue. Here are ten reasons to suggest that won’t be the case. 1. CashEdge ( Perhaps best know for its online account opening capabilities, CashEdge has launched P2P payment products Popmoney and a suite of small business payment products. 2. Boku ( Boku is a relatively new player in the mobile payment arena. Its focus is on the payment of virtual goods and offers flexible pricing models tailored to micro payments. 3. FreshBooks ( Boasting over 800,000 users, Freshbooks is a web based IBPP solution targeted to small businesses. It makes online invoice creation, presentment, tracking and reconciliation incredibly easy. Not surprisingly, payments aren’t by check. PayPal is a favorite option. 4. PaySimple ( is an alternative web based utility for small business bill presentment and payment. The application is payment system agnostic, supporting electronic check (ACH), direct debit and credit cards. 5. iPay Technologies ( is an online bill payment solution provider targeting community financial institutions. Its efforts are bringing check payment cannibalizing services to 3,700 community banks and offers solutions for both consumers and small businesses. 6. IP Commerce ( provides a “managed commerce services platform”. Its aim is to provide a platform for rapid development of commerce enabled applications. Said simply, IP Commerce is accelerating the development and deployment of electronic payment alternatives. 7. Mopay ( is the Mobile Messaging and Payment unit of MindMatics AG. Unlike Boku, Mopay is a B2B enabler, with coverage in over 60 countries. 8. Square ( Hype aside, Square’s aim is to increase the incidence of credit card acceptance by marrying an extremely easy acquiring process with tiny card readers that plug into the audio jack of any iPad, iPhone or Android device. Square’s micro business target market is known for its reliance on cash and check payments. 9. Vendorin ( is a trading partner network built to facilitate the easy opt-in for electronic payments. It vastly simplifies the challenge of migrating from paper to electronic B2B remittances. 10. PayPal ( is the household name in our list. Once primarily associated with eBay, PayPal is quickly becoming a force in B2B payments. Its PayPal Mobile iPhone P2P application enjoyed more than 1 million downloads in its first three weeks. And, this is by no means the end of the list. Said simply, viable alternatives to check and cash payments are multiplying – at an astonishing rate. There has been activity in the B2B financial supply chain space for some time. Now, there are more options there than ever before, and it is becoming easier for smaller businesses to enroll than with earlier incarnations. Mobile payments, particularly P2P, are hot now with banks by the hundreds implementing solutions to adorn mobile banking platforms with P2P payments capability. I wouldn’t be surprised to learn of check volume declines of the order of 10% to 20% per year over the next few years given the accelerating activity among alternative. This would be roughly three times the historic rate of decline.

Celent Banking Innovation and Insight Day Recap

Last Thursday, we hosted our annual Banking Innovation and Insight Day at the Westin Times Square in NYC. Celent Senior Analyst Bob Meara opened up to a packed house with his presentation on top tech trends. This set the stage for the day as we moved into more specific subjects including, social media, risk management, core banking, mobile payments, and more. We had a good number of journalists in attendance to cover the event. Bank Systems & Technology was first out of the gate with a story, and wrote up a detailed piece on the social media panel that I moderated (Citi, USAA Execs Share Social Media Best Practices). I also had the honor of presenting awards to the 18 banks that were selected for our 2010 Model Bank initiative (group photo below). If you would like to obtain a copy of the 2010 Model Bank report please click here. If you are interested in submitting a nomination for our 2011 Model Bank report, or for more information on Model Bank, please visit


All presentations from the event are available for Celent clients to download on our web site. We invite you to review what folks had to say about the event on Twitter If you would like to see a few photos from the event please visit our Flickr photostream.
Feedback on the event has been extremely positive. I would like to thank all of our attendees, distinguished panelists, and dynamic presenters for contributing to a successful event!

Can banking really be simple? Twitter engineer quits to become co-founder of

The folks at Twitter must have a secret love for financial services. First Jack Dorsey goes off to start Square and now Alex Payne jumps ship to become co-founder of What is A recent TechCrunch post led me to some interesting info on the firm. Their web site states that they are “an easy, intuitive, and social bank for people who appreciate simple online services. Unlike other banks, we don’t trap you with confusing products nor do we charge any hidden fees. No overdraft fees. We use sophisticated analytics to help you better manage your finances by providing you a individualized service, catered to your needs and goals.“ A recent blog entry further expands on their intentions. “We have absolutely no intention of spending your money on high-budget ads. The best way to sell a product is to have a kick-ass product. And for us this means no hidden fees, fantastic online experience, awesome customer service and, a much simpler, personalized financial service.” Does their idea sound great – absolutely. Is it as simple to pull off as they make it sound? Not even close. Startups consistently underestimate the requirements of jumping into the banking space (as was recently demonstrated by Square at their NACHA Payments keynote address). has lofty goals. It sounds like Nirvana and I’ll believe it when I see it.

Finovate Spring 2010 Roundup

On Tuesday, Red Gillen and I attended Finovate in San Francisco. The conference brings together a slew of fintech startups as well as a handful of established players. Thirty six companies showcase their wares in 7 minute demos. Sounds like a short time frame, but if done properly, is more than enough time for a firm to pitch their product. The event was well attended and I was very pleased to see quite a number of financial institutions in attendance. I attended last year as well, and was disappointed by the number of banks present. Perhaps travel budgets are better, and/or maybe banks are attempting to increase their emphasis on innovation. The majority of the 36 demos were lackluster but there were a few standouts. I plan to profile my top 10 in an upcoming Celent report. The report will single 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). Here are some of my selection criteria:
  • Realistic business model (I was surprised at how few of these firms actually had a business model)
  • Innovation and new product development
  • Potential for the solution to be sold by banks
  • Potential for the solution to fill a void in the market
The audience did have their favorites, and were asked to pick their top 4. The best in show awards went to (in alphabetical order) Bobber Interactive, Expensify, oFlows, and Wikinvest. On a related note, I enjoyed the live tweeting at Finovate. It was great to hear what the folks around me were thinking as the presentations were taking place. Click here to check out the Finovate Twitter feed.

Payment infrastructures – do we care enough about their risks?

This week I attended one of The Financial Services Club events in London – a debate on whether payments infrastructure risk has been largely forgotten. The debate’s outcome was “no, it hasn’t been”, but the discussion raised some interesting points and provided a lot more colour to the answer.

The general consensus was that operational risks are well understood and mostly well managed. At least in the UK, the interbank infrastructures for BACS, CHAPS and Faster Payments schemes are very resilient with glitch events extremely rare. The very fact that the payments infrastructure works so well can lead to complacency and the impression that the risks they pose might be forgotten.

Layered resiliency is certainly one way of managing business continuity risk; the other is to have multiple providers with easy interchangeability between them – currently, that’s not the case in the UK, as the schemes are too different to just simply redirect say BACS traffic to Faster Payments infrastructure and vice versa. Could and should these schemes converge going forward?

On the other hand, liquidity risk certainly can generate shocks in the system. Do banks know how to manage counterparty risk from the operational perspective? What happens if one party cannot settle intraday? How do you know if and when to pay out? In crisis situation, is straight through processing (STP) really that good or would you rather approve outgoing payments manually?

Again, the participants were confident that banks would know what to do, but all agreed that many of them would rely on individual rather than institutional knowledge, i.e. on those deeply experienced people that all banks have somewhere deep in their payments and risk departments. But will this enough to satisfy FSA and other regulators? Banks have to take stress testing seriously and put their payments infrastructures through challenging but realistic scenarios to increase confidence in the whole system.

Hardware Is Hard

April & May are proving to be crazy travel months for me. With 5 consecutive weeks of travel to deal with, I’ve tried to make things interesting by using United Airline’s new mobile boarding pass technology. Although it’s not mobile banking technology, it is a POS-like use of mobile phones, so I guess I couldn’t resist… mobileservices_blackberry After two weeks of using this new service, I basically got mixed results. It can take a long time/repeated tries to register for the boarding pass, which can be frustrating. In order to get the bar code to work, one needs to hold one’s phone against the reader in just the right way. In Orlando, the 2D bar code reader at a United gate didn’t work. In Denver, I stood behind a woman using the same mobile service in a very long security line — she had to go back to the main ticketing area after the TSA reader didn’t pick up her bar code (her phone display may have been too small). Sometimes the reader isn’t even switched on. All of this lead me to think about mobile-based contactless (e.g., NFC) payments. For them to be successful, all the right hardware (and software) has to be in place, and work incredibly smoothly. An absolutely critical success criteria is whether or not such payments are easier & faster than current payments using mag stripe-enabled plastic cards and terminals. Given what I’ve personally experienced with United’s mobile technology (relatively simple compared to NFC), this isn’t going to be easy. I’m somewhat of a mobile geek, so I didn’t mind all the fuss with United’s mobile technology. However, the honest-to-goodness truth is that in terms of boarding pass ease and speed, paper beats out mobile. Looking forward to the day when this won’t be the case.

Banks want to be customer-centric? Mistakes to avoid

It is a fact that players in the manufacturing sector are continuously striving to reduce inventory levels to improve working capital ratios. Indeed, inventory is a non productive asset, and therefore must be minimized as possible. It is also a fact that a focus on reducing inventory levels without keeping a wider eye on the overall business results can end into undesired collateral effects. I recently read on Bloomberg Businessweek (issue May2, 2010) the quite enlightening story of John Deere, one of the largest agricultural and construction equipment manufacturers in the world. In recent years, Deere has been working to become a build-to-order company. By producing only on client orders the company keeps smaller stocks on hand which positively impact its working capital needs. But production cuts and the tightest inventories in the industry have led to a shortage of equipment now that the farming economy is strengthening. Fewer products have big implications for the company’s dealers: they are simply losing market share because they don’t have enough inventory to meet customer demand, and, more worsening, products are shipped late. The result? Traditionally loyal Deere customers are turning their backs to the constructor and go to competition. Turning the paradigm to the banking sector, financial institutions still keep corporate lending low because returns are, using the manufacturing jargon, simply not productive at current interest values. So they rather lend to “risk free” corporate clients and avoid extending their funds elsewhere. My analysis is that, just like it happens in the heavy duty equipment business this approach will run into the same trap: a declining customer loyalty. Just as with short items in stock Deere clients move to alternative suppliers, corporations- especially the smaller ones- are moving to alternative sources of funding (e.g., lending portals; supply chain finance). Bottom line: Being customer-centric means for banks to radically reshape their business model. Corporate customer loyalty and wallet share comes, at times, at the expense of reducing current marginal interest. Corporate clients expect their banking partners to be “entrepreneurial”. That is, to proactively offer services that don’t necessarily have a price tag attached: Their objective is to attract client usage and generate transactions for which added-value (and priced) services can be applied. One example for all: electronic invoicing.

Can banks increase online banking use by “making it fun to do?”

The answer is yes! I met a UX (User Experience) architect at a conference this week and she presented the following video. It’s an ad from Volkswagen that showcases a usability experiment to encourage people to take the stairs in the subway. To me the message is loud and clear – even the most mundane of exercises can be tweaked and it is possible to increase adoption. I would love to hear what you all think of the video and the concept.