Archives for July 2010

Small Business and Corporate Mobile Banking Solutions Gaining Popularity

Consumer mobile banking has already created quite a stir. Hefty marketing campaigns aimed at the consumer market are being used to promote mobile banking services. While the potential of the consumer mobile banking market is certainly attractive, little emphasis is being placed on the corporate or small business markets. This is quite surprising given the penetration of mobile devices in the business world. Mobile access is a natural and innovative add-on to today’s cash management services. Businesses of all sizes are already indicating that they would like to gain access to mobile services. Banks have to be able to offer these services in order to innovate, respond to market demand, and remain competitive in a crowded and highly mature playing field. The time to provide mobile banking services to business customers is now. The state of the mobile world is opening an array of opportunities for corporate users. Because corporate users are so in tune with the benefits and flexibility of mobile technology, they make excellent candidates for mobile banking services. Device evolution, Blackberry and iPhone mania, faster networks, and the prevalence of data plans will drive the adoption of small business and corporate mobile banking services. Introductory mobile solutions are already providing static information in the form of alerts, account balances, customer service features, etc. As applications mature and customers begin to appreciate the value that they are obtaining from mobile access, additional banks will begin to introduce more interactive functionalities like positive pay decisioning, payment approvals and some forms of payment initiation. There are first movers in this space. Wells Fargo is the pioneer – they launched their CEO Mobile solution back in 2007. This product has now evolved to encompass many of the features mentioned above. More recently, other banks have started to dabble in this space. Most have basic small business solutions that provide traditional consumer mobile features, although a few have taken a step forward to provide more sophisticated functionality. Small business examples include Chase, CIBC, Wachovia, and Wells. Large corporate examples are still few and far between, however, there are a number of banks that have fully developed solutions and it is only a matter of time before they are marketed to the masses. I would love to hear your thoughts on the market for business mobile banking solutions. Do you think this is something all banks will have? Is there a business case or strong value proposition here?

Convergence across industries

Attending an SAP analyst conference, Dr. Kerstin Geiger raised the issue of convergence, specifically that the boundaries between industries are blurring. We at Celent see this quite strongly in banking. We lots of entries into the banking market from various industries, some of which are quite closely aligned to banking:
  • Insurance (USAA and MetLife)
  • Brokers (Charles Schwab, Merrill Lynch)
And perhaps more surprising, some that have nothing to do with banking.
  • Supermarkets (Loblaws in Canada and Tesco in UK)
  • Retailers (Wal-Mart, Azteca in Mexico)
  • Mobile Network Operators (KDDI, Globe Telecom in Philippines)
  • Transit operators (Japan Rail, London Transit, Hong Kong Transit)
What are the implications for banks, and the technology providers that support them? Celent believes that banks need to be more responsive to the customer as a whole. Combinations of banks and supermarkets, or banks and MNO can offer powerful new value propositions around convenience, payments, and incentives that banks alone can’t offer, creating bundles and relationships that banks alone can’t touch. These new types of customers are going to want to mix and match banking capabilities with other capabilities in their core competency. Do you give frequent transit riders a cost advantage on their deposits? Do you give heavy telco users a better rate? Do you give people who keep large balances in their prepaid telco incentives on their mobile rates? Does a mobile operator offer location based marketing to its customers used in conjunction with its payment infrastructure? These are areas in which stand alone banks just can’t compete. Celent believes that technology vendors in this space need to build modular, service oriented architectures for these customers. SAP is doing so, placing all of their industry vertical content on a single platform….except banking. Red Gillen, a senior analyst at Celent, will soon publish a report on Jibun Bank, a joint venture between KDDI, Japan’s #2 telecom provider and Bank of Tokyo Mitsubishi UFJ, one of Japan’s megabanks. This is a mobile only bank making inroads into the mature Japanese market, no mean feat. What do you think about this new convergence in banking and across all industries?

The Growing Importance of Self-Service

Reg. E changes, the Credit Card act of 2009, the Restoring American Financial Stability Act – all have eroded banks ability to generate revenue. While the full extent of the damage this legislation has caused the industry remains to be seen, one clear implication is that banks must shed costs. For example, in a July 2010 Celent survey of 200+ financial institutions, two-thirds of respondents cited cost reduction as one of their top-3 retail banking priorities. Shedding cost is relatively easy. Doing so without compromising sales and service delivery is a significant challenge. Celent sees self-service becoming increasingly important in the new normal. Here are several recent examples.
  • Chase is offering essentially free remote deposit capture (RDC) solution to small business customers as long as they make a requisite number of monthly deposits using RDC. The implicit objective is to reduce the branch traffic along with its related costs.
  • Bank of America is piloting a new eBanking account which is free to customers using 100% self-service channels. Using the branch for those customers will result in an $8.95 fee.
  • Chase began offering mobile RDC capability to iPhone users of its mobile banking solution. Mobile RDC offers a low-cost self-service deposit capability that, by definition, keeps check deposit transactions out of the branch.
  • A small but growing number of credit unions led by Coastal FCU in North Carolina have extended branch hours, not by keeping the branch open longer, but by deploying vestibule personal teller machines (PTMs) that combine ATM like experience with real-time video conferencing with tellers housed in a centrally located call center. Doing so has provided extended branch hours at a fraction of the cost of keeping full-service branches open longer.
The common thread among these examples is customer pleasing service delivery at significantly lower cost than the traditional branch banking service model. Is there any doubt that the trend will continue?

Rates Braking The Mobile Bank In Canada

Earlier this month, I was fortunate enough to have the opportunity to speak with almost every major bank in English- and French-speaking Canada. As it is well-known, one feature that distinguishes the Canadian banking market from the U.S. is the relatively low number of (mostly) nationwide banks. The “big 5” banks based in Toronto, and the Quebec-based banks represent the overwhelming lion’s share of Canada’s banking business. With such banking concentration comes great visibility. As such, one would expect Canadian FIs to be running neck-and-neck with their retail banking offerings. Interestingly, this is not the case with mobile banking. Among the top banks in Canada, I found a wide range of mobile banking services, from the very advanced (e.g., including bank-to-bank P2P), to the very basic (e.g., ATM/branch locator only), to no mobile banking at all. Notably, Canadian mobile banking really didn’t even get going until this year. This was quite a surprise, as in the U.S. the top 10 retail banks all offer mobile banking, with major banks launching their services in 2007. One would expect more of banks in the home country of the Blackberry. However, Canadian banks cannot be entirely blamed for the spotty mobile banking landscape. As our Canadian readers know all too well, the biggest culprit is likely mobile operators’ data plan pricing. To illustrate this, I quickly checked out the data plans of a major U.S. and a major Canadian mobile carrier: AT&T: 2GB data plan (smart phone) + unlimited text msgs = USD 45 Rogers: 1GB data plan (smart phone, includes text msgs) = USD 42 (CAD 45) Very simply put, Canadians pay twice as much as Americans for mobile data. This of course places a damper on the demand for mobile data services, including mobile banking. Unless these prices change, I would expect mobile banking to progress in two directions — apps (iPhone, Blackberry) for corporate and high-income bank customers, and text banking for the wider customer base. Simple use cases (e.g., balance inquiry and transaction history) will flourish, while more complicated, data-intense usage (e.g., bill pay, PFM) will be relegated to on-line banking. Although gasoline and liquor may be a lost cause, mobile data is hopefully one area where our Canadian neighbors (whoops, I meant neighbours) will eventually pay the same price as we do…

Responses to Reg E

In the Celent report Reg, Reg, Go Away: Sorry Banks, They’re Here to Stay, I laid out a stark landscape for checking accounts due to the implications of Reg E. Revenue will drop and profits will drop likely moving into loss. What should banks do? A few of the options were:
  • Raise price
  • Create bare bones accounts
  • Create bundles
  • Reduce cost
Bank of America has a clear strategy. They have indicated that they will not go on an opt-in campaign for one time debit and ATM transactions. This is in great contrast to JP Morgan Chase who is aggressively pursuing opt-in. Bank of America is pursuing a number of other strategies. One, laid out in the report is a small business bundle: “Bank of America’s Small Business Checking Bundle includes a Business Checking Account, a personal checking account for the business owner, and no cost so long as the customer uses his Visa debit card once a month.” And now American Banker reports that they are working on developing a bare bones account with fees for value added services. They just introduced a fee for printed statements for certain accounts in Georgia, clearly a trial for larger geographies. Reg E is a game changer in retail banking and banks need to come up with some proactive response, as Bank of America and JP Morgan Chase are doing. What is your bank doing?

Reporting from the field

Last week I attended “The Future of Cards and Payments” conference in London. Over two days, various speakers shared their perspectives on how they see the cards and payments market developing, particularly in the UK. Here is a selection of facts, which I picked up during the presentations and found especially interesting:
  • The crisis hasn’t changed the UK consumers’ behaviour that much. According to a study by Visa Europe, 56% of respondents in 2010 agreed with the statement “I save money so I have some protection in the future”, compared to 57% in 2008 and 24% are “open to borrowing to buy what I want today” (vs 23% in 2008). Having said that, more people are aware of their finances with 63% vs 45% two years ago “watching every penny they spend to avoid getting into debt”.
  • Cash is not going away. In the same Visa survey, 35% of people surveyed in 2010 stated that they “prefer to pay in cash for everything I buy”, which is down from 54% in 2002, but up from 18% in 2008.
  • Only ~50% of business accounts in the UK have a card
  • Identity fraud is up by 32% in 2009
  • Cheques are due to be phased out in the UK by 2018. However, it will only be done if by 2016 there are real alternatives in place, they are available to the users, well known and are being used. Heavy cheque users include charities (get 70% of their income via cheques) and elderly (may need another paper-based alternative, e.g. giro credit) among others.
  • UK market has ~4m prepaid cards.
  • Also, UK is on track to have 12m contactless cards in use by December 2011. Focus needs to shift now to acceptance.
  • Adoption of SEPA Direct Debit is partly an issue of interchange. 70% of euro-based DD transactions in the EU don’t have interchange, but the others do. The European Commission is firmly against having interchange for DD, but accept that a transition period may be required and there might be a case for it when dealing with rejected transactions.
  • To limit fraud, some online merchants and their PSPs are beginning to tailor availability of payment methods based on the consumer’s postcode, e.g. credit cards would be OK if you live in a premium address in Chelsea or Kensington, but only a prepaid electronic voucher (e.g. ukash) would be offered if you happen to shop from a council estate in Peckham.
  • And if you live with 20 other strangers in a room with no doors or windows in Asia or Africa and have no bank account, storing money is as important to you as being able to make payments.
I will be on vacation for my next blog post. See you in August!

Chase Mobile Remote Deposit Capture

Mobile banking is now in the mainstream. I am a customer of JPMorgan Chase and like the iPhone app. It gives me the access to what I need in a mobile app:
  • Balance information.
  • Transaction history.
  • Branch and ATM locations
I can also use it to pay my credit card bill. All good. The only reason I go to a branch or ATM is to deposit checks or get cash. I was very excited to learn about Chase’s new mobile remote deposit capture. The app is very user friendly:
  1. Key in the amount of the amount of the transaction.
  2. Take a picture of the front of the check.
  3. Take a picture of the back of the check.
  4. Approve and submit.
Chase Mobile is Inuitive

Chase Mobile is Inuitive

The problem is that I couldn’t get the check to deposit. I typed in the amount, but the character recognition couldn’t find that amount on the check, so the system rejected the deposit. This was a machine generated check with everything typed. Character recognition doesn’t get any easier. Chase needs to go back to the drawing board on the character recognition, and I need to go to the ATM to deposit the check. I anxiously await the next version.

A Merchant’s Argument For Mobile Contactless Technology

A couple of weeks ago, while in Japan, I took a break from studying banks and payment solutions and met with an unlikely research subject — McDonald’s. I met with McDonald’s because during my latest mobile payments research, the fast food chain was frequently mentioned by payments industry players as a merchant to watch. Being an analyst, I decided to check out McDonald’s for myself. The focus of our discussion was McDonald’s use of mobile technology for sales lift purposes — i.e., as a channel to distribute coupons and special offers, to entice customers into McDonald’s restaurants. In a nutshell, here’s how the McDonald’s program works. Customers (now about 18 million of them) register as members of McDonald’s “Toku” promotional program. On a weekly basis (in time for the weekend), McDonald’s sends program members a mobile e-mail, with a list of coupons and promotions available that week. Customers then have two choices. One is to use their mobile browser to open mobile coupons, which are shown to McDonald’s cashiers (a promotional code is clearly visible). The other, if customers have already downloaded the McDonald’s app (which 8 million have already done), is to download the coupons to their contactless mobile wallet. Either way, the customer gains the benefit of the coupon. However, with the contactless version, there is a special advantage. Namely, McDonald’s is able to close the loop between coupon distribution and redemption. By associating redemption patterns with a customer’s “Toku” membership ID number, McDonald’s begins to develop intelligence about that customer’s preferences. Based on this, McDonald’s is able to configure and send out highly personalized promotions (by menu item, specific restaurant, time of day/week, etc.) to the customer’s mobile phone, which the customer is more likely to redeem. This increasingly tightening marketing loop cannot be achieved with plastic membership cards, nor with mobile browser-based coupons. And there’s one more thing that contactless technology does for McDonald’s. Once customers tap their contactless coupons, the data is leveraged to immediately send orders back to the kitchen. Quite amazing (and quite Japanese…). This just goes to show that contactless is not just about payments. In fact, it often isn’t about payments at all — although McDonald’s accepts contactless payments with these coupons, it happily accepts cash too.