Archives for August 2010

What do a Chevy Camaro and Online Banking Have in Common?

On a recent business trip to Atlanta, I arrived at the rental car lot and there were almost no cars to choose from. I use National’s Emerald Aisle service and the manager kindly pointed me to a brand new Chevy Camaro parked off to the side. It’s not my kind of car, but I figured it would be entertaining to try it out, and I was drawn to its bold exterior styling. I drove the thing around for a couple of days and I concluded that I really disliked it. The Camaro’s engine was impressive and it zipped me along (as much as you can zip around in Atlanta traffic) with little effort. However, I couldn’t relate to the car once I was sitting inside: – The front and rear windshields were raked in a way that reduced visibility – The pillar on the driver’s side just behind the seat belt introduced a mighty large blind spot – The radio controls were awkward – e.g. the buttons to scan radio stations were in the middle of all the radio buttons, making them very hard to find while driving – The steering wheel had the same look, grip, and feel as a Chevy truck I could go on, but I think you get the point. The entire experience got me thinking about how online banking is in a similar state. Under the hood, banks have pretty powerful systems that can process loads of transactions and scale to thousands of users. Many bank web sites have been redesigned to be visually appealing. However, once users are logged into online banking they are faced with a customer experience mess. You can’t put lipstick on a pig. Whether it’s a car or online banking, firms need to pay more attention to how users interact with a system and emphasize the user experience. This is achieved by engaging usability experts, human factors engineers, and of course, hands-on research with customers. There are many ways to approach this, and I invite you to view a previous blog entry, Can banks increase online banking use by “making it fun to do?” in order to get you thinking about what this means. What do you all think? How can banks improve the online banking experience?

BankServ to Acquire NetDeposit

Today, BankServ and NetDeposit announced the signing of a definitive agreement wherein BankServ will acquire substantially all of the assets of RDC pioneer NetDeposit, LLC, a wholly owned subsidiary of Zions Bancorporation (Nasdaq:ZION). The combined entity would place BankServ solidly among the largest RDC vendors when measured by the number of live end-users, but well behind the core banking providers in terms of breadth of FI RDC client base. Celent sees each vendor bringing strength to the resulting organization: – NetDeposit brings a capable and scalable decision gateway, an area in which BankServ may have been comparatively weak, along with a more well rounded distributed capture solution set including branch capture and multiple commercial RDC products. – NetDeposit brings a forthcoming mobile RDC solution to round out its consumer and small business RDC capability. – BankServ brings innovative and user friendly front end client applications – particularly its seamless integrations to QuickBooks and Peachtree accounting packages. – BankServ also brings diversity beyond distributed image capture with its Mobilescape, SWIFT and wire transfer products along with their substantial client base. – Both organizations have a well deserved reputation for innovation in a solution segment mired in tiresome compliance activities related to FFIEC published risk management guidelines. The result will be a stronger, more capable competitor in a market with, frankly, too many vendors. This is all good.

I Want The Real Story

Over the last month, the U.S. market has been flooded with stories about major developments in the mobile NFC payments space. These have included the “outed” rumors of a joint venture among AT&T/T-Mobile/Verizon, Apple’s hiring of a senior manager with an NFC background, and the revelation that BofA will test mobile NFC payments along with Visa & Device Fidelity in New York starting next month. These stories are indeed interesting from a payments analyst’s perspective, as they all deal with major companies, some of them disruptive, that could possibly “move the NFC needle”. Despite this, these news stories all leave me wanting. In particular, I am waiting for some insight on how these companies expect their mobile NFC payment solutions to be better than plastic cards. Oh, I expect we’ll be hearing shortly about how convenient these new solutions will be, their cool factor, or how relevant they are given that consumers are more likely to carry mobile phones than wallets. However, what I will be listening for is the real product story (if there is one) — the meaningful, sustained incentives that these players’ mobile NFC solutions will provide to consumers. Free airtime from AT&T? Free iTunes downloads with Apple? “Keep the Change” bonuses from BofA? If the discussion centers on new players and their NFC solutions, these stories really don’t have a ton of depth — previous NFC pilots around the world have shown that the technology works and new entrants aren’t going to prove anything new. What would truly be newsworthy would be industry players’ credible explanations of why they think consumers should care.

What happens in Vegas could change how you think about banking.

Celent will be hosting two exciting events on Tuesday October 19th just before BAI in Las Vegas. The first is open to all: The Impact of Alternative Channels on Your Bank — Join the Celent banking team and a select group of banking panelists for a unique opportunity to explore how banks are leveraging alternative channels and what it means for the traditional branch channel. Agenda and registration are here. The second event is a banker only dinner that evening at 6pm at Aureole, in Mandalay Bay. This event is invitation only, for a group of select Celent Banking clients. We are not inviting any technology vendors to this exclusive event. Please reach out to Steve Nawrocki if you would like an invitation. We hope you can join us at one of these two events. If not, our team will be available for 1:1 discussions throughout BAI. I can have Steve coordinate those meetings. I hope to see you in Las Vegas.

Paying to online merchants via your bank?

In the last couple of weeks, there have been a few announcements in the US and the UK about new ways to pay for e-commerce goods – via your online bank account. SafetyPay announced its formal entry to the US market and eWise, a company behind Secure Vault Payments in the US, announced a partnership with the UK’s VocaLink to develop a similar offering. They both promote a payment method, which takes the customer from an online merchant site to the customer’s online banking site, from which the customer can make a payment to the merchant. The attraction to the customer is that they don’t have to disclose the card details and they are safe in the knowledge that their payment has been authenticated by their bank. The merchant receives a guaranteed payment and in return pays a processing fee, which is shared between the payment provider and the bank. Such payments are reasonably well established outside of the US and UK – iDeal in the Netherlands and giropay in Germany are just two very popular examples. So, surely, the US and the UK must be ripe for these types of payments? I am not so sure though. I think these solutions will face a two-fold challenge: 1. Consumer adoption. Both the US and the UK have well established card markets, both debit and credit. Add PayPal into the mix and the consumer has a decent range of payment options online. Will they trust another unknown brand, even if it’s backed up by their bank? Just as some might be reluctant to enter the card details online, will they find it equally unnerving to type in their online banking credentials based on a link generated by an unknown online merchant? And will they find the whole process more convenient than paying by card? I doubt it… 2. Bank adoption. iDeal succeeded because the Dutch domestic debit card (PIN) had zero interchange and most of the cards could not be used online. Here, the new providers will have to convince the banks that it’s a good idea to cannibalise their card interchange fees for an alternative revenue source. Having said that, in the post-Frank-Dodd act world, these alternative revenues might actually be quite attractive. I would love to hear your thoughts on this. What do you think about payments online and specifically these new products?

I’m Sorry Mr. Customer, I Have No Idea Who You Are!

I just returned from a rare visit to my bank branch. As I was waiting in line, the man in front of me was in the process of screaming at the teller. He was furious that the teller had requested he provide his birthdate and mailing address information prior to handing him cash. She politely explained that her request was for security purposes and that she was doing this for his own protection. The man was insulted, disgusted that the bank employee did not recognize him. He was quite blunt with her saying, “I am in here every second day, don’t you know who I am by now?” Was the customer’s reaction uncalled for, or was the bank employee in the wrong for not recognizing the customer? How could this interaction have been improved? Please share your thoughts.

Federal Court Ruling Puts Another Nail in the Coffin of Free Checking

In today’s New York Times, the paper announced that Wells Fargo had lost a Federal Court ruling to the tune of $203 million. Wells Fargo, like most other large banks, processes checking and debit transactions from largest to smallest, rather than in the order received. There are a number of rationales for this policy. One is that it is likely that the larger check is for a more important payment such as a mortgage payment or utility payment. Small checks would be to other service providers. The flaw in the logic comes in if the bank is charging overdraft fees and paying all three transactions regardless of the order processed. There is no customer benefit to processing largest checks first if all three are paid regardless. This practice also maximizes overdraft revenue, which is a huge chunk of the fee revenue that has been driving free checking as shown below.
Fee income is increasing faster than spread income

Fee income is increasing faster than spread income

Let’s review how this works. Suppose I have $100 in my checking account and write three checks (or had three debit card transactions) for $40, $50 and $120, in that order. If these checks were processed in the order received, the checks for $40 and $50 would clear and the check for $120 would generate a single overdraft charge. If the checks are processed in descending order, the check for $120 would generate an overdraft as would the $40 and $50 checks for three overdrafts rather than one. The changes to Reg E that become effective for existing customers on August 15 will reduce fee revenue, as I have laid out in the Celent report Reg, Reg, Go Away. If this ruling stands, it will put another nail in the coffin of free checking. Banks will need to respond in innovate ways, some of which I have laid out in this same report.

Have a Smart Phone? Keep DampRid Handy

A while back I posted what may have been an amusing account of my inept smart phone handling at a cocktail party. My folly resulted in the device dropping into a glass of merlot. Obviously, the phone was immediately disabled. Once home, I tried several remedies including placing the phone in the oven at low temperatures and immersing in dry rice. After repeated attempts to revive my expensive piece, nothing worked. Defeated, I began shopping for a new device. Luckily, the (then) anticipated arrival of Apple’s new iPhone 4G caused me to pause and use one of my teenager’s discarded phones for a month or so. Shortly thereafter, another of my teens came home depressed after dropping his lesser phone in a nearby lake. We had just received some electronic equipment in the mail that same day packaged with silica gel moisture absorbing packets. That gave me an idea. We placed my son’s phone in a ziplock bag with the silica gel packets and set it aside for a few days. Sure enough the phone was revived! Encouraged by our unanticipated success, I tried the remedy on my precious HTC. After a week alongside silica gel, the phone was restored to life! Silica gel might be hard to find, but DampRid contains silica gel as a main ingredient and can be found at most grocery stores. We’re keeping some handy.

9.8.10: Celent Banking Webinar: Taxonomy of Payments

Zilvinas Bareisis, Senior Analyst, Celent’s Banking Group

This event is free to attend. Celent clients and the media will have access to the webinar’s PowerPoint presentation after the event.

Please click here for more information.

Surcharging or discounting? The name should matter less than the underlying intention

I just came back from vacation having visited family and friends in Lithuania. There, at one of the retailers, I saw a rare sight – a list price and a discounted price if paying cash instead of a card. In Europe, I am very used to having to pay extra if paying by card, particularly a credit card. A number of online merchants, and especially the airlines, charge more for a purchase by credit card than they do for a debit card – a practice called ‘surcharging’. And having recently spent 6 months in Denmark, I learned to remember that I should add a card fee to the retail price I see in front of me, whether buying a coffee or paying a taxi fare. (The good thing about Denmark though is that you can pay by card for virtually everything – I stopped carrying cash at all after the first couple of months). Card companies understandably don’t like surcharging and explicitly prohibit such practices in many markets. If price discrimination is unavoidable, the card companies prefer ‘discounting’, i.e. cheaper prices for payment methods other than cards. The Frank-Dodd act in the US, which includes an amendment giving the Fed the rights to regulate debit interchange fees, has an explicit provision that the card networks cannot prevent merchants from offering discounts for different forms of payments. This is all well and good as long as the discounts truly reflect the differences in processing costs for different forms of payment. What we want to avoid is the type of ‘discounting’ when a plumber gives you one quote if you pay by cheque and a 17.5% discount (exactly the VAT amount in the UK) if you pay cash – we all know what’s going on here. In addition to many other advantages, cards create an electronic record of payment, and unfortunately, that is not always desirable by some of the merchants in some parts of the world. When I worked in Russia a few years ago, I was told by the locals that cash was worth ~10% of its face value on the Russian black market, which by the way, according to some observers, was among one of the reasons behind an enormous popularity of kiosks accepting cash for payments, such as mobile top-ups and utility bills. As we continue the debate about interchange and cards more broadly, it is worth remembering that cards have value beyond a simple payment function. They have also played an important role in reducing the share of ‘black’ or ‘grey’ economies in many emerging markets, a point perhaps not entirely irrelevant to keep in mind in the developed markets, such as the US or the UK, as well.