Archives for September 2010

USAA Gets into Branch Banking (sort of…)

This week, USAA announced its partnership with The UPS Store to act as an in-person deposit gathering channel for the bank – something USAA has done without for years and has managed to enjoy a deposit growth rate of roughly three times the industry average recently. USAA expects the free check-deposit service, USAA Easy Deposit, will be offered in 1,700 The UPS Store locations by the spring. USAA is a reciprocally owned and diversified financial services company serving active duty, retired, and former military personnel and their families. It offers a wide variety of services including consumer banking. While it has always served the military, USAA has broadened its eligible membership over the years as its financial strength and operational capacity would support. In 2005, all enlisted personnel became eligible for USAA membership, and in 2009, USAA opened its membership to another 3 million former service members and their families. From its start in 1983, the objective of USAA Federal Savings Bank was to leverage the company’s strong brand equity and high customer satisfaction among its insurance, credit, and brokerage customers to build a strong banking franchise. USAA struggled with attracting member checking and savings deposits— for good reason. Without a branch network, USAA relied on mail-in deposits. To facilitate, it provided free self-addressed stamped envelopes for members. But this approach, with its delayed funds availability and high internal processing cost, was not a competitive proposition. USAA more recently pioneered desktop and mobile RDC solutions for its banking customers as an alternative for mail-in deposits which used to be its mainstay. The solutions have been a huge success. So why this? For starters, Easy Deposit isn’t exactly a new idea for USAA. In 2006, USAA partnered with Financial Technologies, Inc. (FTI) a subsidiary of now defunct Net Bank to operate a network of local deposit taking locations branded as Quick Post service. It provided free overnight depository services at any UPS Store location nationwide to the delight of members. UPS shipped the check deposits nightly to a capture site in Louisville, KY, where FTI performed deposit review and item correction, sending data and images to USAA. Quick Post was discontinued, however, in late 2006 as part of a Net Bank reorganization. USAA needed a replacement – so it turned to something even better; Deposit@Home and later Deposit@Mobile. So after tasting the delights of RDC, why would USAA be turning back the clock with Easy Deposit, even with its operational improvements over Quick Post? I have three thoughts. • On one hand, this move gives credence to the “branch is not dead” argument. Financial institutions serve a diverse customer base with differing needs and preferences. As much of a success as Deposit@Home and Deposit@Mobile have been, they have not rendered branch banking obsolete – even for USAA. Traditional retail banks should expect significant deposit transaction migration to self-service channels with desktop and mobile RDC, but not overwhelmingly so. There will remain – for at least a number of years – important customer segments for which RDC solutions won’t appeal. • On the other hand, this move underscores the extent to which branches have become primarily a deposit gathering channel. Of course they are. Branch level deposits are a staple branch scorecard metric. The problem is, FIs depend on considerable sales success to justify the prodigious investment needed to build and maintain a competitive branch presence. USAA’s move will give it quick access to 1,700 locations near its target geographic markets at a small fraction of the cost of traditional branches. Traditional banks that think they don’t compete with USAA need to think again. • Finally, as transactions continue their migration to self-service channels, there will be increasing demands placed upon retail FIs to re-think their branch models. The status quo is no longer sustainable. As transaction volumes leave the branch, so will foot traffic. FIs will have to create new reasons for customers to visit the branch and obtain proportionally higher cross sell ratios just to maintain. At the same time, declining transaction volumes will produce increasing unit costs on the remaining transactions. It’s not a pretty picture. Welcome to the new normal.

Creating your best competitor

National Australia Bank (NAB) is its own best competitor. They’ve created a stand alone subsidiary called UBank, a branchless bank that is growing by leaps and bounds, well ahead of plan. There are many fascinating things about this initiative.
  1. NAB has chosen to create its own best competition rather than wait for it to come and poach customers.
  2. The bank is separately branded from its corporate parent.
  3. The bank is using its own technology infrastructure, based on Oracle FLEXCUBE, rather than using legacy NAB infrastructure.
  4. U Bank can open a new account in two to five minutes versus five days for NAB.
  5. The bank is planning to use this new technology platform across NAB over time.
The results? The 2 year customer goal was met in six, with over 80,000 customers. The twelve month deposit goal was met in two months. Does your bank need to create its own best competitor or will you wait until someone else does it for you?

Is SEPA in danger of becoming FEPA?

I spent quite a bit of my time last week attending various industry events and conferences and discussing payments-related topics with industry participants. As it always is in Europe, the conversation inevitably turns to SEPA and PSD, and the overwhelming sentiments there these days seem to be frustration and confusion. Banks are frustrated by the lack of progress in migrating to SEPA instruments and decommissioning old instruments and infrastructures. Most are in favour of a clear end date – as one banker said, “we, banks, are excellent at meeting deadlines and terrible at implementing anything without one”. Some are confused by the apparently increased flexibility in interpreting the proposed SEPA standards, leading another commentator to quip that “at this rate, SEPA will soon become FEPA – a Fragmented European Payments Area”. There were times at the conference when I had to pinch myself and ask if it was really 2010 and not the late 90s, as banks continued to lament their inability to measure the P&L of their payments business and corporate customers continued to lambast their banks for being unable to meet even the most basic requirements, such as delivering a payments message in full rather than truncated (and STP benefits wiped out) or opening an account in less than five months (yes, really!) or without reams of complex documentation in Greek or Italian. I am yet to attend an event which would not discuss payments innovation and iDeal and PayPal were among the most frequently cited examples of what can be achieved via innovation. While iDeal is a Dutch banking industry initiative, I was somewhat perplexed that the banking establishment did not seem to be moved much by PayPal’s progress. To some extent this can be explained by the fact that most PayPal’s transactions to-date have been funded individually using one of the banking payment instruments, such as card or bank transfer. Banks still seem to view PayPal as an “overlay” on the banking infrastructure and therefore, ‘nothing to be worried about’ – a dangerously short-sighted perception in my opinion. And, while we are on the subject of innovation, expect to hear more in the coming months about Ixaris and Syncada – two of the most interesting and innovative companies I met last week.

Why do Credit Unions Operate more Advanced Branch Networks than Banks?

Celent fielded a survey among North American financial institutions in July to better understand the current state branch technology environment as well as likely midterm and longterm evolution. The results were surprising.
CUs Operate More Advanced Branch Networks

CUs Operate More Advanced Branch Networks

CUs have a much more advanced branch environment. Compared to banks: – 34% more use teller cash dispensers, 8% more use teller cash recyclers – 25% more use automated acct. opening systems – 23% more use automated loan origination systems – 23% more use image ATMs – 20% more use in-branch self-service technology The only branch automation technology areas in greater use among banks than credit unions are CRM solutions which are more common among larger financial institutions. Why would this be? What led credit unions to more consistently invest in branch automation technology than banks? I recently spent a day with the Association of Credit Union Senior Officers hosted by EasCorp in Burlington, MA.. The interaction solidified my thinking. Size and simplicity. Credit unions skew small. Most are well below $500m in assets. Small ships can turn fast. Smaller organizations also lack the multiple silos found among large organizations. Lastly, CUs typically have a single line of business. In contrast, many banks have multiple lines of business competing for capital budgets. IT infrastructure. CUs are more likely to be operating a single branch environment from a core processor, and more CUs run real-time core systems. In contrast, a higher percentage of banks operate multiple environments and are more likely using solutions from independent software vendors. Multiple environments means more lengthy and costly implementations. It’s easier to say “no”. Culture. CUs have a parsimonious culture. In addition, they seem more driven to grow their member base through referrals than mass marketing campaigns. This historical drive towards improving customer service has resulted in a commensurate spend for automation. The complete research results are detailed in the Celent report: Branch Banking in a Multichannel World: What ever happened to the “branch of the future”? – Major Outage or “Scheduled Maintenance?”

Chase appears to be in the middle of a massive outage affecting millions of online banking customers. Reports of the outage started to surface yesterday evening, and as of 4:00pm ET today, the site is still down. Chase’s website indicates that the site is down due to “scheduled system maintenance.” Huh? I can’t say I know of a single bank that conducts system maintenance in the middle of the day, let alone for an extended amount of time! Chase hasn’t released any details as to what the issue is here. There is speculation that there has been a security breach, but for the moment that is nothing but speculation so I won’t address that unless the bank indicates otherwise. One thing is for sure – this isn’t scheduled system maintenance. According to news reports it appears that the branches, phones, and ATMs are operating just fine. Basically this is one major headache for Chase customers who rely on this self-service channel. Many customers will incur fees resulting from late bill payments. This is something the bank will have to address with customers and is clearly a huge inconvenience for customers. Customers don’t necessarily care what caused the breach (unless it is security related), they care about being able to have easy access to their accounts. The bank should be using social media to give customers a better idea of what is going on. The Twittersphere is ablaze with comments about the outage. Chase should be embracing social channels and stop hiding behind the “scheduled system maintenance” tagline. The bank should be using social channels and its website to at least direct customers to channels that are alive and well. EDIT 9/15 at 10:00am ET. Service appears to have been restored. EDIT 9/15 12:15pm ET. The site is down again.


A Peek At The 24-Month Horizon For Mobile Banking Whistles & Bells

I’m in the process of conducting “refresh” mobile banking vendor analysis, using Celent’s ABCD Vendor View methodology — our last mobile banking vendor report was in 2007. As part of the research process, Celent analysts spend time not only talking with the vendors themselves, but also with their clients. One of the most interesting conversation topics has been about product/functionality roadmaps; the kinds of front-end mobile banking functionality that vendors and FIs plan to have in place over the course of the next 18 – 24 months. As would be expected, there is much talk about P2P payments, remote deposit capture and mobile proximity (aka NFC) payments. By talking to vendors & FIs, I get the impression that while the former two will gradually become “table stakes”, FIs aren’t expecting them to revolutionize banking (and there does seem to be a lot of feet-dragging about P2P within the FI community). Vendors and FIs are holding out hope for NFC (although there has been little articulation about why…), but fuzzy timelines are preventing most from investing significant resources. Aside from these three front-end functionalities being planned for the next 24 months, here are some innovative “whistles & bells” that I’ve come across from discussions with numerous vendors and FIs:
  • Enhanced reality: pointing a phone’s camera at a branch or ATM, to know hours, services offered, special promotions, etc.
  • More prepaid card functionality: i.e., enhanced mobile banking for underserved, non-banked prepaid cardholders
  • iGoogle/My Yahoo-type end user customization of mobile web pages
  • Scanning of receipts: Taking a page from the mRDC playbook, use of mobile phone’s cameras to scan shopping receipts for PFM usage
  • Location-based couponing: Sending of product coupons to a FI customer’s phone when in a retail store (or even within a department in the store)
  • Branch greeters armed with iPads: Use of mobile technology to process banking needs of customers lined up in the branch — mRDC, bank officer appointment schedule, general Q&A.
Of course, it remains to be seen how much of this functionality will actually roll out. Although none of these features will revolutionize mobile banking in their own right, it is fascinating to see how far mobile banking has progressed from just three years ago, when text banking was considered cutting-edge front-end technology.

11.2.10: Celent Banking Webinar: What If Remote Deposit Capture Goes Mainstream?

Bob Meara, 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.

Who says there is no competition in the cards world?

The European Commission has continuosly stressed the need for a pan-European card scheme as an alternative to Visa and MasterCard. The chief argument goes that the existing duopoly of the two giants limits competition and choices for the European banks. There was a time perhaps when the association status of both schemes used to colour their commercial judgement. I also remember their own messages at a time, which went along the lines “we are not competing against each other, we are both competing against cash”. Sure, cash remains an important target for both Visa and MasterCard, however, since their respective IPOs, I am seeing an increasingly fierce competition between these two firms. Both of them have been very active in staking the ground in contactless (Visa with payWave and MasterCard with PayPass) and mobile services. My UK bank has recently replaced my Maestro debit card with Visa debit – a clear sign that the competition between the two for bank accounts also remains strong. However, a number of recent announcements indicated that we might be entering a new phase in the “battle of giants”. It didn’t take long after Visa announced its intentions to strenghten its position in e-commerce with the acquisition of CyberSource, for MasterCard to follow with its own acquisition of Datacash, a European e-commerce service provider. And while MasterCard’s announcement on August 30th to partner with Borderlinx, a company that helps facilitate cross-border e-commerce, is still fresh in our minds, we should also note that Visa has done a similar deal with Borderlinx for its customers in the GCC region back in April 2010. Who says there is no competition in the cards world?