Archives for November 2010

Lies, damned lies and consumer surveys

In my yesterday’s post, I mentioned that it would be interesting to see the actual retail results and if the US consumers would indeed be as frugal as some of the pre-shopping season surveys suggested. Well, the first results are just in – see First Data’s Black Friday 2010 Spend Trend press release. And according to those numbers, the results are nothing like the surveys predicted – Black Friday dollar volume growth was 12.3%, a significant improvement over last year. Yes, the consumers are more value-conscious, but retailers have done a good job at lowering prices, resulting in not only improved dollar volume growth, but also increased average ticket sizes. Also, in direct contrast to survey expectations, travel merchant dollar volume growth was 15.9% as more Americans travelled for the Thanksgiving holiday. Sure, it’s only a snapshot of one day and there is much more to go until the end of December, but it sends a clear message – don’t believe all the surveys and forecasts you read.

Payments and the 2010 holiday season

As we all know, Thanksgiving is not only an important holiday in North America, it is also a start of the retail bonanza in the run up to Christmas. Black Friday and Cyber Monday have become one of the biggest shopping days of the year. And the phenomenon is spreading outside North America – Cyber Monday is also used as a marketing term in the UK, Germany and a number of other European countries. Others might be using a different name (e.g. in the UK is promoting today as ‘Mega Monday’), but the concept is the same. So, is there any difference in how consumers shop and pay for the holiday purchases this year? Well, it seems that three trends stand out in particular, all of them related. The overall levels of spending are likely to be reduced from previous years, and ever more consumers will use Internet and “pay now” or “pay before” payment methods. There seems to be little optimism among the US consumers this year. According to a survey by Citi, many Americans expect to cut back both on the number of people to whom they give gifts and on the cost of those gifts. In addition, 78% plan to avoid traveling to further keep the costs down. As consumers count their dollars and cents, they are attracted by convenience of the Internet, the ability to compare prices and the deals that are only available online. According to American Express, more than 78 percent of consumers say that the Internet will play an important role in their holiday gift shopping. And sometimes, they get additional incentives – for example, the UK consumers have a chance to win a “year’s salary” of £40,000 every week for six weeks in the run up to Christmas by simply shopping online with PayPal. Finally, “pay now” and “pay before” methods are gaining further ground as a result of consumer concerns of getting into debt by using a credit card. GreenDot, a prepaid card provider, says that according to their survey, 69% of shoppers plan to primarily use available funds, such as debit cards, cash, checks, gift cards as well as prepaid cards to pay for holiday gifts this year. Also, while debit cards allow customers to use their available funds, historically they didn’t protect the cardholders from unplanned bank fees – according to the same survey, 45% of Americans have been charged unplanned bank fees in the past year, most commonly, overdraft fees (51%), followed by ATM fees (47%), finance charges (32%) and late payments fees (29%). Surely, this picture will be different this year, as Reg E limits the bank’s ability to charge unplanned fees, such as overdraft, but prepaid cards are certainly going mainstream – in the 12 months ended September 2010, Green Dot alone issued over 6 million new prepaid card accounts to Americans, who over that time loaded more than $9.5 billion of deposits. Of course, just like pre-election polls, survey results are not always accurate. It will be interesting to see the retail results and whether consumers managed to maintain their proclaimed financial prudence or if the temptations of the holiday season have in the end won them over.

12.16.10: Celent Banking Webinar: Mobile Payments in China: Emergence of a Mega-Market

Celent analyst Hua Zhang 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.

The New Definition of “Issuer”

As Celent’s analyst covering the mobile banking & payments sector, I would be remiss to not make at least some mention of last week’s announcement by Isis, the mobile payments JV launched by AT&T, T-Mobile & Verizon. One of the more striking aspects of the Isis announcement was that Barclay’s was characterized as the “first issuer”, implying that many issuers are on the way. For most professionals in the banking industry, the term “issuer” would evoke thoughts of payment card-issuing FIs. While bankers may define issuers as such, Isis is almost certainly going to use a different definition. Specifically, Isis is likely to include retailers (e.g., McDonald’s, Wal-Mart, Starbucks, Shell, etc.) with prepaid card programs in its vision of issuers. The benefits of an Isis-like solution to such retailers are fairly obvious — the ability to make no-interchange, float-bearing prepaid card programs even more attractive to consumers, with mobile-enhanced loyalty, reward, convenience & re-load options. In sum, a no brainer for retailers. Real examples overseas show us that prepaid cards can be a formidable force in the mobile contactless payments space. In the Japanese market, retailers and other non-FIs (Suica, Nanaco, Edy) with prepaid products hold the overwhelming share of mobile contactless payment activity. With T-Money, Korea is the same — a market dominated by prepaid mobile contactless cards. In this context, what’s good for mobile contactless payments isn’t necessarily good for banks. In the Japanese & Korea markets, banks’ roles have been relegated to prepaid reloads, done via low-margin ACH-like funds transfers. We’re now beginning to get a little taste of this model back home — just last week, it was announced that Starbucks’ mobile prepaid cards can now be reloaded via PayPal, with ACH-based bank transfers as a potential funds source. All of this just goes to show that it’s already evident that mobile contactless payments are not the reserved domain of banks — the pre-millenial definition of issuers.

AFP 2010 Roundup

Conference season has concluded. After several weeks on the road, I finally hit the last stop on the fall conference circuit – The AFP Annual Conference. This popular business banking conference took place last week in lovely San Antonio, Texas. The trend of increased attendance figures continues (see my BAI Retail Delivery post here), as the conference halls were loaded with attendees. The exhibit hall did seem a tad smaller than usual, although perhaps that was just due to the shape of the hall. In any case, after several days of good meetings with banks and software vendors, I noted the following themes:
  • Mobile solutions for corporates are becoming mainstream. My colleague Zil and I noted the start of this trend at the recent SIBOS conference in Amsterdam. There were a ton of announcements, and demos were being showcased in the exhibit hall. Announcements were made by PNC, Union Bank, and Citizens Financial Group to name a few. Bank of America Merrill Lynch was also showcasing a mobile demo for its CashPro product. I first wrote a report on corporate mobile banking in 2007, complete with a case study on Wells Fargo’s CEO Mobile. My report was a tad early for the market, and now that things are progressing I will revisit the topic in a 2011 report. Stay tuned!
  • Growing interest in small business online banking solutions. Many of the conversations I had at the AFP were on the topic of small business online banking. The majority of banks still have no clue what differentiates a small business online banking solution from a corporate cash management solution. Luckily, I have addressed this topic with a vendor evaluation of small business online banking solutions. The report was released last week, just in time for the AFP, and provided for lots of questions from banks and vendors. A second report on the subject is forthcoming and should be released by the end of the month.
  • Portal perplexity. To portal or not to portal? Several banks I spoke to are in the middle of trying to determine if they should build a corporate banking portal that would encompass all transaction banking services. This dashboard would provide quick task execution, at a glance info, and be fully customizable. The build versus buy debate was raging, coupled with the difficulty of integrating multiple vendor solutions.
  • The cash management market is still on fire. The number of banks that have sent out RFIs or RFPs is staggering. I am still amazed at how many banks are undertaking decisions here. The fact is however that some of these fires are the same ones we witnessed last year – sales cycles and decision making times are long. Solution replacement growth is still quite strong and I expect it to continue well into 2011.


Those are my quick hits from the conference. I welcome all comments and thoughts. I also encourage those of you who were in attendance to share your experiences!

An update on Payment Services Hubs research

During my webinar on Taxonomy of Payments in September I mentioned that I have been conducting research on Payment Services Hubs (PSH). Since then I received a lot of interest from clients asking when the research findings would become available. I am pleased to announce that Celent will be publishing a series of reports on Payment Services Hubs very soon. One of my findings is that more work is to be done to get everyone to speak the same language and to agree the key definitions. Despite the fact that over the last few years, the PSH concept has been promoted by vendors and industry analysts as the leading approach to modernising banks’ payment infrastructures, there is plenty of confusion and lack of clarity. ‘Payment services hubs’, ‘payment engines’, ‘payment factories’ and other terms seem to be used interchangeably. The first report will be published this week and will propose Celent’s definition of key terminology related to payment services hubs. The second report will assess the capabilities of nine leading vendors and will name the XCelent award winners. Expect that report to be available before we all break for the holiday season. The third report will take a bank’s perspective and discuss the drivers for building a PSH and the key decisions a bank needs to make when embarking on a PSH project. It will also include a number of case studies describing different approaches various banks take to implement a payment services hub. Look out for Celent press releases announcing these reports formally. And please get back to me with your thoughts. For example, do you agree with my proposed definitions? What other alternative approaches do you see in the market?

USAA Easy Deposit Press Coverage Misses the Point

This fall, USAA began offering free check deposit services at nearly 30 United Parcel Service Inc. stores in San Antonio, where USAA is headquartered, and San Diego. USAA, whose main office is its only branch, plans to expand the service to more than 1,700 UPS sites nationwide by spring. Some of the press coverage of this initiative would have readers concluding USAA’s move into physical branch like deposit mechanisms is somehow a concession that its Deposit@Home and Deposit@Mobile services somehow fell short of the mark. Not so. Not even a little. The notion that not all customers enthusiastically embrace self-service transaction methods isn’t exactly a shocker. Most FIs (USAA included) serve a diverse customer base. Instead, USAA’s growth over the past several years absent a branch network is a huge success story and directly challenges the status quo among the significant majority of US banks. USAA grew its deposits at roughly three times the industry average since 2001 – and nearly doubled its growth since the launch of electronic check deposit gathering channels. Far from an indictment of Deposit@Mobile, USAA’s Easy Deposit initiative gives testimony to today’s multichannel imperative. But, instead of spending millions for traditional brick and mortar branches, USAA created an in-person deposit gathering channel on the cheap. By doing so, it has turned the historic competitive advantage of traditional retail banks (their collective branch networks) into a competitive cost disadvantage. Sure, there is a segment of consumers that prefer to transact with their FI in person – a shrinking segment. Soon, USAA will be competitive among that segment as well. Whoa – wait a minute – what about cross selling? The main point of USAA’s growing market share as well as its Easy Deposit initiative is this: the idea that bank branches are necessary for effective selling is simply a myth. There won’t be much selling of USAA services in the UPS stores. Not to worry, USAA has learned how to sell effectively with its other channels. In this capability, USAA has a significant competitive advantage. Today’s industry wide challenge is learn how to sell and service customers effectively across all channels. This must be done with efficiency ratios and net promoter scores that are both compelling by historic standards. USAA continues to do so as its growth exemplifies.

The Coming of Unholy Alliances

In trade journals, industry conferences and blog postings, a lot of attention has been placed on the roles of FIs and mobile carriers the mobile payments space. In the United States at least, these roles are typically defined as being mutually-exclusive, and the long-rumored AT&T/T-Mobile/Verizon mobile payments JV is almost without exception portrayed as an impending threat to FIs. In fact, this adversarial relationship is widely viewed to be one of the main impediments to mobile NFC commercial availability. This clearing drawing of sides would have some merit, if it weren’t for what is increasingly becoming an uncomfortable thought for both FIs and mobile carriers — the almost assured market entry of “disruptors” such as Apple, Google and PayPal. From a quick look at the industry tea leaves, it seems pretty obvious that these disruptors are pursuing ownership of customers’ mobile experience (not good news for carriers) and building mobile payments platforms off of low cost transaction networks (not good news for FIs). Put another way, disruptors are aiming to turn mobile carriers into “dumb pipes” and FIs into “dumb ACH rails”. As such, disruptors’ eventual market entry may force FIs and mobile carriers to reassess their views of each other. To some extent, both have complementary strengths & weaknesses. Mobile carriers have an inherent understanding of mobile technology, FIs do not (try asking a branch teller about mobile apps). FIs have earned consumers’ trust to manage money, mobile carriers have not (I doubt there’s anyone who has never had a billing issue with a carrier). Mobile carriers have youth-oriented brands, FIs do not. FIs have millions of card-accepting merchants, carriers do not. And so on. This makes me think that FIs and carriers will eventually have to sit down with each other (if they aren’t already) to figure out how to work together — the “FI vs. carrier” paradigm may quickly be a thing of the past. Then of course, there’s the possibility that the FIs and carriers may deepen their animosity by forming alliances with the disruptors — interesting times ahead…

Rewarding Excellence

At Celent we take great pride in the depth and impartiality of our vendor evaluations. The ABCD Vendor view is so complex that it requires four dimensions instead of two. 1. Advanced Technology 2. Breadth of Functionality 3. Customer Base 4. Depth of Service Yet we don’t recognize the hard work of the vendors that earned high scores in our evaluations. That is now changing. I would like to announce Celent’s XCelent Awards. These recognize the winners of the four categories with the following awards: 1. XCelent Technology 2. XCelent Functionality 3. XCelent Customer Base 4. XCelent Service This change will explicitly honor top vendors for their excellent solutions. What isn’t changing is our depth of analysis and impartiality. Clients and non-client solution providers will be covered in the reports. Clients and non-client solution providers will win XCelent awards. We at Celent are delighted to acknowledge top solutions and top solution providers. I wish all the solution providers the best of luck. May the best solution win.

Reflections on SIBOS

A number of my Celent colleagues and I just came back from a week in SIBOS, which was in Amsterdam this year. For those of you not familiar with SIBOS, it is one of the main global events in the calendar of payments and transaction banking professionals. It is organised by SWIFT and takes place annually in a different continent each year. It was my first time at SIBOS, but even without a reference point I could tell that it was a special event: ~9,000 participants, lots of concurrent sessions and a massive exhibition hall with nearly all major banks and suppliers showcasing their offerings and striking deals. This was also confirmed by those that have seen other SIBOS events (and I spoke to one person for whom this was a 33rd SIBOS!) For example, two years ago, SIBOS started right after the weekend when Lehman Brothers failed, so the queue for the taxi was as long as the one to get into the conference hall, as everyone was being recalled home to deal with the emergency. This year, the mood was much more optimistic. 2010 World Payments Report launched by RBS, Cap Gemini and EFMA spoke of global resiliency of payment trends and continued growth of non-cash payments. SWIFT painted a vision of itself in 2015 as an organisation that’s more lean and customer-focused than ever before. And in another panel debate, the banks decided that there is still margin in payments for those that are prepared to innovate and deliver on what the customers require to solve their payments problems (in other words, developing targetted payments value propositions that Celent described in its 2009 report, Payments Opportunities: Finding the White Space). However, the road ahead is not without its challenges. Regulators around the world continue to put pressure on the banks, while many of the specifics remain uncertain, making it difficult for the banks to plan and prepare adequately. SEPA’s progress remains slow and there were many discussions about the mandatory end-date and the EC’s proposals that some argue might compromise the original vision of a unified European payments market. Some of the other “hot topics” included the following:
  • Mobile solutions for corporates. While everyone is talking about consumer m-payments, some companies (e.g. Fundtech, LUUP) have launched at SIBOS their mobile solutions for corporate treasurers. It is certainly a trend that Celent monitors closely.
  • Liquidity management – everybody is talking about it. Again, a number of very interesting solutions have been launched during SIBOS (e.g. Dovetail Systems)
  • Payment Services Hubs – this topic is a particular favourite of mine at the moment and I spent a lot of my time at SIBOS discussing it with the leading vendors (all of which were, of course, exhibiting at SIBOS) and their banking clients. I also spoke about it as a panelist on a breakfast event. Watch out for my upcoming series of reports on this subject.
Finally, no SIBOS is complete without the evening parties and networking events and Celent contingent had a busy evening diary as well. Thank you to all who invited us and apologies to those whose events we couldn’t make it in order to re-charge our batteries for the next day. I am already looking forward to SIBOS 2011 in Toronto!