Archives for December 2010

Santa or Scrooge? 2011 Bank IT Spending

It’s that time of the year again! I don’t mean the holidays unfortunately. I’d like to say that my mind has been busy with holiday planning but I have been otherwise occupied with bank IT spending. I’ve spent the last little while working on our global IT spending reports for 2011 along with my colleagues across the globe. I’ve also been busy preparing our 2011 North America bank IT spending report. The question everyone is asking – will 2011 mark the start of a turnaround? I would love to give you the answer now but you will have to sit tight until January as that’s when both these reports (along with our top trends for 2011 reports) will be released. I will provide a holiday teaser though – preliminary results for North American banking are pretty encouraging. Stay tuned and happy holidays!

1.27.11: Celent Banking in London: The Branch Is Dead; Long Live the Branch

Celent senior analysts, Banking Group Admission to the event is free for Celent clients, banks, technology firms, and the media, but space is limited and pre-registration by Thursday, January 20 is required.

Please click here for more information.

Would OBeP be iDEAL for the UK market?

Earlier this year, I blogged about Online Banking e-Payments (OBeP) solutions which allow consumers to pay merchants online directly from their bank accounts via online banking channel (e.g. iDEAL in the Netherlands). I mentioned that eWise and VocaLink have announced their partnership to launch such a solution in the UK market and shared my thoughts on some of the challenges the solution would have to overcome. Lately, I had a closer look at OBeP payment methods in general and the plans for the UK specifically, and I have just published a report titled “Would OBeP be iDEAL for the UK Market? A Guide For the Decision Makers”, which explores the feasibility of OBeP-type solution in the UK. To evaluate a new payment solution, I proposed a framework which considers three most important constituents in determining the success of any FI-led payment product – consumers, merchants and financial institutions – and asks the following questions:
  • Why would consumers get the payment product?
  • Why would consumers use the payment product to transact?
  • Why would merchants accept the product?
  • Why would Financial Institutions offer the product?
The framework proposes a series of success criteria important to the corresponding party, categorised along the three major steps in the payments value chain – payment instrument provision, transaction and post-transaction activities. Having applied the framework to OBeP, I concluded that OBeP can be a very attractive payment instrument for all major parties, particularly merchants. However, in the UK, given the dominance of cards and, increasingly, PayPal, it is financial institutions that hold the key to the success of OBeP. Their consumer and merchant relationships and willingness to invest in shifting consumer payment habits will be crucial in creating the necessary network effects. In order to make a decision on OBeP adoption, the UK banks should, among other things, develop a business case, which takes a holistic FI perspective and explores multiple scenarios for key revenue and cost drivers. In particular, it will be important for banks to draw their own conclusions on the expected sources of OBeP transactions (i.e., incremental to cards or replacement of cards), the future of card interchange, and the expected growth and business model of PayPal and other similar solutions. If the UK banks do get behind OBeP, the UK e-commerce payments landscape could change significantly over the next few years.

Implications of the 2010 Federal Reserve Payments Study

The Federal Reserve published a summary of its 2010 Federal Reserve Payments Study this week. Predictably, the study evidenced double digit growth in debit and prepaid cards from 2006 through 2009, alongside essentially flat credit card usage. The study evidenced a continued decline in check writing of -6.5% CAGR, from 33.1 billion in 2006 to 27.5 billion in 2009. The anatomy of check usage was well reported in the study as well, with an analysis of check writing by counterparty and purpose based on a random sampling of checks processed by a small number of large banks. The results show double digit declines in C2B check writing (-11%), modest declines in B2B (-2%) and B2C (-3%) check usage and a growth in C2C check writing. In other words, businesses aren’t kicking the check habit – much.
Anatomy of Declining Check Usage

Anatomy of Declining Check Usage

The implications of these findings are many. One deserves special mention in my opinion. Less check writing alongside growing use of self-service channels is eroding branch foot traffic like never before. It’s no shocker that check volumes in the United States have been declining for most of the last decade. What appears less well understood is the long-term effect of this decline and what financial institutions should do in response. In addition to steady declines in check writing is a steady growth in self-service deposit activity taking the form of image ATM and RDC usage. The aggregate impact of these trends points to dramatic erosion in branch transactional activity – and with it foot traffic. The chart below shows a conservative Celent estimate of resulting average effect on branch foot traffic. teller-transactions This is a polarizing picture. For financial institutions with highly automated branch networks and well-trained personnel, these trends can point to significant cost reductions without compromising customer service. For other financial institutions, branch channel cost reductions will prove comparatively elusive. All financial institutions should embrace these trends as a mandate to quickly develop multichannel sales and service infrastructures to accommodate the quickly changing landscape.

Comparing Channel Priorities: Europe and the US

I recently reviewed an Oliver Wyman report on multichannel banking among large European banks that includes the results of a survey of 30 European retail banks from France, Germany, Italy, Spain and United Kingdom. Taking note of relative channel priorities among survey participants, I was compelled to compare those with stated priorities among US banks surveyed in July as part of a Celent research effort aimed at understanding the current and future state of branch infrastructure leading to a report published in August. The Celent survey gathered responses from 187 financial institutions. Among them were 33 banks in the >US$50b asset tier. The graph below compares stated channel priorities between the Europe and US >$50b responses. The graph shows the percentage of respondents rating each channel as #1, #2 or #3 in spending priority.
Source: separate Oliver Wyman and Celent surveys

Source: separate Oliver Wyman and Celent surveys

I’d like to offer a few observations and invite your comments. In both regions: • Multichannel investment is a high priority • Branch channel remains the highest priority, closely followed by the internet channel. Interestingly, branch channel priorities are nearly identical across the two regions. • Mobile banking is the lowest priority channel However, there are several significant differences. Specifically: • The ATM channel is a much higher priority among large European banks than it is among the US sample. 50% of the EU banks rated the ATM channel #1 or #2 in priority compared to just 19% among large US banks. • The mobile channel is a comparatively low priority among EU banks (17% placing mobile banking among the top-2 priorities versus 26% among large US banks). Now, two questions for our readers. Feel free to post a comment or e-mail me directly at if you wish to weigh in off the record. 1. Why is the ATM channel such a comparatively high priority among EU banks? 2. Conversely, why is the mobile banking channel such a comparatively low priority? I’ll post a summary of responses along with a Celent/Oliver Wyman position next week.

Cloud or Fog?

Working in the San Francisco, I am not unfamiliar with fog.
Fog or Cloud

Fog or Cloud

It can swirl around you and disorient you, obscuring the reality of what is really happening. I think that the hype around cloud computing is more fog than cloud. What is Cloud computing? From the Celent Report, Cloud Computing, SaaS, and Technology Outsourcing for Banks. We state that cloud computing is the use of computing resources, typically a server or part of a server, over the Internet. To amplify, this means that instead of installing a server on site, a company can take advantage of and utilize a server in some other location without having to manage (or know how to manage) the physical box. This is typically paid for on a per-usage basis over time rather than an upfront fee, meaning that a company could use the server for one hour a day and pay only for that time. In the banking industry we’ve had “Cloud computing” for thirty or forty years and it is called a service bureau. I am attending HCL’s analyst conference in Boston and was gratified to hear another voice blowing against the unrelenting storm of clouds. Vineet Nayar, CEO of HCL stated that he didn’t understand what all the fuss was about. He stated that he didn’t see anything new on the technology front around cloud computing. There are many new things that are associated with cloud computing: Server virtualization is a big deal, and provided by people like VMWare and IBM. Virtualization enables cloud computing, but isn’t new to the enterprise. Enterprises have been using LPARs (IBM’s virtual machines on the mainframe) since the advent of the System 370. This is important technology and a big deal. It isn’t cloud. We all know that server virtualization will have long lasting implications at large IT departments to increase efficiency and reduce costs. Software as a Service (SaaS) as exemplified by is a subset of cloud. Software as a Service is when a vendor licenses an application to a client on demand, taking care of the management and maintenance of both the hardware and the software. The SaaS provider may be using the cloud to run its software. This is nothing but a service bureau: firms such as Metavante (now FIS) run software and systems and charge banks by per account per month. There is nothing new here. In a previous blog, I stated that I was won over to the cloud, hearing about banks using for account origination, and customer information. I am still a believer in this. I do believe that banks will continue to use other companies to access information, software functionality, and computing power. They have been doing so for the past thirty years. The term cloud is bandied about with great frequency, but I’m afraid that the reality is that this is more fog than cloud. Use server virtualization. Use the internet to access services from other companies. Call it private cloud, public cloud, or whatever you’d like. Just remember that when you add a lot of hot air to fog, it rises to become cloud.

What Does Bruce Willis Have to do With Banking?

Ask Trust Bank. This Russian bank has chosen Bruce Willis to represent the bank in its new advertising campaign. Apparently the bank selected Bruce Willis because he embodied its slogan of “trust and dignity.” Bruce Willis’ mug now appears on bank billboards in Moscow and on the bank’s web site. The text on the billboard translates as, “Trust is just like me, but a bank.”


How the bank came to choose Bruce Willis is beyond my comprehension. I find it particularly interesting (and kind of funny) considering Willis’ role as a bank robber in the 2001 movie Bandits. Check out the trailer below.