Archives for April 2011

Amazon’s fall from the cloud

Amazon’s cloud computing offering went down, bringing lots of other dot.coms down with it. I have never been a huge fan of cloud computing, as I explained in a previous blog post, Cloud or Fog? My concerns have always been around security. If you don’t know on which server or in which data center your data is stored, how can you be certain that it is secure? Additionally, cloud has SLAs and meets them. Amazon offers an SLA of 99.9% Is that good enough for banks? Not being able to access or is unfortunate, but not tragic. Not being able to access your bank is rather a bigger issue. I doubt most banks would settle for three nines. My take on the cloud for banking has always been that banks are held to a higher standard, both in terms of security and availability. A breach in either will lead to massive reputational risk. That’s why when banks go to “the cloud” they do so using service bureaus or shared data centers that have higher security and availability than required by the typical Having said that, if is down for an hour, consequences are enormous. Banks have outages as well, so let’s not pretend we are perfect. We do need to be closer to perfection than the average cloud consumer, and until that reality changes, I’d stick with the service bureau or shared data center for mission critical applications.

6.16.11: Celent 2011 Banking Innovation and Insight Day

Celent senior analysts, Banking Group This event is free for Celent clients and the media. Non-clients can attend for a fee of USD $495. Please register by Thursday, June 9, 2011 to guarantee your space.

Please click here for more information.

Replacing debit interchange with a new fee?

Over the weekend I read an open letter by Senator Durbin to JP Morgan Chase CEO Jamie Dimon regarding interchange fees. In the letter Senator Durbin sets outs his arguments for why the Senate was compelled to introduce debit interchange regulation, which overall makes a very interesting reading. One paragraph especially caught my eye (my Bold Italics highlighting): “Last year Congress decided that there should be reasonable regulatory constraints placed on Visa and MasterCard to ensure that they cannot use their market dominance to funnel excessive interchange fees to the nation’s biggest banks. A strong bipartisan majority supported my amendment, which said that if Visa and MasterCard are going to fix fee rates on behalf of banks with over $10 billion in assets, those rates must be reasonable and proportional to the cost of processing the transaction. It is important to make clear that if Chase wants to set and charge its own fees in a competitive market environment, the amendment does not regulate those fees. The only regulated fees are those fees that banks let card networks fix on their behalf.” This got me thinking… does this mean that the issuers are free to introduce a new fee, which they could charge the acquirers in lieu of interchange, lets say an “authorisation” fee? Of course, any issuer who goes first faces to be at a competitive disadvantage to others, at least initially. The industry players don’t have to collude to raise prices with various signalling techniques available to them and given the market clout of the largest issuers. I am sure there would be other challenges (e.g. technical, etc.), but is this completely out of the question? Why? What do you think?

Theory versus practice

In the theoretical world of the analyst, we think about the perfect world and the perfect solutions. Regrettably, that isn’t the world that most of our clients live in. There are legacy systems, limited budgets, time to market issues, project risk, reputational risk, etc. This helps explain why established legacy systems are continuing to sell in the US market and those more perfect (modern) solutions aren’t. This helps explain why systems designed 30 years ago are continuing to sell in the US market. They are proven; they work. Some data points…. Celent wrote a case study on Webster Bank which moved from a real time system (Miser) to a batch system (Systematics). Isn’t this backwards? In theory it is; in practice it’s not. My theoretical thinking was, why move from real time to batch, when your business is becoming more and more real time with debit, internet, mobile, etc. In practice Webster needed deep business functionality and didn’t particularly care whether the system was batch or real time so long as it could meet the needs of the bank. Foreign vendors are trying to enter the US market, and failing up to this point. Oracle (formerly iflex Solutions) FLEXCUBE came into People’s Bank in Connecticut. The implementation wasn’t proceeding as planned and management ended the project. People’s United now runs FIS (formerly Metavante) IBS. Union Bank (formerly of California) selected Infosys Finacle. Implementation is not proceeding as planned. Citi announced they were moving their domestic deposits to FIS Systematics. Again, I asked myself, why go through all the trouble of moving to a new core system, and not move to a real time system? Citi viewed the operational and project risk much greater. They were already using Systematics in other parts of the bank, so they had familiarity with it. They also didn’t want to move item processing from a batch environment to a real time environment. Changing core systems was quite enough change, thank you. Restructuring operations on top of that added more risk to the project. The latest announcement is BBVA Compass moving to Accenture’s Alnova platform, a real time platform developed in Spain and deployed across the globe. I see opportunities for success here. Accenture brings a broad and deep base of US banking experience from their US consulting arm. Assuming they work in a non-arm’s length manner with their Spanish colleagues, meaning the Alnova team, things will hopefully come to a successful end. Many have underestimated the difficulties of a core banking migration.

NACHA Payments 2011 Roundup

It’s been a busy few weeks. I rounded out a stretch of business travel with a visit to Austin, Texas for the NACHA Payments Conference. Bob Meara and I spent most of the time catching up with our clients and meeting some new and exciting prospects. My first day in Austin was a doozy, as I had a couple of speaking engagements to take care of weaved in between back to back meetings. I started off the day bright and early with a speaking engagement at a breakfast hosted by Fundtech. The topic on the agenda was, Achieving Competitive Advantage With Cash Management User Experience. Those of you familiar with my research know that I spend a lot of time emphasizing the importance of user experience in online banking, and I was happy to bring this message to the group. In the afternoon, I presented at the NACHA Payments conference along with Leslie Klein, Global Head of Marketing for Citi GTS. The topic of our presentation was, Demystifying Social Media: A Call to Action For Banks. The session was very well attended and there were lots of questions from the audience. There was a particular buzz in the room when I stated that I don’t believe banks presently belong on Facebook (more on that later, probably a good topic for a separate blog entry). Overall it was a good conference. The energy was positive and there appeared to be an increase in attendance. I noted an interesting shift regarding conference attendees and topics. Historically, most of the sessions were related to business or corporate banking with emphasis on payments. This year there appeared to be a lot more retail content, with sessions on mobile banking, mobile payments, regulatory issues, etc. There also was quite the focus on healthcare payments with a dedicated healthcare track. All in all it was a good event and I was glad to have made the trip down to Austin. On a personal note, I particularly enjoyed watching the mentalist at the Fiserv booth. Bob Garner has been a fixture at the Fiserv stand for some time now, and I always do my best to steal away and watch him perform for a few minutes. Bob has been able to tell me some pretty uncanny things about myself and my family (with no prior knowledge or prompting), and I have watched him do the same to others. It’s a great show – mind boggling, and highly entertaining. I’m thinking of recruiting him to be a Celent analyst – his IT spending predictions and forecasts would be spot on : ) Next stop on my conference calendar is Finovate Spring in San Francisco. Hope to see you there!

U.S. Bank Deposit Point II: Will Pay-for-Deposit Last?

In March, U.S. Bank launched two consumer/small business products after extensive pilot testing: • Deposit Point, a desktop RDC product bundled with its online banking solution. • Deposit Point Mobile, Initially available to U.S. Bank Mobile Wallet users who have an iPhone. Following up on my previous post, Celent finds two aspects of the product launch noteworthy. 1. U.S. Bank is making both desktop and mobile RDC available to its consumer and small business retail banking clients 2. It is charging $.50 per deposit for the service. The last post addresses the former. This post address U.S. Bank’s move to charge for the service in an environment where most banks charge monthly fees for commercial RDC products while offering consumer RDC free of charge. Some have proclaimed U.S. Bank’s price point for Deposit Point a non-starter. Celent offers two responses: • We don’t think so, and • We hope not We don’t think so: To call the idea of charging consumers and small businesses $.50 per deposit a non-starter denies RDC’s concept strength. RDC saves time and money – and it’s “green”. All three benefits are compelling to many consumers and small businesses. It’s not clear how much testing U.S. Bank did prior to establishing a price point for its Deposit Point. Obviously, some customers will pass on the idea once the price point is known. Fine! Alternatives are available for those customers preferring to drive to a branch or ATM and stand in line. More importantly, launching Deposit Point with an associated fee establishes that the convenience of RDC indeed has value. The bank is free to bundle Deposit Point with other services or to discount the product in the future. We expect it to do so. In the meantime, the bank should be able to enjoy some early-mover benefits. To do otherwise would be leaving money on the table. The fee structures accompanying PayPal, Popmoney and ZashPay suggest there may be some sustainability to a pay-for-deposit RDC model. We hope not: Will the pay-for-deposit model survive? One thing is certain, a raft of large banks are gearing up to launch mobile and consumer desktop RDC products of their own in short order. But for the next year or two, these financial institutions will be in the minority. And most that do launch consumer RDC products will not make them available to the mass market because of the perceived risk in doing so. Most consumers won’t have access to RDC. This opens up a sizeable market for third party, bank-neutral solutions – as long as there is revenue to be had in return for the risk taking. The next six months will be telling.

Have you optimised your customer retention strategies?

Everybody knows that it is cheaper to retain existing customers than to acquire new ones. But how well do companies manage customer retention? I am running a Celent study to benchmark customer retention practices and performance. How do you define retention? What happens when the customer calls or writes to cancel? Do you have a dedicated team? What tools do they have at their disposal? While the study is mainly focused on credit card issuers, it is also open to companies from other industries where customer retention is key, to broaden the perspective and allow cross-industry comparisons. The terms are standard for such studies – there are no costs to participate and all participants will receive a report with aggregate results and Celent commentary. Individual data will be kept strictly anonymous and it would require around a 60min interview to get the data. If you are interested in participating, please drop me a note at and we will be happy to schedule an interview.

6.2-3.11: Celent Banking Webinar: Foreign Banks in China: Partnerships with Chinese Banks and Acquisitions Remain Key

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.