Archives for May 2011

Win Win Win

Walter Wriston, former Chairman and CEO of Citi once said, “Information about money has become almost as important as money itself.” Google gets it. Up to this point I have been skeptical of the NFC business case and have blogged about it. Thin Isis Making a Bad Business Case Worse: Durbin and Mobile NFC Google has the ability to make this happen. Why? Because they don’t care about the payment. They care about the information around the payment. Who am I? What am I searching for? What do I buy? They don’t need a piece of the payment pie, because they will get a piece of the advertising and promotion pie, which is what pays the rent at Google. Any new payment initiative needs to make three parties happy: the consumer, the bank (or credit card scheme), and the merchant. This works for all three. The bank will be able to drive more purchases through their system, without giving anything up. They can also provide, with permission, payment data. Retailers can focus their offers on the most interesting customers. Google is partnering with MasterCard, Citi, First Data, Sprint, and retailers such as American Eagle Outfitters Inc., Macy’s Inc. and Walgreens. American Eagle might want to target customers who spend more than $100 per month on clothes. They may want to target those who spend more than $200 a month on clothes and are less than a mile from one of their stores. They will pay to be able to focus their advertising dollars on such a consumer. The merchant is happy. The consumer loves the offer. More targeting means consumers can get better offers. It’s a win win win.

Google Mobile Wallet: A Big Step for Payments

Yesterday Google announced a new mobile wallet in partnership with Citibank, MasterCard, First Data and Sprint. Is it significant? Yes, very. Why? For a number of reasons. First and foremost, mobile proximity payments are getting a boost from a large player whose primary interest is NOT payments. Paradoxically as it may sound, in my view this is key to finally getting some traction around much touted NFC payments. Celent’s view has long been that the payments industry on its own in the developed markets had little incentives to move to NFC. If it’s just purely about payments, then the customer already has a number of perfectly valid alternatives to pay at the POS, so why do something that potentially reduces your revenues (as you have to share them with more parties) and increases costs (as you need to invest in both issuing and acceptance)? Well, Google is not doing this for payments and confirmed yesterday that they would not be charging anything for the payments transaction itself. Instead, they expect to make money from services surrounding the payments transaction, particularly from drawing customers to merchants through targetted ads, coupons, loyalty point management, etc. This is consistent with Google’s strategy to-date where online ads drive majority of their revenues and their vision for the future (see my previous blog post “How Much Does Google Love Mobile?”) Second, while I didn’t hear it mentioned yesterday (I could have missed it), I remember reading in March in Finextra, which was quoting Wall Street Journal and Bloomberg that Google’s “plans also include terminal vendor VeriFone, which … will roll out NFC cash-register systems paid for by the search giant.” If that is the case, it will certainly help drive market penetration for NFC-capable terminals. I am not aware of any other examples where a player outside of a payments industry (i.e. other than acquirers and card schemes) would be investing in building out a payments infrastructure. Again, for Google it makes sense given that they need these terminals to achieve goals other than just payments. Finally, while it is true that partnering with one scheme, one issuer, one network operator, etc. limits the scale initially, Google neverheless has chosen an impressive list of partners – in MasterCard they have a major card scheme, in First Data, a major processor and in Citibank, a major issuer with an impressive track record of innovation. For Citibank this is part of their focused efforts to create significant value through payments for their customers. Last year they created a Global Enterprise Unit, spearheaded by Paul Galant for exactly that purpose and the unit is starting to deliver results. I saw some in the blogosphere questioning Google’s choice of Sprint as a network partner, but I don’t really have a view on that, so wouldn’t like to comment. Of course, the proof is in the pudding – over the coming months we will get to see if the consumers and merchants truly buy into this vision painted by Google and its partners. However, the sketches provided yesterday indicate that this could be seen as a masterstroke by all involved in years to come.

I Hate Being Wrong

Several years ago when interviewing for the position I now hold, my manager emphasized, “It’s all right to be wrong occasionally, but it’s never all right to be without a position”. That’s always been hard for me. Since I hate being wrong, I tend to take a while getting comfortable with a position before going on record with it. Well, I was wrong recently and wanted to address the error here. I had the pleasure of presenting some recent research findings during Celent’s May 11th webinar, The Future of Branch Banking in a Multichannel World. Following the webinar, I became aware of an error that needs correcting. In the final section of the Webinar, I briefly outlined three case studies in branch transformation that will be more fully detailed in an upcoming Celent report, Celent Model Bank 2011: Case Studies of Effective Technology Usage in Banking. On slide #26, I incorrectly associated Bank of the West with a teller capture initiative involving Jack Henry’s Alogent product line. In fact, Bank of the West implemented FIS TouchPoint Suite and FIS TouchPoint Teller Capture as its only teller capture solution. Please accept Celent’s apologies for the error.

Celent’s Mobile Banking Panel June 16 in Atlanta

Mobile banking 1.0 is much like internet banking 1.0: a statement on a screen. North of 80% of all mobile banking transactions are balance inquiry and view recent transactions. Now banking are thinking about the next level of functionality: actionable alerts, bill pay transactions, P2P transactions, and check remote deposit capture on the smart phone. How do banking executives justify investments in mobile? At what point does mobile generate revenue for the bank? Is it all just cost avoidance? Celent is honored to have four bank executives who will be sharing their views on what comes next in mobile banking and how to make it happen:
  • Doug Peacock, VP, Senior Product Manager, Mobile & Online Banking
  • John Finley, SVP, Online & Mobile Channel Manager
  • Libby Ghekiere, SVP, Product Solutions & Strategies,
  • Marc Warshawsky, SVP, Mobile Channel Design Executive
I’d encourage you to attend. You can register here.

Personal Teller Machines: The Next Evolution of ATMs?

Last week NCR announced a partnership with uGenius that will result in a new NCR device adding real time video to the ATM experience. The new NCR APTRA Interactive Teller ATM, based on its successful SelfServ 32 platform will add hardware components such as a Speaker, photo ID scanner, signature capture device, microphone and handset along with uGenius software at the ATM and in the back office. The uGenius software will be installed along with NCR’s own APTRA Activate. The announcement did not commit to availability or pricing for the new personal teller machines.

Celent thinks personal teller machines will be the next evolution of ATMs for three reasons:

  • PTMs deliver improved customer intimacy with a modest cost increment over ATMs – still delivering lower per transaction costs than traditional branch transactions.
  • PTMs will broaden the transaction mix versus ATMs – thus far an unproven assertion (I think).
  • PTMs will likely show improved sales lead generation results over ATMs through the more personal interaction with a live teller.

But how and where will PTMs be used? Coastal Federal Credit Union used uGenius PTMs to fully replace traditional branch tellers in its 15 depositoy branches while extending hours of service – and at the same time reduced teller staffing costs by over 40%. An impressive feat! Coastal’s case study is available in a recent Celent report: Branch Banking in a Multichannel World Part III: Case studies in Branch Transformation. But, how many financial institutions will be so bold? We anticipate more surgical adoption such as branch vestibule self-service, mini-branches and replacement of conventional pneumatic drive-through mechanisms.
Coastal FCU's PTM

Coastal FCU's PTM

Regardless of the adoption mechanisms, the partnership is a good thing. uGenius delivered a solid concept and has the market research to suggest strong consumer acceptance of PTMs. But, it lacked the scalability and credibility to win over the larger banks. NCR changes all that. Moreover, the resulting NCR APTRA Interactive Teller ATM will be superior to the uGenius PTMs in several ways. For starters, the devices will be PCI compliant so consumers can authenticate the way they’re used to doing – using a debit card and PIN, rather than relying on a photo ID scanner. And, we expect the units will be fully Check 21 enabled and integrated with legacy teller systems. But these are window dressing compared to the primary differentiator. The new device isn’t just a PTM. It can function as a multifunction ATM or a PTM at the customer’s discretion (if so enabled by the financial institution). So, tellers may not be needed or used for the millions of consumers more than comfortable with self-directed ATM transactions. But for those in need of coaching or just plain preferring a human interaction, the PTM’s remote teller will be at your beckon call. This, in our opinion, is a natural evolution of the ATM.

The Future of Online Banking

The online banking space has stagnated for far too long. The evolution of the Internet has provided consumers with rich and interactive experiences online. Unfortunately, the banking industry has not kept pace with the evolution of the Internet and customers have started to demand that their banks keep up with the times. For the most part, financial institutions recognize their online shortcomings. The question is why haven’t they acted on them, what can they do about it, and how can they keep up with ever increasing customer demands. These questions become even more difficult to answer as financial institutions have just started to emerge from the impact of the financial crisis and are under extreme pressure to run sustainable businesses in the wake of increased regulatory pressures. I’m going to release a new report next week titled, Top Trends in Retail Online Banking. The report will address these questions and present the top industry trends. These trends and questions are going to be discussed in even greater detail on June 16th at Celent Innovation and Insight Day. At the event I’ll be moderating a panel discussion with the following online banking executives:

Stay tuned for the report and I look forward to seeing you all at Celent Innovation & Insight Day in Atlanta. Readers of this blog are eligible for a discount on their Innovation and Insight Day registration fees. Please register using the discount code web_celent.

Register for Celent Banking Innovation and Insight Day in Atlanta, GA  on Eventbrite Update 5/31: Report is published and can be found here

Rewards on Prepaid

We are all familiar with loyalty points and other types of rewards we get on credit cards. The economics (i.e. relatively higher interchange, opportunity to earn interest fees, etc.) and the stand-alone product nature (i.e. not linked to a current account) meant that many credit card issuers used to look for additional ways to stand out from the crowd to acquire customers. With economics deteriorating in recent years, the credit card rewards programmes are getting less generous, changing shape, or disappearing altogether – a subject I am looking at in more detail in my research at the moment. Those in the US are also very used to getting rewards on debit cards, something which doesn’t really exist yet in the UK. Again, it is yet to be seen where debit rewards will end-up given the Durbin regulation, but the early signs are that the shape of those is changing as well – some issuers are taking away debit rewards and others are looking for other ways to deliver them and are turning to providers such as Cardlytics for merchant-funded rewards. Then Orange in the UK announced in February this year that they are launching ‘Orange Cash’, “the UK’s first major contactless prepaid card”. In addition to regular payment features, the card allows “Orange Cash customers to earn points as they spend, which are redeemable against a range of rewards including Pay As You Go Orange texts, airtime, credit or Orange shop vouchers”. I believe it must one of the first examples of rewards on a prepaid card. Which actually makes sense – a prepaid card is also a standalone product that the customer needs to buy, so rewards can help differentiate it. And with various fees and interchange exempt from regulation (at least for now), the economics might look more attractive than many debit cards. As an “issuer”, Orange is also taking a relationship perspective and the rewards are designed to engender loyalty not just to the prepaid card, but also to the mobile network, still a primary relationship between Orange and most of its customers. This card is interesting from two other perspectives: a) It’s a prepaid contactless card. I’ve always maintained that contactless technology is most suited for prepaid wallets (from use case, not technology point of view) – given it’s “tap and go” nature, I would much rather expose my prepaid account which has limited funds than, say, my current account. b) It’s a stepping stone for Orange towards mobile payments. It gets their customers used to contactless and prepaid wallet concepts, both of which will be necessary when launching NFC-based mobile payments where Orange have strong ambitions. Now, if only someone could solve the contactless acceptance challenge…

Finovate Spring 2011 Roundup

Last week I headed out to San Francisco for Finovate Spring. Finovate is my favourite conference of the year for a few reasons. I actually attend the demos and am not in meetings the entire time; the demos are a short 7 minutes – more than enough time for an analyst to make a quick judgement; and finally, it is a true showcase of bank innovation. It’s a mix of companies, some are 2 guys in a garage, others are small companies, and a few are established players. The range of solutions on display is interesting, exciting, and thought provoking. This year, Finovate Spring was extended into a 2 day event with 64 companies presenting their wares. The event had a record turnout – I was told about 800 people. Banks are now very well represented at this event, something that was not the case just 2 years ago. Three key themes emerged from the conference: Bill pay is a commodity. The features and use around bill pay are where the innovation and opportunity lie. I was astounded at the number of firms with solutions related to bill pay. These included, Balance,,, BillFloat, ChargeSmart, Doxo, Mitek, paydivvy, and PayNearMe. P2P and other payments are being pitched in an effort to drum up interest. P2P payments, social payments, POS payments, you name it. Lots of want to be disruption here. Interestingly, the P2P payments vendor landscape is still growing with fims like Liqpay. Paypal/Discover demoed a joint solution. Other firms with payments related offerings are BrainTree, Dwolla,and peerTransfer . Small Businesses have online needs that aren’t being met. Startups and other firms have taken note. I recently spoke to American Banker about this trend. Firms in this space include,, Kabbage, Lendio, Wipro, and Xero. Rewards Programs are all the rage. Banks are looking to cut costs, consumers want deals, and merchants want to better target potential customers. These presenting firms believe that this is a win-win combination – Billeo, BankOns, Clovr, and FreeMonee. There were still a fair number of PFM-like demos, but nothing that really grabbed the audience’s attention (or mine). I’m glad that this topic didn’t overwhelm this show as it has in the past. The question is which of the presenting companies did I like? In what’s become an annual tradition, I plan to profile my top 10 in an upcoming Celent report (link to 2010 report). The 2011 report will single out the innovative startups that Celent believes will have an impact on the banking space and/or the consumer market (many of these startups bypass the bank channel and market their products directly to consumers). Here are some of my selection criteria:
  • Realistic business model
  • Innovation and new product development
  • Potential for the solution to be sold by banks
  • Potential for the solution to fill a void in the market

The audience did have their favorites, and were asked for their top picks. The best in show awards went to (in alphabetical order) BancVue, Bankons, Dwolla, Mitek, oFlows, PayNearMe, and Wikinvest.

Stay tuned for the report. In the meantime I invite you all to post your Finovate comments and feedback.

Multichannel Management: Avoiding Channel Myopia

BAI Banking Strategies recently published an excellent piece on multichannel management featuring an interview with Jim Di Ciaula of BMO Harris Bank. Reading the article inspired me to share two common pitfalls in multichannel management: following the customer and listening to the zealots. Both are examples of channel myopia. Following the Customer In a previous post we addressed the all too common method of determining channel priorities – following the customer. In a Fall 2010 Celent survey of North American financial institutions, the most common mechanism for determining channel spending priorities was simply measuring and reacting to channel usage. In other words, as channel usage goes, so goes channel investment. The inevitable result of this approach is to continually lag the market. Bad idea, but way too many financial institutions are stuck in this rut. Listening to the Zealots An apparently less common approach is to let hype drive distribution channel decisions. As example, one analyst whose focus included social media castigated me for not including social media as a unique distribution channel in our 2010 research as evidence of myopia. Apparently in that analyst’s mind, social media is every bank’s way to riches and rightfully belongs as a #1 channel priority. I’m still wondering how social media constitutes a delivery channel. Seems to me, social media might be more usefully considered a growing array of communications mechanisms that need to be integrated into multiple delivery channels. One interesting observation Celent uncovered as part of its research on branch channel transformation was a pervasive multichannel discipline among financial institutions having highly advanced branch channels. Going into the research, I fully expected to find branch channel zealots among FIs having highly evolved branches. Stands to reason, we thought, that FIs with staunch branch advocacy would be investing most heavily in the branch channel and perhaps neglect the others. What we found was just the opposite. Instead, in nearly every case, FIs having the most highly evolved branch channels were also committed to a rigorous multichannel management discipline and had competitive (and increasingly integrated) ATM, internet and mobile channels too. Jim Di Ciaula is right; multichannel management is both art and science. But, avoiding some common pitfalls can help financial institutions get beyond channel myopia towards a more balanced objective of maximizing their collective effectiveness.

QR Codes in Payments

Recently there has been a noticeable increase in announcements to use QR (Quick Response) codes in financial services and payments context. Celent has already blogged about how the code can be used to buy a Starbucks coffee. Last week, Smart Transactions launched a loyalty card, where customers can check their card balances (and receive instant merchant offers) using unique two-dimensional QR barcodes printed on the back of each card. And perhaps most interestingly, eWise, a company promoting Online Banking ePayment solutions, such as Secure Vault Payments in the US and eWise payo in the UK, also said recently that it would be launching a QR-based application by the end of the year. QR codes are essentially two-dimensional barcodes, which when scanned are able to convey the encoded information. The technology is not new – it has been developed in 1994 and has become very popular in Japan and Korea, but its adoption in the West so far has been limited. There are many potential applications for QR codes, most obviously in marketing and advertising, especially with the smart phones gaining ground. As the user scans the code, he or she can be redirected to a site further explaining the product, enriching customer experience, and enabling social interactions. According to Wikipedia, in Japan, QR codes have even been used in cemeteries on grave markers as a way to share additional information and unite mourners. So, how likely will we see this technology becoming mainstream in financial services, and particularly payments? Given that QR codes are easy to print, even by individuals, they are likely to be handy in certain use cases, such as small mobile merchant payments, potentially as a cheque replacement. Of course, many issues need to be addressed in order to use QR in payments effectively, not least the security. QR codes can be copied and re-used for fraudulent purposes, so any application using QR to initiate payments, needs to have strong authentication and authorisation capabilities. Consumer education and awareness is another barrier. Are QR codes a threat to NFC? Not really. NFC roll-out in the developed world is not without its own problems (see Celent post on Isis announcement), but in my view QR codes are likely to complement rather than replace NFC. And I think they will be much more relevant in marketing than in payments in the foreseeable future.