Archives for August 2011

10.19.11: Celent Banking Webinar: Core Banking Solutions for Credit Unions

Bart Narter, Senior Vice President, Celent’s Banking Group

This event is free to attend for Celent clients, flex-plan clients, and the media. Non-clients can attend for a fee of $195. If you are unsure of your client status, please contact Steve Nawrocki at 617.262.3128 or snawrocki@celent.com. Please click here for more information.

The ACI/S1/Fundtech Love Triangle

Back on June 27th, Fundtech and S1 announced that they were going to join forces. Then ACI stepped in and upped the ante. S1’s board said that pursuing talks with ACI was “not in the best financial or strategic interests of S1 and its stockholders.” Now ACI is upping the ante again. What deal do you think makes the most sense overall? Please cast your vote below (it’s anonymous). Poll closes end of day tomorrow (Friday).

9.7.11: Celent Banking Webinar: It Takes More Than a Village Redux: The Decline of the Community Bank

Bart Narter, Senior Vice President, Celent’s Banking Group

This event is free to attend for Celent clients, flex-plan clients, and the media. Non-clients can attend for a fee of $195. If you are unsure of your client status, please contact Steve Nawrocki at 617.262.3128 or snawrocki@celent.com. Please click here for more information.

Is SEPA Dead?

That’s the slightly “hysterical” question I’m being asked today after the announcement on Monday from VocaLink. Hysterical in the sense I don’t know whether to laugh, or perhaps as in hysteria that something may be interesting happening in SEPA. I will declare an interest in this story. I worked for many years at VocaLink, and indeed was heavily involved in decision to enter the SEPA fray. As such, I’m probably both too close to the issue and bound by confidences in commenting too much. But let me address a number of misconceptions that seem to be coming through the emails I’ve been getting. Is this the death of SEPA? Absolutely not. SEPA is an umbrella of a number of activities, and some of those are already here e.g. the payment services directive Is this the death of VocaLink? Absolutely not. 9.3bn transactions processed last year, industry leading SLA achievement, new services successfully launched, etc. So what IS this? I think it’s a clear signal to the politicians that political vision without intervention usually ends up with very little change. The early days of SEPA saw visions of free competition between payment processors. One statement suggested a reduction from 60 processors to below 7 would happen, and triggered the mergers that created VocaLink and Equens. But with most countries having processors owned by the banks, paid for by the banks and developed to serve just those banks, the argument that banks would quit the processor they owned and had already paid for, and give the payments to a processor owned by the competitors now, in the cold light of day, looks optimistic at best. Lest we believe VocaLink has failed, take a look at the SEPA volumes to date. The volumes are still small. VocaLink, on a busy day, can sometimes process more than the total monthly European SEPA volumes. Even with the end date nigh though, anecdotal evidence so far has seen little if any notable shifts of significant volumes between processors. It will be interesting to see what, if anything, happens if the status quo continues. The regulator keeps mentioning its determination to see a third card scheme, even though many believe that the business case is weak at best. Will the regulator make statements re-iterating its view that there needs to be a reduction in ACH-like processors? That’s a question I intend to ask, and the answer to which has huge implications. Different payment types are being treated differently at the moment (i.e. interchange), yet its not clear as to whether this is by design or by accident. I know which I think it is, and that’s the real threat to SEPA. When we do SEPA next time (joke!), the lessons learnt from this attempt would mean that the clarity of objective and governance from day 1 would be much clearer. That’s ultimately the issue here – SEPA is about chasing someone elses’ dream. And unfortunately, its that of politicians.

8.24.11: Celent Bay Area Mobile Banking Executive Summit: The Evolution of Mobile Financial Services – Lessons Learned from Around the World

Bart Narter, Senior Vice President, Celent’s Banking Group

This event is open to banks and is by invitation only. We are limited registration to this event, to two (2) contacts per bank, as total registration will be capped at 20 atttendees.

Please click here for more information.

9.8.11: Celent Banking Webinar: Credit Card Customer Retention

Zilvinas Bareisis, Senior Analyst, Celent’s Banking Group

This event is free to attend for Celent clients, flex-plan clients, and the media. Non-clients can attend for a fee of $195. If you are unsure of your client status, please contact Steve Nawrocki at 617.262.3128 or snawrocki@celent.com. Please click here for more information.

Foreign Systems in the US Market

Core banking migration is hard, and even harder if you don’t know the local market. Oracle learned that lesson at People’s Bank and Infosys/Finacle learned that at Union Bank. In both cases we had foreign systems being implemented by largely foreign teams into the complex US banking market. I was at an Infosys event where I heard that 99% of all Infosys implementations are on time and on budget. The one I was most familiar with, Infosys deploying Finacle at Union Bank, was not. Union Bank and Infosys crafted an official statement: Over the past several years, Union Bank has sought to drive strategic growth by upgrading and streamlining its enterprise-wide technology platform. Infosys and Union Bank have been working together on an integrated banking platform for the last two years. While the parties have made good progress, Union Bank’s changed business priorities have led the Bank to discontinue the program. Union Bank and Infosys have parted on amicable terms, and Union Bank wishes Infosys all the best in the US market. In both cases, management pulled the plug on the projects for reasons that are not in the public domain, but clearly not because the projects were on time and on budget. Banks don’t like to spend tens of millions of dollars to start projects they can’t finish. I do respect the solutions coming from overseas. As a rule they are far more modern that what the domestic suppliers offer. Yes, there are exceptions, but the vast majority of core banking solutions in the US market today were originally built thirty or forty years ago. Banks face a conundrum: modern systems from overseas or older systems from the US. There are a few exceptions to this and you can read about them in the Celent reports on core banking. Core Banking Solutions for Small Banks: A North American Perspective Core Banking Solutions for Midsize and Large Banks: A North American Perspective Core Banking Solutions for Small Banks: A Global Perspective Core Banking Solutions for Midsize Banks: A Global Perspective Core Banking Solutions for Large Banks: A Global Perspective An interesting upcoming migration is BBVA Compass going to Accenture’s Alnova. We have a modern foreign system, but the SI and owner of the system is Accenture, which has a huge US footprint. I am very hopeful that this will be a successful implementation. I take no joy in calling out core migrations that haven’t succeeded. It is far more pleasant and interesting to write about successful implementations. I wish Accenture and BBVA Compass a smooth and successful migration. It would open the doors to a wave of deferred demand.

The Coming World of Smaller Banks

Frank Partnoy wrote a fascinating opinion piece in Financial Times last week about the coming world of smaller banks. The article has prompted no small amount of commentary. I felt obliged to add my own two cents here. In his article, Mr. Partnoy muses, “How many people does it take to operate a modern bank and how much should such a bank’s shares be worth?”, and suggests that improvements in technology will drive down the number of FTEs needed to provide banking services. No kidding! Other blogs suggest that getting smaller is all about shedding the branch network and its associated cost structure, then life would be wonderful for banks. Experience with branch closures suggests a good amount of customers would be lost along with those branches in the vast majority of cases. Branch networks need rationalizing. The industry simply doesn’t need them all. But, trimming the branch ranks won’t solve bank’s profit woes alone. Others insist it’s about a larger issue, that of banks’ slowness to invest in labor saving technology. Indeed, examples of inefficient legacy systems abound in financial services. Celent will soon publish a paper comparing efficiency ratios between banks and credit unions. It may be no surprise to suggest a major factor in the comparatively favorable efficiency ratios of credit unions is a function of their considerably greater use of technology. But, I don’t think that tells the whole story either. I think there is another element at work that helps explain credit unions, PayPal, Google, FaceBook and their relatively high efficiency when compared to banks. In my research among financial institutions with highly evolved branch networks, I observed extraordinary diversity among approaches alongside some common elements. Interestingly, the common elements weren’t all about technology usage. Instead they were cultural. In my view, it may take some significant cultural changes for banks to thrive going forward. Here’s a sampling of common elements among financial institutions with highly evolved branch networks:
  • Exceptionalism. The most obvious trait among management of highly evolved branch networks is that their hearts are involved. More than a business strategy or IT project, these financial institutions are on a mission to out perform. With a bit of swagger, even branch managers would greet this humble Celent analyst with stories of customer delight. They are different—and they know it.
  • A long-term vision. The most understandable cultural element involved a long-term vision for the branch as well as its role among an increasingly multichannel environment. Most financial institutions’ planning horizons are relatively short. FIs with highly evolved branch networks tended to think longer-term by definition, given the size and complexity of branch evolution.
  • Courage. Beyond having a long-term vision, these financial institutions had courage to invest significantly while assuming financial and operational risk. In a large number of cases, elements of branch channel evolution were planned and executed without a tidy, comfortable business case. A certain amount of courage was necessary to proceed.
  • Culture of continual improvement. Branch channel evolution is a journey, not a destination. Highly evolved financial institutions got that way through an often lengthy series of incremental improvements. Some work, and others don’t. These leaders inspire a culture of continual improvement and are willing to fail along the way if it ultimately produces a superior result.
  • Affirmation and employee empowerment. Several senior managers cited the need to eliminate barriers to customer service. Branch staff need to have all the tools possible to serve customers. One way to do this is to empower branch staff to make more decisions. This approach carries risk and invites mistakes. A culture of affirmation is one way to help staff step out of their comfort zones. At Metro Bank, for example, branch staff have been known to invite customers to have coffee on them at a shop next door if the branch gets crowded. On occasion, they’ve even bought customers lunch. Could this get abused? Sure, but Metro Bank staff is too busy delighting astonished customers. In response, management affirms this kind of spending because it engenders high levels of customer satisfaction.
Does this sound like your financial institution?

Not Just Me In Love With Payments?

There must be something in the water at the moment. Considering that August is supposed to be the quiet month of the year, there have been a rash of announcements about plans to merge or acquire in the payments arena, and if the rumours are true, we certainly haven’t seen the last of the deals either. This follows a whole slew of other deals that have been announced over the last 18 months that are set to transform the industry. I’m curious in particular about the deals being done by private equity firms. Advent International recently co-bought WorldPay, the payment processor, along with Bain. KKR, who bought First Data, part provided finance for the deal. Advent are now in the process of buying the card and identity divisions of Oberthur, who are the 2nd largest card manufacturer in the world. Earlier this week, GTCR bought BankServ, who also stated that they have identified 10 more businesses to acquire and integrate. Payments undoubtedly are big business. For example, McKinsey have estimated the US payments business to be larger than both the airline and hotel industries in revenue terms. But I’m still not quite sure what we are to make of all of this activity, as few seem to be combining investments in a 1 + 1 = 3 kind of way. Often quoted is the attractive nature of processors – they tend to have attractive cash flows and electronic payments can only see growth, at least for the next 20 years. But is that reason enough? And how does that apply to those businesses that aren’t directly processing payments but provide terminals or software for example? It could be that payment companies are under-valued perhaps. Not just in price, but in what they represent. They are more than infrastructure – they form the thread that links all of us and all that we do. Imagine a world without the ability to exchange money and you’ll understand what I mean. I’d like to think that’s the reason for the interest – but then perhaps I’m just a hopeless old romantic.

Financial Services Next?

Amazon Web Services (AWS) announced AWS GovCloud, a new AWS Region designed to allow U.S. government agencies and contractors to move more sensitive workloads into the cloud by addressing their specific regulatory and compliance requirements. AWS GovCloud is an AWS Region designed to allow U.S. government agencies and contractors to move more sensitive workloads into the cloud by addressing their specific regulatory and compliance requirements. Because AWS GovCloud is physically and logically accessible by U.S. persons only, government agencies can now manage more heavily regulated data in AWS while remaining compliant with strict federal requirements. The new Region offers the same high level of security as other AWS Regions and supports existing AWS security controls and certifications such as FISMA, SAS-70, ISO 27001, FIPS 140-2 compliant end points, and PCI DSS Level 1. AWS also provides an environment that enables agencies to comply with HIPAA regulations. This is the kind of announcement I could also see for financial services, where regulators could bless a specific region of a cloud as suitable for banking data. I think this is a huge step to moving forward with truly cloud based financial services. I never thought that service providers would find it economical to make their entire cloud as secure as banks would require. Making a region of the cloud that secure is a viable option. What do you think?