Archives for June 2012

Never Ending Excitement in Digital Payments

It’s official – I can’t go on holiday anymore. Or at least, not if I want to keep up with all the interesting developments in digital payments. Vacation and business travel conspired to keep me out of the office for nearly 3 weeks and in that time, there were important announcements from Apple, Microsoft and Facebook. And that’s just the highlights – there plenty more. No, don’t worry, I am not under any illussions of grandeur that good folks at Apple or Microsoft are checking my holiday schedule to time their announcements. But it does highlight the incredible “blink and you’ll miss it” pace of developments in payments. Having kept everyone on their toes about their plans in payments, Apple has recently announced a Passbook app. While the idea at the moment is to store various “passes”, such as boarding passes, store cards, and movie tickets in one place, I do agree with others who view it as the first step towards the development of a full-scale mobile wallet. It is perhaps telling that one of the early examples of “passes” is a payments app – a Starbucks card which automatically appears on the phone screen when the customer walks into a store. For now, such a use of geolocation technology to automatically display passes is perhaps the most interesting aspect of the app. It remains to be seen what Apple does in payments more broadly. I and many others have long noted the potential for iTunes to become a payments wallet given the ever growing number of cards registered there (400 million seems to be the latest number.) However, despite multiple patents around NFC technology, Apple continues to be silent on its plans (or lack of) around NFC. One of the companies annoucing recently that it would be embracing NFC was Microsoft. At an event about its upcoming Windows Phone 8 mobile operating system, Microsoft said that it would be supporting NFC with a SIM card-based secure element. It will also include a new wallet app that will store credit and debit cards as well as loyalty and membership cards. As somebody said on the internet, Microsoft is taking on Google and Apple, while keeping the telcos happy. Orange, which is the launch MNO partner for the Wallet, praised the SIM move and said it was “important that Microsoft has aligned with the recommendations of the telco trade body, the GSMA, on the issue.” Perhaps the most surprising recent announcement was also the one with the least fanfare. Facebook posted on its developer blog that it would be dropping its virtual currency Facebook Credits in favour of local currency pricing. The phenomenal rise of Facebook Credits in recent years made many in the industry wary of potential implications of an unregulated global currency gaining mass adoption. However, while the central bankers looking after fiat currencies might breath a sigh of relief, I don’t think the new announcement means that Facebook is giving up on its ambitions in payments. In fact, it’s likely to be the opposite – by transforming its Credits platform into a localised standard-currency payments platform Facebook is positioning itself for opportunities beyond its own ecosystem. Add Facebook Connect as a solution for the identity problem on the net into the mix, and the opportunities become really interesting. Lithuanians have a proverb, “a silent pig digs the deepest root.” The quietest of the announcements here may yet prove to have the most far reaching consequences. What do you think of all this?

Branch Transformation: The Line Extension Approach

Celent recently published a detailed case study on Easy by RHB, a leading retail bank in Malaysia seeking to grow market share in the large but under-banked Malaysian mass market. Celent was so impressed with its initiative that it awarded RHB Bank the Celent Model Bank of the Year award for 2012. Ernst & young said this in its recently Global Consumer Banking Survey 2012: “Banks are competing for the business and loyalty of increasingly demanding customers. In response, different models are emerging to serve different customer needs. Some are based on low-cost competition, some on high-touch service and some on accessibility. Large, full-service banks need to defend market share against specialist competitors focusing on particular products or customer segments, as well as new entrants in the payments space. At the same time, full-service banks need to retain the ability to meet a huge range of customer needs.” In this context, I assert there is not a credible argument to be made for the status quo in retail branch banking. Financial institutions simply must evolve their branch networks into more efficient and effective delivery channels – alongside carefully and fully integrating other delivery channels. Doing so, however, is perilously difficult for many banks – particularly full-service financial institutions. There are both perceived and real risks associated with massive branch transformation initiatives – alienating profitable customers that liked things the old way. Thus, to balance the imperative for branch transformation alongside the risk of customer attrition, many banks are moving at a glacial pace. This won’t work either. Therein lies the brilliance of the RHB initiative. Rather than transforming RHB branches to profitably serve the Malaysian mass market (and risk messing up its profitable mass affluent business), RHB launched a new brand, a line extension of its RHB parent. The new brand, Easy by RHB, was launched using an entirely new retail delivery model and a portfolio of four ultra low-cost retail outlet designs. Easy by RHB is: • A stellar branch transformation success story • A new consumer brand (a line extension to RHB) • Simplified products to make them easy to sell and deliver • An entirely new organization – younger, empowered, compensated, and a different culture within RHB (bold, ambitious). • A fully-automated retail delivery model interfacing to RHB’s legacy systems (biometrics, cash recycling, paperless origination, automated underwriting, instant-issue cards, instant disbursement). The figure below shows Easy’s four different retail outlet designs. easy-portfolio In its first two years (through 2011) RHB deployed 235 Easy outlets, taking its retail footprint from a distant #5 to market leadership. Over the period, total RHB customer deposits have grown by more than 50% and assets by 45%. And it has done so with a portfolio of retail outlets that cost, on average, about a tenth of what a traditional branch costs to build and operate. This would have likely been nearly impossible if attempted using existing RHB branches and the legacy RHB brand. Line extensions are common in consumer packaged goods (e.g., Tide with Bleach, Charmin Ultra, Bounty Basic). Line extensions can also be found among restaurants seeking to expand into smaller, faster dining environments such as airport and shopping mall food courts. Pizza Hut express is one such example. Why not with retail financial institutions? Branch transformation has always been about more than just technology. In our view, the line extension approach can be an attractive strategy that deserves a close look. Readers may download an excerpt of the Celent report, Model Bank 2012: Case studies of Effective use of Technology in Banking, June 2012 by clicking here. The excerpt features an abbreviated case study of Easy by RHB.

The Euro and it’s impact on us all

One of the things that I realised early on in my career is that a significant proportion of my friends or people I meet socially really don’t understand what I do for a job. After many differing attempts to explain it in different ways, I still invariably get asked what the best balance transfer rate on credit cards is or where would be the best place to buy their holiday currency. Or both. Currently, I’m getting asked about the Greeks and the Euro. Even then I have to be careful to understand the actual question, after the Greeks improbably got through to the next round of Euro 2012. I may have (personal) opinions of the likely outcome (of both the Euro and the Euros!), I must stress that there are better placed people in both Celent and in our parent company, Oliver Wyman, to answer that question. But equally, we shouldn’t assume that it doesn’t impact what I or you do. A country changing currency is a very big deal. Banking is about the movement of money, and the movement of money usually involves a payment somewhere along the process. But equally, just about every transaction also involves a payment. Each and every point of contact will need to be converted. So, from the counting mechanisms inside every ATM to every parking meter. The new currency needs to swapped in, requiring first its production (rumours abound about the rfi’s for printing new banknotes are circulating the industry, with at least one country allegedly already building stocks of the new currency), then its distribution, and then finally the secure disposal of the returned currency. That’s just the physical side. The electronic side is as complicated if not more so. If it were only as simple as changing a line of code! The introduction of SEPA has proven that complexity. Whilst the SEPA project is a much broader project, with, in some cases, different information flowing in different directions to different participants, the preparation has proven how deeply intertwined payment systems are into other areas of the bank, and how that makes everything so much more complicated. Even if it were just a line of code to tweak, the testing of that change would easily run into weeks or work and millions of Euros (or should that be millions of New Currency?). And then of course, all those parts of the business that link to payments, from FX to correspondent banking and, of course, the clients. Which broadens of these changes the impact not just the country concerned but to anyone who deals with Europe. Whatever happens to the Euro then, it isn’t just a European issue. It has significant impact on us all, whichever part of the bank or part of the world we sit in. It may be minor – but equally, it may not be If you haven’t already started, I would advise at least brainstorming the possible impacts as soon as possible. Election results in Greece may suggest that we may have receded back to DEFCON 3, but recent experience has shown us to expect the unexpected!

2012 Celent Banking Innovation & Insight Day Roundup

Last Wednesday, Celent hosted its fifth annual Banking Innovation & Insight Day. We had a full house of energetic attendees, and a solid crew of dynamic panelists and presenters. After a brief welcome address we launched right into the agenda with a panel session on tablet banking. We did things a little differently this year, with each of the panelists (from USAA, CIBC, and Stellar One Bank) giving brief demos of their iPad apps. The demos were followed by a stimulating discussion on tablets and how they are changing the digital banking landscape. The mobile theme continued right into the next session – a panel discussion on the future of mobile banking and payments. Panelists from Wells Fargo, SunTrust, and Standard Chartered prognosticated on future mobile innovations and the potential of mobile payments. Right after lunch we were extremely honoured to present awards to the banks selected for our 2012 Model Bank initiative. The audience was also given the privilege of hearing from two of the model bank award winners – Redstone Federal Credit Union and Bank of America Merrill Lynch. Stay tuned for a blog entry on the model bank awards from Bob Meara. In the afternoon session we introduced the topic of industry disruption and invited a bank speaker (from Citi) and a start-up speaker (from Social Money / SmartyPig) to talk about disruptive initiatives in banking. One of the highlights of the day was definitely the energetic and thought provoking presentation given by Yobie Benjamin, CTO of Citi Transaction Services and Citi Enterprise Payments. There were quite a number of tweeters in the room providing an event play by play. We invite you to review what folks had to say about the event on Twitter . Bank Systems and Technology published a couple of articles regarding the event: If you would like to see a few photos from the event please visit our Flickr photostream. All presentations from the event are available for Celent clients to download on our web site. We look forward to seeing you at our next event!