Archives for August 2012

Life in the slow lane

It’s always easy to sit on the side lines and to snipe. As a non-US citizen, it’s easy to take pot shots at the US payments system. For example, at a time when most European countries were phasing out checks, the US was introducing Check 21 which, it can be argued, extends the life of a 17th century payment mechanism for potentially decades to come. As a result, the US now writes over 2/3rd of all the checks globally, and I’m not sure in this digital era, that’s necessarily anything to be proud of. But equally my own colleagues will tell me that I don’t understand, and they’re right. Often, reality bites, and what seems best from a distance isn’t actually possible, for many reasons. I can only think that is the case for the failure of Nachas’ proposal for an expedited processing and settlement service (EPS). Many organisations came out strongly in favour of such a development, even if the proposed solution was, compared to other countries, something of a fudge and therefore far from cutting edge. In reality, the proposal did not suggest the radical overhaul of the system that some feel is required. Instead of following the lead of a long list of countries who’ve had a truly faster payment system – Netherlands (and indeed most European countries), India, Mexico, etc – the Nacha approach took a much more pragmatic approach, by playing with the settlement window, and thereby reducing the cost of implementation substantially. Yet this still failed to reach the necessary 75% of votes required to pass, despite anecdotal evidence that that the majority of the 50 voting members voted in favour. So why did it fail? I guess this in some ways is the more interesting piece. I suspect there are some “fear factor” reasons, that often get more weight than perhaps they may deserve. The first is a loss of wire income. This may or may not be true. I presented at Nacha Payments a case study of the UK Faster Payment System (FPS) that suggested that wire volumes actually increased after FPS was introduced. Not by much, but equally, not the calamitous drop being predicted here. I’m not suggesting that may happen here. I think it is an unknown. But as customers get used to near instant service in other payment networks, I wonder how business cases took a more holistic, longer term view. Perhaps the issue here should not be cannibalisation by EPS, but threat of leakage to PayPal et al, including ClearXChange. One option could be to apply value limits, as wire transfers are typically for higher values. The second is concerns around risk management. I would argue that some of this is a result of banks own systems. Should the least capable really hinder the progress of the majority? It’s’ also partly due to the design of the scheme. The UK FPS system for example has all sorts of measures in place (settlement windows on demand, daily value limits, etc). Thirdly, does this raise questions about the future of ACH? There are a number of aspects to this. ACH in many countries is the default mechanism for payment, and is utilised far more than in the US. The US volumes are impressive, but there is considerable scope for growth. So why hasn’t this happened? Unlike many countries, the US doesn’t have a central body that is thinking about national payments strategy. As a result, we have check image exchange clearing faster than ACH – but this doesn’t seem to have been a conscious decision, but a siloed one. Even within ACH, does this raise questions about the autonomy of Nacha to ensure its own future? A phrase we often used to use when working for the UK ACH, which has only 13 members, was “herding cats”. Indeed, often getting a consistent view within the member itself was not always simple. With 50 members, many of whom in turn represent many other banks, Nacha must face an almost exponentially more difficult challenge to please. There is of course no easy answer, and by no means a criticism of any party involved. It is what it is, and it’s a product of the situation. Nor am I saying “Europe knows best”, as I think that we’ve learnt in Europe the hard way that the set-up doesn’t make everybody happy. In fact, perhaps that’s the reason why I think we should, as an industry, take pause. Moves in Europe and the UK have come from the regulator, unhappy with the pace and direction of innovation and access, to take a greater role in payments. In both cases, the regulator is, or is proposing, to have a more active role in the direction of the industry. Could the EPS decision, at some point in the future, be seen as what triggered the beginning of similar moves in the US? After all, fully 10 years (at least) of the first proposal of a faster payment system in the UK, it took a regulators intervention to make it happen. A leap I know, but it does feel that the industry does need to take a step back, and plot the future more coherently, before someone else does. There have been several significant payment reviews and strategies around the world, from Canada to Australia to India. Perhaps that should be the real outcome from this decision.

Help select the 2012 Innotribe Startup Challenge Finalists!

The online Finalist-selection round of the 2012 Innotribe Startup Challenge is now open at The Challenge introduces the world’s most promising FinTech and Financial Service startups to a global community of over 9000 financial institutions, investors and influencers actively investing in innovation. Over 400 of startups from around the world applied to participate in the 2012 Challenge, and dozens of expert judges (Disclosure: I am one of the judges) selected just 45 Semi-Finalists to participate in the regional Showcase events in NYC, Singapore & Belfast earlier this year. Six companies were selected as regional Finalists, and now you and other financial industry and startup ecosystem professionals can select the other Finalists who will be invited to Sibos, the world’s largest event for financial industry professionals, to meet with top banks and financial institutions and compete for a prize of $50,000. The Challenge website has been updated to feature quick-read competitor profiles, pitch videos of all the semi-finalists, and new networking features, so you can get to know all the Semi-Finalists and vote for (or contact) your favorites in just a few minutes. Voting is open until September 23rd at, so please come help select the most promising FinTech & Financial Services startups of 2012.

The Painfully Long Path to Electronic Payments Nirvana

Gareth Lodge and Zil Bareisis both blogged on the difficulties mobile payments have had at the London Summer Games over the past few weeks. I have nothing to directly add by way of personal observation, since I’ve been stuck in Atlanta the past few weeks.

Gareth’s citing the widespread use of cash despite Visa’s expensive promotion of mobile NFC payments caught my notice. Payment choice at point of sale is a consumer choice, of course, so long as the merchant accepts the payment of choice. Much has been written about consumer adoption of NFC (or not). But what of merchants. What do they wish for? We know the Starbucks story and that now, Dunkin’ Donuts has launched its own mobile payment application. To that I say big deal. Even Waffle House has its own app, but it doesn’t do payments. But what about small businesses – all several million of them? Will they all want their own app too (and will you want them on your phone)? I digress. Having nothing to do with the Olympics, Celent surveyed 500 small business owners of multiple varieties this summer to explore attitudes on invoicing, payments and the like. We found that checks were the most widely accepted payment method, closely followed by cash. True, a significant number of the businesses surveyed were B2B businesses, but c’mon! Barely a third accepted credit cards. What gives? smb-payments-acceptance-june-12

The survey went on to ask, “If you could be paid the same way each time by every customer –how would you choose to be paid?” Here we go again… checks and cash – dramatically more preferred than the next closest payment type (ACH) by a factor of three!


Why the devotion to antiquated payment methods? In the case of cash (in order of incidence): 1. Less chance of bad funds 2. Less expensive (no interchange) 3. Immediate funds availability In the case of checks, it’s all about the lack of transaction fees, since the chance of bad funds is a real and present danger with checks unless one spends for guarantee services. Sure, there are use cases where Square may be awesome for example, but to the significant majority of U.S. small businesses, neither technology nor electronic payments is all that interesting to them. This seems particularly true among older demographics. For example, in the same survey, only 15% of business owners/managers 65 and older thought tablets were “somewhat or very important to running their business”. In contrast, 45% of owners/managers 40 and younger felt that way. So, while it often appears that we are on a fast-track to mobile payments ubiquity, at least among the millions of small businesses that aren’t yet convinced, it may in fact be a long and winding road. Don’t throw away your leather wallets just yet.

10.23.12: Celent Banking Webinar: What App Doc?: An Evaluation of Mobile Banking at the Top US Banks

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 US$195. If you are unsure of your client status, please contact Steve Nawrocki at +1.617.262.3128 or Please click here for more information.

No podium finish for contactless payments

So it’s all over. 7 years in the making, 2 weeks in delivering and – hopefully – years of continued benefit. Yes, I’m referring to the Olympics which has captivated so many of us. On just about every point, it’s been a success, with our British humour shining through, from the opening ceremony to the volunteers and their banter with the crowds. And even the sun made a rare appearance. I was lucky enough to go to two different venues last week and so was curious as to what the feedback was nearing the end of the 2 weeks of the various payments initiatives taking place Firstly was the sponsorship by Visa. Zil touched upon the involvement in an earlier post. As part of its sponsorship, Visa had exclusive payments rights to both buy tickets, but to also be the only electronic form of payment within the Olympic venues, including ATM access. This was widely criticised in the press, and indeed, by every person I asked. The sponsorship was not just to drive the usual activities (card adoption, volumes, etc) but to also showcase contactless technologies. To that end, they enabled every vending machine at every venue. So what actually happened? A highly scientific survey was rigorously followed – not! I asked every till operator that I used, and watched the transactions in every queue I was in and the results seemed very conclusive. It suggested the vast majority of payments were actually made in cash. In fact, I can recall very few payments made by card at all and I witnessed absolutely none made by contactless, let alone mobile contactless. Even the Visa ATMs were, at the times I passed them, unused. I think there are a few obvious points. Firstly, the sums involved for my transactions exceeded the limit for a contactless payment. Whilst as an “industry insider” I’d heard that the limit had been raised in the Olympic Park, but absolutely nobody else seemed to know this, and indeed, many thought the old limit, and not the new £20 was in place. There weren’t any signs at the tills, let alone ambassadors promoting the benefits. Secondly, some of the contactless use cases were simply bypassed. For example I was sent my travel card as part of my ticket price (and therefore didn’t buy a ticket), there were mobile drinks vendors who came to you rather than needing to seek out the vending machine, and who only accepted cash etc. And of course I saw a number of US non-chip cards refused by the tellers. And what of mobile contactless? I didn’t find a Visa stand in the same way that the other sponsors had stands, but I did find one from their partner, Samsung. 800 athletes & key decision makers were given the new S3. And the guides on the stand did an admirable job on highlighting the NFC capability as a key feature. But having teased us, that was it – they didn’t even have any way of demonstrating it…. So what can we take away from this? It’s not for me to judge whether this was a success or not for Visa. I’d love to hear their feedback on how they felt it went as my survey truly was anecdotal, and to hear what other attendees thought. But overall, I felt it was a missed opportunity, with not even basic promotion other than smug sign “Proud to only accept Visa”. Indeed, it felt as it there were some very obvious and basic things that were missed. Instead of the industry showcasing the technology of the future, it actually showed why cash is not going to disappear anytime soon. Customers don’t care about anyone’s pride when buying something– the industry has to remember it’s about why they are making a transaction, not our feelings. Sadly, cash won gold in this case, whilst I think other forms of payments simply failed to qualify for the finals.

Putting the retail into retail banking

Whilst perhaps still not at the level the regulators want, shopping around for better financial deals is becoming much more prevalent in the UK, particularly in the insurance, credit card and mortgage markets. As a result, there is a huge market in lead generation, with comparison websites spending huge sums on TV advertising, resulting in meercats and demented opera singers being amongst the most recognised people in the UK! It’s also led to a revolution in how these products are sold – you can go into most supermarkets and buy a carton of pet insurance at the same as you are buying their favourite tinned food. This weekend saw a number of interesting developments that raises the question as to whether we are on the cusp of another step in the retailisation of financial services, and perhaps into a very different type of universal bank. ING Direct was one of the first wave of direct banks that utilised many of the concepts from retail, from competing on headline price to viewing the products as commodities. Rumours have been circulating for a few weeks now that ING is both considering selling ING Direct in the UK, and that it has been approached about selling the stake as well. Whilst it made inroads into the market initially, some commentators believe it has been struggling for awhile, partly as the record low interest rates mean that thing margins had to get even thinner. Enter the 800lb gorilla of British Retail, Tesco. It’s been in financial services for over a decade, and long rumoured to be considering being a full service bank. This weekend saw the launch (finally) of its mortgage product. This in itself wasn’t news, and the rates they were offering mortgages at were widely considered to be “not market leading”. This perhaps is a reflection of the UK market – with a move to everything being considered on price, anything that isn’t undercutting everyone else is considered poor. Whilst not best in class, the mortgage rates certainly weren’t terrible or even unreasonable. What caught my eye, and why worthy of at least this blog, is an interview the CEO of Tesco Bank gave to the Sunday Times. Unfortunately, the Sunday Times puts all their content behind a paywall, but the couple of facts that were slipped in are repeatable here. Those of you with a Factiva type service will be able to track the original article down. Firstly, and as context, Tesco is the leader in customer loyalty programmes. I’ve spoken often about Clubcard as a model worth looking at. Whilst other retailers dropped their programmes, Tesco claimed their programme reached payback in a year, and even today is generating profit of around £50m per year just from the insights it sells to its suppliers. It’s quite possibly the most comprehensive database of the UK population, period, with 15m households. This, Tesco believes, is the “secret sauce” and allows them to offer its customers discounts of between 0.5% and 30% on car insurance based on insights from Clubcard. To put this in context, this has allowed Tesco to enter insurance a decade ago, and now be a top 10 player or better in EVERY insurance sector they operate in. Secondly, their cards business now has 3m customers. But, Tesco estimate, that these are used in 12% of all retail transactions in the UK. This creates some interesting opportunities. It’s been estimated the £1 in £10 it spent at Tesco. An interesting opportunity if Tesco can convert these transactions to “on us” transactions for example. But the figure that caught my eye is this. The Clubcard has 15m households. Therefore credit card penetration is roughly 20% or less (a household assuming to be more than one individual). If Tesco can reach the same, relatively low level of penetration of its Clubcard on average of all its products, then the CEO claims Tesco Bank would be about the same size of HSBC in the UK. And of course these new entrants are taking business from someone, and are cherry picking the business from somewhere. In the last year or so, Tesco’s rising fortunes might have faltered somewhat. But it would be a brave man to bet against someone who bought out their banking partner, in cash, for £950m. Revenues may not justify that yet, but as Tesco slogan goes – every little helps.

A Long-awaited Report Will Publish This Month

I’m very excited about an upcoming Celent report authored by Stephen Greer and myself entitled, What App, Doc? This document evaluates the top US bank’s mobile banking apps, as well as mobile web, text banking and alerting capabilities. The report goes into detail Celent is famous for, with feature functionality grids (sample shown below), screen shots (futher below), and usability scores. functionality-grid-web
Screen Shots

Screen Shots

The current draft has sixteen tables, nearly 120 figures and over 120 pages. We will also issue the XCelent Awards in mobile banking among this group. Celent hopes that this report will be on the nightstand of every mobile banking product executive. Readers will see the state of the art at the following banks:
  • Bank of America
  • BB&T
  • Capital One
  • Chase
  • Citibank
  • Fifth Third
  • PNC
  • Regions
  • SunTrust
  • TD Bank
  • US Bank
  • Wells Fargo
The report is in final edits and will publish this month. Celent envisions publishing an update to this report every six months. Tell us what you’d want to see in future reports and let us know if six months sounds like the right update frequency.

9.24.12: Emerging Technologies in Retail Banking

Bob Meara, 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 US$195. If you are unsure of your client status, please contact Steve Nawrocki at +1.617.262.3128 or Please click here for more information.

Google Wallet Relaunches and Takes on PayPal at Its Own Game

They say, “imitation is the sincerest form of flattery.” In my report last year I contrasted Google Wallet and PayPal as representatives of two fundamentally distinct approaches seeking to win in the battle to bring mobile payments to the high street. Not anymore – having failed to ignite the market in the first 12 months and its first incarnation, Google Wallet re-launched yesterday with a revised approach, essentially taking a leaf out of PayPal’s book. Unlike PayPal, the “Google Wallet 2.0” will continue to focus on NFC technology. However, instead of storing all the payment credentials on the secure element inside the phone, it is moving most of them into the cloud, leaving inside the phone only a prepaid account, which is based on MasterCard’s PayPass and can be used anywhere where PayPass is accepted. The prepaid account is linked direcly to any of the debit or credit payment cards (MasterCard, Visa, Amex, Discover), which the customers can register themselves, just like they would register a card as a funding source for a PayPal account. More details on the new Google Wallet here. So, what does this mean and who are going to be the winners and losers? It’s early days, of course, but here are some of my preliminary thoughts:
  • Consumers, Google and payment networks, especially MasterCard, are likely to emerge as the winners here. Consumers are now in control and can register and manage their cards directly with Google, independent of their banks. They will have to learn to trust Google, which has some work to do to re-establish its image after the initial security concerns. However, as and when consumers come on board, this will be good news for Google and its card partners.
  • While Google continues to stick with NFC for the “last mile” technology, MNOs will continue to have a say in this game. However, this set up now lays the ground for Google to potentially decide to bypass the secure element, and the MNOs, in the future altogether.
  • The impact on banks is likely to be mixed. Most banks didn’t want to play with Google when it was offering the opportunity to digitalise their payments credentials directly and remain in control of the payments portion of the transaction. Now, while the bank cards will continue to be part of the transcation, they are clearly taking the back seat and will have to deal with Google as a “merchant of record” for their transactions. True, they won’t have to incur the extra costs of provisioning their card credentials on to secure element, but that would also rule them out from participating in other NFC ventures, such as Isis.
  • The biggest unknown is the impact on merchants. And that’s because the transaction economics are no longer obvious for Google Wallet and is a question I am most keen to find out more about. In the initial set-up Google was clear that they would not take a cut on the payment transaction and the merchant would have paid a standard fee depending on the card used. Now, from the merchant point of view, they are accepting a prepaid MasterCard, while it might an Amex card that actually funds the transaction. PayPal deals with it by having direct acquiring relationships with its merchants and offering them a discount rate which represents an expected blend of funding transactions. Does it also mean that Google Wallet will have to establish relationships with the acquirers to re-coup from merchants any potential differences in transaction costs? Or will it have to charge the end user for “loading” their wallet, something that other prepaid card providers do for card-based re-load transactions?
It’s Day 1 after re-launch and, naturally, there are more questions than answers. Only time will tell how successful Google Wallet 2.0 will be, but for now it feels like a step in the right direction, at least from Google’s perspective.

Good Week for the Olympics (But Not For Everyone There)

London Olympics are in full swing, and so far it’s been a tremendous success. I thought the opening ceremony was absolutely breathtaking – it was creative, ambitious, beautiful and yet so different from everything else we’ve seen. After Beijing, most people said it would be difficult to surpass the sheer scale and grandeur of that opening ceremony. London organisers knew it and so they didn’t even try it, starting instead with peaceful images of rural England and running through the rich history of Britain, from industrial to digital revolution. There were plenty of worries before the Games that the infrastructure (e.g. transport system, security) would struggle to cope with the influx of athletes, spectators and officials. Many firms asked their employees to work from home (most of us at Celent already do anyway). However, the concerns so far proved to be overestimated and London has been running smoothly. The sport itself continues to thrill, offering a full scale of emotions from pride and joy for the medal winners to drama (e.g. competitors “ganging up” against Mark Cavendish, a favourite to win a cycling race) to shame (e.g. badminton players getting disqualified for deliberately losing matches). It’s also inspiring a new generation of future athletes – my own children (almost 5yrs and 2.5yrs) are wowed by almost everything they’ve seen on TV, from the equestrian events to diving, swimming and basketball. I also heard a kid on the radio saying that he would like to compete in the future Olympic cycling, “you know, the one with bikes, not the one where you sort out the rubbish into different bins”, he added helpfully 🙂 However, not everyone associated with the Olympics enjoyed the last week. The decision to make Visa the only accepted payments brand at the Olympics, continued to attract criticism. The Times, one of the largest newspapers wrote: “The sponsors, of course, are highly visible in the park and the one that emerges as early favourite for the gold medal in mean-spirited pettiness is the payments company Visa. Every commercial outlet and even every cash dispenser bears a sign saying it is “proud to accept only Visa”. They may be proud; everyone else will be annoyed.” That decision was really put to test when card payments failed at one of the events at a Wembley stadium and people could only pay cash (so much for the “cashless Olympics”!) It doesn’t necessarily mean that the failure had anything to do with the Visa network; in fact, Visa blamed “Wembley management”, but the incident clearly did not help the Visa’s brand. There were more bad news from Visa in Europe, when the EC commission had another go at Visa Europe and its credit card interchange fees. Encouraged by the court’s recent decision over MasterCard’s fees, the EC clearly feels the time is right to re-open its ongoing battle with Visa. At Celent we have long questioned the wisdom of regulators to keep pushing against the interchange fees in various markets. It looks like the lawyers and lobbyists at the schemes will continue to be busy.