About Bart Narter

For sale: Baby shoes, never worn.

For sale: Baby shoes, never worn.
People say that Ernest Hemingway was challenged to write a six word story that would make people cry. He rose to the challenge with the following story: For sale: Baby shoes, never worn. Celent is presenting a similar challenge that is intended to bring tears to your eyes, but whether they are tears of joy or sadness remains to be seen. Celent is asking its readership to come up with a six word definition of innovation. My personal contribution: innovation is … easy to conceive, difficult to implement. Perhaps my favorite color is jade. You can enter the contest and see other entries on Linked In or by e-mailing your entry to Erica Ferguson (eferguson@celent.com) using the subject line Innovation Is. We will be evaluating these stories as definitions and selecting a winner at Celent Innovation and Insight (I&I) Day in Boston on February 27th. There will be prizes! Did someone mention I&I Day? This year, Celent is bringing in the director of MIT’s renowned Center for Information Systems Research (CISR). for our keynote speaker. Jeanne Ross studies how firms develop competitive advantage through the implementation and reuse of digitized platforms, a subject near and dear to the hearts of many a digital channel executive in banking, insurance, or capital markets. Celent’s Innovation and Insight Day will host a variety of Celent and non-Celent speakers. If you’d like to see the full agenda and learn more details, please visit our registration site. I look forward to reading your brief thoughts on innovation and seeing you at Celent’s I&I Day in Boston.  

Top of the Year Coming Soon

Top of the Year Coming Soon
We’re coming to the end of the old year and the top of a new one, and that means it’s time for top trend reports from Celent. These are typically some of the most downloaded reports of the year. They represent the collective thinking of the entire Celent banking team. There will be four coming out in short order: Actually the first report is now available for download now and the second one will be available by the end of the year.  These reports give you a quick idea of what Celent sees gaining momentum today, on the horizon for tomorrow, and what is trendy, but not meaningful to bankers. I hope these reports inspire you for a productive 2013.

Are Spanish Bankers More Farsighted?

Are Spanish Bankers More Farsighted?
When Citibank announced they were moving from an internally developed core system to Systematics, I wondered why a bank would take all the trouble of doing a core banking migration, but not moving to a modern real-time system. http://bankingblog.celent.com/2010/02/citis-core-migration/ The answer was that there would be too much operational risk in both moving to a new core system and changing the operations of the bank from batch to real-time. I just attended an announcement from BBVA and Accenture describing the deployment of the Alnova core banking system at BBVA Compass, the US subsidiary. The news is stunning. BBVA Compass has gone live with an overseas, real-time, modern core banking system for all deposit products. While savings and loans and credit unions have been running real-time core systems for years, commercial banks have stayed on batch / memo post. This has huge implications on both the customer experience and back-office operations. Banks no longer have the ability to sort transactions because they are processed as soon as they arrive. This will change overdraft revenues for those banks that sort from largest to smallest transaction before processing in the overnight batch. Processing in real-time also dramatically reduces or eliminates back-office overhead. One and done is the rule. Celent has noticed that credit unions have dramatically lower efficiency ratios than banks of the same asset size, and one of the contributing factors is that the credit unions are running running real-time systems. Please see the Celent report EfficienCU: An Examination of Bank and Credit Union Efficiency Ratios by Asset Tier, November 2011 for more details. BBVA is thinking boldly about the US market. They believe that underinvestment by US banks in modern core banking technology has created an opportunity for them to exploit. Virtually every commercial bank in the United States has a batch memo post system with product siloed (as opposed to customer centric) architecture. Each channel is managed separately and plugs into the core independently. BBVA believes that by creating a business that is customer centric, multichannel, real-time, with straight through processing and related lower cost, they can make even greater inroads into the US banking market. The goal is to have an improvement in their efficiency ratios of 10% in the midterm. This is shy of the efficiency advantage credit unions have over banks:  

Credit unions enjoy an efficiency advantage over banks.

  They already have a top 25 US bank. If BBVA is able to reduce costs through real-time processing and better deployment of cost-saving channels, other banks will be in trouble. If BBVA can also develop customer centric pricing and use that to gain share, other banks will be in deep trouble. This announcement puts Accenture in the cat bird seat. They own the Alnova software asset and have demonstrated the ability to deploy the overseas real-time system in the United States at a commercial bank. This is not easy. There have been notable failures by other vendors in the recent past. Any bank looking to make the leap to a real-time customer centric system will likely look very hard at Accenture. Another bank, famous for its real-time core processing is Santander, BBVA’s Spanish competitor. They have an internally developed core system called Parthenon that they deployed quickly in the UK after acquiring of Abbey National, Alliance & Leicester and Bradford & Bingley. This rapidly drove down operating cost in the UK acquisitions. Santander owns Sovereign Bank in the US which is moving at least in part to the Parthenon system. It seems that these two Spanish banks understand the value that modern technology can play in making a bank cost effective and customer centric. They learn these lessons in Spain, but will be teaching them in the US.  

What Makes USAA Unique?

What Makes USAA Unique?
USAA was kind enough to invite me with other opinion leaders to spend a couple days at their headquarters in San Antonio at their expense. I was impressed, not by the hotel, but by the way USAA punches above its weight, especially on digital channels. They were the among the first out with mobile remote deposit capture, and do an outstanding job of integrating across lines of business. Why is this?  
  1. USAA feels more like a credit union than a bank. Actually it is more of an insurance company than a bank, but that is different tangent, and one in which I have no expertise. Customers are called members and surplus profit is returned to the member owners, much like a credit union.  As Bob Meara has documented in his excellent report on branch transformation, credit unions tend to invest more in automation than banks. When banks ask, “What is the ROI?”, credit unions ask, “Does it improve member service?”
  2. In order to be a member, one must have some sort of tie to the US military: either active duty, honorably discharged, or a close relative. So USAA has a clear target market, which has specific needs. Their members are geographically dispersed across the globe, which places some unique requirements on USAA. And USAA understands these requirements viscerally; nearly one in five employees is a Veteran. USAA’s celebration of Veterans Day goes above and beyond what you would find at most other institutions, by an order of magnitude. While I don’t generally write about such non-technical topics such as corporate culture, it is absolutely palpable at USAA. Providing financial services, to members of the US armed forces is a mission, and pursued with a missionary like zeal.
  3. USAA has no, or today, very few branches. The difficulty in setting up a USAA branch near members stationed in Afghanistan, for example, forces USAA to think about how to serve their members via digital / non-branch channels. I say non-branch because USAA allows members to deposit checks at around 2,000 UPS stores. It is a non-branch channel, but involves brick and mortar. Since USAA isn’t investing in brick and mortar, they can invest more in digital.
  4. Active duty soldiers don’t bring PCs with them on deployments. They do have smart phones. It is my perception that the active duty service member is the most revered customer, though likely the least profitable. This drives innovations in mobile.
  5. LOB silos are much less pronounced due to the strong member service culture. USAA has an integration layer across the banking, insurance, and investment product lines and ties this all together with a single CIF. Now we get to the techie side and what it means for products and customers. Let’s compare what Citi, Capital One, First Republic, and USAA—all respected financial institutions — are able to do to achieve the 360 degree view of the customer on their Internet sites.

Citi lines of business

                            Capital One         First Republic

First Republic Lines of Business

                    USAA       The difference is telling. I’ve heard rumors that USAA may open up its membership to a much broader audience. On one hand I hope it is true. I think it would raise the game. On the other, I hope it’s not, because it would dilute the culture that drives USAA to really excel in its chosen niche.    

Why I Support Reg E

Why I Support Reg E
Reg E required that banks separately and explicitly get customer permission for debit card and ATM overdrafts. This reduced the profitability of retail checking accounts by reducing NSF income to banks, making many checking accounts unprofitable. I discussed this in the Celent report, Reg, Reg Go Away: Sorry Banks, They’re Here to Stay, April 2010  I am in favor of Reg E, and actually believe it is good for the banking industry in the long run, even though as Maynard Keynes stated, “In the long run, we’re all dead.” I think transparency is a good thing for the long-term relationship between a bank and its customers. Clients who now opt in to overdraft know they did it, and are likely to pay the fees without rancor. Reg E isn’t new. Why discuss this now? I recently stayed at an Embassy Suites and saw the following message on my water bottle:

It’s In Your Hands.

Please Recycle.

Be Green.

reg-e-2 You’d think that Embassy Suites was into preserving the environment and encouraging recycling, but unlike many hotel rooms I stay in, there were no recycle bins in the room. So why the strong messaging?
Please Recycle

Please Recycle

If you look in the upper right hand corner of the label, in low contrast knock out type, you can see $4.95*. And if you attempt to read the fine print at the bottom of that label, you see (or don’t stand a chance of seeing) that if you drink this water $4.95 will be added to your room charge. While the recycling of the bottle might have been in my hands, I want to give Embassy Suites just a finger. This is exactly what banks are doing when they bury overdraft protection language in paragraph 23 of an account agreement and surprise their clients with a $33 overdraft charge. What do you create? Angry and disloyal customers. Is that any way to run a hotel? Is that any way to run a bank?

Mobile Banking Around the World at BAI

Mobile Banking Around the World at BAI
I will be speaking at BAI Wednesday, October 10,9:45 AM. The title of the presentation is, “Mobile Banking from Around the World: What the US Can Learn.” It promises to be an interesting discussion. If you are attending BAI, I would encourage you to attend. From the BAI website: Mobile banking is a global phenomenon and banking institutions around the world are creating innovative business models that can be applied in North America. Hear insights from two key global players – Hana Bank, Korea who for example has gained 250,000 mobile banking customers in 2 years and Bankinter, Spain, who has had mobile offers with a response rate as high as 9.2%
  • Understand how you justify funding the mobile initiatives
  • Learn about Hana N Coupon, a bank-led merchant reward program
  • Hear about Bankinter’s labs, which test new concepts with the public
For those of you not able to attend this session. There will be a full stable of Celent analysts at the event:
  • Bob Meara
  • Gareth Lodge
  • Jacob Jegher
  • Robert Mancini
  • Stephen Greer
  • Zil Bareisis
Many, but not all of us are fully booked. Please reach out to your account manager or snawrocki@celent.com to schedule a meeting.

User Experience Matters

User Experience Matters
Temenos is realizing that customer experience is very important to the banking industry, at least as important as core systems. Given the trend of customers interact with their bank via the Internet or mobile as often as call center or branch, a soup to nuts technology provider needs to provide best in class user experience across all channels. Temenos acquired edge IPK in order to improve their offering in the channels. They’ve invested in the past creating the ARC solution, and will undoubtedly use edge IPK to enhance that offering. This acquisition is somewhat reminiscent of the acquisition of Chordiant by Pega. Chordiant had bank specific technology to help with user experience across multiple channels. Pega was selling their platform into financial services and wanted to improve the offering with more financial services specific content. Both firms realize that customer experience is becoming more and more important as customers interact directly with the banking technology via a myriad of devices.

Oracle Announces a New Core System

Oracle Announces a New Core System
Oracle today announced its new core system, Oracle Banking Platform. Why on earth would Oracle develop a new core system apart from its very successful FLEXCUBE? The answer is one size does not fit all. FLEXCUBE is the original bank-in-a-box solution, developed for Citi as an international branch solution, and later known as FLEXCUBE Universal. It has grown from that platform to a second code base FLEXCUBE Retail for mass retail markets. Oracle has been merging the retail and universal banking code bases to a single FLEXCUBE solution. While the solution is a very good fit for international branches and small and midsize banks it doesn’t really have the right architecture for a large bank in its home market. What Oracle has been working with National Australia Bank to develop is the Oracle banking platform, designed for a very large bank in its home market. What specific architectural features are required for such implementation? First and foremost the product needs to be exceptionally modular. A large bank will want to move stepwise with a major core project. That could mean that the bank only once replace a portion of their core system, perhaps customer information file or core deposits. This system will need to harmoniously coexist with the remaining infrastructure at the bank. Alternatively the bank may want to replace the entire core system, but not undertake the risk involved in migrating all in a single fell swoop. This also requires a very modular architecture. Large banks will not settle for best-of-suite solutions, so each module of the Oracle banking platform needs to be able to compete (or integrate) with a best-of-breed solution. Oracle also built this solution from the ground up to optimize implementation on the Oracle stack: Exadata storage, Exalogic processing, Fusion Middleware, and the Oracle database. Surprise! The Oracle Banking Platform is designed with SOA and integration in mind from the start. FLEXCUBE was not. This is clearly a play for the largest few hundred banks in the world in home markets, and was designed with that target in mind.

A Long-awaited Report Will Publish This Month

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.

Please join me to hear about the future of mobile banking

Please join me to hear about the future of mobile banking
I’m very excited about our upcoming mobile banking panel at Celent’s Innovation and Insight Day in Charlotte on June 13th. We have three great panelists: Wells FargoBrian Pearce, Senior Vice President, Head of Retail Mobile Channel, Wells Fargo Internet Services Group suntrustGinger Schmeltzer, Senior Vice President, Digital Channels, SunTrust Bank standardchartered Todd Schofield, Managing Director, Standard Chartered. We’ll be discussing what’s next in mobile banking and payments, covering such topics as:
  • Mobile RDC
  • Google Wallet
  • PayPal, friend or foe?
  • Mobile offers and couponing.
Please join us in the discussion; register for the event.