Dan Latimore

About Dan Latimore

Leapfrogging the bank app to go straight to the electronic assistant

 

No one downloads a banking app from their store of choice for fun, nor do they open it up to amuse themselves. Instead, bank apps are used to accomplish specific tasks – check a balance, pay a bill, send money to a friend. Despite the undeniable utility of these apps, institutions struggle to persuade their customers to use them; adoption rates, depending on the specific measure, hover around 50% and have been stuck for a while at that plateau. Furthermore, while it’s undeniable that many customers want a better customer experience, and at least some of those customers would like more and better features, digital executives struggle to find the ROI of investment in their apps. Of course, there’s the argument that it’s analogous to malls that put up Christmas and other holiday decorations – consumers just expect it, and there’s not an explicit ROI – but that’s the subject of another post.

What if consumers could perform their basic banking tasks without ever having to open up their banking app? They could say, “Siri, what’s my bank balance?” or “Alexa, pay the water bill out of my main checking account.” While we’re not there yet, consumer desire for convenience (aka “seamlessness” or the “frictionless customer experience”) knows no bounds. My experimentation with Siri and Alexa, together with my preliminary research into Artificial Intelligence in banking, have led me to hypothesize that this scenario is a lot closer than many bankers might imagine. In the obligatory Uber example, the payment is invisible; what happens when the consumer makes this happen in all other sorts of interactions?

How are you prepared to offer your customers this new level of service? Do you have APIs that will let this happen? And is there a strategy to go beyond simply fulfilling a request and offering more insight, advice, or perspective than simply what being asked for? Like European banks facing the challenge of PSD2, all retail institutions can look at this as a moment where they’ll be relegated to the background or one where they can revamp their service models to build better, stronger, and deeper customer relationships.  

The growth and impact of Money 20/20

It’s remarkable that in just five years Money 20/20 has gone from a standing start to having about 11,000 [sic – you read that right] registrants. We go to many conferences throughout the course of the year, and the growth in Money 20/20 is unprecedented in the financial services space (as the chart shows). We’ve used data from sponsors and from blogs to assemble the numbers below; there’s no doubt that Money 20/20 is now the 800 pound gorilla in the space.

conference-attendance-over-last-six-years

Money 20/20’s growth is due in large part, we believe, to the ecumenical approach that the organizers have taken toward the payments ecosystem.  Rather than focusing on just banks and vendors, the show includes processors, merchants, venture capitalists, startups, and other various and sundry hangers-on (including analysts). The organizers’ excellent marketing has played a role, to be sure, as has their interesting mix of commercialism and insightful content from the various participants on stage in both plenary and track sessions. But in many ways Money 20/20 has hit a particular point in time just right, recognizing that the payments ecosystem is bigger than just banks, and needs a forum where every participant could get together. The tragedy: this event could have belonged to any of the incumbent organizers of conferences, but they didn’t seize the initiative.

A final thought on substance: while the need for cooperation and collaboration across the ecosystem was universally acknowledged, as was the precept that incumbents and fintechs must partner (hallelujah!), it was interesting that one of the most ambitious payment collaborations of all time, MCX, was nowhere to be seen. It, at least in 2015, was a bridge too far.

Key Takeaways from Sibos 2016

Having just returned from the whirlwind that is Sibos, I (along with many other industry observers) feel compelled to contribute my two cents on the top takeaways from the event, along with one observation on the mood. Nothing about Sibos can be exhaustive, but three key areas stood out: Cyber, PSD2, and Open Banking / APIs.

Cyber was the first topic mentioned in the opening plenary address. Its seriousness brought into stark relief by the $81mm Bangladeshi incident (something my cab driver in Boston asked about on the way to the airport!), Cyber was a focus throughout the conference. While it has long been an important issue, it has catapulted to the top of the agenda of every member of SWIFT’s ecosystem given the recognition that the system is only as secure as its weakest node.

PSD 2 is often thought of in a retail banking context, but its implications will carry over to the corporate side as well. There are two critical points: 1) Banks must make their customers’ data accessible to any qualified third party, and 2) Third parties can initiate payments. These changes will have profound second-, third-, and even fourth-order effects that can scarcely be imagined today. Banks are thinking through what they need to do to comply, as well as what their strategies should be once they’ve implemented the necessary (and not inconsequential) technology changes. For a primer on the current state of PSD2, see Gareth Lodge’s recent report on the subject.

Open Banking is enabled by APIs. While PSD2 is certainly accelerating the concept, it would have been gaining momentum even without the external pressure. There are simply too many activities that can be done better by third parties than by banks, and the banks have realized that they need frictionless ways to tap into these providers. APIs are a critical mechanism to enable this interaction. Technology, of course, is a necessary but not sufficient condition for success; banks must be culturally able to integrate with new partners quickly and flexibly.

On a final note, the mood was pragmatic. The atmosphere wasn’t one of consternation, panic, or confusion. Instead, the buzz was focused, purposeful, and businesslike. Bankers and their service providers are ready to roll up their sleeves and get the job done instead of wringing their hands about all of the possible ill-fated futures that could arise. We at Celent look forward to the progress to come in 2017. What are your thoughts?

Building the Collaboration Muscle: Optimizing the Bank / Fintech Relationship

At Celent we’ve long said that banks must become better at partnering. And Fintechs have come around to the realization that it’s going to be the rare beast that can compete head-on with incumbent financial institutions – most will fare better by figuring a way to cooperate with them instead.

Eastern Bank, Celent’s 2016 Model Bank of the Year, took this idea one step farther by building Eastern Labs within the bank – an in-house Fintech. While most institutions won’t be able to replicate this (it’s really hard!), there are nevertheless some lessons for banks as they consider best how to engage with smaller, nimbler firms.  The diagram below shows the complementary strengths and weaknesses that banks and fintechs bring to a joint endeavor.

1603Master Slides for Eastern Model Bank Final_009

When they get together, some weaknesses of fintechs are mitigated (e.g., they now have access to data and a brand), while many of the disadvantages of a bank persist (e.g., slowness and risk aversion). Additionally, new complications arise: goals diverge, information may not be completely shared, the cultures are wildly different, and handoffs can be agonizingly slow.

So what are the lessons when a financial institution engages with a fintech? We’d suggest concentrating on four key challenges.

  • Focus on individual goals to ensure that they’re compatible, even though they’ll be different
  • Be as transparent as possible and build that transparency into processes from the beginning
  • Recognize cultural differences and address them at the outset; be realistic about the challenges
  • Set expectations about achievable timelines

Although other complications will undoubtedly arise, partnering is a muscle that banks haven’t exercised much. With practice and training, that muscle will get stronger, and with enough dedication, it will play a vital role in propelling the bank to the next level.

Solving the Fintech Vendor Due Diligence Conundrum

Banks are ultimately responsible for all of the services that they provide, even when they contract with third parties to help them deliver those services. More and smaller banks are partnering with outside providers, and there are more and smaller third parties being formed to meet more specific bank needs. While there’s even a section in the U.S. Federal Financial Institutions Examination Council’s (“FFIEC”) IT Examination HandBook detailing what sorts of due diligence a bank should conduct on its third party service provider, there’s still room for interpretation when deciding how more inexperienced banks should deal with those responsibilities.

The answer isn’t straightforward. All banks are challenged when contemplating a relationship with a small fintech because of the first three items on the FFIEC checklist: Existence and corporate history; Qualifications, backgrounds, and reputations of company principals…; and Other companies using similar services from the provider…. Small, new companies will find it more difficult than established firms to pass muster; many banks simply won’t want to take the risk of dealing with them. And many smaller banks simply won’t have the resources or expertise to properly vet these new entrants.

At the same time, many larger service providers to banks (including software vendors, outsourcing providers, and consulting shops) are searching for ways to bring innovation to their banking clients.

In recent conversations with clients I’ve been struck by an increasingly popular solution: a larger, more established firm bringing a fledgling company under its wing. The incumbent does the due diligence, offers advice, and, when satisfied, vouches for the FinTech. It may license the software, or engage the Fintech as a subcontractor; in any case, it’s assuming responsibility for the work of the smaller and newer firm.

Vendor Management Graphic

Executed properly, it’s a three way win: the bank accesses a new and innovative solution; the incumbent service provider is able to add new value to the relationship; and the fintech is able to begin a relationship from which it would otherwise have been shut out. All participants in the banking ecosystem should consider whether this solution can help their particular situation.

Amazon Echo’s implications for banking

Today’s banking watchword is simplicity. As ludicrous as it may have sounded a couple of years ago, the difference between three taps and two has become significant, and is getting more important every day. But what if there were no taps?

I've always been a bit of a tech geek, but had resisted buying the Amazon Echo, mainly because of my wife's ridicule. Spurred by an encounter at a recent conference, however, I decided it was time to bite the bullet. And now, having played with the Echo for a couple of weeks, I can see that its implications for banking will be profound. No longer is there the necessity to even click when you want to interact with Echo. You simply say “Alexa” to wake it up, and then ask what you want. I'm currently able to access my music library, ask what the weather is, and make general knowledge queries (e.g., how far is it from Boston to Atlanta).

While it’s early days yet, and there is a lot that Alexa doesn't yet know how to do, it is inevitable that its functionality will continue to grow. Capital One is the first and currently only bank to integrate with Alexa, but I’m very curious to see who’s next and how fast this phenomenon will grow. Asking my balance is easy and seamless.

Being very honest, I initially pooh-poohed the utility of voice interaction, but now that I've gotten a taste of it, I (and likely many more) want the full meal. I already can ask Alexa my bank balance. Soon I’ll schedule my utility bill for $220 for next Thursday (since Capital One isn’t my main bank I haven’t fully explored its capabilities on Echo).

The Amazon Echo is a vision of the next step on the road to complete seamlessness and ambient responsiveness. While today Echo may not be that much more than a toy, its implications are profound. Sure I could click on Weather Underground, but asking Alexa the forecast takes virtually no effort and doesn’t require lifting my fingers from the keyboard. I can see the pathetic elements here, but still: I want the same thing with my financial life.

Who’s going to be next to jump on the Echo/Alexa bandwagon?

There are *exactly* 608 US firms offering banking fingerprint authentication

Biometrics are hot. Fingerprint authentication (Apple’s version is Touch ID) is one of the most common forms of biometric verification. So, quick – how many American banks let customers log on to their accounts using this method? Based on the press, you might optimistically think a few thousand, right? And, in fact, ApplePay just activated its 1000th bank (adoption is another story, and the subject of another post). Well, as of January 31, the actual number (not an estimate, not an extrapolation, and not a piece of data from Apple) was 608. That’s 9.52% of the 6,388 FIs offering a mobile banking application. How does that compare to three months ago, at the end of October 2015? At that point just 252 FIs were offering it. That’s an increase of 241% in a quarter, certainly a sign of robust growth. Some of the increase comes from clients implementing from their hosted solution provider. Others (generally bigger banks) are developing it in-house. And yet, it’s not as popular with the large banks as one might think (of the 21 with more than $100bn in assets, only 8 offer fingerprint authentication; 3 of the top 4 have it). Bucketed Adoption Does fingerprint authentication pay off? By one measure, something we call “feature lift,” it does indeed make a difference for customers. Banks whose customers have installed fingerprint authentication have an uplift of 53% in enrolled customers per deposit account relative to banks who don’t offer it. While this is correlation, not causality, it shows that the banks who offer this feature have more customers enrolled in mobile banking than those who don’t. We’re looking forward to analyzing many more mobile banking features to see which ones offer the biggest impact on customer enrollment. Uplift How did we access this information? I’m very excited to say that Celent is collaborating with FI Navigator to analyze the mobile banking market in an unprecedented depth of detail. FI Navigator has assembled a database of every US bank and credit union offering retail mobile banking, together with the vendors who host them. We’re feverishly analyzing this trove of data to bring you a report at the end of April. It’s different from, and additive to, work made available to our existing clients; you can find the particulars here. To let you in on how the sausage is made, we originally tried to find out how many banks offered fingerprint ID by doing a standard search (which turned up press releases and the like) and by contacting a few vendors. We were able to arrive at roughly 250 banks in total, including several dozen from one vendor (from whom it was difficult to get precise answers in terms of commitments, scheduled go-lives, and actual implementations). It turns out that we undercounted by more than half. The beauty of the FI Navigator data is that it’s derived from a variety of sources – on a monthly basis – that let us deduce and infer a huge amount of actual information about the entire US retail mobile banking population, not just a subset. By integrating unstructured website data and conventional financial institution data, FI Navigator expands the depth of peer analytics and the breadth of market research to create vertical analytics on financial institutions and their technology providers. So, in addition to my excitement at this new and powerful data source, I have three takeaways about fingerprint authentication:
  1. The gap between hype and reality for fingerprint authentication is big, but shrinking;
  2. Banks don’t have to be large to do this; and
  3. More banks should be offering fingerprint authentication.
Why is your bank or credit union not offering your customers the chance to authenticate with their fingerprint?

Alexander Hamilton’s approach to innovation has lessons for us today

CBS’s 60 Minutes ran a story recently about the hottest new Broadway musical – Hamilton (go to the 14 minute mark). It turns out that some of the research for the show was conducted at the site our Innovation and Insight Day – The Museum of American Finance. This biography underscores why we chose the Museum for our next Insight and Innovation Day (to be held April 13, 2016). The segment talks about Hamilton’s numerous accomplishments:
“…a penniless, immigrant, orphaned kid who came out of nowhere and his achievements were monumental…he creates the first fiscal system, the first monetary system, first customs service, first central bank…”
Without these innovations, the modern economy as we know it now would look very different. Anyone working in financial services today is aware of the challenges we face responding to changing customer expectations and new technology opportunities. Vast sums of money and time are being spent on innovation, looking for answers. However, Celent’s research shows a widely held view that the financial services industry cannot innovate very effectively. Hamilton graphic nov 2015 So how do we improve? The theme of our Insight and Innovation Day event this year will take inspiration from Hamilton’s work and use it as a guide for our future efforts. By the way, if you want to go to Hamilton while at the Celent I&I Day, I suggest you get your tickets now. It’s the hottest ticket in town! This is a republished post by Mike Fitzgerald from the Celent Insurance Blog. Click here to read the original post.

As conference season rolls on, here’s what I’ll be looking for at Money20/20

We’re smack in the middle of conference season and the team has been traveling all over the world. We’ve been busy with Sibos and BAI (unfortunately held at exactly the same time), AFP, and next week, Money20/20.  In only its fourth year this new conference had to move to a new venue so that it could avoid running afoul of the fire marshal. Given the excitement around the payments ecosystem, we think it will be an exhausting whirlwind of a week. What will Zil Bareisis and I be looking for? Three main topics top the list:
  • What’s the view on blockchain? There was a lot of discussion at Sibos on the corporate side (we don’t think retail will be leading), but we’d like to find out if there’s heat behind the light.
  • What sort of value added services around the payment are in production or on the drawing board?
  • Is the apparent stall in mobile payments adoption temporary, and what can be done by ecosystem participants to jump-start it?
There will, of course, be many other payments topics covered, and we’re looking forward to plunging in to soak up the zeitgeist. What will you be looking for? If you’ll be in Vegas next week, we look forward to seeing you. If you still haven’t registered, you can get $250 off your ticket by using the code celen250.