Dan Latimore

About Dan Latimore

Daniel W. Latimore, CFA, is the Senior Vice President of Celent’s Banking practice and is based in the firm’s Boston office. With a wide range of experience in industry and as a consultant, he brings examples from outside financial services to help banks improve their customer relationships, with a particular emphasis on the importance of technology and culture.

Dan's coverage areas include the banking ecosystem, digital and omnichannel banking, and innovation. He has a passionate interest in behavioral economics and exploring why consumers and humans make the decisions they make, and what the implications are for banks.

Dan has been widely quoted in the press, including the Wall Street Journal, American Banker, Boston Globe, CNBC, and CNBC Europe. He is also a frequent speaker at industry conferences and client gatherings, having addressed audiences ranging from intimate meetings with CEOs and central banks to keynote conference speeches in more than a dozen countries.

Prior to Celent, Dan led research groups at Deloitte and IBM, worked in industry at Merrill Lynch (where he lived in New York, Tokyo and London) and Liberty Mutual, and was a consultant at McKinsey & Co.

Dan received a Masters in Public Administration from the John F. Kennedy School of Government at Harvard, and an undergraduate degree from Dartmouth College. He holds the Chartered Financial Analyst designation from the CFA institute.

Takeaways from the Latest Research in Consumer Financial Decision Making

Takeaways from the Latest Research in Consumer Financial Decision Making

Once a year I take a break from industry conferences and vendor analyst days by going to the Boulder Summer Conference on Consumer Financial Decision Making, hosted by the Center for Research on Consumer Financial Decision Making at the Leeds Business School at the  University of Colorado Boulder. Academics, regulators, central bankers, and a handful of private sector people (like me) gather to discuss the latest research in the field. For many bankers much of the content is, frankly, too academic, but there are always some nuggets worth passing along to those who are interested in forging closer connections with their banking customers. My key takeaways follow.

Consumer data is valuable; advertisers & consumers don’t get their fair share

We all know that data is valuable; The Economist has even called it our most valuable resource, the new oil. Banks have historically not done a great job of monetizing the data they have, but neither have consumers. Consider a three-actor model for internet advertising consisting of an advertiser, an ad exchange, and the consumer. In different scenarios (which vary by who has how much information on consumer demographics), the ad exchange typically is the big winner, the advertiser comes in second depending on how much data they have, and the consumer rarely gains any of the economic benefit. Who’s going to step up and design a business that helps consumers monetize the value of their data?

Scope Insensitivity can be used for good

I’ll admit that this is a new concept for me, and one that is completely counterintuitive. Here’s an example from a site called LessWrong:

Once upon a time, three groups of subjects were asked how much they would pay to save 2,000 / 20,000 / 200,000 migrating birds from drowning in uncovered oil ponds. The groups respectively answered $80, $78, and $88. This is scope insensitivity or scope neglect: the number of birds saved – the scope of the altruistic action – had little effect on willingness to pay.

Researchers studied this phenomenon with credit card bills. They found that a group of people struggling with debt tended to pay roughly the same (rounded) amount on their credit card bills each month, regardless of the balance, a classic case of scope insensitivity. Here’s the clever part: it turns out that if people are paying, say, $50 once a month, they’re generally willing to pay roughly that twice a month, thereby improving their financial position over time.

Getting people to take action, let alone change, is really tough

An experiment in the UK tried five different ways to let consumers know that they could earn a higher rate of interest with a different kind of savings account at their existing bank. In the best case, only ~10% of those notified acted on the offer. There were a variety of hypothesized reasons, and there was certainly a great deal of consumer inertia at play, but I was frankly surprised at the low take up rate. The most successful scheme used a form that a customer could sign and mail back in to make the switch. It was familiar-looking and relatively simple, but still had a low acceptance rate. I’d bet that a lot of people were suspicious of the offer; it simply looked too good to be true, and why would my bank offer to switch me into a product where I’d be earning more?

I also liked the categorization of three flavors of switching costs. Paraphrasing, they’re ignorance, inertia, and inattention. While it may be difficult to rank the relative importance of each, bankers seeking to change behavior should be clear about which obstacle they’re trying to overcome.

Using Prepaid Accounts to set aside funds shows some promise

I’ve long advocated that banks and credit unions consider taking a portion of their marketing dollars and use them to pay consumers directly to encourage better financial behavior. An experiment tested various methods to encourage consumers who held the American Express Serve prepaid card to save. There are now some early indications that incentivizing consumers by paying them $10 to try out the savings feature is an effective strategy. More details are available at a landing page for the study here; it contains a link to the full report.

As the research from the CFPB states,

The results emerging from this pilot suggest that incentivizing prepaid card customers to save, and providing an opportunity for them to do so using a savings feature that keeps funds dedicated for saving separate from those used for spending, could provide tangible financial benefits. Consumers in this pilot demonstrated a willingness to take up the savings feature, indicating interest in alternative savings vehicles, and some customers also reported actual changes in their financial behavior.

Financial Education, done right, can work

Much work at prior Boulder conferences has examined the failures of financial education / literacy programs to make a significant difference. My hypothesis has been that many of them simply weren’t very good, so they didn’t work. To simplify, it’s the difference between having a good teacher guiding a well-designed course vs. a bad one teaching crummy material. As program designers learn what makes a program good, they’ll design better offerings, and efficacy will improve. An interesting pilot on 529 enrollment used parent education via a 45 minute session, together with targeted incentives and a thoughtfully designed curriculum, showed promising results. So, too, did an experiential program called My Classroom Economy that incorporated elements of financial education into classroom settings throughout the day, regardless of the course, and without having dedicated lessons set up specifically to teach financial literacy.

Like the American Express experiment, the use of a $50 offer to seed the 529 account was critical in enticing people to take the time to open the account before they left the education session. Immediate action to overcome inertia, together with a financial incentive, was critical.

Caveats and wrap-up

Let me end with a caveat: the researchers are much more precise, measured, and nuanced than I am in their reporting of their findings. They are extremely careful to note the limitations of their research and circumspect about its broader applicability. I may be overenthusiastic in my interpretation, and have not taken the time to caveat my interpretations of their research as carefully as they would. Nevertheless, the insights that these and other researchers continue to generate have potentially-far reaching implications as banks try to improve their relationships with customers and generate win-win outcomes.

Improving the Banking Customer Relationship: One Simple, Non-Technical Solution

Improving the Banking Customer Relationship: One Simple, Non-Technical Solution

We’ve seen that banks are focusing intensely on the customer experience, and very often they’re using technology to try to make that happen, whether it’s through predictive analytics, bots, or new branches. There’s another tack to take that can complement these laudable efforts: just be more human – and mean it!

I travel a lot, and so have been reading recent stories of airline customer service disasters with a mixture of horror and disgust. Yet some airlines manage to rise above this. Here’s a quick test: which airline offers this: a 2x4x2 business class seating configuration between the US and Europe? And then wouldn’t let a passenger switch to an empty seat in the same class? Is it Southwest or United?

Here’s the other one: which airline turned a plane around on the tarmac when a passenger’s husband called because their son had suffered a grievous injury? And then rebooked her to the city where he was in intensive care, for free? Southwest or United?

The answers are, of course, United and Southwest, respectively. So here’s my point: what would it take for your bank to have a reputation for customer service like Southwest’s?

Here’s one simple suggestion that has nothing to do with technology; it has to do with homes, the biggest assets of most families, and something invested with a tremendous amount of emotion. In the course of home ownership I’ve received a really nice bottle of wine from a contractor (perhaps an indication that he was overpriced, or maybe a referral inducement, or maybe that’s just the way he does business). We got flowers from our realtor. But never once has any of the banks I’ve financed or refinanced with acknowledged me with anything remotely personal. How hard would it be to send along a fruit basket, or a guide to the neighborhood, or even a decent bottle of wine? If my contractor can do it for a job worth a few tens of thousands of dollars, why can’t my bank do it for hundreds of thousands? Just a thought.

Finovate Spring: A Focus on the Practical

Finovate Spring: A Focus on the Practical

Finovate Spring 2017 has just finished up in San Jose; go to the Finovate blog at http://finovate.com/blog/ for an official list of the best in show winners. My focus isn’t on individual companies, but rather the broad themes that I picked up from 59 presenters over the course of two days.

Themes

1. Practicality
There were few gee-whiz, wildly futuristic presentations. Practicality ruled: companies focused on improving processes and delivering better outcomes. Solutions weren’t necessarily sexy or mind-blowing, but potentially more useful in terms of delivering reliable if unspectacular results.

2. Employee Efficiency
What’s more practical than making employees more efficient? Very little. Presenters automated processes, improved learning, and took the drudgery and time out of many manual tasks.

3. Artificial Intelligence / Machine Learning
One way to make employees more efficient, and increase that efficiency over time, is through AI technologies like Natural Language Understanding and Natural Language Generation. To improve those, apply machine learning over time.

4. APIs / AsAService
Another way to bring new ideas to market quickly is to tap into others who’ve already built the solutions. APIs are a key way of accessing many of these pre-built products, some of which were offered as a service (think Family Office As a Service, etc.)

5. Customer Experience
In line with what banks have recently been telling us, improving the Customer Experience was top of mind for many customers. Whether making an interface more aesthetically pleasing, eliminating friction, or speeding feedback, a keen focus on enriching interactions was evident throughout the event. I’d point out that the vast majority of solutions focused on the mobile experience, so much so that it almost doesn’t merit its own mention (but, since this didn’t used to be the case, it’s worth being explicit).

Observations

1. The presenting roster was down to 59 companies from 72 last year in San Jose. While more digestible, frankly, it made many observers wonder whether this was an early sign that the fintech frenzy is moderating.

2. Other technologies that didn’t make the headlines but were present include Analytics, Biometrics, and Lending / Mortgages.

3. I’m always interested in the dogs that didn't bark. Two technologies completely absent from the roster: Apple Watch and Blockchain. Others that were surprisingly underrepresented included Voice, Payments, Branch, and Financial Inclusion. As is my practice, I jotted down a few words associated with each presentation; the results are below.

If you’d like to discuss what we say at Finovate, please be in touch and we’ll arrange some time.

Model Bank 2017: Some First Impressions

Model Bank 2017: Some First Impressions
Growing up, a family Christmas tradition was that my mother would ritualistically proclaim, “That’s the most beautiful tree ever.” It seems that way with Celent’s Model Bank awards, too. In our tenth year we’ve just been through more than 150 submissions, and just like my mother, I can say that this was the best crop yet. The quantity emphatically broke records, and the quality was outstanding. Ongoing innovation in banking technology is clearly beginning to pay off, and we’ve been privileged to learn an immense amount from all of the financial institutions that took the time to tell us about their how they’ve been using technology and innovation to serve customers better, become more efficient, and mitigate risk.

Those who’ve followed the Model Bank Awards closely will note that our awards format has evolved to follow the market over the years. As the imperative to be more customer-centric has become more pressing, it has in turn begun to blur the lines between one of the oldest ways to divide banking: channels. And lines elsewhere begin to blur, too – for instance, should a mobile payments initiative be in mobile, or in payments, or in its own category? We’ve addressed this conundrum with five categories chosen to provide a broad cross-section of the banking landscape.
  • Customer Experience
  • Products
  • Operations and Risk
  • Legacy Transformation / IT Platform Innovations
  • Emerging Innovation
The entries were exceedingly diverse, and came from repeat submitters and new participants. EMEA led the pack quantitatively, with APAC and North America roughly the same, and the strongest showing yet from Latin America. We expected to see nominations around digital banking, branch and core transformation, and payments, to name a few, and we weren’t disappointed. We were also pleasantly surprised to see intriguing initiatives involving employee productivity, cross-selling, AI, Biometrics, and Blockchain.

Inevitably some will be disappointed; there were so many worthy initiatives that the judging was the most difficult by far. It’s certain, though, that Celent analysts will have a full plate for the next two months as we reach out to our Model Banks and complete the work of distilling their rich stories into pithy case studies that illustrate the incredible innovations banks are undertaking today.

As for what you can expect between now and April 4 in Boston, look for a series of articles from the Celent analyst team highlighting some of the many insights that we’ve gleaned along the way. We’d recommend that you check back in; as we notify the winners and begin to develop our case studies, we’ll keep you posted with a series of articles like this one that detail some of the insights.

And while space is filling up fast, there’s still time to register for 2017 Innovation & Insight Day, April 4, 2017 in Boston, Massachusetts. Find out more about last year’s event here.

Goodbye PFM, Hello PFE (Personal Financial Experiences)

Goodbye PFM, Hello PFE (Personal Financial Experiences)

Personal Financial Management – PFM – has been a worthy goal pursued by many providers, yet consumers continue to ignore its possibilities. Rather than trying to incrementally expand the share of 10-12% of PFM users, banks should instead focus on the next stage in the evolution of personal finance: Personal Financial Experiences, or PFE.

We’re big fans of PFM (Personal Financial Management)…conceptually. We think that it has the potential to help people better control their finances and live happier, less-stressed lives. And yet, despite numerous efforts over the years, traditional PFM has not gained significant marketplace traction. It’s too cumbersome and inconvenient, while crucially often serving up bad news – and who wants that? At the same time, banks have recently begun to focus wholeheartedly on the customer experience of their clients, seeking to improve and coordinate the various interactions that consumers have across multiple and diverse touchpoints.

The convergence of these two trends is PFE, defined as A coordinated set of customer interactions that pushes and provides customers relevant, timely information and advice to enable them to live more informed and proactive financial lives. PFE gives customers the ability to access whatever level of financial detail they want, but focuses primarily on context and appropriate accessibility.

A variety of companies – both banks building their own, and vendors focused on developing white-labeled software – have created a wide range of PFM approaches. Most have historically required a fair degree of intentionality on the user’s part, and treat PFM as a discrete activity – a separate tab or a standalone app, for example. PFE changes that. Users will experience PFE without ever having to call it up; it will just happen to them via an alert on their mobile, an idea from a branch representative, or an unexpected landing page on their laptop. The “E” stands for Experiences, plural. PFE isn’t just one touchpoint; it encompasses the wide variety of interactions that a consumer has with her financial institution. Today’s Digital banking will, in fact, become PFE. When banks move to the end-state of PFE, customers will no longer have to choose to manage their financial lives (or by not choosing, default to unmanaged ad-hocracy); instead, financial management will happen in the background, facilitated and orchestrated by the bank, as part of the overall relationship.

Three key principles provide the foundation of a robust set of Personal Financial Experiences.
1 Automatic: Users don’t have to put much conscious thought or effort into entering the data or even asking for guidance. The system gathers that information and proactively provides nuggets of advice and discrete, concrete calls to action.
2 Intuitive: There is no learning curve. Just as kids can start using a new mobile phone out of the box without reading any sort of manual, PFE will be intuitive and user-friendly. PFE becomes normal digital banking.
3 Relevant: PFE will deliver only the information needed at the appropriate time. No longer will a user be confronted with a huge dashboard of charts and dials confusingly presented. Relevance and contextuality will rule.

The iPod wasn’t the first MP3 player; it built on and refined pioneering work done by others. So, too, is PFM the first step in the journey to PFE; we’re not there yet, but we’re well on our way, helped by advances in technology and the incremental changes that FI tinkerers continue to make. We’ll be exploring this concept in greater depth over at celent.com; please check back in, or reply to this post, if you’d like to learn more.

Leapfrogging the bank app to go straight to the electronic assistant

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

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

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

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

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.