Dan Latimore

About Dan Latimore

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.

Sibos 2015: banks reacting to the threat of blockchain and other FinTech

Singapore hosted Sibos this year, and judging by the reported 8,000 attendees, transaction banking is alive and well. That also means there were 8,000 different experiences, impressions and takeaways. Here are mine: Banks are fully aware of the threat of posed by technology and are beginning to act on it. Two technology vendors I spoke to said that every single bank they met with asked about blockchain, an extraordinary change from six months ago when it was only beginning to be seriously discussed. It’s encouraging that banks have evolved their positions so quickly. While no one know yet what the killer blockchain uses will be, banks are ramping up experiments along all facets of the value chain. Celent will have more to say about that shortly. Another facet of technology change is the need for banks to partner with FinTech innovators. Based on my conversations with many of these vendors, banks were a lot more willing to discuss new ways of working together. There may even me some movement toward value pricing (that is, mutual sharing in beneficial outcomes), but it’s still very early days; banks seem loathe to give away upside and are unsure how to structure enforceable deals. Sibos’ ambivalence about innovation manifested itself physically with Innotribe. The space was relatively small, and every time I went by I was unable to get in because it was filled to overflowing. Innovation clearly needs to be given even more attention despite the threats it presents to the existing structure. Was this perhaps a physical metaphor of Banking’s relationship with and attitude towards FinTech? Having had four straight nights of canapés for standing dinners, getting home to digest the whirlwind that is Sibos was very welcome. On to Geneva next year!

Mobile, onboarding among dominant themes at FinovateFall 2015

When I’m feeling a bit flip, I tell clients that Celent goes to a lot of conferences so that they don’t have to. Don’t get me wrong: conferences are worthwhile, and you have a lot of serendipitous conversations. But they’re also time away from the office, and, to be honest, not every minute is completely productive. With that in mind, I’ll describe my very-high level takeaways of Finovate Fall 2015, held earlier this week at the New York Hilton. As I listened to each of the 70 7-minute pitches (2 presenters scratched), I tagged them in an unscientific way. Each company received two to eight words describing the space the problem they were solving and how they did it. Here’s the resulting word cloud: Finovate Word Cloud Mobile, unsurprisingly, dominated. I was astonished, however, at the prominence of “onboarding,” a term I used to cover a wide variety of solutions pertaining to account opening, from ID verification to assisted form filling. Many talked about eliminating friction, and creating a platform to support a particular service. Security and Fraud were prominent, as was the concept of components, often enabled by APIs. The biggest surprise: only two companies addressed Blockchain technology – perhaps that will change at FinovateSpring. Somewhere around the 60th presentation, I was struck by the variability in presentation skills and solution excellence. Being a consultant, I had to create a 2×2, below. What did we miss because the product or service was presented sub-optimally? Finally, a big thanks to the folks at Finovate – Celent values our partnership with this great event. If you’d like more detail, check out their blog, which describes the best in show winners. What did you like at Finovate?

Execution: the Achilles Heel of cool new stuff

I’m heading into Finovate in a couple of hours. The UN general assembly is in town, and the only reasonable Starwood hotel I could find was the Aloft in Harlem. It’s amazing that this hotel has exactly the same feel as its counterpart at the Denver Airport…but I digress. I’m writing because Aloft has a cool feature called Keyless Entry. Very simply, I checked in on my SPG app, was given my room (which puzzled the clerk as I tried to check in again – apparently I didn’t even need to stop at the front desk), and my phone was to serve as my key. Brilliant in theory, but in practice I overshot my floor on the elevator because I couldn’t activate the security pad quickly enough, and getting into my room and the health club took several swipes (5-10 seconds) each time. So while I like ditching the plastic key, that convenience is more than outweighed by the hassle of having to call up the app (which takes 5-10 seconds itself to load) and then match it to the pad. I’m using a plastic key next time. Another great idea is using a phone’s camera to capture data, most notably a U.S. driver’s license. I love the demos I’ve seen at prior Finovate events, but when I’ve tried it to open new accounts, it simply didn’t work. Just to show I’m not wholly negative, I also activated my BofA TouchID login today. It worked beautifully, and now I can stop typing in a truly secure password with my thumbs! BofA waited until they got it right (at least for me!). What’s the moral? When rolling something new out, you’d better be sure that it works. Few consumers will give you a second chance, at least not anytime soon, particularly when the alternative is almost as good and the experience is tried and true.

Surprises from the Consumer Financial Decision Making Conference (Behavioral Economics)

A highlight of my year is the Boulder Summer Conference on Consumer Financial Decision Making put on by the Leeds Business School’s Center for Research on Consumer Financial Decision Making. An event geared towards academics, its rigor is a refreshing complement to the work that I see from market practitioners at traditional industry shows. A handful of private sector folks come each year, but most are from academia or policy; being able to bridge the two worlds is extraordinarily refreshing. Why consumers make illogical (or even harmful) financial decisions is the general theme of the conference. I’ve put together some of the most interesting, surprising, or relevant tidbits that I heard over two and half days of presentation. Academics are a careful lot, particularly with their disclaimers, so my caveats are these: I’m an educated layman relating what I heard in broad strokes. I’m not attempting to replicate the precision of the presenters or discussants, nor am I going to cite them in accepted academic fashion. Instead, if you’d like to investigate the source papers, please go to the conference website, or click the conference program. What follows is a synthesis of what I heard, sometimes from one person, other times cobbled together from multiple sources. I’ll try to tease out the implications for banks and make some very high level recommendations. The devil, of course, will be in the details of implementation (an undercurrent running through the conference itself). Look for an expanded version of this in a forthcoming Celent report. As I tweeted during the conference, “Fascinating #counterintuitive #behavioraleconomics Boulder results on nudging and alerts; unintended consequences abound, intuition suspect.” What did I mean? Well, more savings is unambiguously good, isn’t it? Alerts are a great way to nudge people, aren’t they? And more information will help consumes make informed decisions, right? Well….not always. Let’s look at each. Savings Not all savings is good; sometimes you should be spending it or using it to pay down debt. Although people save for a purpose they will, on occasion, need to dip into that savings. In one case, old age, they may be able (or need) to start tapping into their savings earlier than they think, but they’re often reluctant to. Banks can help with this decision making process. Another case arises when consumers have high interest rate credit card debt. Rationally, they should tap into that savings to pay down the higher-cost debt. But many don’t, generally because they’ve engaged in earmarking and don’t necessarily believe that their future selves will have the self-control to replenish the savings account. Again, banks can help by setting up ways to help customers make the savings process easy, transparent and seamless. Alerts Not all alerts are good. Focusing on alerts only in the context of trying to stimulate behaviors (and leaving aside their potential to help in fraud, balance notifications, and the like), researchers found that some people who were told that their FICO score was good became complacent and indulged in behavior that subsequently lowered their score. Information Anchoring on credit card disclosures is very powerful. Initial experiences with the new credit card disclosures shows that borrowers are anchoring on the minimum payment figure, and on occasion paying less each month than they otherwise would. Scattered throughout were additional fascinating nuggets. Here are a few, in no particular order. I’ll expand on them in the upcoming report. We all know that what you say is important, and intuit that how you say it also matters. Indeed, much of behavioral economics is devoted to the framing of issues. But there’s a much more subtle point, one that practitioners are beginning to experiment with, that seems to be fertile ground for further academic inquiry. There are variations in how an issue is framed – the exact same words can be used to ask the same question, but the font, the background – any elements of the user experience – will also have an effect. These “UX” nuances matter, and refining the details of the user experience will be hugely important. Here are a few other tidbits that I’ll expand upon in the full report:
  • People don’t like to pay taxes (no surprise). But tax costs are perceived more negatively than other costs; Betterment got people to trade less by highlighting the tax consequences of the trade.
  • There is no such thing as the “right thing” for everybody. The right choice architecture will help people make the right choices for themselves
  • Lottery wins can cause neighbors to go bankrupt
  • Regulations may give consumers the confidence that they can undertake transactions (loan repayments under foreclosure) that they might not otherwise
  • How a person writes a justification for a Prosper loan has some predictive power (up to 5.7%) about subsequent default probability over and above the typical financial information
  • Save to win savings accounts (“lottery savings”) in Nebraska are a substitute for gambling –and help people make better financial decisions
  • Credit utilization (that is, the proportion of a credit limit that a consumer uses) remains fairly constant over time
  • Day Traders in Taiwan keep on trading even though they have cumulative losses. They are not rational learners
  • People misunderstand the benefits of diversification: most tend to think it increases volatility and leads to better performance
  • People have different learning mechanisms for positive and negative lessons.
Academics are sometimes a bit…academic (as they should be!). As practitioners venture into new territory, having them keep us honest by testing our naive, and often wrong, intuitions is incredibly valuable. A final caveat: any misinterpretations are of course my responsibility. If you’d like to learn more and are a Celent client, please look for the upcoming report. And if you’ve got comments or questions, please let me know.