Musings from the airplane

Musings from the airplane
I am not writing this literally on the plane, but I might well be – this is a conference season, so many of us are on the road. My colleagues have already been blogging from SIBOS, Finovate, Finnosummit and other events. I wanted to share my own observations from the events I attended. EMV, tokenisation, mobile, Blockchain – these were just a few major themes discussed in depth in Las Vegas at PayThink. This used to be known as ATM, Debit and Prepaid Forum and remains THE event to go to discuss these topics in the United States. It is organised by PaymentsSource and chaired (for the last 12 years!) by Tony Hayes, my colleague and Partner at Oliver Wyman. Thank you to the organisers for inviting me to moderate a panel on lessons learned from cards platform transformations, and many thanks to my panelists – senior executives from FIS and e-Global for sharing their insights. We talked about the drivers forcing processors and issuers to upgrade their processing platforms, such as growing transaction volumes and types, need for flexibility and speed when adding new products, and how the processing proposition changes. Processors are now moving away from out-of-the box to componentised solutions, are changing how they package and price their services, and are re-thinking the business terms how to engage with clients. When working with software vendors, our panelists stressed the importance of “soft aspects”. Of course, the technology matters and must meet the requirements to get you on the short list. However, often it will be your people that will win or lose you the deal – flexibility and commitment they demonstrate during proof of concept and other advanced stage interactions are often major factors when clients make a final decision. Last week I was in Lithuania, the country I grew up in and left over 20 years ago… I go back every year, but this was the first time I went there as an analyst. The Central Banks of Lithuania and Sweden jointly organised a conference on the role of Non-Banks in the Payments Market. I was kindly invited to join the panel to discuss “what’s in the future.” As our clients know, our view at Celent is that the disruption in banking is real and that, as a result, banking will change, however, banks will not disappear. Of course, some of them will, but others will adapt, and some of the today’s non-banks will become banks. The challenge for all is how best to manage that tension and the ongoing evolution of the industry. In between travels, I also published a new report on tokenisation, a hot topic in the industry at the moment. The speed of tokenisation evolution in the last 12-18 months has been remarkable, and there are no signs of slowing down. Celent clients can access the report here. Finally, it’s not long before we board the plane to go back to Vegas to Money 2020. The meteoric rise of this event has been absolutely amazing – fours years ago there were about 1,200 of us; this year, the organisers expect 10,000! My colleague Dan Latimore and I will again be there as well. My diary is already full, but if you are a client and would like to say hello, do reach out to your account managers and we’ll do our best to meet up. With everything going digital, the physical handshake remains as important as ever! Safe travels!

Viewing mobile payments strategy holistically

Viewing mobile payments strategy holistically
As the one year anniversary of Apple Pay approaches, banks have to make more decisions about their mobile payments strategy. Android Pay launched in the US a few days ago, and Samsung Pay is expected to be available there soon as well. Should a bank just stick with Apple Pay or enable their cards with all the “pays?” Should they consider alternative options, such as their own HCE-based, or depending on the market, even SIM-based NFC solutions? The answer is that banks have to view their mobile payments strategy holistically. Apple Pay, good as it is, is only available for the latest iOS devices, and only for in-store and in-app payments. Android ecosystem offers more choice: Android Pay, Samsung Pay, HCE and SIM for NFC, but what about P2P and other payments? Barclays in the UK announced this week that it will be launching its own version of mobile payments for Android-based phones. Barclays was a notable absentee when Apple Pay launched in the UK, and are forging ahead with Pingit and bPay wearables. As a result, some view this latest move as yet another indication that the bank “appears to be adopting a go-it-alone strategy with its roll-out of mobile payments, preferring to retain the primary contact with the customer rather than providing the rails for interlopers like Apple, Google and Samsung to hitch a free ride.” I wouldn’t read too much into it. Barclays has since said that it would support Apple Pay at some point in the future. In my view, Barclays is doing what all banks should do – think about mobile payments holistically, i.e. how they will support mobile payments across different platforms and use cases (e.g. in-store, in-app, P2P, etc.). Yes, Android Pay has been launched in the US, but it’s not yet available in the UK. Yet HCE technology has given banks around the world an opportunity to launch their own branded NFC solutions for Android, irrespective of whether Android Pay is available in their market or not. Rather than waiting for Android Pay or Samsung Pay to come to the UK, Barclays is joining the growing list of banks such as BBVA in Spain (read the case study of BBVA Wallet, our Model Bank winner here), RBC in Canada (who were granted a patent for their Secure Cloud payments earlier this month), and others that are taking a proactive stance in developing mobile offerings for their Android user base. I have a new report coming out soon that covers key digital payments issues, such as Android Pay and tokenisation in more detail. Watch this space!

First-time success rate of my Apple Pay transactions today: 0%

First-time success rate of my Apple Pay transactions today: 0%
Yes, you did read this right – today I could not complete a single Apple Pay transaction successfully first time. This was my experience today:
  • I tried using Apple Pay five times – four times to get in and out of the London transport network and once at a coffee shop to buy an espresso.
  • Not once did I manage to complete the transaction right away.
  • Only once I could complete the transaction via the fingerprint. And before you accuse me of sweaty fingers, on all occasions I made extra efforts to wipe clean my phone’s TouchID reader and my fingers before approaching the terminal. And while I did have some issues with TouchID in the past, now the fingerprint unlocks the phone just fine most of the time.
  • Three other times, I had to type in my password, which then completed the transaction.
  • I could not get my coffee on Apple Pay at all – no matter what I did, the transaction would not go through. My default card is Amex, so I asked the merchant if they accepted Amex cards in the first place (I couldn’t see any obvious signs that they did). He confirmed that they accepted Amex, but not if the card was contactless! Which I guess explains my lack of success in that instance, but there was no way of me knowing it in advance – the shop clearly had contactless terminals, so I assumed my Amex inside Apple Pay would work just fine. In the end, I embarrassingly put my phone away and paid cash.
OK, I admit, the sample size is not big – only five transactions and I haven’t tried a diverse POS environment (TfL and a coffee shop), so maybe I’ve just been unlucky. But it’s not the first time this is happening to me. I already highlighted my trepidation of going up with Apple Pay to the tube gates in an earlier blog. And I had other bad experiences: after trying to pay with Apple Pay and failing at a local Co-op shop, I was told that I couldn’t just use a plastic contactless card or pay by cash – I had to insert my actual Amex card into the reader and type in the PIN code to complete the transaction. Really?? Looks like I am not alone struggling with Apple Pay in the UK, as this Twitter conversation demonstrates: I also have a Visa debit card registered with Apple Pay, so I will try it out as well, but based on Richard’s comment, it doesn’t look like it’s a card type-specific issue at the moment… I love the idea of Apple Pay and easy payments by mobile phone. And I know that people like Jeremy and Richard are just as passionate about payments as I am, so we will continue to persevere and keep trying. But what will a “normal” consumer do if they have a bad experience? Will they be excited enough to come back and try again or will they just give up on mobile payments before they had a chance to succeed? I hope they don’t, but these early Apple Pay glitches clearly show how difficult it is to create a truly great customer experience in payments, especially at the POS.

We Now Accept Nominations for Model Bank Awards 2016

We Now Accept Nominations for Model Bank Awards 2016
I am delighted to announce that we now accept nominations for Model Bank 2016. Most regular readers of our blog will be familiar with the Model Bank programme – it recognizes effective use of technology in banking and is now in its ninth year. Model Bank is the most prestigious award a financial institution can receive from Celent. We celebrate the winners and their initiatives at Insight and Innovation Day (I&I), our flagship event. This year we decided to publish a complimentary report, Becoming a Celent Model Bank: A Guide to Winning Celent’s Main Award for Financial Institutions. Why did we do this? A number of reasons:
  • Model Bank has become a truly global programme. We want to introduce the concept of Model Bank to financial institutions that may not be familiar with it and hope this report will help increase awareness.
  • There are some changes to the Model Bank process in 2016. We felt it was important to explain these changes to institutions that have a history with Celent Model Bank.
  • As the number of submissions grows, the quality inevitably becomes more variable. We want to offer tips on how to win a Model Bank award. We provide transparency into what Celent is looking for when judging the nominations. We also look back and consider lessons from the past.
This year we accept nominations in seven categories:
  1. Omnichannel Banking.
  2. Digital Banking Transformation.
  3. Digital Payments and Cards.
  4. Corporate Payments and Infrastructure Modernisation.
  5. Cash Management and Trade Finance.
  6. Security, Fraud and Risk Management.
  7. Legacy Transformation.
You can find the submission form here; the deadline to submit your nominations is November 20, 2015. We will inform the winners in February 2016 and will invite them to the I&I Day in New York in April. We know that so many of you are proud of what you’ve achieved in your organization or, if you are a vendor, what you helped your clients achieve. Tell us your story – we are keen to hear from you! Good luck!

Why I won’t be using Apple Pay during rush hour on London transport

Why I won’t be using Apple Pay during rush hour on London transport
I am finally a proud user of Apple Pay! It came to the UK on July 14th while I was away on holiday, but I managed to set up my first card even while I was abroad. And I was very proud and pleased when I got back and completed my first Apple Pay transaction. My experience has been more or less as expected. I got an email from American Express announcing that Apple Pay is available and suggesting that I should add my card to it. I have been using my Amex for iTunes, so adding it to Apple Pay was relatively straightforward. Somewhat unexpectedly, I now also get notifications on the phone for all transactions, including those made with a card – I would have thought Passbook would only have my Apple Pay transactions, but I guess it does make more sense to see all transactions on the card in the same place. I also added a debit card issued by my bank. The bank also promoted Apple Pay to me, and when I logged into my mobile banking app, Apple Pay was featured prominently at the top of the “home screen.” Clicking on the banner took me to the screen within the bank app which explained about Apple Pay and had an “Add Card” button. Given that I was already inside the bank’s app having authenticated myself via TouchID, I was expecting that this button would give me a list of the bank issued cards I have and I could add any of them to Apple Pay by just clicking on it. Somewhat disappointingly, I was taken out of the bank’s environment into the regular Apple Pay “add card” process and had to scan my card, wait for the text message with a security code to arrive, and set it up just like I would have done with any other card. I can imagine that what I wanted is perhaps challenging technically, but it still seemed like an opportunity missed to “surprise and delight” me as a customer. When everything works as expected, the transaction experience is brilliant. However, I already expressed my concerns about the reliability of TouchID on these pages before, and they proved to be true – TouchID does not always work for me when trying to use Apple Pay. While this is not much of an issue in a retail setting, it is not something you want when fighting the crowds to get on a tube or train platform during rush hour in London. As Transport for London confirmed in response to a number of complaints about over-charging, you have to touch in and out with the same device throughout the day to ensure the correct fare is charged; touching in with Apple Pay and out with a card or Apple Watch might result in being charged twice, even though all payments might eventually come out from the same card. The other thing is that Apple Pay quickly conditions you to getting transactions confirmed on the phone. Because TfL has daily and weekly caps, it cannot confirm each transaction instantly. Instead, I was charged 10p when I touched in with Apple Pay, with the balance for the day’s travel being charged to my card much later. While this is understandable and a minor gripe, it still contrasts with the experience of other transactions. None of this is TfL’s fault, which deserves plaudits for continuing to improve and give options to how we pay for travel. However, while I will definitely continue to use Apple Pay at the retailers, I am going to stick with a tried and tested Oyster card or a bank contactless card when travelling in London. It is simply not worth fretting every time I approach the gates whether the technology will work at the speed needed to keep the crowds flowing.

Don’t be surprised if your bank knows not just who but also what you are in the future

Don’t be surprised if your bank knows not just who but also what you are in the future
We all know personality tests can be a little hit and miss – some are serious, long and can be scarily accurate. Others you do for fun on a Saturday afternoon whilst reading a magazine, and you never take the results too seriously. I just came across a new type of personality test, Personality Insights powered by IBM’s Watson. According to the description, the test “uses linguistic analytics to extract a spectrum of cognitive and social characteristics from the text data that a person generates through blogs, tweets, forum posts, and more.” Interestingly, it claims to be able to reach conclusions just from a text of 100 words. I was curious to see what the tool would say about me based on some of my blogs. I entered one of the recent texts and I got this back:
You are inner-directed and skeptical. You are empathetic: you feel what others feel and are compassionate towards them. You are philosophical: you are open to and intrigued by new ideas and love to explore them. And you are independent: you have a strong desire to have time to yourself. You are motivated to seek out experiences that provide a strong feeling of connectedness. You are relatively unconcerned with taking pleasure in life: you prefer activities with a purpose greater than just personal enjoyment. You consider achieving success to guide a large part of what you do: you seek out opportunities to improve yourself and demonstrate that you are a capable person.
As always with these things, you never entirely agree, but I could recognise some of my personality there, so I was intrigued. I wanted to try it more and started entering other blogs written by me and my colleagues on this site. Most of the results turned out to be remarkably similar, suggesting that we are “shrewd, skeptical, imaginative, philosophical, driven by a desire for prestige, relatively unconcerned with tradition, etc.” Well, it is possible that we are a fairly homogeneous bunch – as analysts we often talk about new technologies, so we are “relatively unconcerned with tradition”, yet we can’t afford to succumb to the latest hype, so can come across as “skeptical.” But the homogeneity of results made me rather suspicious, so “for something completely different”, I entered an article on English football by a broadsheet journalist. While his profile turned out to be a bit more different, he was also “inner-directed, skeptical, empathetic, and philosophical.” Not surprisingly, I wasn’t the first person to try out the tool with the extremes. A Mashable article described someone submitting “a 1919 letter from Hitler explaining his anti-Semitic agenda to a well-wisher” for analysis. Apparently, Hitler was also “shrewd, skeptical, imaginative, philosophical, laid back, appreciating a relaxed pace in life” and someone who thinks “it is important to take care of people around you.” Now, it’s easy to show how something new is not yet perfect, but there is serious science behind the service. And even though this particular tool still needs to learn and improve, we are convinced that artificial intelligence and Watson-type technologies will have a big impact on customer servicing in Banking and other industries. Implementing and making use of these technologies is not easy, but there is no doubt that in the future more decisions will be driven by data and analytics. So, don’t be surprised if the next time you call up your bank to discuss the latest transactions or the new product you want to buy, you realise they know instantly not just who you are (e.g. via voice biometrics), but also what you are. P.S. I just did sort of a “meta-test” by entering the above text into the service. The tool called me “unconventional” and suggested that I am “intermittent” and “have a hard time sticking with difficult tasks for a long period of time.” Is it not just smart, but potentially vindictive as well? 🙂

The future: are you excited or scared?

The future: are you excited or scared?
As industry analysts, we often comment on the impact emerging technologies and innovations have on our clients’ business. How can a financial institution become more “digital?” Will Apple Pay be successful and how quickly? How can a bank deploy data analysis tools to its advantage? These are questions we and our clients are dealing with on a daily basis. Many of us have also seen presentations by futurists painting their visions of an increasingly digital future, where everything is connected and always on, where machines have reached human levels of intelligence, and so on. Given the relentless progress of technology, it is probably only a matter of time until such visions become reality. However, I would argue that what many of us don’t do often enough is pause and reflect on the impact of technology on us as individuals and on the society as a whole, especially in the long term. I recently read a book that made me pause and think: The Circle by Dave Eggers. If you haven’t read it yet, Circle is a fictional internet technology company, sort of an imaginary amalgam of Apple, Facebook, Google, and Twitter. The best and brightest work there bringing to market their latest inventions, such as TruYou, “one account, one identity, one password, one payment system, per person.” Of course, that also means no more anonymity, so, for example, customer satisfaction survey scores are always close to a 100, and any lower ones are chased by the reps until they are re-scored. Tiny camera devices that can be left anywhere unnoticed and stream high quality video are introduced as an innocuous way for the surfers to check the waves at the remote beaches, but soon turn into a “Big Brother”-type ever-present eye. Some of the characters opt to go for “transparency” and start wearing always-on cameras, with unsurprisingly chilling implications for privacy. What made the book particularly scary for me is that it is not an outlandish vision. Most of these things already happen today, albeit at a smaller scale. Anybody with a smart phone has a camera ready to shoot and post online, whether you like it or not (just ask Prince Harry!), and of course, we do need a better approach to digital identity, but hopefully not the kind that destroys any right to privacy and anonimity. It’s not “just” the loss of privacy. If, as predicted, robots take over many of our activities, what are the implications for our societies built around work and jobs creation? And if you are not familiar with the work of Nicholas Carr, take a look at this essay, which warns against dangers of our brains being re-wired as a result of constant exposure to hyperlinks, tickers of “breaking news” and zings announcing a new email. We become easily distracted, always looking for the “next thing”; reading a longer piece or a book becomes a challenge. Now, I don’t want to sound like a Luddite raging against technology. First, it’s not very original – Socrates warned us about the dangers of writing back in ancient Greece. Second, the progress of technology has brought and will continue to bring wonderful benefits. And I genuinely get excited about new technologies and amazing innovations. Overall, I am also excited and positive about the future. But it doesn’t mean that we can’t be critical, and have to succumb to every new hype or lose sight of what makes us human. With summer holidays approaching, I will try and disconnect from gadgets. I look forward to spending time with my family and hopefully immerse myself in a book or two. If you are also heading for the beach, you could do worse than taking a copy of The Circle with you. Happy summer!

Apple Pay: welcome to the UK!

Apple Pay: welcome to the UK!
This week Apple announced that Apple Pay will finally make its debut in the UK. Most of us expected that after the US launch, Canada and the UK would be the next countries for Apple Pay as it expands internationally. Those of us here were hoping it would happen by April, but it looks like it will now finally be arriving in July. The UK market has many ingredients for Apple Pay to succeed. Apple’s market share is over 40%, having climbed upwards in the last 9 months on the back of strong sales of the latest Apple 6 and 6+ devices. And the acceptance environment is rather “contactless-friendly”: about 250,000 merchant locations already accept contactless transactions in the UK, including leading retailers, such as Boots, Tesco, Marks & Spencer, and many others. Importantly, Transport for London has upgraded its infrastructure last year to start accepting regular contactless bank cards, in addition to Oyster, its own prepaid travel card. TfL confirmed that Apple Pay will also work on the London transport network, which should be a significant contributor to Apple Pay transactions in the early days. Most of the leading issuers are also on-board. Customers with cards from American Express, First Direct, HSBC, Nationwide, RBS Group and Santander will be able to use Apple Pay at launch, with the Lloyds Group, M&S bank and MBNA joining later in the year. One notable omission is Barclays, although apparently the two companies are continuing the dialogue. What is not clear yet is the commercial terms between issuers and Apple Pay – everyone remains tight-lipped about it. I would be very surprised though if the UK banks end up paying any transaction fees to Apple. As I already called out in my report on Apple Pay, interchange rates in the UK and Europe are simply not high enough to support any revenue sharing. Furthermore, post Android Pay and the networks dropping charges for their tokenisation services, any wallet fees are looking increasingly unlikely. Most contactless terminals today have a £20 transaction limit, which makes sense when you accept contactless cards, which offer no cardholder verification mechanism. It doesn’t make sense for an Apple Pay transaction which uses biometric cardholder authentication via Touch ID. That is, assuming Touch ID works – I’ve been struggling badly with it lately, as my shiny iPhone 6 simply refuses to recognise my fingerprints most of the time. If I can’t resolve it, I might have second thoughts about using Apple Pay, as the last thing I would want is “faffing around” trying to pay with my phone which doesn’t work… The transaction limit in the UK is going to £30 in the autumn. And those retailers who upgrade their terminals (at least, the software bit) should be able to decide against imposing any limits for Apple Pay transactions. We’ve had options to pay by phone in the UK for a while now, such as paym, Barclays’ Pingit, PayPal and a few other solutions. Zapp, a mobile payment method that would allow customers to pay directly from their bank accounts, is also due to finally launch later this year. Still, Apple Pay’s arrival is major news, and should give a much needed boost to the UK’s mobile payments scene. Exciting times!

Celent cards research is now published

Celent cards research is now published
About a year ago, I decided to embark on a journey of researching vendors and service providers in card management and transaction processing (CMTP). While I have been writing extensively about emerging payments (and will continue to do so), the reality is that many of these payments still rely on cards and the supporting infrastructures. Yet, as the transaction types proliferate, some of those older infrastructures are struggling to cope. If I were at a bank looking to either establish or upgrade our CMTP capabilities, I would want to know: What options do I have? How should I approach the challenge? Who can I turn to for help? The good news is that banks and other institutions seeking help with card management and transaction processing technologies don’t have to face the challenge alone. Depending on their requirements, they can enlist help from packaged software vendors, issuer processors and professional services firms. It has been a massive undertaking, but I am pleased to announce that today Celent published four new reports with details on CMTP vendors. We engaged with over 30 vendors and there is a lot of detail – the reports collectively go to nearly 300 pages. Part I is an overview of the vendor landscape, and Parts II-IV have detailed vendor profiles for 27 companies below: I hope and expect that these reports will be a great resource for everyone in the payments industry, and would like to thank all the firms that participated in this research – their effort was non-trivial. If you are a Celent client, you should be able to access the reports directly. Otherwise, please get in touch with us at info@celent.com.

Predicting the future

Predicting the future
Monday was the UK bank holiday, so some of us just came back to work after a long weekend. Many across the country used the extra time to do a bit of spring cleaning. I also found myself rummaging through some old materials and came across an interesting paper on how financial markets might look in 2020. Let me share a few quotes:
  • “The basic financial functions […] will not change, although how we perform these functions will change.”
  • “By 2020, a true global marketplace will be established, with everyone – individuals, companies, investors, organizations and governments – linked through telephone lines, cables and radio-wave technology. With the touch of a button, people will have access to other individuals and vast databases around the world. Such access will be readily available through phones, interactive television, workstations or hand-held “personal digital assistants” that combine all these functions. […] There will be no special need for retail financial branches because everyone will have direct access to his or her financial suppliers through interactive TV and personal digital assistants. […] True “global banking” will have arrived, as every household will be a ‘branch.'”
  • “A key feature of 2020 is that nearly everything could be tailored to a client’s needs or wishes at a reasonable price, including highly personalized service from financial companies. Firms will be selling to market segments of one.”
  • “Supplying financial assistance will be a free-for-all. It will not be limited to those calling themselves “financial institutions” […] That means an organization that specializes in financial matters may at times find itself competing directly with its clients.”
  • “The progress is geometric because each element – computation, availability of data, communications and algorithms – feeds on the others.”
If you attended any recent conferences on digital banking, this will sound very familiar – just replace “personal digital assistants” with “smartphones.” However, these quotes are not from a recent conference presentation. They are from a paper given by Charles S. Sanford, Jr., serving as the Chairman of Bankers Trust at the time, at the Kansas City Fed’s economic symposium. The date? August 20, 1993… Many of these predictions ring true, although we are not quite there yet, 22 years after the paper has been delivered with only five more left to go. Why? The clues might also be in the paper:
  • “Human nature will not change. […] A very basic element of that nature is a hunger for security – law and order, job security, retirement security, decent and affordable health care and financial security.”
  • “Dishonesty will be around in 2020 as it is today. Voice recognition, DNA fingerprinting and secure data encryption will instantly verify transactions, preventing today’s scams. But new forms of “information crime” will appear.”
  • “Technology will never replace the subtlety of the human mind. People will be the most important factor in 2020, just as they are now. We must learn how to grow wise leaders from the ranks of specialists, a difficult task.”
As humans we also bring the baggage of unpredictability, irrational behaviour and desire for comfort and the familiar. We should bear this in mind next time as we contemplate how technology is changing our lives and what the future might bring. P.S. The entire paper is available here.