The Great Filter for Digital Challengers

The Great Filter for Digital Challengers

It seems like almost weekly I’m hearing something about a new challenger or digital-only bank brand.  The velocity of news is substantial, but despite years of hype, it seems this class of institution is still largely treading water.

It reminds me of The Fermi Paradox.

The paradox was originally posed as a question by the physicist Enrico Fermi about the apparent contradiction between the probability of life in the universe and the complete lack of evidence to support it. With so many supposed earth-like planets, why haven’t we been able to find success stories?

One of the proposed theories is the idea of a Great Filter in the evolution of life.  The theory goes that as life evolves it must overcome leaps in species advancement, one of which is a Great Filter that almost always stops its progress.

In the universe of banking there’s plenty of “new life,” specifically challenger banks looking to compete with traditional institutions (I won’t compare them to advanced species for obvious reasons). Despite major fanfare within the industry, however, these challengers have largely struggled to adapt and grow. Like life in the universe, could there be “great filter” keeping these new entrants from flourishing?  I’d say there are a few contenders.

Technology

What old technology lacks in flexibility it makes up for in stability.  It seems that for emerging providers, what’s made up for in flexibility is lost in stability. Simple, for example, has had its share of technical issues over the past couple of years. In late 2014, a systems upgrade lead to a number of glitches, including bill payment going down, online banking being inaccessible, and the safe-to-spend feature showing incorrect balances.  Some accounts were locked for more than 24 hours.  The transition process to BBVA also presented issues with integration.  Systems had to be rebuilt, and customers had issues with using debit cards, not being US citizens, and just recently, losing their accounts (Simple said it wasn’t able to transfer everyone before its relationship with The Bancorp Bank ended).

Monzo (formerly Mondo) out of the UK had multiple issues inside of a week.  It had outages with its third party card processor, and then a few days later customers reported not being able to properly view their balances or display transactions.

Traditional financial institutions have long known that trust is an asset, whether it’s trust to keep money safe or trust to keep data secure.  Technology has been built around establishing reliability.  Challenger banks and neobanks may be opening themselves up to risks associated with applying concepts of agility to the complexities of banking, and this may be a strong enough filter for reaching critical mass.

Revenue

In addition to trying to provide an amazing customer experience, almost all challenger banks share the same commitment to fee transparency.  In recent years, many traditional banks have used fee income to supplant lower than usual net interest margins.  Fees have been (often rightly) perceived as punitive and opaque.

The quest for fee relief is admirable, but ultimately emerging challengers need to make money to fuel new investments. For some that’s been an issue. The neobank Moven, after struggling to find a significant core audience in the US or overseas, decided to pivot and start selling its underlying front-end technology to traditional banks, most notably TD Bank. Customers Bancorp recently put BankMobile up for sale, citing profitability concerns stemming from limitations on debit interchange once the bank’s assets exceeded $10 billion.  BBVA also recently reported a total of $89.5 million in goodwill impairment from the acquisition of Simple Bank in 2014.

Challenger banks are fully committed to reimagining financial services, but many haven’t yet reimagined the business model. Banks that are furthest along are the likes of Knab in the Netherlands and Fidor Bank in Germany (acquired by France’s BPCE Group) which have applied subscription-based pricing for consumers.  Similar to Netflix or Pandora, the idea is that consumers will pay for value.  What’s clear, however, is that the complexities of financial services require a scale of investment that presents a bigger barrier to entry than for other platform-based offerings (i.e. movies and music).  If consumers are paying for value, then the question is whether a challenger can persuade consumers that they’re receiving enough value to validate a subscription before it begins to hurt its financial viability.

Acquisition

When confronted with barriers to organic growth, some challengers have found it easier to be acquired. When BBVA bought Simple, CEO Josh Reich said that BBVA would provide them with the resources to grow faster.  Many took this as an admission that customer growth was slower than expected. When Fidor was purchased by the French banking group BPCE, the German bank said that the sale would “…allow Fidor to continue its international expansion…” as well as “…improving our overall financial sustainability.”

The question is: do challenger banks need traditional institutions? Well, they certainly need trust, and customers, and data, and  with the pressure to grow and invest in innovation, it’s obvious that the financial incentives of joining a large organization can be attractive.

Challenger institutions have been an important part of the banking ecosystem.  Most notably, they’ve moved the ball forward on what “good” looks like throughout the industry, better assimilating modern concepts of UX and UI design into their front-ends.  At the more extreme end, however, these challengers  were heralded as the white knights that would save consumers from pernicious traditional institutions with outdated technology.  So far that hasn’t been the case.

In the explanation of Fermi’s Paradox, humanity (or a challenger bank) is left with three possibilities, depending on where the Great Filter occurs: we're rare, we’re first, or we’re in trouble. Rare is the challenger that’s made it through the Great Filter.  First is the challenger within a pack of new institutions which has grown because of conditions that have only recently become favorable.  In trouble is the challenger that hasn’t yet reached the Great Filter.  There’s plenty of life in the banking universe, but it remains to be seen who will make first contact.

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.

Innovation on Display: The 2017 Ford GT and FIS Connect 2017

Innovation on Display:  The 2017 Ford GT and FIS Connect 2017

As sharp-eyed Celent retail banking subscribers know, I'm an avid collector of good analogies.  

I like analogies because they can inject simplicity into the most complex discussions of financial technology, and make abstract concepts become more concrete and accessible to the casual fan of technology.  My favorite and I believe useful analogy for banking system engineering is that of automobile engineering, an industry that has a similarly colorful past and has been marked by fits and starts of innovation over the past 120 years.

Fast forward to 2017 and the launch of the new Ford GT, a modern-day supercar with a heritage dating back to the early 1960s, when the Ford GT40 won the grueling 24 Hours of Le Mans four times in a row.  The new GT has a starting price of $450,000 before options, creating a very exclusive club of future GT owners when production began last December.  The Ford GT showcases Detroit's recent focus on platform engineering — the configuration of common unibody structures and drivetrain components to create unique products that can appeal to disparate customers. 

In the case of the Ford GT, platform engineering has been taken to a new extreme.  Powering this new supercar is a retuned version of the workhorse 3.5L six-cylinder EcoBoost engine that powers the pedestrian Ford Transit commercial van, the Explorer and Expedition SUVs, and the Flex crossover as well as several Lincoln models.  In these applications the engine tops out at 380 horsepower, which is impressive but hardly qualifies for world-class supercar status. 

In the case of the setup for the GT, the same basic EcoBoost engine has been retuned to generate 647 horsepower, enough to propel the GT from zero to 60 miles an hour in just over 3 seconds.  The fact that a single engine — albeit in modified form — can power a $20,000 van and a $450,000 supercar is testament to the power of platform engineering, the new architectural model that is widely used by Detroit today and is largely responsible for driving new innovative models for consumers, and new levels of profitability for the automakers.

The same architectural strategy is being employed by bank technology giant FIS, who held its 2017 FIS client conference two weeks ago in Orlando. 

Most industry observers have focused on FIS’s preoccupation of late with its integration of the SunGard corporate banking and capital markets products with FIS’ existing retail-oriented bank IT solutions.  While this focus is understandable, it has obscured the fact that that FIS continues to drive forward its own platform engineering strategy, an enterprise architecture strategy that will in time allow FIS to capitalize on its position as owner of a large stable of core banking platforms – from the large bank Systematics platform to the Horizon community bank platform, and all bank sizes and markets in between.

As Ford has shown with its 3.5L Ecoboost engine, FIS's long-term goal is to create build-once, deploy-everywhere core banking components that can be configured in various ways to support the need of a small community bank, boutique wealth manager, or a high-scale retail bank.  FIS’s core banking "brands" (Systematics, Horizon, IBS, Profile, etc.) won't be going away anytime soon, but what these solutions look like under the covers will change, as individual silos of code will give way to common enterprise banking system components that align to these brands through differentiated bundles of features, functionality, pricing, and service.

The glue that will connect FIS's collection of existing systems and newer enterprise components is a growing library of system APIs that are catalogued and distributed through a new enterprise API Gateway.  The API Gateway not only offers RESTful services to third-party applications (like an online banking or mobile payment services), but also supports integration between FIS's own individual systems. 

Let's say you're a Miami-based community bank that would like to serve the deposit needs of high-wealth international clients?  You can contract for FIS's flagship outsourced banking solution IBS and pull in foreign currency account functionality through an API call to FIS’s multi-currency Profile core banking system.  Retail delivery systems like branch, teller, and call center would continue to function as they currently do, so from the bank’s perspective it would appear that the old workhorse IBS suddenly developed multi-currency capabilities.

Over time, the old model of a bank licensing a discreet software stack will give way to a menu–driven model in which the bank's precise requirements are met though constructing a composite of functionality from a number of FIS solutions, presented to the bank and its clients through a single UI and providing seamless integration through the API Gateway.  This is FIS's version of Ford's platform engineering strategy, the technique that allows a simple utility van and a $450,000 supercar to be powered by the same basic engine.

By showcasing the API Gateway at the 2017 Connect client conference, FIS has signaled to the market that it has moved from the concept-phase to the implementation phase of its enterprise strategy for core banking systems.  While it will take a number of years before FIS's vision begins to manifest itself through consistent product delivery, the approach makes sense. 

In fact, it makes a LOT of sense.

Through increasingly bold acquisitions over the past 15 years, FIS has established itself as an industry leader primarily in terms of market-share.  What is welcome news is that FIS is apparently not satisfied simply with market leadership, and is seeking to assert newfound technological leadership as well.  The devil is as always in the details, execution is key, and all of the other management truisms apply here, but my instinct is that this can be big, and I wouldn’t bet against them.

Banks aren’t Alone in their Omnichannel Unreadiness

Banks aren’t Alone in their Omnichannel Unreadiness

In December, Celent surveyed a panel of North American banks and credit unions to assess the current and likely future state of retail and business banking channel systems. The report is chock full of fascinating insights. Among them is a rather sobering self-assessment of banks' omnichannel delivery capability

A recent experience renting a car painfully demonstrated that banks aren’t the only ones that have a ways to go.

7:00 AM…

Me: Visited the company's website. Easily searched and located a car at a location very close to my home. Quickly booked the automobile and received an e-mail confirmation promptly. The web site displayed the location of all area locations and recommended this one based on its proximity to my known location. Reservation for 2:00 this afternoon. So far so good.

10:00 AM…

Enterprise called and left a voicemail indicating there were some “qualifying details” we would need to discuss prior to my 2:00 PM reservation.

10:30 AM…

I returned the call. The problem was that I reserved an intermediate size car and none were available – just large SUVs and 15-person passenger vans. That relevant information was not conveyed in my otherwise stellar digital experience with the brand.

  • Me: “What about other locations?” I asked.
  • Agent: “I can see what they have on the lot, but I don’t know the plans they have for them. Unfortunately, I can’t book for you. Feel free to call other locations yourself and see which ones may have an intermediate size car for you.”
  • Me: “You mean I have to dial for dollars around Greater Atlanta to find an intermediate size car? Your web site indicated availability and gave me a confirmation. What’s up?”
  • Agent: "Sorry, but that's a long story. Look, if you’re okay driving a large SUV, I can give it to you at an intermediate rate. Would that be okay?”
  • Me: “I think so. It’s not what I want, but I’ll take it.”
  • Agent: “Do you need a pick up also?”
  • Me: “Yes, please – just prior to 2:00 – thank you”

1:30 PM…

The phone rings again, it’s Enterprise. This time, it is the location calling, not the contact center.

  • Agent: “Sir, we have a problem with your rental reservation. We don’t have any intermediate size cars at this location.”
  • Me: “Yes, I know. I spoke with your colleague at 10:30 this morning. You agreed to rent me an SUV at an intermediate price and pick me up prior to 2:00.”
  • Agent: “Do you know who you spoke with?”
  • Me: “I’m sorry, no. I didn’t get his name”.
  • Agent: "Was it a man or a woman?"
  • Me: "It was a male colleague of yours, but I don't recall his name."
  • Agent: "Was he from this location?"
  • Me: "I don't know. By the way, why whould I care?"
  • Agent: "Well, I've been pretty much the only one working at this location all morning."
  • Me: "Thanks for sharing, but what does that have to do with my reservation?"
  • Agent: "I'm just trying to find out who you spoke with."
  • Me: "Why is that relevant? I have a reservation and we have an agreement – and it's almost 2:00."
  • Agent: "I dont think he was supposed to do that."
  • Me: "So, are you going to rent me a car, van, SUV or whatever for an intermediate rate or not?"
  • Agent: "Yes, sir, we'll do that.
  • Me: "Great – see you in a few minutes".

A few days later…

Atlanta traffic kept me from returning the rental during normal business hours. Handily, there are provisions for after-hours drop-off. The rental is processed the next business day and costomers receive a final receipt via e-mail.  That's the plan, anyway. It's been several days and no receipt. After calling the store, I was told the e-mail system has been down.

My bank looks very good about now.

Congratulations to All Celent Model Bank 2017 Award Winners!

Congratulations to All Celent Model Bank 2017 Award Winners!

Many of us at Celent just came back from a busy and exciting week in Boston. Undoubtedly, the highlight was attending Celent's Innovation and Insight Day on April 4th, where we celebrated achievements of the Model Bank and Model Insurer award winners.

The rain and clouds couldn't obscure spectacular views from the State Room overlooking the Boston harbour. And they certainly didn't dampen the mood of nearly 300 attendees representing banks, insurers and technology vendors from at least 15 countries around the world.

Craig Weber, Celent CEO, opened the day by presenting compelling evidence that financial services are more important than many celebrities. He was followed by an insightful presentation from Andy Rear, chief executive of Munich Re Digital Partners. The programme then split into parallel Banking, Insurance and Wealth and Asset Management tracks before reconvening again to close with a series of debates between Celent analysts on three topics: Internet of Things, artificial intelligence and blockchain.

During the Banking track we presented Model Bank awards, and discussed the winning initiatives and why they stood out from all others. As regular readers of this blog know, this year we introduced specific named awards with only a single winner for each award. I would like to offer my personal congratulations to all of our Model Bank 2017 winners:

Winner

Award

Alior Bank S.A., Poland

Emerging Technology for Consumers

Banco Original, Brazil

Consumer Digital Platform

Bank of America, USA

Risk Management

BMO Bank of Montreal, Canada

Process Automation

Capital One, USA

Emerging Technology for Businesses

CBW Bank, USA

Banking as a Platform

Citi, USA

Open Banking

Credit Suisse AG, Switzerland

Payments Replatforming

DenizBank, Turkey

Lending Product

Emirates NBD and ICICI Bank, India and UAE

Most Promising Proof-of-Concept

FGB, UAE

Corporate Banking Digital Platform

Idea Bank S.A., Poland

Small Business Digital Platform

India Post, India

Financial Inclusion

IndusInd Bank, India

Fraud Management and Cybersecurity

Millennium BCP, Portugal

Branch Transformation

Mizuho Financial Group, Japan

Consumer Banking Channel Innovation

National Australia Bank, Australia

Core Banking Transformation

OakNorth Bank, UK

Banking in the Cloud

Radius Bank, USA

Product Innovation

The Royal Bank of Scotland, UK

Employee Productivity

YES BANK, India

Payments Product

And of course, congratulations to Caixa Bank, our Model Bank of the Year 2017! The keynote presentation by Àngels Valls on how Caixa Bank has embraced digital was the highlight of the I&I Day for many of us in Banking – thank you! Finally, congratulations to Celent Model Insurer award recipients.

Each of the award winning initiatives is published as a case study and available to Celent research clients by following the links above. In addition, we also published an overall Model Bank 2017 report, which discusses how the Model Bank programme has changed over 10 years and reviews the content themes across all nominations in 2017.

We intend to run the Model Bank programme again later this year, so keep an eye on the announcements when the new submissions window opens. We have no doubt that you are all working on exciting things and hope that you will consider submitting your initiatives for 2018 awards. In the meantime, enjoy the case studies and let's celebrate the Model Bank winners of 2017!

Emerging Innovation in Banking

Emerging Innovation in Banking

Over the past few weeks we have been previewing various content themes we will be discussing at our Insight and Innovation Day in Boston on April 4th. I would like to finish this series of posts by looking at the new Model Bank category we introduced this year – Emerging Innovation.

When we added this category, we weren’t quite sure what to expect, but we certainly hoped to see the banks’ efforts at the “bleeding edge” of innovation. We were very pleased with the number and quality of such nominations, which spanned the gamut of the hottest topics today. Many of these truly outstanding stories are still in relatively early stages, but all are very interesting and pointing to the future of banking.

Model Bank nominations in 2017 showcased the banks’ efforts in the areas at the forefront of innovation in banking:

  • Innovative customer engagement: the most innovative banks go where their customers are; for example, banks are experimenting with ways to engage their customers directly from social media platforms via chatbots and other tools. They are also looking to introduce new channels, such as wearables.
  • Artificial intelligence (AI): Model Bank submissions demonstrated the diversity of AI technologies and their applications:
    • Driving a virtual agent capable to have a written exchange with the customer via a chatbot, or to even hold a verbal conversation on the phone.
    • Powering a robot to support customer engagement in physical branches.
    • Deployed behind the scenes as a tool to help the customer service agents.
    • Helping determine the best marketing offer for the customer.
  • Biometrics: banks are stepping up their efforts to deploy biometric authentication in their bid to provide customers more convenience while ensuring security. They are expanding beyond fingerprints and are experimenting with other modalities such as facial and voice biometrics. And it’s also not just for consumers – banks are beginning to use biometrics in the corporate banking context as well.
  • APIs: we already spoke about APIs when describing Open Banking, but want to highlight this again, given the importance of APIs. While banks in Europe must open up because of regulation, leading banks around the world are not waiting for the regulators and are starting to provide API-based access to their services to others. And some banks are pursuing a “marketplace banking” strategy seeking to position themselves as a banking platform in the centre on which third parties can build a myriad of discrete services. 
  • Blockchain: given how many banks have started exploring blockchain and other distributed ledger technologies, we were hoping to see some nominations describing their efforts in this space. We were not disappointed and received initiatives ranging from collaborative efforts around cross-border payments and trade finance to “solo” efforts of a single bank using blockchain to manage employee incentives.

We will be discussing all these topics and more at our Insight and Innovation Day next week. It is also the time when we announce and award all the Model Bank winners, including our Model Bank of the Year. We are in the final stages of preparation and are very excited! The event has been sold out for weeks, so if you haven't yet registered you might be too late… If you have registered, we are looking forward to welcoming you there, although if your plans have changed, please let us know so that we could invite those on the waiting list. See you in Boston!

Challenges Facing Organizations in the Current Risk Environment

Challenges Facing Organizations in the Current Risk Environment

The Association for Financial Professionals (AFP) recently published its 2017 AFP Risk Survey Report of Survey Results. The survey, supported by Marsh & McLennan Companies (Celent’s parent company), provides a snapshot of the challenges organizations face in the current risk environment. Responses from 480 senior-level corporate practitioners (primarily based in the US) formed the basis of the survey.

Corporate practitioners rank the highest risk factor impacting organization earnings in the next three years as tougher competition (40%), followed by customer satisfaction (33%), and U.S. political and regulatory uncertainty (32%.) While the three top-ranked factors are similar to those in the 2016 AFP Risk Survey, the order differs.

The survey authors made an intriguing observation on the ranking of risk factors: “It is interesting that in an election year (during which this survey was conducted), finance professionals believed competition would have a greater impact on their organizations’ earnings than would any uncertainty surrounding the U.S. political and regulatory environment.”

The report of survey results goes on to discuss risk mitigation actions in direct response to various types of risk. For example, in response to geopolitical risks, 60% of respondents are most focused on maintaining adequate liquidity, with a greater share of larger companies than smaller companies paying attention to maintaining liquidity (65% to 57%).

If you are a corporate banker or treasury management professional, I highly recommend a reading of the 2017 AFP Risk Survey results. The survey data provides valuable insights into the current and emerging threats facing US corporations of all sizes.

Needless Controversy in the Branch vs. Digital Debate

Needless Controversy in the Branch vs. Digital Debate

In a previous post I argued for the enduring importance of human, face-to-face contact in financial services. By the reactions I received, you’d think I was purposefully inciting controversy.

  • One influential industry observer thought I was irresponsible in advocating inaction.
  • Another wrote a lengthy and snarky rebuttal.
  • Others took issue with my comparing retail banking to other retail categories, as if there is nothing to be learned by studying the broader digital commerce landscape.
  • Others took issue with aspects of the surveyed retail deposit mix data I cited to demonstrate that branch deposits remain persistently common.

Honestly, I expected a mixed response: push back from those who are invested in advancing digital banking and agreement from branch technology vendors. We all have self-serving tendencies. But, I did not expect – nor intend – to precipitate such controversy. What is so heretical to my digital brethren’s ears that they would be so obviously offended with my advocacy that banks pay attention to both digital and in-person engagement mechanisms? That was, after all, the essence of my previous post which began with “Digital needs to be a top technology priority among financial institutions”.

Needless Controversy

I think part of the issue here was addressed in a previous post, Three Mistakes Banks Make. We are at risk by oversimplifying things that are inherently complex. In so doing, we fail to appreciate diversity of customer needs or preferences. Much of the digital/branch debate speaks to binary outcomes. Reality is much more nuanced.

This tendency reminds me of a well-conducted consumer research initiative that resulted in January 2016 news that for the first time, “mobile banking exceeds branch banking”. It made quite a splash in the press, for obvious reasons. The data is both relevant and important. It offers clear evidence of the growing importance of digital banking. But the common interpretation overstated digital’s current level of influence.

My issue is not with the research, but how it was interpreted. Many trumpeted the research as evidence of the final nail in the branch banking coffin. “See, the branch is dead!” was the nominal conclusion offered by most observers I think. However, a closer look at the data invites a different interpretation. The specific metric being graphed wasn’t explicitly cited in many references to the research. Too bad, because the graph compares the percentage of randomly surveyed banked consumers over time that use the branch or mobile channel in the past week. A graph showing past three month or past twelve month usage would be rather different. It would show that a much higher percentage of banked consumers visit branches. They do – just not in any given week, day or hour! Usage intervals are longer in the branch – shocking!

The enduring relevance of the branch channel is abundantly clear in Federal Reserve Board sponsored research, Consumers and Mobile Financial Services, conducted annually since 2011 and most recently published in March 2016. The graph below from the March 2016 report compares surveyed past 12 month usage among the general banked population (all respondents) as well as smartphone owners. This equally credible research suggests that roughly one year ago, twice as many banked consumers use the branch and ATM channels than mobile banking.

Both graphs present credible research. Only one fits a certain popular narrative.

The take away for most banks in my opinion is clear and transcends the silly, either-or debate: create and sustain a compelling customer experience across all points of engagement. As customer preferences continue to change, banks will need to continually adjust operating models. Easier said than done for sure. The needless controversy isn't helping banks get this job done.

Celent Model Bank 2017 Awards: The Payments Preview

Celent Model Bank 2017 Awards: The Payments Preview

This is the next instalment of our Model Banking preview blogs, and it’ll come as no surprise that I will focus on Payments.

Reading and evaluating the Model Bank entries is always fascinating. It’s also somewhat frustrating too at times – payments, covering so much territory, often ends up with the tricky task of comparing two very different projects, and trying to decide which is best. This year was no different, with the quality of entries high.

Until we announce all winners publicly on April 4 at our 2017 Innovation & Insight Day in Boston, we’re unable to say too much more – very frustrating! In addition to presenting the award to the winners, we will be discussing broader trends we’ve seen across all nominations and will share our perspectives why we chose those particular initiatives as winners. Unfortunately though, if you’ve not already registered, it’s too late. As with every year, it’s not only sold out, there is a growing wait list too!

So until April 4th, what can we take away from the Payment entries as a whole this year?

First, the entries this year reinforce how hard it is for any single bank to come up with a cutting edge product innovation in payments. As a result, we had a number of entries submitted jointly by multiple FIs describing their initiatives on blockchain, P2P infrastructures, and other collaborative efforts.

We also saw, particularly in the retail space, the adoption of innovations in one market, transposed from another. There were a number of these, particularly in wallets and P2P. Not bad, just not new and often with a very specific market context. For example, one technology had been in place in a different country for at least 5 years, yet the impact will be huge for the bank who submitted it, and is leading edge for their market.

This perhaps serves as a timely reminder that innovation isn’t always about cutting edge technology, but doing something different. Scanning other markets for what they do, and why, is a great source of new ideas, Given that these innovations are, by definition, tried, tested and live, it also has the benefit of being easier to adopt, from the likely business benefits to the actual technology used and lessons learnt.

The second theme is the continued payments back-office renovation story, particularly around the adoption of payment services hubs, which continue apace. Whilst we have defined what is or isn’t a hub, we have always been clear that no two hub projects are exactly the same, and the entries this year reinforce that.

A few things really stood out in particular about the entries. First, some clients still consider hubs to be mainly European, yet we had entries from right around the globe. Second, whilst the details may differ, common to all was the belief that the bank had to re-engineer payments, not just for the future, but to better respond to changes that were imminent. Given the change in the last 10 years, and the likely change in the next 10, perhaps the question for many banks is more about when than if they also undergo their own transformation.

Look out for the case studies being published on April 4th for more detail!

Celent Model Bank Awards: Fraud, Risk Management, Process Automation and Flub-Free

Celent Model Bank Awards: Fraud, Risk Management, Process Automation and Flub-Free

It is my privilege to be part of the judging panel for Celent Model Bank Awards for 2017 for the following three categories:

  • Fraud Management and Cybersecurity – for the most creative and effective approach to fraud management or cybersecurity.
  • Risk Management – for the most impressive initiative to improve enterprise risk management.
  • Process Automation – for the most effective deployment of technology to automate business processes or decision-making.

A common theme across this year’s submissions for the above categories is the importance of agile technology, digital process automation, and consistent and focused practices across the organizations. A large number of the entries show that a streamlined and automated operational risk framework is critical to run a successful risk management program. Everything connects and has a consequence and unless banks can join the risk dots across their ecosystems, they will continue to spend at a very high rate with unsatisfactory and, at times, devastating results.

Improved data analysis and machine learning capabilities also featured prominently in the winning case studies. A central data platform, automated processes and improved insights have produced notable increases in efficiency, better control of costs, reduced resourcing requirements, reduced errors and false positives and have made it easier for the banks to adapt to their digital footprint, an expanding cyber threat landscape, and intense and complex regulatory obligations.

Hopefully, no flubs on the big day

Without exception, every submission is of a high-quality and we found it a daunting task to pick the most worthy award recipients. In the end, we are excited and confident about our selection of winners in the above categories, yet we are sorry that we could not recognize so many others that clearly also deserve recognition.

At the moment we are staying tight-lipped about who won the awards. We will be announcing all winners publicly on April 4 at our 2017 Innovation & Insight Day in Boston. In addition to presenting the award trophies to the winners, Celent analysts will be discussing broader trends we’ve seen across all nominations and will share our perspectives why we chose those particular initiatives as winners. Make sure you reserve your slot here while there are still spaces available!