London calling: “payments are missing”

London calling: “payments are missing”
From a brief scan of the morning headlines comes news of an IT glitch at the Royal Bank of Scotland. RBS Help announced via its Twitter account at 5:45 AM London time yesterday that “some customer payment are missing this morning — we are investigating this issue as a matter of urgency,” and further advised that affected clients could call or visit their branch if they “have been affected and need to access funds today.” Six hours later, RBS reported that the underlying issue had been fixed and that all missing payments – reportedly 600,000 payments directed to client accounts at RBS, NatWest, Ulster Bank, and Coutts – would be restored no later than Saturday. While certain questions remain (like what sort of a payments glitch would take a three full days to resolve?), to RBS’s credit, it attempted to get ahead of the issue quickly in order to allow customers to mitigate any problems that might arise from the bank’s glitch. Somewhat predictably, some industry observers are already pointing to RBS’s mainframe-based “legacy” payment processing systems as the root cause of the problem. Huh?  The logic appears to be that systems that are old can’t operate reliably, simply because they’re old.  One observer went so far to claim that the lack of courage was the key reason why banks delayed needed modernization projects (OK, courage was not exactly the word used, but you get the point). To put this in perspective, RBS is said to have roughly 20 million retail clients in the UK.  RBS has yet to make an official statement on the matter, and so we’re left guessing whether the 600,000 payments impacted by the glitch represented a small part, large part, or all of the bank’s payment flow on Tuesday.  (I’m guessing it’s a small part, but that’s no consolation to those who were impacted). The last time a similar outage in RBS’s payments system occurred (in June of 2012), the culprit was found to be a problem with a systems upgrade, specifically a piece of software that handled the processing of payment batches. RBS has not yet officially commented on the cause or scope of the glitch this time, so much of what has been written in the last 24 hours is little more than speculation. What is clear is that most mainframe systems do work reliably on a daily basis – RBS is said to process on average more than 20 million payments a day – and systems rarely fail spontaneously of their own accord. So when RBS does comment on the situation, I will be looking to read the tea leaves for signs of the human element at work here – inadequately tested system upgrades or simple human error that was not immediately detected by the bank’s internal controls. That’s not to say that banks should ignore the opportunity to continually update and improve their legacy processing environment (they ought to!), but it does seem a bit cartoonish to treat every processing glitch as another call to action for wholesale systems modernization. The banks that do embark on systems modernization projects are not Cowardly Lions returning from the Land of Oz.  Rather, they are forward-looking institutions that seek market leadership through the delivery of better products and a more satisfying banking experience for the customer. For these banks, innovation is the goal and IT agility is the route to their destination. Where front-office innovation leads, back-office legacy will follow, and so it will be in time with the mainframe.  In the meantime, let’s show some respect to our long-serving and trustworthy friends. Let’s stay tuned…

Finovate and SAP SAPPHIRE: more in common than you might think

Finovate and SAP SAPPHIRE: more in common than you might think
Over the last ten days I’ve spent time at two different conferences, Finovate and SAP’s SAPPHIRE NOW. Two very different conference models generated serendipity where I wouldn’t necessarily have expected it. Both shows were rife with partnership possibilities. SAP spoke continually of the partnership ecosystem, realizing that one of its values is bringing partners together, while at Finovate, the notion of small companies going direct to consumer by themselves was basically dead – they realize they need partners. So if providers are demonstrating that they’re willing partners, all they need is someone on the other side – and that’s where banks come in. As banks strive to compete with upstarts, they’re going to need help, which means they’re going to need to work with others. And today, they just don’t do a very good job – ask anyone who’s ever been stuck in procurement hell. Banks must get better at working with outside parties, from streamlining the vendor approval process, to designing compensation models, to navigating the shoals of procurement. Speed is of the essence, and banks are woefully slow. But I digress… At SAPPHIRE NOW I participated in a panel: “Disrupt or Be Disrupted to Survive in Financial Services.” Partnership was one of my key themes. SAP earlier gave center stage to its recent acquisition, Concur, its T&E management solution. The presentation’s available here (go to 41:30 where Bill McDermott introduces Concur). Along the very same lines, one of the Finovate Best in Show winners was Shoeboxed, for its Receipt Capture for Banks solution, which boosts the functionality of online and mobile banking apps while providing fraud protection. While they have different perspectives on the expense problem (SAP goes for an integrated enterprise travel solution, including the T&E, while Shoeboxed focuses on letting banks provide its white-labeled expense solution to smaller business customers), both have focused on a particular pain point for employees and developed solutions to address it. Simplifying expense reporting may not seem like a big deal, but it’s some pretty low hanging fruit for digitization and disruption. And disruption, of course, is one of the main themes of Finovate. A who’s who of Fintech, the conference this year was outstanding. Best of show winners were the aforementioned Shoebox, together with Alpha Payments Cloud, Avoka, Money Amigo, Moven, Namu Systems and Stratos. More can be found here. What were my impressions? After having had a couple of days to assimilate all that was thrown at us, a couple of thoughts coalesced:
  1. There was only one bitcoin demo.
  2. The Apple Watch made it’s first set of demonstrations, with three demos featuring it on day 2. Two out of three had glitches, not because of the programs (it seemed), but because of the watch itself. While mobility is going to be a very powerful force, I’m still going to wait for the Apple Watch 2.
  3. Personal Financial Management (PFM) was rarely mentioned, even when the demos concerned. This TLA (three letter acronym) has acquired a questionable connotation, and presenters avoided it (with some, like Moven, even declaring it dead).
  4. There were a lot of different concepts discussed. Here’s the wordcloud I created on Day 2, based on my impressions of the concepts that presenters were trying to get across.
Finovate World Cloud As always, please let me know of your feedback or questions.

Thoughts from American Banker Retail Banking Conference 2015

Thoughts from American Banker Retail Banking Conference 2015
This last week the American Banker Retail Banking Conference 2015 was going on in Austin, TX. As expected, it was a great way to read the temperature of the banking industry. The conference was well attended, with broad representation from all institution sizes and markets. There were a couple of overarching themes throughout the event. Competitive pressures on smaller institutions were top of many bankers´ minds. The conference was full of community bankers discussing evolving business models and the pressures its placing on their ability to gather deposits. Customer centricity is forcing a convergence of traditionally segregated value propositions. Large banks are now trying to compete on serving the customer and they´re positioning themselves to look and feel like a community experience. New entrants and delivery models are also opening up the competitive landscape. Consumers are no longer limited by geography when choosing a bank, and they have a growing number of alternative financial options from which to choose. Smaller institutions are finding it hard to overcome some of the barriers of resources and marketing that arise as the competitive landscape broadens. Many presenters discussed developing non-traditional revenue streams. With interest rates low and new regulations following the financial crisis, banks are running incredibly thin margins, and traditional revenue sources are no longer viable. Presentations focused on targeted marketing for “moneyhawks”, new P2P models (e.g. P2P lending), and new payment schemes. A few thoughts on some of the talking points:
  • Breaking down omnichannel applications for financial services: Omnichannel within banking was a popular talking point between attendees and among presenters, and it´s obvious there´s still more than enough ambiguity around its application in the context of banking. One of the presentations used non-FI examples to look at how banks can approach integrating omnichannel into customer interactions. Home Depot was an interesting case study. The retailer combines the in-store and app experience to enhance the customer buying process. Customers can browse the app and make a list of the materials they need. The app shows only what´s in stock at the nearest physical location, and each item is given a corresponding aisle number for easy location on arrival. While in the store, customers can scan QR codes on each product to bring up specific measurements and statistics. This is the essence of an omnichannel experience. It´s not about doing everything from every channel—it´s about optimizing the customer experience across the variety of methods used to interact with the retailer (or bank).
  • Community banks differentiating from large institutions: This was a common thread running throughout the presentations. How do community banks grow deposits in a climate of shrinking deposit share? Presenters proposed some solutions. One spoke of the need to market correctly. A recent study found that despite problems with megabank perception, 73% of those asked said a recognizable brand was important in choosing a financial institution. A regional bank poll of millennials found that not one could name a community institution in their area. These institutions find it hard to inform consumers about the value they provide, and often lacking the resources and experience to do so. A few small institutions spoke about shifting towards serving small businesses. Despite only having 20% of deposits, community banks are responsible for 60% of small business loans. Focusing on small businesses could be a way for small institutions to remain viable, without having to drastically alter their businesses.
  • eCommerce and Merchant Funded Rewards (MFR) through mobile banking to help consumers save:  During one of the sessions, a banker made a good point: consumers don´t need help spending, they need help saving.  The comment reflected a number of discussions about the role financial institutions can play in helping consumers save money, but was echoed across a handful of presentations on digital commerce. US Bank discussed Peri, its eCommerce app developed in cooperation with Monitise, while other presenters spoke about card-linked and MFR propositions.  These initiatives are definitely innovative, but is conflating the ideas of saving and driving commerce shaping the conversation around a fundamentally misaligned approach?  First, will a bank´s eCommerce app be able to compete with the likes of Amazon and Google?  Banks often do not have the customers, data, or pricing competitiveness to match big online retailers, and they seldom win on brand favourability. Second, even when these initiatives are successful, do they really help people save?  For many, the data isn´t targeted enough for banks to offer deals on purchases a consumer was going to make anyway.  For example, based on one bank´s demo, a customer would go to make a purchase at a retailer and the bank app would push out a geo-located card-linked offer for a nearby restaurant. This requires additional spending.  Without the right data, these programs are mostly playing off impulse purchasing, not saving.
Do these themes resonate with your experience? Feel free to leave comments about how your institution is tackling these challenges.

Capgemini, the 40-40 Rule, and the rise of the robots

Capgemini, the 40-40 Rule, and the rise of the robots
Capgemini recently hosted a few dozen consultants and industry analysts to Chicago for their two-day Analyst and Advisor Day event. The presentations were held at the firm’s very impressive Accelerated Solutions Environment facility, with its dramatic curved glass exterior and prime views across the Chicago River to the famous Merchandise Mart.  Unfortunately, it was typical Chicago winter weather with sub-zero windchills and snow flurries, but for those who braved the conditions it was a very interesting and informative event. Things appear to be going well at Capgemini. Even though organic growth in revenue was only 3.4% in 2014 (to EU 10.5B), bookings were up 13%, operating margins were improved by 70 basis points (to 9.2%), and profit jumped by a full 31%.  The financial services business (covering banking, insurance, and the securities industries) provided Capgemini with significant sales momentum into 2015, with Q4 growth of 9.2% (second only to the firm’s public sector services business).   In the financial services sector, Capgemini’s business theme was digital transformation, which in their view would be driven by the replacement of knowledge workers by automation and algorithms. During Q4, Capgemini signed an important deal with First Data Corporation (FDC) to take over application management responsibility for its VisionPLUS card processing platform. VisionPLUS is FDC’s international card platform and serves over 180 clients in 70 plus markets in Central and South America, Europe and the Middle East, and Southeast Asia.  John Elkins, FDC’s Chairman of International, came to Chicago to talk up the new partnership, and it appears that FDC is very pleased that Capgemini is taking over responsibility for maintaining and expanding the functional coverage of VisionPLUS. Essentially, Capgemini will work with FDC to continue the build out of the platform, FDC will use the software to drive its own processing business, and the partners will share certain license and managed services revenues for new bank clients. Paul Nannetti’s made an interesting key note presentation covering emerging trends in Capgemini’s business, and several times he mentioned the “40-40 Rule”.  This was a new buzz word for me, so I was happy when another analyst asked Paul what he meant by the 40-40 Rule.  According to Paul, the 40-40 Rule says that 40% of the scope of new outsourcing contracts will be suitable for digitization (automation), and that within this realm, digitization will drive out 40% of existing labor content. In other words, global outsourcing companies like Capgemini will need 40% less FTEs to process the same work load due to the introduction of automation to its business processes. This brings us to the issue of robots.  A few weeks ago, I had read an article about the opening of a futuristic hotel in Japan called Henn-na Hotel (apparently translated as “Strange Hotel”) that will be almost entirely staffed by robots. The hotel will employ robots to clean rooms, staff the front desk, and run the bag room, and guests will be able to unlock their rooms through facial recognition.  Hotel president Mr. Hideo Sawada was quoted in the Japan Times as saying “We will make the most efficient hotel in the world. In the future, we’d like to have more than 90 percent of hotel services operated by robots.” Capgemini’s Global CTO Lanny Cohen shared that indeed robotics and artificial intelligence technologies were under close scrutiny at the firm, and the firm maintains a global network of 40 innovation labs to investigate this and other areas of emerging technologies. For a firm like Capgemini whose financial success over the past 10 years has been in large part based on managing a very large off-shore workforce, this is indeed a bold strategy. And that’s also very good news for Mr. Roboto, who may have a future in banking and insurance if he ever tires of his current gig at the Henn-na Hotel. Stay tuned. You can follow the conversation about the day on Twitter here.

Upcoming Celent discussion at the American Banker Retail Banking conference

Upcoming Celent discussion at the American Banker Retail Banking conference
Next week I will be moderating a panel discussion at American Banker´s Retail Banking Conference in Austin about the competitive pressures of community institutions. It’s an important topic that Celent discussed in a report published last year: And Then There Were None: The Disappearance of Community Banks. The figures below outline the decline of banks in the US, going from 11,462 at the end of 1992 to 5,809 in 2014. Picture1Picture2 The challenge for many of these institutions has been organically growing their deposits despite shifting consumer demands and new alternatives to traditional financial services (e.g. prepaid services, P2P lending, etc.). The business model of banking is changing, and viability is increasingly dependent on tech investment. Consumers now expect a certain basic level of technological capabilities driven by their experiences across other industries. To accommodate, financial institutions are pressed to implement products such as customer analytics, mobile, CRM, etc. Yet these challenges come at a time of decreased interest margins and broadly defined regulations that require community banks to increase compliance spending and capital reserves at pace with large players. Online banking platforms are often basic, many have no mobile apps, and business platforms like treasury management are severely outdated. Even labor saving technology (e.g. video teller) often does not lead to short term cost savings, and new services typically run in tandem with other operations, adding operating expense to already thin margins. These conditions have made it difficult for community institutions to compete and have challenged the viability of many. Community institutions, however, operate in an extremely diverse landscape of micro-localities with varying competitive dynamics and local needs. This often carries with it a number of advantages over large multinationals with few local connections and an often impersonal understanding of the community. Small banks won´t be able to go head-to-head with large institutions on tech spending, but identifying the organization´s value proposition will enable a tighter strategic direction for meeting consumer demands while delivering a competitive community experience. In Celent´s upcoming panel, we´ll be exploring what community institutions are doing and some of the lessons that others can learn.

A preview of Innovation and Insight Day

A preview of Innovation and Insight Day
Celent’s Innovation and Insight Day is about a month away, and I couldn’t be more excited. We have great external speakers bookending the day, and we’ll be exploring exciting technology implementations with 18 Model Banks in five categories (plus Celent’s Model Bank of the Year):
  • Digital
  • Omnichannel
  • Legacy and Ecosystem Transformation
  • Innovation and Emerging Technologies
  • Payments
Our first speakers, Betsy Hubbard and Debra Jasper, are from Mindset Digital, an online social media training firm. As financial firms grapple with their approaches to social media, Betsy and Debra’s perspective, delivered in a completely different style than what most banks are used to, will provide ample food for thought and some concrete next steps. Suresh Ramamurthi, Chairman (and CTO!) of CBW Bank, will tell the story of how a fintech entrepreneur bought a small ($13 million in assets, 7 employees) bank in Kansas and is in the process of turning it into a bank of the future. You may have seen the bank profiled in this story in the New York Times. Registrations are running well ahead of last year, and our Carnegie Hall venue may well get to Standing Room Only (although you won’t be able to buy tickets at TKTS on Monday morning). We hope to see you there on March 23rd; to learn more and to register, please visit our I&I day site.  Model Bank Logo

On the cusp: regional integration in Asia

On the cusp: regional integration in Asia
It’s 2015, the mid-point of the decade and a good time to start looking at major trends in Asian financial services over the next five to ten years. One of the major themes will be regional integration, which is another way of saying the development of cross-border markets. There are at least two important threads here: the ongoing internationalization of China’s currency, and the development of the ASEAN Economic Community (AEC) in Southeast Asia. RMB internalization is really about the loosening of China’s capital controls and its full-fledged integration into the world economy. And everyone seems to want a piece of this action, including near neighbors such as Singapore who are vying with Hong Kong to be the world’s financial gateway to China. The AEC is well on its way to becoming a reality in 2015, with far-reaching trade agreements designed to facilitate cross-border expansion of dozens of services industries, including financial sectors. While AEC is not grabbing global headlines the way China does, we see increasing interest in Southeast Asia among our FSI and technology vendor clients. From Celent’s point of view, both trends will open significant opportunities across financial services. In banking, common payments platforms and cross-border clearing. In capital markets, cross-border trading platforms for listed and even OTC products. In insurance, the continued development of regional markets. Financial institutions will be challenged to create new business models and technology strategies to extract the opportunities offered by regional integration. It’s the mid-point of the decade, and the beginning of something very big.

Highlights from Money 20/20

Highlights from Money 20/20
I’m on my flight back from Las Vegas and thinking about how to encapsulate the highlights of Money 20/20. Its third year was the biggest yet, capped at 7,500 people (not counting the Fire Marshals patrolling the hallways). At many conferences I’m able to distill several distinct themes; this time, the overwhelming impression was the emphasis on … PARTNERSHIP Celent’s been talking about the need for banks (and others in the ecosystem) to partner better for quite a while. At Money 20/20, the word was on everyone’s lips. Discover, Visa, and a host of others mentioned their eagerness to team with other members of the ecosystem to drive more activity in ways that are better, faster, and/or cheaper. Some other random observations:
  • The big four U.S. banks sent an average of 40 attendees, with the high being 55 and the low being 30.
  • MCX said that CurrentC is in pilot with merchant employees in several cities, but missed the chance to show us a demo. And as an interesting counterexample to the partnership theme, Visa told us that they “look forward to MCX presentations so that they can learn what’s going on.” I’ll stop there.
  • Customer Experience continues to be a big theme
  • There was way too much emphasis on Point of Sale terminals – and why does every POS terminal still look like it came from 1985 (Poynte and Clover being two exceptions)?
  • What happens when there is no Point of Sale, like with Uber? (Incidentally, I wish I had a dollar for every time someone has used Uber as an example over the last twelve months – I’d be on my way to Tahiti)
  • Facebook is doing some really interesting things on the commerce side: if they identify a group of profitable customers who have a certain profile (e.g., mid 30s, likes dogs and hiking), they can go find other Facebook users with the same profile.
  • Security, as always, was a hot topic
One of the things we do is attend conferences so that you don’t have to. If you’ve got questions about this or other events, please let us know.

AFP 2014

AFP 2014
I just arrived home from Washington, D.C., where the Association For Financial Professionals – a leading society for treasury and finance professionals in the US – held its annual conference.  It was interesting that the AFP decided to hold its conference in Washington – the first time it has been held in AFP’s hometown – during the run-up to the 2014 mid-term elections, and it was clear that the town was abuzz in activity as Election Day came near. I’ve been to many AFP conferences during my days at Metavante, but had taken a few years off, and so I was interested how AFP was doing as the economy continues its 5-year crawl out of recession.  Was I surprised!  I was amazed and encouraged how strongly the conference has bounced back since the dark days of the late 2000s, and the vibe reminded me of the recent SIBOS 2014 in Boston, where bankers and tech vendors competed for the attention of … well, bankers. Perhaps reflecting the post-recession environment in which US corporates operate, I noticed little talk of traditional cash management topics like optimized sweeps or new investment vehicles.  Rather, most of the buzz seemed to be around risk management, Big Data, and treasury dashboards.  It was clear that treasurers are moving to embrace technology to automate routine operational tasks, provide analytics-driven insights that are hard to capture using Excel spreadsheets, and help treasurers see through the fog of data to prioritize their work. Should Excel spreadsheets be getting nervous?  It’s too early to tell, as they are still the dominant tool in use in treasury departments.  However as treasury technology vendors continue to migrate their offerings from high-priced licensed solutions to flexibly-deployed SaaS offerings, many companies will find it harder and harder to justify holding off on treasury automation. We’ll continue to study the situation and will hope to bring back some interesting examples and use cases of companies making the leap into full-scale treasury automation.

Banks vs Fin-Tech Start-Ups and the Digital Transformation Race

Banks vs Fin-Tech Start-Ups and the Digital Transformation Race
The digital transformation in financial services is about the move from the physical to the virtual world, from person-to-person interaction toward person-to-machine or machine-to-machine. It is Celent’s view that Integrating and coordinating among disparate and siloed delivery channels will be critical to satisfying ever-increasing customer expectations. This in part encompasses looking at how financial institutions relate with their customers and ecosystem, but also about the underlying infrastructure and processes required to provide a digital experience. It also encompasses re-thinking how a branch should look like and what services it should provide as an integral part of the customer experience. In this context I had the chance to moderate a panel during last week Next Bank Americas. With the participation of Hugo Nájera Alva – Head of Digital Banking at BBVA Bancomer, Miguel Angel Fañanas – Director of Corporate Customers and Multinationals in Telefonica Mexico, Héctor Cárdenas – CEO and cofounder of Conekta (conekta.io), and Martin Naor – partner and CEO of Infocorp, we discussed about the digital transformation in the financial industry. What an excellent moment to do it, along with the BBVA Open Talent that looked into promising fin-tech and digital life start-ups. I wanted to take this opportunity to share with you some of my take aways from this panel:
  1. Banks have a harder time reconciling digital with their legacy platform and infrastructure, and how they have been doing business for many years. Fin-tech start-ups instead are born digital, without any legacy, but they need to be careful not to build one for themselves as they grow.
  2. Technology doesn’t seem to be the constraint for becoming digital, neither is budget. Banks have much more resources and still we are seeing some interesting start-ups in different aspects of banking disrupting with much better digital propositions. Banks instead need to push the digital concept across the organization, and very tied to the concept of innovation, they need to make fundamental changes in the culture of the organization. This is what banks such as BBVA are trying to do though their Innovation Centers, open API’s, Hackatons and fostering an ecosystem of fin-tech startups in Americas and Europe, and why they partner with Next Bank to propel those.
  3. Digital also needs to reach to those customers that are still analog. This requires banks to re-imagine their branches and provide solutions that leverage the digital components but understanding the customer engagement required. Banks are quite better positioned than fin-tech start-ups in terms of physical presence, though it is no longer acceptable for banks to continue to open (or update) branches under the old branch paradigm.
  4. Banks need to better understand what customers really want, and that is not necessarily other financial product, but maybe help with administering their finances, banks helping them to save money, helping SMEs make more business, even expand globally. These are the type of issues fin-tech start-ups are tackling today. Banks have tons of information but they need to become smarter in how they use it and what new services can they offer to their customers. It is also important to look at how customers use technology in their everyday life to find ways of making banking more convenient.
  5. You just don’t claim that you are going to be more digital and then magically wait for that to happen. There is a lot of effort involved. In cases such as BBVA, acquiring Simple is part of such effort. Understanding the bank limitation in terms of its culture is also important to define what is feasible and what not. Reaching out to understand what the ecosystem is doing, actively engaging and participating to come up with a better digital vision has become an imperative today.
Overall and subjacent to the digital transformation race there is still an open debate whether fin-tech start-ups are a partner or a threat to banks. My take is that they are more a threat than a partner in the long run, but they need each other in this initial stage so partnering seems a good starting point. In the long run banks should incorporate those ideas that work; otherwise they will be cornered to a role where they just process transactions for those companies that dominate the relationship with the customer. The implications of this scenario are daunting for banks. What do YOU think?