Leapfrogging the bank app to go straight to the electronic assistant

Leapfrogging the bank app to go straight to the electronic assistant

 

No one downloads a banking app from their store of choice for fun, nor do they open it up to amuse themselves. Instead, bank apps are used to accomplish specific tasks – check a balance, pay a bill, send money to a friend. Despite the undeniable utility of these apps, institutions struggle to persuade their customers to use them; adoption rates, depending on the specific measure, hover around 50% and have been stuck for a while at that plateau. Furthermore, while it’s undeniable that many customers want a better customer experience, and at least some of those customers would like more and better features, digital executives struggle to find the ROI of investment in their apps. Of course, there’s the argument that it’s analogous to malls that put up Christmas and other holiday decorations – consumers just expect it, and there’s not an explicit ROI – but that’s the subject of another post.

What if consumers could perform their basic banking tasks without ever having to open up their banking app? They could say, “Siri, what’s my bank balance?” or “Alexa, pay the water bill out of my main checking account.” While we’re not there yet, consumer desire for convenience (aka “seamlessness” or the “frictionless customer experience”) knows no bounds. My experimentation with Siri and Alexa, together with my preliminary research into Artificial Intelligence in banking, have led me to hypothesize that this scenario is a lot closer than many bankers might imagine. In the obligatory Uber example, the payment is invisible; what happens when the consumer makes this happen in all other sorts of interactions?

How are you prepared to offer your customers this new level of service? Do you have APIs that will let this happen? And is there a strategy to go beyond simply fulfilling a request and offering more insight, advice, or perspective than simply what being asked for? Like European banks facing the challenge of PSD2, all retail institutions can look at this as a moment where they’ll be relegated to the background or one where they can revamp their service models to build better, stronger, and deeper customer relationships.  

Get off the bench: free lunch is over for banks?

Get off the bench: free lunch is over for banks?

This is a copy from my guest post for Finnovista that I wanted to share with you here as well.

A few years ago when we started collaborating in creating the Latin American Fintech community there were no Fintech associations, no Fintech conferences and for sure there was no mapping of Fintech start-ups at all. It has been quite a journey for all of us involved. Kuddos to the Finnovista team for being a key element and catalyser for these achievements!

What exciting moment to be in financial services! Many things going on. Banks are being unbundled; and its happening everywhere. Want to take a look? Check what’s going on in the US, Europe and in more near places across Latin America like Mexico, Brazil, Colombia, Argentina and Chile.

It’s making no distinctions, affecting personal and business banking equally. Consequently, the nature of competition is changing; and pressure is not expected to come from other financial institutions. In a recent Celent survey, to SME banking representatives from Latin American banks, most believe that fundamental changes that are expected to occur in the banking industry won’t come from other financial institutions; instead they are looking mainly to new entrants and adjacent industries.

In last year’s survey to retail banks in Latin America, Stanford University found that 47% of the banks see Fintechs as a threat. The same survey indicates that only 28% of the banks meet the needs of their digital customers. Not a position where you want to be.

Customer expectations, pressure on revenue and cost, and increased regulation don’t make the life easier for banks either. Fintech start-ups may advantage banks on responding to customer expectations and being leaner has Fintechs better positioned to pressure on costs; but they have to play under the same regulation and at some point earn revenues in excess of cost (a.k.a. be profitable).

FCA, the U.K. financial regulator, has opened its sandbox for applications from financial firms and tech companies that support financial services. Successful applicants can test new ideas for three to six months with real consumers under loosened regulations. This is something we haven’t see yet in Latin America, though regulators are increasingly open to the benefits of Fintech and innovation, particularly if it is related to financial inclusion: we have seen the support of regulators to mobile wallets across the region in the last couple of years. Mexico appointed this year an officer for Fintech development in what I see as the leading case in the region to facilitate the adoption of services provided by Fintechs under the umbrella – and supervision – of the regulator. Most lately, the Argentinean regulator has introduced changes enabling digital onboarding, and in payments facilitating competition and adoption; though no sandbox yet, but maybe a digital/branchless bank in the way? Will it be a disrupting incumbent or a new player? By themselves or in cooperation with Fintechs?

Indeed, there has been a lot of debate regarding the nature of the (best) relationship between banks and Fintechs; be it competition, cooperation or coopetition, banks need to play a different game. The ecosystem has changed incorporating a myriad of players and increased complexity. Banks must reconstruct their business models around three areas, recognizing that they are part of a broader and new financial ecosystem:

  • Channels: How the bank serves customers
  • Architecture: How the bank organizes to deliver value
  • Innovation: How the bank delivers new ideas, products and services around both channels and architecture

Banks can innovate on their own, or partner with Fintechs or other 3rd parties; at the end of the day banks need to select and execute on the best innovation models. There is no single answer that fits all; each institution will have to discover the best combination of innovation models aligned with risk appetite, organizational culture and the target customers you want to reach.

ORACLE: Swinging the Bat in Cloud Services

ORACLE:  Swinging the Bat in Cloud Services

It's hard to believe that an entire month has gone by since Oracle OpenWorld in San Francisco — but baseball fans will have noticed that things have been a bit hectic here in Chicago of late.  Ironically, the Chicago Cubs clinched a playoffs berth on September 18th, the very day that Larry Ellison officially opened OPEN World with his first of several Keynote presentations.



My primary motivation for attending OpenWorld was to get an update on Oracle's two banking platforms — the new flagship Oracle Banking Platform (OBP) aimed at large retail banks and its stable mate FlexCube, the universal banking platform deployed by nearly 600 banks globally.  After three days at OpenWorld, I realized that the real story of interest to banks is Oracle's emerging cloud story, which coupled with its existing core banking applications business puts them in a really interesting position to transform the core banking systems market.

Now a robust 72-year-old, Larry joked with the audience about being prohibited from climbing the stairs to the Keynote stage, but he still exhibits the intense competitive burn that served his company well during the ERP battles of the 1980s and 1990s.  The difference is that these days, he's less focused on IBM or SAP as he is two new challengers:  Amazon Web Services (AWS) on the IT infrastructure side and WorkDay on the applications side.

Of course, what AWS and WorkDay have in common are that they are both businesses with long-term prospects predicated on the continued growth and development of cloud services.  Larry's first Keynote noted that we are witnessing generational change as companies move from "lots of individual data centers" to a smaller number of "super-data centers called Clouds".  In a separate presentation, Oracle CEO Mark Hurd shared Oracle's view that within the next ten years, 80% of corporate-owned data centers will have been closed, with the remaining data centers running at 20% of today's capacity, running legacy workloads that are not easily ported to a cloud services environment (hey COBOL — I think they're talking about you!).

mark-hurd-data-center-stats

According to Larry, Oracle's "overnight success" in cloud services began ten years ago when it started reengineering its original ERP products — licensed software designed primarily for the on-premise market — into a new multi-client, multi-tenant architecture, as befitting a company that was pivoting to the emerging SaaS model.  At OpenWorld, Larry shared how Oracle was extending its original SaaS business to embrace both the Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) models — putting AWS, Google, and Microsoft all squarely in Oracle's competitive sights.

Of the three, AWS appears to be the primary target of Oracle's competitive ambitions:  Oracle's new "Gen2" IaaS platform offers a virtual machine (VM) that offers twice as many cores, twice as much memory, four times as much storage, and more than ten times the I/O capacity of a comparable AWS VM.  But there is a catch, according to Larry:  "you have to be willing to pay less" than what AWS charges for a comparable VM.  (While AWS might take issue with Larry's claims about performance and value, what is clear is that Oracle is planning a serious competitive challenge to AWS's supremacy in the IaaS race.)

In Larry's words, "Amazon's lead is over.  Amazon's gonna' have some serious competition going forward."

larry-aws

This represents great news for the growing number of banks that have gotten past the question "Why cloud?" and have moved onto the more interesting question "How cloud?".  For the largest banks like Capital One that have significant IT development capabilities in-house and with the willingness to experiment with new technologies, AWS makes a lot of sense.  Banks can roll their own code, spool up a VM, and off they go.  Capital One's cloud journey has been so compelling in fact, that the bank is in the process of closing down 5 of its 8 data centers while swinging many workloads to AWS.  Most banks, however, are not Capital One. 

For the mere mortals among us — banks coping with practical limitations on their ability to develop and host banking apps — having an IT partner with demonstrable experience on the application side and the infrastructure side can represent a real game changer in terms of the bank's appetite to make a leap into cloud-based banking services.  While some banks have in the past been a bit overwhelmed by Oracle's ambitious sales pitch featuring its all singing, all dancing suite of integrated applications ("that's very impressive, but I only want a G/L!"), with Oracle's new IaaS offering a bank could mix and match Oracle applications (offered via SaaS) with third-party and in-house developed systems.  That potentially a game changer for banks interested in cloud services, but overwhelmed by the complexity of going it alone with a public cloud provider.

That brings us back to OBP and FlexCube.  OBP is a recently built Java-based core banking solution built for the needs of large scale retail banks.  As such, OBP is aimed squarely at mainframe-based core platforms like Hogan, Celeriti and Systematics.  FlexCube is a universal banking platform and has also seen some renewed investment from Oracle in the last few years.  While today its primary market appears to be international banks, as a modular solution FlexCube can address specialized needs in the US market like cash management and trade finance. OBP and FlexCube continue to compete in the global core banking systems market on their own terms — with OBP having some recent success as a foundation for a new digital banking platform for Key Bank (Cleveland) and as the foundation of a complete core replacement project at National Australian Bank (Melbourne).

For larger banks intrigued by the promise of cloud services, but daunted by the complexity of building and operating their own environment, the opportunity to pull down an OBP license that is hosted in the Oracle Cloud while dragging other applications from their private data center to Oracle's IaaS platform could help achieve in one move the twin goals of core banking system and data center transformation.  That's a rare 2-for-1 in a world where a widely-held truism is that every IT decision involves trade-offs among alternatives.

According to Larry, Oracle's annual revenue run rate for cloud is currently about $4 billion.  Amazon recently announced that its revenue run rate for cloud services was north of $10 billion while just yesterday Microsoft announced its own revenue run rate for cloud has approached $13 billion.  These are undoubtedly different businesses (AWS is more or less pure-play IaaS while Microsoft skews towards SaaS by virtue of the strength of its Office 365 business), so I won't pretend to make any apples-to-apples comparisons.  The point remains that while it's still early in the cloud ballgame for Oracle — with deep financial resources, an impressive portfolio of banking applications, and Larry's intense "Will To Win" against the current market incumbents — bank CIOs need to pay close attention to what is going on in Redwood Shores.

“Transforming the Landscape” – My learnings from SIBOS 2016

“Transforming the Landscape” – My learnings from SIBOS 2016

The fall conference season is a business time for us in the industry research business. I’ve finally recovered from a hectic week in Geneva, where I met with over 40 banks, technology companies, and consulting firms to discuss what’s happening in global transaction banking. This year’s Sibos theme was “Transforming the Landscape”, organized around four themes: Banking, Compliance, Culture, and Securities. A selection of Sibos session recordings is available on the Sibos website.

With my research focus of Corporate Banking, my discussions focused on three key topics.

  • SWIFT’s global payments innovation (gpi) initiative:  SWIFT announced that it had successfully completed the first phase of the gpi pilot, surprising some bankers with SWIFT’s ability to meet the first milestone so quickly. The initial objective of gpi is to improve the speed of cross-border payments (starting with same-day) and improve transparency with new end-to-end payment tracking. SWIFT staffers roamed the exhibition hall with iPads demonstrating the gpi’s new payment tracker. It remains for banks to integrate the new payment type into their corporate digital channels and to determine product pricing.​

SWIFT GPI

  • PSD2 and UK Open Banking:  Technology providers, especially those that offer core banking systems along with payments technology, are working closely with regulators and industry groups to enhance their product offerings to accommodate the third-party account information access and payment initiation provisions of PSD2, along with the UK’s Open Banking API Framework. Looking beyond mere compliance, both providers and banks are developing value-added services to capitalize on the significant disruption arising from opening traditional banking capabilities to third-parties.
  • Blockchain in Corporate Banking:  After publishing a Celent report on use cases for blockchain in corporate banking earlier this year, I was heartened to hear “real world” blockchain announcements from the big tech companies, touting their banking collaborations. Swiss bank UBS is working with IBM on a project to replicate the entire lifecycle of an international trade transaction. The FX settlement service, CLS, is building a payments netting service that will enable cash trades on IBM’s Fabric blockchain. Bank of America and Microsoft announced their intent to build and test blockchain applications for trade finance.   Although much progress is being made by blockchain consortia, banks, and technology providers, most people I talked to believe that significant adoption of blockchain for corporate banking use cases is still a few years in the future.

I’m off next week to attend the Annual Association for Financial Professionals (AFP) conference, hoping to bring back developments in the world of corporate treasury and treasury management.

Impressions from Finovate Fall 2016

Impressions from Finovate Fall 2016

A few weeks ago I attended Finovate Fall 2016 with a few different colleagues of mine in New York.  For those who’ve never been, Finovate hosts three main events (New York, San Francisco, and London) where more than 70 fintech companies are able to present new concepts, services, or products in a rapid 7-minute format.  Traditionally, the San Francisco event has catered to more of the pure start-ups, while the New York event gives larger, more established vendors the opportunity to show off their newest ideas, although typically there’s a bit of a mix between each.

As a temperature gauge for the industry, I don't think there’s a better event. The ideas generally reflect where the industry is at in its thinking, and what the major trends are for fintech.  For example, 2-3 years ago the hot topic was PFM, big data, and mobile wallets.  Last year, mobile onboarding, customer acquisition schemes, and AI were the most prevalent.  Parsing through the hype and the reality is typically one of the more fun aspects of attending.  This year I noticed a few things that caught my attention:

  • Chatbots, Natural Language Processing (NLP), and general communication solutions were common: Companies like TokBox, Personetics, Kore, and Clinc were some of the more compelling examples here. These solutions were prominent in 2015, but the biggest change was the maturity of their capabilities.  Last year, what stood out to most attendees were the many demos that fell flat.  A handful of presentations completely bombed on-stage, and even those that made it through the process were often shaky and the inputs looked too rigid.  These technologies have advanced quite a bit in the last year, and the proposition for banks is becoming much more attractive. 
  • PFM was hidden behind data analytics:  PFM hasn't been a discussion topic in the industry for quite some time. The initial round of PFM deployments were troubled by poor execution and unmet expectations by financial institutions that piloted them.  Many financial institutions we’ve spoken to become immediately sceptical of a vendor solution that even uses the term.  Celent has been talking for some time about PFM merging with online banking and essentially becoming the landing page.  What was traditional PFM (spending breakdowns, budgeting, savings goals, etc.) is now just digital banking.  New methods of financial management demoed at Finovate, however, show PFM under disguise as platforms that leverage data analytics.  MapD was one that stood out. Clean data has always been the holy grail for PFM, and it’s always been one of the biggest issues.  More solutions focused on getting the data analytics right, creating financial value for the consumer, and cleverly disguising what should have been PFM from the beginning: insights unpinned by advanced analytics.
  • Not many payments products or solutions leveraging blockchain: Surprising to me were the lack of payments startups as well as any startup leveraging blockchain. My thinking is that many of the solutions around blockchain are still in their early days, and probably not ready for prime time.  Also, while I know of a number of startups leveraging the technology, they are more bleeding edge, and may have been attracted to the spring Finovate, which focuses much more on early-stage fintech companies.  The lack of payments schemes was also a surprise, but it could be that Apple Pay has taken some of the wind out of the sails of fintech companies trying to solve very similar issues.  Mobile wallets and payment products typically require a lot of industry leverage to make work.  You have to satisfy the merchants, the banks, and the consumers, and most have failed to reach sufficient scale.  Many in the industry said it would have had to be a larger more established firm, and indeed the launch of Apple Pay confirmed that prediction.

 

Finovate continues to offer great insight into where the industry is at and where it’s heading.  We’ll continue to attend these events and provide some more analysis. Feel free to comment on your perceptions, if any, from the event.

Where Will We See You Again?

Where Will We See You Again?

When the leaves start falling, it usually means one thing for Celent analysts – the conference season is getting into full swing and it’s time for us to hit the road big time.

The team is already busy at SIBOS this week, with BAI and AFP coming in a few weeks. Personally, I am looking forward to speaking on customer authentication at Mobey Day in Barcelona on October 5-6, as well as attending Money20/20 in Las Vegas on October 23-27.

Such high profile events are always great places for catching up with our clients and other industry experts. They are also perfect for getting up to speed with the latest developments in the industry, or, as my colleague Dan Latimore says, “soaking up the zeitgeist”. Dan will also be joining me at Money 20/20.

This year, we will be keeping an eye on (amongst many other things):

  • Which of the latest initiatives look most promising to (re-)invigorate mobile payments? Will it be Apple Pay and Android Pay on a browser, the networks’ partnerships with PayPal, 'Merchant' Pay, or something new that will get announced at the events?
  • Adoption of and developments in payments security technologies, from EMV to biometrics, and from 3DS to tokenization.
  • Innovations that drive commerce and help merchants, from bots to APIs that enable deep integration of payments into the merchant’s proposition. Also, creative application of analytics, whether to help merchants increase conversation rates, extend a loan, or deliver the most relevant and timely offer to the customer.
  • Where will blockchain fit into payments world? Ripple continues to gather momentum with cross-border payments, the UK is exploring the use of distributed ledger technologies as backbone for a domestic payments system, while IBM is partnering with China's Union Pay around loyalty. What other payments-related innovations can we expect from the blockchain community?

What will you be looking for? If you’ll be in Barcelona, Orlando, Chicago or Vegas, we look forward to seeing you. If you haven't registered, now's the time. And because of your relationship with Celent, you are entitled to an additional $250 discount off the Money20/20 registration fee. Combined with the Fall Final special you save a total of $725. Simply enter promocode Celen250 when you register here.

Challenging the Status Quo: Fintechs and Corporate Treasury Services

Challenging the Status Quo:  Fintechs and Corporate Treasury Services

The rapid rise of Fintech firms offering non-bank financial services is triggering what some consider “creative destruction” in banking. Recognising that technology is a key enabler for efficient treasury operations, an increasing number of Fintech firms are creating specialized solutions for corporate financial management.

Four key external forces are supporting the rise of non-bank financial services:  Economic influences, demographic changes, regulatory environment, and technology evolution.

Non Bank Financial Services

A confluence of economic influences has lowered the barriers to entry for Fintech startups. Most significantly, global interest and investment in Fintech firms has risen dramatically over the past five years.  However, only a small percentage of Fintech investment is targeted at serving large corporations, a sector ripe for investment and innovation.

As baby boomers retire, financial management staff is getting younger reflecting the demographic changes influencing Fintech growth. Accustomed to intuitive, easy-to-use technology tools accessible from anywhere, younger staff expect more in the way of treasury technology than Excel spreadsheets to streamline, digitise, and automate financial management functions across treasury and finance. This is especially true with respect to payments, one of the hottest areas in the Fintech space.

While the regulatory environment for traditional financial services firms continues to become more complex, Fintech firms benefit from an almost complete lack of regulation. Regulators acknowledge the need to oversee the safety and soundness of Fintech firms but also recognise that excessive regulation can stifle the development of more efficient financial services. Thus, regulatory bodies are working on frameworks to strike the appropriate balance between innovation and protection.

Fintech firms excel at leveraging the technology evolution to create a differentiated customer experience. Rather than serving the breadth of corporate customers’ treasury management needs, Fintech firms can cherry-pick narrow segments for their offerings.  Newer technologies such as web, cloud, mobile, big data, and artificial intelligence allow Fintechs to develop new value propositions at a lower cost than traditional development approaches.

As discussed in the new Celent report “Challenging the Status Quo: External Forces Supporting the Rise of Non-Bank Financial Services,” Fintechs are unbundling traditional corporate banking services, leveraging emerging technologies to offer new, innovative treasury solutions. But recognizing that universal banks have unrivaled experience meeting the complex needs of corporate customers, many Fintech firms are collaborating with banks through a number of different innovation models. This report is the fifth in an ongoing series of reports commissioned by HSBC and written by Celent as part of the HSBC Corporate Insights program.

Register now for the upcoming joint HSBC and Celent webinar on this topic featuring Nadine Lagermitte, Global Head of Financial Institutions at HSBC.

Blockchain Use Cases for Corporate Banking

Blockchain Use Cases for Corporate Banking

Corporate banking has long been a relationship-based business, with large global banks having the distinct advantage of being able to provide clients with a comprehensive set of financial services delivered through integrated solutions. Distributed ledger technology, often referred to as blockchain, threatens to disrupt the sector with its potential to improve visibility, lessen friction, automate reconciliation, and shorten cycle times. In particular, corporate banking use cases focusing on traditional trade finance, supply chain finance, cross-border payments, and digital identify management have attracted significant attention and investment.

Traditional Trade Finance: Largely paper-based with extended cycle times, DLT could eliminate inefficiencies arising from connecting disparate stakeholders, risk of documentary fraud, limited transaction visibility, and extended reconciliation timeframes. DLT could finally provide the momentum needed to fully digitize trade documents and move toward an end-to-end digital process.

Supply Chain Finance: SCF is commonly applied to open account trade and is triggered by supply chain events. Similarly to traditional trade finance, the pain points in SCF arise from a lack of transparency across the entire supply chain, both physical and financial. DLT has the potential to be a key enabler for a transparent, global supply chain with stringent tracking of goods and documents throughout their lifecycle.

Cross Border Payments: The traditional cross-border payment process often involves a multi-hop, multi-day process with transaction fees charged at each stage. There are potentially several intermediaries involved in a cross-border payment, creating a lack of transparency, predictability and efficiency. DLT offers an opportunity to eliminate intermediaries, lowering transaction costs and improving liquidity.

Cross Border Payment Flows

KYC/Digital Identity Management: Managing and complying with Know Your Customer (KYC) regulations across disparate geographies remains a complex, inefficient process for both banks and their corporate banking customers. For corporate banking, the DLT opportunity is to centralize digital identity information in a standardized, accessible format including the ability to digitize, store and secure customer identity documentation for sharing across entities.

Both banks and Fintech firms alike are experimenting with DLT solutions for various corporate banking uses cases. In what seems like unprecedented collaboration between financial institutions and technology providers, consortias are working on accelerating the development and adoption of DLT by creating financial grade ledgers and exploring opportunities for commercial applications.

The maturity cycle for the various use cases depends on a number of factors, not the least of which are financial institution requirements for interoperability, confidentiality, a regulatory and legal framework, and optionality. We outline both capital markets and corporate banking uses in more detail in the Celent report, Beyond the Buzz: Exploring Distributed Ledger Technology Use Cases in Capital Markets and Corporate Banking. In addition to key use cases, the report discusses the key needs of financial institutions driving DLT architectural and organization choices, the current state of play, and the path forward for DLT in capital markets and corporate banking.

Building the Collaboration Muscle: Optimizing the Bank / Fintech Relationship

Building the Collaboration Muscle: Optimizing the Bank / Fintech Relationship

At Celent we’ve long said that banks must become better at partnering. And Fintechs have come around to the realization that it’s going to be the rare beast that can compete head-on with incumbent financial institutions – most will fare better by figuring a way to cooperate with them instead.

Eastern Bank, Celent’s 2016 Model Bank of the Year, took this idea one step farther by building Eastern Labs within the bank – an in-house Fintech. While most institutions won’t be able to replicate this (it’s really hard!), there are nevertheless some lessons for banks as they consider best how to engage with smaller, nimbler firms.  The diagram below shows the complementary strengths and weaknesses that banks and fintechs bring to a joint endeavor.

1603Master Slides for Eastern Model Bank Final_009

When they get together, some weaknesses of fintechs are mitigated (e.g., they now have access to data and a brand), while many of the disadvantages of a bank persist (e.g., slowness and risk aversion). Additionally, new complications arise: goals diverge, information may not be completely shared, the cultures are wildly different, and handoffs can be agonizingly slow.

So what are the lessons when a financial institution engages with a fintech? We’d suggest concentrating on four key challenges.

  • Focus on individual goals to ensure that they’re compatible, even though they’ll be different
  • Be as transparent as possible and build that transparency into processes from the beginning
  • Recognize cultural differences and address them at the outset; be realistic about the challenges
  • Set expectations about achievable timelines

Although other complications will undoubtedly arise, partnering is a muscle that banks haven’t exercised much. With practice and training, that muscle will get stronger, and with enough dedication, it will play a vital role in propelling the bank to the next level.

The Future of Zapp and Other Musings on MasterCard and VocaLink

The Future of Zapp and Other Musings on MasterCard and VocaLink

Yesterday, my colleague Gareth shared on these pages his first thoughts after the announcement that MasterCard is buying VocaLink. I agree with his points, but also wanted to add some of my own observations.

As someone who closely follows the developments in digital payments, one of the questions following the acquisition to me is what happens with Zapp, a solution that VocaLink has been working on for the last few years to bring "mobile payments straight from your bank app." To me, it boils down to two considerations:

  1. Would MasterCard want to kill off Zapp?
  2. If not, can MasterCard help accelerate Zapp's launch?

My view on the first question is a resounding "no". Yet, the question is not as silly as it might seem. At Celent, we have been talking about the "battle of rails" in payments, i.e. between pull-based payments running on the cards infrastructure, and push-based payments, such as Zapp, built on top of new faster/ real-time payment networks. Given the cards' dominance in merchant payments today (at least in the UK, US and quite a few other markets), solutions such as Zapp may be seen as a threat to card-based transactions. Buying off a competitor only to shut it down may be an expensive strategy, but would not be unheard of.

And yet, I believe that such logic would be completely flawed. By buying VocaLink, MasterCard becomes a rail-agnostic payments company, and stands to benefit from cards and non-cards transactions. Furthermore, specifically in the UK, Zapp could be MasterCard's ticket to regaining ground in everyday consumer payments. As I discussed in another recent blog, Visa controls 97% of the debit card market in the UK. I would imagine that a Zapp-like solution would have more of an immediate impact on debit card transactions rather than credit card spend.

So, if that's the case, can MasterCard help accelerate Zapp's launch? Perhaps. We first heard of Zapp in 2013, and even included a case study in a Celent report published in September 2013. Yet, three years later, despite announcing a number of high-profile partners – from Barclays and HSBC, to Sainsbury's and Thomas Cook, to Elavon and Worldpay – Zapp is yet to go live. I don't claim to have any insight knowledge into the reasons for a delay, but I would imagine that changes in the competitive environment had something to do with it, particularly with Apple Pay showing how easy mobile payments can be when paying in-stores or in-apps. While I have no doubt that VocaLink and Zapp have great technologists and User Experience design specialists, I would expect that MasterCard's Digital Enablement Service (MDES) should bring helpful experience of integrating mobile payments into the banks' apps. And MasterCard's relationships with both acquirers and issuers should help convince the remaining skeptics and bring more partners on-board.

Zapp aside, I think the deal is good for both organisations for a number of other reasons, such as for example:

  • Not every payment is particularly suitable for cards (e.g. B2B, government) – now these payment flows become accessible for MasterCard.
  • Visibility to a much broader pool of transactions should be very helpful when developing risk management, loyalty and other value added services.
  • MasterCard's global reach should help bring VocaLink's experience in faster payments to markets which would have been harder for VocaLink to access by themselves.

In closing, I woudl like to go back to another announcement MasterCard made last week – the one about rebranding, the first in 20 years. MasterCard has changed its logo – it still has the interlocking circles in the colours which are widely recognised, but the company's name is spelled "mastercard" (although the company's legal name remains MasterCard):

MC_728x150

According to MasterCard, in addition to a more modern look, there was a conscious desire to reduce the emphasis on "card." That particular announcement was combined with the re-launch of Masterpass, and of course, digital payments will over time reduce the reliance on cards as a physical form factor. However, yesterday's announcement diversifies MasterCard away from card rails, and not just the plastic form factor, and is an important step in the company's journey from a cards network to a payments network.