- Consumer Digital Platform – for delivering an outstanding digital experience for consumers. The award is open for traditional financial institutions, digital-first, and challenger banks.
- Small Business Digital Platform – for delivering an outstanding digital experience for small businesses.
- Corporate Banking Digital Platform – for delivering an outstanding digital experience for corporate clients.
- Consumer Banking Channel Innovation – for the most creative use of consumer channels, or the most effective channel integration.
- Branch Transformation – for the most compelling branch transformation initiative, including branch format innovations and creative use of live agents.
- Product Innovation – for demonstrating the ability to launch multiple innovative products.
- Open Banking – for the most impressive API strategy and results so far.
- Payments Product – for launching the best consumer or business payments product.
- Lending Product – for the most impressive consumer or business lending or collections initiative.
- 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.
- Employee Productivity – for improving employee training or collaboration, incentivising employees, or enabling mobile agents.
- Payments Replatforming – for the most impressive project to improve payments back office, e.g. payment services hub implementation or cards replatforming.
- Core Banking Transformation – for the most compelling initiative to transform a traditional core banking platform.
- Banking in the Cloud – for innovative approaches to implement a banking platform, e.g. deploying in the cloud.
- Banking as a Platform – for creating an ecosystem of partners via a banking platform that connects and enables third parties.
- Emerging Technology for Consumers – for creative deployment of emerging technologies for consumers (e.g. AI, ML, API, biometrics, wearables, voice, blockchain, etc.)
- Emerging Technology for Businesses – for creative deployment of emerging technologies for small business or corporate clients (e.g. AI, ML, API, biometrics, wearables, voice, blockchain, etc.)
- Most Promising Proof-of-Concept – for the most promising experiment – pilot or proof-of-concept – with emerging technologies.
- Financial Inclusion – for efforts to bring financial services to unbanked and under-banker communities.
- Build out integrated portals to make invisible the organizational and product silos inherent in corporate banking.
- Simplify the user experience.
- Establish an omnichannel approach to providing consistent data and access to transactions across channels.
- Enhance authentication options, including biometrics.
- Expand self-service, including the ability to securely exchange documents and open accounts and new services.
- Define the Digital Strategy for Corporate Banking, Not Just the Digital Channel Strategy. In the current environment, attempting to implement a successful strategy for digital channels in the absence of an overall digital transformation strategy for corporate banking is short-sighted.
- Understand How Attended Digital Channels Fit into Clients’ Daily Workflow. Product management and strategy executives at many institutions are driving prioritization in channels based on a set of assumptions about client preferences that may not be valid. Mapping those client digital journeys from onboarding to servicing to managing exception situations for each client persona is critical.
- Reexamine the Role of Partners. In reality, the delivery of services through attended channels has always involved multiple partners, whether the bank has developed an “in-house” solution or offers one or more off–the-shelf vendor solutions. As demands for “non-core” banking functionality grows and technology evolves to enable easier integration with multiple partners, the importance of the bank maintaining control of the user experience layer that is seen and touched by the client becomes even more critical.
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.
- 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.
A couple weeks ago I attended the Mobile Banking and Payments Summit in NYC for the first time. There was an impressive list of experts from institutions such as JPMC, Barclays, Citibank, BNP Paribas, the Federal Reserve, USAA, Capital One, BBVA, and Moven, among others. I was only able to attend the final day, but it didn’t disappoint. The day focused mostly on mobile wallets, with a few main points shared below:
Mobile wallets have been challenged by industry barriers: The old rule of thumb with a payments scheme is that it needs to please three parties: the merchant, the bank, and the consumer. These products and solutions have traditionally fallen short of one or more of these objectives, essentially stalling a lot of the progress.
- There’s still plenty of fragmentation in the market: Android is an open system utilizing Host Card Emulation (HCE), while Apple is a closed system using a secure element. There are others beyond that, but it’s largely contributed to a lack of standardization and unimpressive overall adoption. We know this is largely understood by banks and merchants, and many are willing to play along for the time being.
- Consumers can misunderstand mobile wallets: Many users of Apple Pay, for example, have a poor understanding of how the system actually works, with many assuming Apple is in control of their card details. While the system is safer than traditional cards, the perception that it’s less safe is keeping many users from adopting it.
- Getting the marketing right is tough: Often, the mobile wallet really isn’t about the payment so much as the experience around the payment. It might be easier or there might be a whole host of incentives like rewards wrapped around it. The potential is there, but until recently the market hasn’t been.
- But many barriers are beginning to fall away, and there’s hope for adoption: For years, the industry has been declaring that FINALLY this year will be the year mobile wallets take off. The industry has been crying wolf for a long time, but there are some promising developments that hope to make mobile wallets a larger share of the payments universe. Currently in the US, 55% of merchants have updated their payment terminals, and 70% of consumers have chip cards. The chip card does a lot for security, but the argument is that it adds friction to the checkout experience. With the card dip taking away from the user experience, the expectation is that mobile wallets will finally offer enough UX improvement over traditional cards that consumers might opt for them during payment. It’s also reported that more than 50% of millennials have already used a mobile wallet at least once. This includes Apple Pay, Android Pay, or Samsung Pay. The growth in adoption with younger consumers is a good sign that broader adoption might not be too far behind.
My colleague Zil Bareisis has written about this quite a bit, and agrees that adoption could be driven by the emergence of EMV as well as an increase in handsets that support wallet payments.Wallets are also striking partnerships to add value, including introducing merchant loyalty, coupons, etc.The launch of Walmart Pay is a great example of a retailer applying these concepts internally, facilitating even greater adoption. For more information see any of the number of reports Zil has written on the topic.
Midsize institutions have a few paths to follow implementing a mobile wallet: Banks want to be a part of the adoption, but have so far taken a wait and see approach, unsure about the potential of existing wallets, and still trying to figure out what it means for them as the issuing bank. There are three primary ways a midsize or smaller bank can try to launch a wallet:
- Building an internal wallet: This provides the most control, customization, flexibility of functionality, and control over the release schedule. The drawbacks are that it can be a complicated task, a large investment is required, the institution needs sufficient subject matter expertise in-house, and there would be no Apple NFC support.
- Buying a turnkey white label wallet: A turnkey solution would have the benefit of being plug-and-play, there would be some customization options, functionality would be built in, fewer resources would be involved, and the vendor would provide some subject matter expertise. There would, however, be less control over the product, the wallet could be processor dependant, and the roadmap wouldn’t be controlled by the institution.
- Participating in an existing wallet: For many this is the road that will result in the largest adoption. The options are fairly universal, with Samsung, Apple, and Android offering networks here. Its plug and play, easy to get traction, includes a lot of choice, and frictionless. The drawbacks are mainly the lack of customization options or control over the direction of the wallet.
We often say that we go to these conferences so that our subscribers don’t have to. This is just a short summary of the day, and obviously there was much more detail shared. We encourage all of our readers to attend these events, but will be there in case they can’t make it.
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.
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.
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.
My first post in this focussed on a survey from the US which suggested that cash would be dead in the US within a generation. And as my blog points out, that is highly unlikely for many other reasons, not least because millions of US citizens can only use cash currently.
This second post was triggered by a report hosted on LINK’s website, (the UK ATM operator) that had some interesting numbers in it. Some of the data was incorrectly reported in places as signifying the death of cash in the UK. To be clear, that isn’t what LINK or the report claim.
I think we need to step back from the figures first, and see what they’re actually saying.
By volume, cash represents 45% of all transactions in the UK. That is a significant shift, in a relatively short period of time – indeed, a drop of 6% last year, around 1 billion transactions lower than in 2014. This is what caught the eye of many people, and why they made their predictions.
But let’s look at the figure another way – at 17 billion transactions, that’s both more than nearly all the other payment types added together, and 70% more than the payment type with the second highest usage (debit cards).
That's not to say we shouldn’t dismiss the changes. In 2005, cash accounted for 64% of transactions by volume. By 2015 that had dropped to 45%; by 2025, the forecasts suggests just 27%. I think that's a triffle low, but we're only differing by a percentage point or two.
However, we still have to put that number in context. With a forecast drop of over 1/3rd over the coming decade, it would still leave the volume of cash transactions with a greater combined total of Faster Payments, CHAPS, Direct Debit and Direct Credit that we see today. It's therefore as much that the other payment types are growing as payment types falling.
Once you scratch below the surface, it becomes clearer.
One concept I have talked about in my reports Noncash Payments: Global Trends and Forecasts, 2014 Edition is that of payment occasions and payment frequency. The occasion is why you make the payment – utility bill, mortagage payment etc – and the frequency you make it.
One of the reasons for the large decline in share of payments has been in the growth of contactless payments, and in particular, their usage for the London Transport system. This is a good example of how occasion and frequency make an impact. Until recently, most commuters in London would use an Oyster card, with cash rarely used (and indeed, banned on many buses). This took a large volume of cash transactions out of the mix – previously that saw 2 transactions a day, times every day commute, equalling approximately 550 cash transactions a year.
With Oyster, that became a card transaction to top up the balance on the oyster card, rather than a per journey transaction. Even estimating topping up once a week (more likely to be monthly I would imagine), that’s 52 transactions a year maximum.
The difference today is that many people now use their contactless debit cards instead of an Oyster card, resulting in a card payment every day – so from 52, to more than 200 a year.
The net result is cash usage drops significantly, with a corresponding smaller increase in card volumes, followed by a larger increase in card volumes. Yet still just one payment occasion.
The point in highlighting this? Reducing cash will have to be done on an occasion by occasion basis. There are some big wins out there – even just making all transportation cashless for example – but the challenge is that there is a very long tail of occasions that rely on cash.
The second challenge is whether the Government even allows cash to die. The case for removing cheques is much easier to make, and far easier to do, yet the Government has told the industry that it can’t. On that basis, it’s difficult to see under what circumstances that the Government would ever allow even a discussion about cash retirement.
Cash lives. Long live cash.
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.
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.
There is an old Christmas tradition in the UK of going to the panto . It's silly, it's fun, and it's all about children. Audience participation is part of the experience, including calls of "He's behind you!" (or "Look behind you!"), and the audience is always encouraged to hiss the villain and "awwwww" the poor victims. Another convention is "arguing" with a character – "Oh, yes it is!" and "Oh, no it isn't!"
Survey: Cash is dead!
Rest of the world: "Oh, no it isn't!"
Two announcements caught my eye this week, both seeming to proclaim cash is dead, or will be, in our lifetimes. I think this is great news – it means I’m going to live to be hundreds of years old ;-).
I'm splitting the blog in two, as the sources and claims are very different.
The first is a survey by Gallup of US citizens. The headline is 62% of them thought it likely or very likely that we would be a cashless society in their lifetime.
That would be a massive shift. The Federal Reserve estimate that 40% of all transactions in 2014 were in cash. At a crude estimate, that’s somewhere in the region of 70 billion transactions that would need to convert in the next 30 years or so.
Second, the same Fed research shows that if they were unable to use their preferred payment type, 60% chose to use cash as their second choice.
Most importantly, there are significant social issues to address first. FDIC research shows that c. 7.7% of the US population are estimated to be unbanked, with a further 20% underbanked. That means, crudely, over a quarter of the US population rely on cash. They use it for budgeting (known as "jam jarring"), and they may not even qualify to have a form of electronic payment. Even if they do, such as a prepaid card, the fees and breakage on the card make the card far less attractive than cash, which is free.
This is why most discussions use the term less cash, rather than cashless, and why places like Sweden have actively ensured that cash will remain an option, rather than accelerating its demise.
In short, despite what consumers might think or say, the chances of cash dying in the US is far, far lower and further away than the survey suggests. Removing cash from certain use cases is going to be tricky as it would be perceived as penalising lower income families. Even barring cash for higher value transactions will be difficult, as Germany found earlier this year.
Cash isn't dead. It's not even mildly unwell 😉