After attending IPS, NACHA Payments is always a slightly strange experience. Not bad, just quite a different set-up. IPS is very international – if anything the UK is under represented – and more senior. NACHA offers much to the more junior member of staff, particularly those seeking to renew their AAP accreditation. This means that the attendance is much, much higher, but that there is a real mix of people. As a result, some of the sessions are detailed, nitty-gritty discussions, great for learning about areas I don’t usually cover.
The main topic of conversation for me was real-time payments. I’ve spoken a couple of times in the past at NACHA on the topic, partly because of my involvement in the UK Faster Payments scheme, and clients will know about my forth coming series of reports on the topic. Real-time was also mentioned in numerous places across the agenda, with several friends and former colleagues speaking.
The focus of my first report was also the starting point for many of my conversations – addressing the many myths that seem to pervade about real-time. These include:
- that it’s only in the UK and Singapore (it’s not – there are at least 35 other systems globally)
- that its new and leading edge (its not – at least one system is 40 years old)
- that it’ll canabalise wire revenue so should only be a p2p proposition (multiple examples proving that this doesn’t have to be the case!)
Shortly before NACHA Payments, NACHA announced it’s enhanced Same Day ACH proposals which also came under great debate. It’s my belief, and shared by a growing number of people, that the Fed has decided the US *will* have a real-time payments system. As such, one group of people saw this announcement as being a response to ensure that NACHA is not bypassed in some way.
Jan Estep, the CEO, of NACHA, was on one of the panel sessions, and was asked about how this attempt will be any different to the previous NACHA proposal. The vote on that proposal received a Yes from the majority of banks, but not the 75% voting majority to pass it. It’s widely believed a handful of big banks effectively blocked the proposal.
To my point at the beginning about there being a large operational audience, Jan gave an excellent and detailed explanation of how this proposal differed from the last. But a number of the audience suspected that the question was rather more pointed and was really asking why the blocking banks would suddenly vote for this now. That specific question was never addressed.
By the time the conference finished, I was left with the impression that the debate had turned a corner, or at least moved into a new phase. Over the last year, I’ve increasingly found that people have formulated their opinions on the subject. But as my discussions highlighted, there are a lot of misconceptions, and I’m not always sure some of the people contributing to the debate aren’t muddying the waters further. I think the next step for the Fed is to address that, and even if it stops short of compiling a list of requirements, a view on what isn’t the solution would be helpful. I understand the logic of the NACHA proposal, but I fear it’s a short-term solution to a long term problem.
So you’ll have gathered from recent blog posts that it’s conference season. This is the first of a few posts rounding up some of my recent events.
This post is about International Payments Summit (IPS) which took place last month. Jacob mentioned in his Finovate post that he ensures that he attends as many sessions as possible – IPS is very much turning into my equivalent. I wrote last year about my return to the event after a long absence. This year didn’t disappoint either. For me, there is a great mixture of depth but also variety, with many speakers I’d not seen before. It’s not a cheap show, but content wise, worthwhile. If I had to make some suggestions, I’d suggest perhaps fewer 20min presentations. Whilst I can think of one speaker where that was probably 18m too long, there were some others who deserved longer.
Lots of notes and things to follow-up on, but two themes really stood out.
1) Innovation. Some great presentations, some challenging ideas. For me, the most provocative was from Mark Stevenson, of Flow Associates. The famous baseball player Yogi Berra once famously said “The future ain’t what it used to be”. Mark left me feeling somewhat like that! I can’t do his presentation justice here, but from the advent of cheap solar power to impact of 3D printers, the picture of the world that Mark painted was necessarily, radically different than the world of today. But effectively the punch line to the presentation was that this future was not 50 years away, but only 5. Scary, scary thoughts ensued as we thought this through!
2) Regulation. The second day of the conference fell the night after the second draft of the PSD2 was voted upon in Brussels. The speaker had attended the session, and then hot-footed it to London – content can’t get much fresher! But across the conference, there were some very deep, technical discussions, which even I struggled with at times. Regulation seems to be getting ever more complex and specialised.
The conference closed with the panel that I sat on, where we summarised the key points of the conference. My take away was labelled “Mind the gap”. I was particularly struck about how little overlap there was between the innovation and regulation discussions, and noticeably, how they were moving further apart. It would seem, considering the sheer volume of regulation that banks face, an obvious place for innovation to take place.
Post by Jacob Jegher
I spent much of last week in San Jose attending Finovate Spring. I’m a Finovate veteran at this point, having seen all kinds of companies take the stage at the conference. Even after all these years Finovate is still my favorite conference. I rarely attend sessions at industry conferences but I make it a point to attend most if not all of the Finovate demos. The demo format is awesome, new companies show up each year, and there is much to learn. Granted, some of the companies don’t stand a chance, though all need to be applauded for innovating and attempting to take our industry to the next level.
There were several key themes at Finovate Spring:
- Lending and alternative credit (e.g. LendingTree, LendingRobot, Roostify, CUneXus, Visible Equity, etc.)
- Security and authentication. (e.g. Rippleshot, EyeVerify, TrueLink, ID.me, etc.)
- Digital investing. (e.g. Motif Investing, Stockpile, TD Ameritrade / LikeFolio, etc.)
- Self service (e.g. Interactions, Intellisresponse, etc.)
- Mobile enhancements. (e.g. Ondot Systems, Loop, Jumio, etc.)
What stood out?
Funniest demo and best pitch: PrivatBank with their Topless ATM. Stay tuned for when the Finovate crew posts the videos. This one is really fun to watch.
Most innovative demo: Fiserv’s demo of payments and notifications using Google Glass and a Samsung Galaxy Gear smartwatch. The demo is a great example of why it’s important to dream, try things out and not be afraid to fail.
Most useful and practical: Jumio’s card activation using a smartphone camera; TrueLink’s solutions to protect the elderly and impaired; Stockpile’s stock on a gift card (shout out to former Celent senior analyst Dan Schatt!)
Glad it was gone: PFM has dominated the stage for several years at Finovate and I was glad to see only a handful of PFM companies on the docket this time around. Banks have lots of work to do on the PFM front and it is going to involve rethinking how banks and consumers approach PFM. More on that another time.
There were other standouts, though this should give you a good sense of what Finovate Spring had to offer. Finovate Best of Show winners (audience selected) can be viewed here. I’m looking forward to seeing you all at Finovate Fall in NYC!
Post by Dan Latimore
NetFinance 2014 just finished in Miami. Celent spoke on “Engaging Mobile Customers through Content, Display, Alerts, and More,” which generated a number of follow-on conversations on how to execute on the notion of engaging with customers, and a great question on how long today’s innovation stays differentiated. Our answer: “not very.”
I’ve mentioned before that customer-centricity is becoming a key concept that many banks are highlighting as a key point of their retail strategy. What NetFinance crystallized for me is that the necessary follow-on to this customer-centricity is this simple idea:
The best defense against continuing commoditization is a solid customer relationship.
Technology, clearly, can go a long way to enhancing that relationship. A number of vendors at the show (like AdRoll, Backbase, Domo, EarthIntegrate, Ektron, Epsilon, IgnitionOne, Leadfusion, Liferay, Message Systems, Message Broadcast, and Personetics, among others) focus on helping banks touch customers at the right times, or giving them an omnichannel view of all customer touch points, or enabling customers to start a transaction in one channel and continue it in another. But for these technologies to be effective, customers need to be receptive. And they’re going to be more receptive if they think, and feel, and believe in their gut, that their bank is going to do the right thing by them. All the technology in the world can’t replace some very visceral customer feelings.
To engender these feelings with their customers, and stop them from transacting with one hand holding their wallet so their pocket doesn’t get picked, banks should consider some potentially radical ideas (simple concepts?):
- Not every touch needs to be a sale.
- Foregoing short-term income for longer term gain can (in many instances) make sense
- Surprising customers on the upside can yield long-term benefits
Now, the natural reaction to this is that it potentially puts banks into a (short-term) revenue hole. And that may be true, but when the real game of ongoing commoditization is long-term, banks need to thinking beyond the next quarter.
Post by Zilvinas Bareisis
I just spent a couple of fascinating days attending Finextra Future Money in London. The content of the event has already been well covered via a Twitter feed, and Finextra’s own live blogs and a post-event summary. I would strongly encourage to click on those links, as the discussions have been interesting, informative, sometimes provocative and always lively.
Rather than trying to summarise all the ideas over the last couple of days, I just wanted to highlight and give thanks to:
- Everyone at Finextra, but especially Liz Lumley and Nick Hastings, for putting together a great event and for inviting me to moderate a panel on Convergent Commerce.
- All my panelists – Danielle Anderson (Harris and Hoole), Arun Glendinning (Birdback), Eddie Keal (IBM), Peter Keenan (Zapp) and Paul Thomalla (ACI) – for their insights and making the hour allocated to the panel fly by.
- Richard Brown (IBM), as I never heard anyone speak so clearly and eloquently about cryptocurrencies and their impact on the future of finance.
- Dave Birch (Consult Hyperion), who could probably moderate a panel of actuaries and still make it informative AND entertaining (with apologies to any actuaries!) Given that here both his topic (banking apps and APIs) and panelists were genuinely interesting, it is no surprise that it was perhaps the best session over the two days.
- Bankers, such as Alessandro Hatami (Lloyds), Pol Navarro (Banco Sabadell), Brigid Whoriskey (RBS) and others who bravely presented, engaged and sparred with an audience and sometimes even fellow panelists feisty enough to suggest that “PingIt is nothing more than a PR exercise” or that “Western Union/ SWIFT shouldn’t/ won’t exist in the near future.”
- Everyone with whom I had the pleasure and privilege to chat during the networking breaks.
I am certainly looking forward to another such event next year.
Post by Bob Meara
In retrospect, sure. Looking forward, I’m not so convinced.
I had the pleasure of attending WAUSAU Financial System’s annual Customer Conference in Chicago last week. One of the sessions focused on surviving RDC audits. The prevailing consensus among banks in the session was: “RDC and ACH are very different animals. What are the regulators thinking? Why all the scrutiny on RDC?”
Despite the regulatory scrutiny, remarkably few financial institutions have suffered loss uniquely attributed to RDC. In Celent’s October 2013 survey of US financial institutions, 95% of respondents indicated that losses associated with RDC were at or below established risk thresholds. But, history is not always a good predictor of what is to come.
With the growth of mRDC popularity, it is incumbent upon banks to both be vigilant and to use the best tools available to manage what will certainly be increasing risks associated with RDC. After several years of relative tranquillity, fraudulent activity is on the rise. The changing state of things is apparent when we look at where losses have occurred. Once the near exclusive domain of commercial banking, RDC losses are quickly migrating to the retail bank – along with 20 million or so consumer users of mRDC.
And the loss mechanisms are changing too. From 2012 to 2013, the percentage of losses associated with check kiting and fraudulent or altered items declined, while losses associated with duplicate presentments increased. The most vexing challenge is how to manage items deposited at more than one financial institution. This unintended consequence of Check 21 legislation presents a systemic risk with no particularly good fix at the moment.
As banks seek more automated and flexible RDC risk management approaches, Celent sees a replacement market emerging. Vendors are increasingly competing based on the efficacy of RDC risk management capabilities along with the ability to be the bank’s enterprise distributed capture platform, managing all deposit channels, from RDC to branch, ATM and lockbox. This is where the action needs to be if RDC is to deliver its full potential.
Paym is a UK payments industry initiative to allow mobile payments to be made just using a mobile phone number. Those of you who watch the UK industry will note that Barclays launched a similar service, PingIt, 2 years ago, which has been widely lauded both in the payments industry, but also in the press.
This blog is less about these services, but more about the press reaction to innovation generally. Payments innovation is tough, and a new payment method is even tougher. Payments is a 2 sided network. That is, typically both parties have to be part of the network, and that there have to be enough people in the network to make it attractive. That creates something of a “chicken and egg” – how do you create an instant network?
To that end, I was disappointed with the BBC coverage. Firstly, rather than 20m customers won’t have access for awhile, it was awhile before it said 30m would have access from today. A rather different spin, particularly when PingIt launched with no customers guaranteed that it would work!
Will Paym succeed? I hope so. Any innovation is to be applauded, and I do hope this starts eroding the numbers of cheques written. My enthusiasm is tempered by a couple of thoughts. I trust these are taken not as negative, but highlighting the challenges ahead for the launch of ANY new payment scheme.
Firstly, how often do I need to pay another person money? The infamous splitting of a dinner bill in the UK is rare – instead of cash, we just all put our debit or credit card in. Secondly, the service is limited to smartphones, and most banks already have apps which allow payments to be made. Admittedly, some banks (I’m talking about you Halifax!) have an app so poor even writing cheques becomes appealing! That leaves the masking element – using a phone number, not your banking details. I’m not sure how much of an issue that is for most people. As most payments are push payments, you have to question why the recipient wouldn’t want you to see their details. And as the majority of debit cards have the banking details on them, I’m not sure the argument about simplicity is strictly true. There is a formula that checks an account number is valid for a sort code. A mobile number is only 3 digits shorter, and can’t be checked, nor can you tell initially whether its registered for the Paym scheme. It’s a minor quibble, but consumers are fickle – it will only take one issue early in their use of the system to revert back to the old method payment.
Post by Zilvinas Bareisis
This week I saw the news that Bank Zachodni WBK in Poland, part of the Santander Group, “embedded an extensive m‑commerce marketplace into its mobile banking & payment application.” The users can log into their mobile banking app, and from there shop at a variety of merchants embedded in the application. According to the announcement, “the purchase is made with one click only and all user’s financial data is protected by the bank. Customer does not have to trouble with attaching multiple credit cards, remembering shops’ logins or learning their functionalities (all shops and financial services share one unified UI); a delivery address is already stored.”
Poland is a very innovative market in payments, from being one of the leading markets on contactless POS penetration to working on solutions for payments directly from a bank account (e.g. IKO). This is yet another example of creative thinking in payments and commerce, and the bank should be applauded for its innovation efforts.
But is this the right model? I can understand the attraction to banks: the opportunity to earn additional revenue while giving more reasons for your customer to use your app. It might make sense for the merchants as well. If payment is processed directly from a bank account rather than a card, they are likely to have lower costs. And one-click purchasing might increase the conversion rates, a crucial metric for success for online merchants.
The big question is whether customers are prepared to view their banks as online malls where they go shopping across a broad range of retailers. What can such a bank mall bring over and above individual merchant sites? O2 Wallet in the UK has tried to build a similar mall, by enabling shopping at selected merchants directly from the wallet, but has recently shut down to re-think its strategy. Nectar, a multi-merchant loyalty scheme, also has partnerships with many online sites, including leading brands, such as Apple, Argos, Currys, Debenhams, and, until recently, Amazon. If the customer goes to the participating retailer’s site via Nectar website, they would earn Nectar loyalty points for their shopping. As much as I like my Nectar points, I can never remember to go to their website first; I either go to the merchant website directly or Google to find what I am looking for…
My view is that such a model may work for small local merchants, which need help to be discovered and lack ability to build an online/ mobile presence themselves. Combining with a single sign-on, unique offers and one-click checkout you get a viable proposition. It is much more difficult to imagine a customer going to Amazon or another leading brand via his bank.
Understandably, banks want to play a bigger role in the broader commerce, not just payments, and will continue to experiment with different models. Ultimately, it will be consumers and merchants that will determine what works best for them. What do you think is the right model for banks?
Post by Dan Latimore
Celent held a client roundtable on the subject of “Digital.” We had a sneaking suspicion that there wasn’t a lot of consensus on what that word actually means, so just prior to the event we asked participants “to list three words or initiatives that you associate with digital in your organization.”
Here’s what we found: of 30 responses from 10 people, only two terms were mentioned twice: “mobile” and “customer experience” (which isn’t quite a single word). Every other word was unique.
I find this fascinating: there’s no agreement on what digital means, and yet it’s one of the hottest topics in financial technology today. How are we going to deal with this issue when we can’t even agree on what it is? We’d suggest that defining what digital means in your organization is a vital first step to refining your digital strategy.
My colleague Will Trout has also blogged on what we found during our roundtable. You can find his thoughts here: http://wealthandcapitalmarketsblog.celent.com/2014/04/12/celent-roundtable-exploring-digital-in-financial-services/