Now it’s Facebook’s Turn to Enter P2P Payments

Apr 2nd, 2015

A couple of weeks ago, Facebook announced it would bring P2P payments to its Messenger platform for customers in the US. According to a Finextra article:

“To send money through the free new feature, users start a message with a friend, tap a ‘$’ icon, enter an amount, and then hit the pay button. The first time a payment is made, people are prompted to add their Visa or MasterCard debit card details. For subsequent payments, users have the option of creating a PIN. To receive money sent to them, recipients open the conversation and tap ‘Add Card’ in the message and – the first time – add their debit card.”

Facebook’s announcement should not come as a surprise – rumours of a possible entry into payments have been swirling around since David Marcus, former CEO of PayPal, joined Facebook to run its mobile messaging business. Many other social platforms, such as Snapchat and Line have introduced P2P payments capabilities, while PayPal’s Venmo, a very popular P2P service also places social as a key element of its value proposition.

At Celent, we have been talking for some time about “contextual payments”, where payments are embedded deeply into the overall context of the customer’s activity and becomes a seamless part of the customer’s digital and physical experience. Uber and AirBnB apps are often given as examples of such contextual payments. Facebook is also a provider of a unique digital experience – a social community exchanging messages, photos, and videos. Extending the service to the exchange of money is a natural next step.

Consumer P2P payments are notoriously difficult to monetise – most services are free for consumers with providers charging fees typically only when loading funds from credit cards. However, if Facebook can persuade customers to register their cards, more commercial opportunities are likely to follow. The company already has a powerful analytical platform, which can help merchants reach consumers with targeted messages. Back in July 2014, Facebook said they were testing a “Buy” button, which would allow customers to buy goods directly from Facebook.

Of course, Facebook is a global platform with users all over the world. Bringing P2P to its global community would represent a really interesting opportunity, albeit with significant regulatory and technical hurdles. Only time will tell the extent of Facebook ambitions. In the meantime, the US consumers are getting spoiled with choice on how to send each other money.

Logging Into Your Bank in a Heartbeat

Apr 2nd, 2015

Apple may not always come up with the idea in the first place, but by throwing their weight behind they can take the idea mainstream. Biometric authentication has existed for years, but it was Apple that really brought it to everyone’s attention when it first launched TouchID, and subsequently demonstrated with Apple Pay how biometrics can be used to authenticate a payments transaction.

Now financial institutions are looking for ways to use biometrics to authenticate customers for other things, such as logging into online and mobile banking. Everyone agrees that the situation where we all have to remember a plethora of passwords and PINs has become unmanageable and is now a serious security concern. In the UK, RBS and Natwest have announced in February that their customers can now log into their mobile banking app with Apple’s TouchID available on the iPhone 5s, 6 and 6 Plus.

The critics of biometric authentication point to a number of shortcomings – for example, TouchID was hacked soon after launch by using a fake finger from a photograph of a fingerprint left on a glass surface. If your password gets stolen, you can change it; it is a lot worse if the record of your fingerprint is compromised. And the extreme scenarios bring up the Hollywood-style scenes of cut-off fingers and loose eye balls.

True, no security is perfect, so layering and balancing is important. For example, even after the log-in, RBS and Natwest require further authentication for some payment transactions. You also might want more assurances if you are getting access to a private banking account with high balances.

Some banks are also experimenting with more sophisticated biometrics technologies. Last year, Barclays have trialled a special fingerprint scanner which uses infrared lights to scan blood flow in the veins of a person’s finger, and was planning to roll out the scanner to commercial customers. Incidentally, using the “vein profile” solves the “cut-off finger” challenge.

Halifax, another UK bank, is trialling the technology from a Canadian firm Bionym. The bracelet called “Nymi” measures the intricate “cardiac rhythms” unique to every person, which can be used not only to log into a mobile banking app, but also potentially for many other applications, such as gaining access to the office, unlocking a car, or even boarding the plane and crossing borders.

As always with new technologies, there is lots to learn and work out. But it seems that the future of logging into your bank account with a heartbeat (quite literally!) is not that far away.

Innovation & Insight Day – some highlights; and a goodbye

Dan Latimore

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Mar 31st, 2015

Last week was busy for Celent: on Monday we hosted our annual Innovation and Insight Day at Carnegie Hall (more on that later). Tuesday we assembled the Celent team from around the globe for our annual in-person meeting. We find that even in this age of virtual teams and instant connectivity, there’s no substitute for face-to-face interaction; our gathering confirmed that. And on Wednesday the banking team convened to review our priorities and refresh our topic taxonomy – so much has changed in the last year that we knew it was time for a refresh. Keep an eye on celent.com and my newsletter for updates on our progress.

For the first time in I&I’s history, we sold the place out! We’ve never had to turn people away before, and we’re (very frankly) still trying to figure out why. With more than 400 registrants, we had to improvise with an overflow room that streamed video of the main stage (thanks to all who helped us accommodate this nice problem). We hypothesize that the challenges of financial technology have become so important that our clients and prospects prioritized attendance at an event that showcased best practices from around the world, afforded tremendous networking opportunities, and provided an unbiased view of the hottest issues in this space today. It could also have been, of course, being in New York the weekend before, or seeing Carnegie Hall during business hours.

The Banking Team recognized nineteen model banks across five categories: Digital; Omnichannel; Legacy and Ecosystem Transformation; Innovation and Emerging Technologies; and Payments. Interestingly, we had so many entries in the first two categories that we had to split them up. We produced six reports covering these five areas, together with our Model Bank of the Year, Fidor (from Germany). Clients may download these reports at Celent.com.

In addition to our model bank panels we had excellent keynote speakers. Debra Jasper and Betsy Hubbard of Mindset Digital used about 300 [sic] slides in 45 minutes to prod us all to rethink how we present ourselves, not just in person, but through emails and social media. One concrete hint: think about five sentence emails (five.sentenc.es). Closing out the day was Suresh Ramamurthi, the Chairman of CBW Bank, who showed us what a sub $20mm asset bank can do by completely rethinking its technology platform. After Suresh and Fidor’s CEO Matthias Krӧner spoke, I was compelled to tweet about #nervousbankers.

I’d also like to thank our sponsors: Saffron, Mindtree, Indra, Guidewire, Wipro Digital, Inetco, and RGI Group, together with our media partners Bank Technology News and Insurance Networking News.

We’re already starting to think about next year’s event; it’s not too early to start submitting nominations. We’ll be sending out hold the date announcements shortly.

On a final note, we’d like to say a fond farewell to Jacob Jegher. He has been a stalwart in the banking practice for the last eight years, and all of us at Celent will miss his passion for new technologies, his informed and reasoned opinions, and his keen intellect. We wish him every success in his new endeavor at a fintech player you all know; the news will be public soon. If you’d like more details, please reach out to your account manager, other analysts you know, or me directly.

Thoughts from American Banker Retail Banking Conference 2015

Stephen Greer

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Mar 16th, 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.

So…what do you do all day?

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Mar 16th, 2015

Stick with me on this – all will become clear!

So, I suspect we all have the same conversations at parties when making small talk with people you’ve just met – “…and what do you do?”

There’s the standard work answer: “We help banks make the right technology purchases for their business. We start with a business driver, articulate what the best strategic response might be, and how that translates into a technology initiative”.

Sometimes I simply say that I get paid to think, talk and write.

Friends and family still don’t quite understand what this means though. My youngest daughter, at about the age of 7, in a Pythonesque twist of sense of humour, decided actually it was easier and better to tell everyone that I helped people to stop being afraid of trees!

All workers tend to be better defined or at least understood by what we actually do on a day to day basis. Whilst some of the patterns may be the same, no one day is quite the same, but it will give you a good sense.

The morning starts with going to my office. The majority of analysts work at home, for historic and practical reasons. An analysts coverage is topic driven, rather than geographic, so work patterns require flexibility to talk to clients who can be – and are – anywhere in the world. The flip side is that we have a great work/life balance, and the company actively tells us to protect that.

The first hour at least is spent responding to email. With clients and colleagues around the world (Celent has offices in 14 countries, and colleagues are more wide spread still), I get as much email overnight as I do through my working day. Some of the emails are press alerts that I’ve set up, following particular topics or companies. Keeping up to date with events is key. Equally, they may come from the press, asking for my insights.

For me, I tend to try to spend the rest of the morning doing writing. At the moment, that’s a very varied task, and an important one – as analysts, one of the key measures on which we’re judged is how many reports we write. Today I was:

  • Juggling 5 case studies from banks in 4 different countries for our upcoming Model Bank awards, including the “container” that 4 of them will be published in a paper commissioned by a client, trying to incorporate the ideas that they’d like to explore, but whilst making sure that I’m truly independent.
  • Preparing two presentations for upcoming webinars with clients.
  • Writing this blog post.
  • And consulting at various stages – one answering last few questions from the deliverables, another designing the agenda for a strategy day, and handful of others at various stages of proposals. It’s very much consulting with a small “c” – we’re applying our expertise and experience, rather than throwing lots of “bright young things” at a project. In fact, most projects are usually a single analyst.

At some stage, I also need to do more admin type things – thanking a client for allowing me to attend their customer conference, booking travel for some upcoming events, etc.

But its not all sit at home. An important part is meeting clients, and creating visibility for Celent. I’ll be at most of the major conferences this year, often presenting, right around the world.

The afternoons are when I try to arrange the majority of my conference calls. Some days there are none, but others I can spend at least 5 hours on the phone straight. Some will be client calls, whilst others will be supporting salespeople or internal projects.

So why am I boring you with this?

We’re hiring.

We’re looking for someone with corporate/transaction banking experience to join our team. That person should know the industry well, most likely from a bank or consulting background – we want someone with first hand experience. It needs someone who is comfortable working on their own, coping with the discipline needed to get reports written, yet at the same time, have the passion to share that knowledge, be it on the phone, on a webinar or in from of an audience of thousands.

I’m hoping having shown you what a great, interesting and rewarding job an analyst has. We can offer a good salary, intellectual challenges, the opportunity to build work own personal brand, and all whilst having an excellent work life balance. We look forward to hearing from you soon!

Debrief from India: It’s all about DIGITAL

Dan Latimore

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Mar 16th, 2015

I’m on a plane over the Arabian Sea collecting my thoughts after a packed week in Trivandrum, Bangalore and Mumbai. The impetus for my trip was the honor of presenting at Suntec’s User Meet on the occasion of its 25th anniversary. The clients who attended were extraordinarily open about their stories and presented extremely compelling case studies. Learning about the pricing practices of Telcos showed how much opportunity is left for banks in this space.

I spoke on Customer Experience Orchestration in a Digital World. It proved to be a perfect set up for the rest of the week, since the clients I met with – old, new and prospective – were extraordinarily consistent in their focus on a single concept: DIGITAL. Like Celent, many of the Indian service providers I visited have defined their vision of digital and begun the process of aligning their offerings to it. The best focused on a customer-oriented foundation (like Celent!) and then described how their combination of technical expertise, product / consulting delivery, and segment concentration combined to help their banking clients fulfill their digital vision.

Innovation centers – spaces for client co-creation and brainstorming – continue to be hot: I saw two new ones this trip. Demos trump powerpoint every time, and there was a good focus on this.

If you’d like to learn more about my impressions, please arrange for an Analyst Access call; I’d be happy to chat about them in more detail.

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

Mar 13th, 2015

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

Stephen Greer

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Mar 6th, 2015

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.

Cashless Britain – not coming to a town near you soon

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Mar 4th, 2015

There have been a number of reports in the UK since the beginning of the year heralding a cashless Britain, suggesting that cash “dies” this week. Of course, I’m being somewhat tongue in cheek, but it was suggested that February 2015 would be the last month that cash was king.

That’s true in many ways – the share of cash on a total transactions basis will drop below 50% for the first time in the UK this year. But that doesn’t really tell the whole story.

Firstly, “not cash” isn’t a single payments type of course. There are debit and credit cards, ACH payments,  still (shudder) some cheques.

Fact 1 – by volume of transactions, cash is by far the most dominant, as at 50% share, it’s obviously the same size as all the other payment types …combined. So cash isn’t dead, and not even mildly under the weather!

Secondly, the decline isn’t quite as dramatic as it may first seem. There are lots of new payment occasions being created (iTunes, mobile phone subscriptions, cable TV etc) that are electronic only. And conversion from cheque to direct debit generally sees an increase in payment volumes (ie quarterly cheques becoming monthly direct debit).

Fact 2 The net result is significant growth in the overall size of the pie, biased to electronic payments – yet the share of cash has only decline by a few percentage points rather than the significant drop implied.

This is particularly important to remember in the coming months. Early indications suggest a significant increase in contactless is coming.

Fact 3 It’s a migration from Oyster that will drive massive contactless growth this year, rather take-up of contactless.

This is important as Oyster had already forced a conversion from cash, with individual cash transaction (ie for each journey) into a single top-up transaction. The switch to contactless is unbundling this back into individual transactions, albeit applying a daily cap. We’re not saying that contactless isn’t going to grow impressively, just we mustn’t simply look at the headline numbers and draw conclusions.

It’s not all negative. That Oyster habit converted to cards will help create a contactless habit which will spread. Coupled with the raising of the limit of £30, and with many cash payments being below that value, there is the possibility to see some levels of cash replacement that could move the needle.

Cash is far from dead but we are certainly moving into a LessCash rather cashless world.

 

Alipay Entering into South Korean Market

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Mar 2nd, 2015

During the Lunar New Year, more than 100,000 Chinese visited South Korea. The way people shop in a duty free shop, or in a convenience store is quite different than before: They pay with the world’s well-known Chinese mobile payment, Alipay, the most successful case of Fintech in the world.

In Seoul main streets and on Korean internet sites, we can easily find advertisements of Alipay. China UnionPay already entered into the South Korean market, and even a brand of my credit card issued in South Korea is UnionPay. They partner with BC Card, South Korea’s card issuer and they have been expanding their business in South Korea.

China’s payment has entered into South Korean market in earnest and South Korean players have been getting into the game. T-money, the largest prepaid card player in South Korea and Hana Bank, the fourth largest bank in South Korea partnered with Alipay.

As an example, Chinese tourists in South Korea can pay back to Alipay’s account after using T-money for foreigners if they have any remaining credits. T-money is available not only transportation including metro, bus and taxi but also for payments at convenience stores and other selected shops. Also, T-money has introduced a new service for domestic users, providing compensation system for Mobile T-money when a user loses a phone, providing a safer environment for T-money users.

For Hana Bank, they haven’t started a service with Alipay but it will be launched soon. After launching a new service with Alipay, Chinese tourists will be able to pay with Alipay at merchants of Hana Bank. In other words, they can use Alipay in broader places like orthopaedics, nail salon and hair salon than what T-money service offers.

The similar case has been seen in South Korea and Japan. Cashbee, South Korea’s mobile payment card partnered with Japan’s three major MNOs, NTT DoCoMo, KDDI and Softbank. Japanese tourists can now pay with their smartphone in South Korea after installing a dedicated application.

A wave of Fintech has come to Korea. The country is attempting a different approach with the use of Fintech. Some players already recognized their current approach is not acceptable anymore hence it is the time to shift their strategy for future growth.

Payments area has been getting global and more attractive for users. For example, Alipay gives 4.5% interest when a user deposits money. Yes, it’s attractive. However, players should evaluate what is important for their future growth without tapping into the current trend. Establishing an initiative for business growth should be the overriding concern now amid mounting attention to Fintech.