Why I’m not Buying an Apple Watch

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Sep 17th, 2014


First reason –I’m an Android user and enthusiast : )

Like it or not, Android and iOS don’t play nicely with each other, and the Apple Watch is a companion device for the iPhone. It’s definitely an intriguing device though, and I enjoyed learning more about how Apple plans to tackle the wearables space. The Apple Pay announcement was also extremely fascinating – my colleague Zil has prepared an excellent and informative review of Apple Pay.

Back to the topic at hand. Why would I stay away from this device? A few reasons come to mind, some are banking related, and others are not:

  • The battery life is expected to be pitiful. The rumour is that this device will POSSIBLY last through the day and will need to be charged every night. I have to regularly remember to charge my laptop, mobile phone, Fitbit, tablet, Kindle, kid’s iPad, and a bunch of rechargeable batteries that are used in various toys and gadgets around our household. I don’t want anything else that I need to charge regularly, and I certainly don’t want to travel with another charging cable or dock. My goal is to downsize our chargers and we need better battery life and a set of charging standards to be able to do this. Note that this comment isn’t specific to the Apple Watch – it’s an issue for the Android Wear watches as well, and the primary reason I’m hesitant to dive in. I’m also a believer that the success of mobile payments will be contingent upon battery life (among other things). Who wants to end up at the POS with a dead device or worry that this could happen?
  • It only comes out in early 2015.  The slew of Android smartwatches has clearly put pressure on Apple to ANNOUNCE a device but they obviously aren’t ready to release it. Otherwise, it would have ended up on the shelves as rapidly as the new iPhone 6 and 6+.
  • It’s a first generation offering. This builds on the previous point regarding battery life and release date. Like most new products, this first gen device will require some improvements. It will certainly be fun to tinker with, but will be frustrating at the same time. If you are an iPhone user and you want a smartwatch you are limited to this first generation offering. Note that competing Android offerings from Samsung have already gone through multiple product iterations and will be even further along by the time the Apple Watch is released. Motorola and LG also have first generation products out there that will be rapidly refreshed.
  • I don’t think it’s very fashionable. I like watches and there is much to appreciate about a beautiful timepiece. A watch is my primary if not only “accessory.” To me this watch looks a bit childish and cheap. Not to mention that if you want a nicer band or colour it will cost more money. My wife disagrees with me, she thinks it’s awesome and she is an iPhone user. Most of the Android watches aren’t that fashionable either, with the exception of the Moto 360 (save for the black bar at the bottom of the screen) and the LG G Watch R. The watches will get nicer over time and it will take a generation or two for these to become more elegant timepieces. Note that not everyone shares my opinion about the Apple watch as a fashionable timepiece – Hodinkee, a watch review site (not a tech site), finds the watch to be well made and fashionable. Hat tip to Jimmy Dinh for pointing me to this particularly informative review.
  • Health reasons. Radios communicating everywhere – in my pocket, my house, at the office, etc. Do I need another, particularly one that is stuck to my body? I have no scientific data to back this up at this point, but I do think about harmful exposure.

Now that I’ve vented, here are a few reasons why I would consider the watch. I’m not sure they are enough though to justify the price tag:

  • I’m a gadget enthusiast. I’d buy a smartwatch for pure tinkering purposes. You’ve probably gathered by now that I like this stuff. Even if it’s not practical, I enjoy a hands on approach to understanding how these devices work and what they can be used for.
  • As a fitness device and companion. I currently wear a Fitbit, and while I really like it, I’d like to get rid of it. It’s just something extra to remember, carry and charge. This class of devices will likely disappear as heart monitors, step counters, etc. get built into smartwatches and mobile phones. The Apple Watch, or any other smartwatch could make a great bike computer or running computer.
  • To experiment with Apple Pay (in the morning of course, when the battery still works!).
  • As a conversation starter with bankers. I enjoy demoing cool technology to our banking clients that unfortunately don’t have the time to think about new technology or devices. Their day jobs are demanding and they turn to us for opinions on how emerging technology with impact the banking landscape.

Enough about me. More importantly, what does all of this mean for financial institutions? I recently blogged on wearables for banking and you can read more about that here. Even if the masses aren’t flocking to smartwatch banking, I believe that every bank should buy this watch and a couple of Android watches. It’s critical for banks to understand the impact of new technology and the best way to learn about it is hands on experimentation and experience. Buy a couple, give them to your senior digital banking product folks and tech staff so that they can form educated opinions. This will require some budget of course – a budget that every bank should have for research and development and the creation of new products. What I’m suggesting certainly isn’t typical or commonplace, but well needed if banks want to be the digital powerhouses that they are aspiring to.

Will you buy the Apple Watch? Why or why not? How does Apple Pay factor into your purchasing decision? Please weigh in with your thoughts or comments.

Wearables in Banking: Google Glass

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Sep 12th, 2014

Not too long ago I was at a client event and had the pleasure of trying on Google Glass for the first time. The presentation used a simulation of how it might work to make a payment using the voice commands of the device. I found the experience to be much less intrusive or distracting as I expected, but the applications within banking were still too immature to be useful. The much-anticipated technology went public earlier this year, and the industry is already abuzz about specific applications. In October 2013, Banco Sabadell in Spain became one of the first banks to create a retail app that allowed users to locate the nearest ATM, check account balances, and use video conferencing for technical support. PrivatBank in the Ukraine released a video in July 2013 previewing some of the features it plans on releasing for its own Google Glass app (see video below). The device is receiving a lot of hype, and it’s a natural fit for functionality that hasn’t taken off through mobile, such as voice recognition or augmented reality. Financial Institutions and vendors like Fidelity, Discover, La Caixa, Wells Fargo, Westpac New Zealand, Intuit, MasterCard, and LevelUp have already voiced interest in Google Glass or other wearables.

But should banks take Google Glass seriously as a possible channel? There are two ways to look at it. Google Glass, and more broadly wearables, should be taken seriously inasmuch as they COULD represent what the future of banking might look like. Wearable smart technology is indicative of the growing number of devices and channels. Whether those devices will be smart watches, Google Glass, a smart fridge, or whatever else is anyone’s guess. As banking becomes more digital, however, banks are going to be pressed to meet the customer on their terms, no matter the device. It’s the culmination of customer-centricity that’s so often talked about in the industry, and which forms the basis for most retail banking strategies.

Simply put, these devices are not yet worth the investment by banks. As with most new technologies, hype precedes real value, inflating expectations. A TNS survey from January 2014 found that, between August 2013 and January 2014, awareness of wearable technology grew in direct proportion with lack of interest, while adoption hovered around 1%. For head-mounted devices, awareness grew from 52% to 64%, while lack of interest went from 34% to 46%. At a time when many banks lack dedicated tablet or smartphone apps, it would be foolish to rush into a wearable app. Even the largest banks have struggled to keep up with number of smartphone and tablet devices that have much higher adoption. Why complicate the process by releasing or developing functionality for wearables? Banks are better served dedicating time to figuring out and overcoming the challenges of a unified customer experience, or building out existing, proven channels that are popular today.

Multichannel banking will assuredly get more complicated in the future, especially as transactions move out of the branch and become more digital. Banks looking to plan for the future, one that may necessitate a Google Glass or smartwatch app, would be wise to design a multichannel strategy that is agile enough to move with the market. For many institutions, this kind of timing will allow them to stay up-to-date with the trends, while not allocating resources too quickly to devices that may become liabilities.

Braveheart or need a brave heart?

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Sep 12th, 2014

A somewhat topical post, if mildly parochial, but which serves to highlight something more broadly. On September 18th , a new nation could be born, as Scotland goes to the polls to vote whether it should become independent from the rest of the UK. The debate has raged for months, if not years. The latest polls suggests a Yes win, with a flurry of activity now from the No camp.

Why blog about this? Well there are some interesting questions that would be raised in relation to payments that are worth highlighting here. Note that this is based on the hard line being stated primarily from the No camp before the vote, but one assumes compromises would be made if there were a Yes vote.

Whilst Scottish banks print and issue their own money currently (I have a Scotland-only £100 bank note on my desk), the Bank of England has categorically stated that there cannot be a shared currency. Debate rages about how quickly Scotland could join Europe, so equally the Euro is out as well

Central bank
Scotland would require a central bank to be able to issue a currency. The creation of one is not necessarily a technical challenge, but the funding of it in the short term might be.

Big business
Many big banks have already pledged to move their head quarters out of Scotland should there be a Yes vote – Royal Bank of Scotland, Lloyds (owners of Bank of Scotland) and National Australia Group (owners of Clydesdale). Note that this isn’t moving out of Scotland altogether – however, at least one unnamed source has hinted doing business in Scotland will become harder and less attractive. A new currency also means that every business doing business in or with Scotland would need to make the appropriate changes, and an equivalent changeover to the Euro switch would be required.


So what does this mean for payments? Well, nobody quite knows. On day 1, systems could keep running. But longer term, it poses some interesting questions. The options crudely are:

Keep as is – people continue to clear and settle in Sterling, regardless of location. Given the hard line on currency union (or lack of), this seems unlikely

Shared infrastructure – the infrastructure remains, but is dual currency, with an additional settlement site at the new central bank of Scotland. That works for Scotland-Scotland, and UK-UK (the sort codes could be mapped to allow this). This doesn’t address the cross-border issue.

Parallel infrastructure – Scotland recreates all its own systems. This would allow Scotland to plan the ideal system, and with low volumes, it would be relatively cheap to buy. However, it would require every bank and every corporate to change how they process paymenst as well… very expensive!

So what does this mean for payments? The fate of a nation is a big thing, and we shouldn’t trivialise it for the thing I’m interested in – payments. But it does serve to highlight how embedded payments are and how critical they are, yet the debate hasn’t mentioned them once. Without a payment system, any country would collapse in hours. Nobody is suggesting that this will happen of course – but then nobody is actually suggesting *anything*. Because payments are rarely thought about by anyone outside of payments, it’s pretty safe to assume that no-one has considered this fundamental part of how a country functions, and it will need to be addressed rapidly. I best go dust off my passport and get some Scottish visas I think!

Apple Enters Payments

Sep 10th, 2014

Yesterday Apple announced entering the payments space with Apple Pay, a new way to pay in physical stores and mobile apps. The move was not unexpected – the question of when and how Apply would do something in payments was subject to much speculation in recent months. At Celent we also published a report in March this year called Apple in Payments: What to Expect? Yesterday, we got the answer.

Details of the announcement can be found here. In this blog I would like to focus on some of the key highlights of the solution and consider its chances of success.

As we predicted in March, Apple did NOT launch an open wallet available on all mobile devices, including those using Android and Windows operating systems. Instead, Apple focused on providing a seamless payments experience for customers using Apple’s own hardware devices. In fact, those devices are only limited today to the newly announced iPhone 6 models and the Apple Watch. We can only assume that any future iPad models will also have this capability, as otherwise Apple would be shooting itself in the foot in the m-POS market.

Our report also discussed that Apple was going to make use of its relevant assets, namely access to card details registered at iTunes, Passbook app, Touch ID and biometric customer authentication, iCloud keychain, AirDrop and iBeacon. The first three are indeed at the heart of Apple Pay’s proposition. However, I was surprised to see no mention of iBeacons, especially given their potential synergies with payments. P2P payments capability is also currently missing. Again, I would expect we will hear more from Apple on both of those topics.

We thought that Apple would start with payments facilitation online before entering physical stores. However, yesterday’s solution addresses both areas immediately. Also, we thought that Apple might want to leverage NFC technology, but would implement it differently from traditional NFC contactless payments. Indeed, Apple Pay uses NFC in a very different way – instead of storing actual card details, Secure Element on the new iPhone only stores a token associated with a card. The payments transaction requires combining that token with a dynamic security code generated for each transaction and a biometric customer authentication based on Touch ID. This approach also turns card provisioning on its head – instead of starting with banks and TSMs, it starts with the customer who can take a picture of the card and have it “tokenised” immediately (assuming it is issued by one of the participant banks.)

It is interesting to note that when Google Wallet launched, they were not going take any cut on the payment transaction, but were seeking to make money from transaction data. Apple claims not to see any of the transaction data, which would alleviate major concerns for both merchants and issuers. However, it also begs the question of how Apple intends to make money from this service. One view is that they won’t. However, although unconfirmed, there are rumours that the issuers will be paying Apple up to 25 bps for each transaction. Some speculate that Apple, confident on the security of its approach, has promised issuers to take on some of the transaction risk. Others argue that Apple can pull it off because of its size and importance, perceived or otherwise.

Which brings us to a number of questions:

  • How easy will it be for Apple Pay to scale? The announcement talked about the issuers who agreed to participate as well as merchants that will be able to accept the service. But what kind of pre-existing relationships are required between Apple and issuers and merchants for the system to work? Clearly, issuers will need to be able to handle tokenised transactions, although that perhaps can be done by 3rd parties on their behalf. However, if they also need to negotiate the commercials, the enrolment process is likely to be more onerous. For merchants, my understanding is that any merchant capable of accepting contactless should be able to accept Apple Pay; however, online and in-app merchants would have to integrate Apple Pay into their checkout experience.
  • How will the merchants react? On one hand, Apple and its market clout can set the standard for the industry providing a much needed direction to merchants where to invest. It also helps that the approach is aligned with EMV migration in the US and any new terminal that the merchants install should be capable of accepting Apple Pay transactions. However, other questions remain, such as:

                    – How will MCX react? MCX just recently announced their own payments wallet, CurrentC; most of the big MCX merchants were notably absent from the list announced by Apple. Can MCX afford to boycott Apple? Can Apple Pay be successful without MCX merchants?

                    – What will it do to merchant transaction economics? US merchants have been enjoying reduced debit interchange rates and ability to decide how to route the transactions. Apple Pay is likely to tilt the balance back towards credit transactions. And how will the routing choice for debit work in the tokenised Apple solution?

  • How will the consumers react? Clearly, the early demos show a very slick user experience, as we have grown to expect from Apple. However, without any additional bells and whistles, will it be enough to convince the consumers to reach for their mobile phones instead of their cards when paying? Sure, Apple’s approach is more secure than a mag stripe transaction, but will consumers understand the nuances of tokenisation or will they rather remember the nude pictures stolen from iCloud? In Europe, these arguments are even weaker – many consumers already enjoy the benefits of EMV and the speed and convenience of contactless (card) transactions.

So, how significant is this announcement? Time will tell, and it’s not going to be an overnight success. Consumers will need to get the new phones, and while there are 800 million or so iTunes accounts, about 25 million of them are in the US and eligible for an upgrade next year. Merchants in the US will need to install and switch on contactless. And Apple will need to go internationally, where it enjoys a much smaller market share. Having said that, it is clearly good news for mobile payments, paving the way forward for new payments technologies such as tokenisation and biometric authentication. And after all the failed and floundering mobile payments initiatives, this is surely a cause for the industry to be cautiously optimistic.

FIS To Acquire Clear2Pay

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Sep 3rd, 2014

Rumours of this purchase have being down the rounds for months (I was discussing it in June at EBADay), although the acquirer has only been ever referred to as a “US Vendor”. In discussions with clients over the last few months, I’ve highlighted 5 potential suitors (including FIS), and of those, four for very similar reasons. All four have broad FS offerings, but have little or nothing in the core payments space, making Clear2Pay an obvious solution to plug a gap.(Clients – ping me for a discussion of who the vendors are).

For FIS, there are some additional benefits to the gap filling, as in addition to their OPF hub, Clear2Pay have card assets (including one of the largest install bases in chargeback management systems) and testing capabilities.Testing is a huge part of payments, but one which often gets overlooked.

For Clear2Pay the existing relationships that FIS has, particularly in the US, and the breadth of resources at their disposal, should have definite benefits.

There are some obvious challenges ahead, not least the fact that few “big company subsumes smaller company” stories come without casualties in the smaller company. With Clear2Pay being a very entrepreneurial company, with some very visible and involved leaders, it’ll be even more important than ever to address this early on.

More broadly for industry, it continues a trend of consolidation in payment vendors. Clear2Pay came close to being acquired a couple of years ago. That suitor, and the other three I highlighted in my conversations, now find themselves with both still with a gap, and now an arch-rival who has the largest and arguably most visible player in the market. One of the vendors I highlight has repeatedly approached one of the other payment hub vendors over the years. ACI, already a hub vendor, bought Distra, a payments framework, to strengthen their offerings. In short, this is a very important deal, signalling the coming of age of payment services hubs, and we very much doubt the last significant transaction in this space.

Banks as Coaches, not Scolds

Dan Latimore

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Sep 2nd, 2014

Soccer season is starting in New England, and I’m resuming my duties as an assistant coach for my daughter’s team. Just as our players strive to improve, so do I try to improve my coaching, and one of my key functions is to try to change player behavior. I do that through a variety of ways: through explaining, through modeling, and through feedback. It’s the last point that I want to focus on, because the way in which a coach gives feedback is critical, not only for the specific point in time, but for future interactions. Very simply, there are two types of feedback: positive and negative. The coach can say, “Great pass to space, Jane,” or, alternatively, “You missed Sarah on her run down the sideline, Jane.” Guess which one Jane reacts better to (and which one her teammates notice)?

What does this have to do with banking? Celent (together with many banks) has been talking a lot about the need to improve and solidify the customer relationship. One way to do this is to help the customer be more in control of their finances. This can happen when the bank gives feedback. Personal financial feedback, just like soccer coaching, can be positive or negative, and just like soccer, guess which one is more effective? And yet, most banks focus on providing unpleasant or negative news: “Your account is below the limit you set” is a relatively benign example, while “Your check has been returned for insufficient funds” is a more substantial one. It’s much more rare to see positive reinforcement: “Congratulations, you’re on track for the savings goal you set.” Simple, for one, is on to this, and it, together with a host of other features, led BBVA to buy it. Monitise, too, is touting “cuddle” alerts that seeks positive occasions for bank touchpoints.

A bad outcome for banks is that their customers start to ignore them because they simply don’t want to hear more bad news. “Oh, it’s my bank telling me that I’ve done something wrong. I won’t pick up / open the envelope / check the email.” Then the bank has lost almost any opportunity for enhancing the customer relationship.

As a quick aside, TD Bank recently hit a home run with a campaign that went viral as it thanked customers in the most personal way possible. 4 minutes, 11.1 million views as of September 1; check it out on Youtube: https://www.youtube.com/watch?v=bUkN7g_bEAI

What can your bank do to be a coach instead of a scold?

Wearables – banking hype or opportunity?

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Aug 28th, 2014

Lately there has been much fanfare around wearables. From Google Glass to smartwatches, there has been no shortage of press releases, articles and hype surrounding these devices. I must say that I personally find all of this stuff amazingly cool, and love trying out new things. I am also super excited about the Moto 360 smartwatch and will likely pick one up when it launches. My interest in these devices however has absolutely nothing to do with banking. Don’t get me wrong, I think it’s critical for banks to try out new technology in order to understand how devices are evolving and how consumers will use them. In other words, banks should proactively throw stuff against the wall in order to see what sticks! Will wearables be the next big “channel” or consumer touchpoint? I have a hard time believing that consumers are going to want to “bank” using these devices – there is a lot of hype here that needs to be filtered.

Wearables, specifically smartwatches, will act as more of a companion to a smartphone. There are however a couple of specific areas where wearables can have an impact on banking:

  • Alerts and notfications. The alerts that pop up on a watch should in theory be the same ones that appear on your smartphone. Most day to day banking alerts may not be that critical, however there are some that the user may want to have access to at a glance. Security at the point of sale is also a possible use case. If a credit card is swiped an alert can be sent – it’s simpler and faster to have this appear on your wrist then in your pocket.
  • Authentication. These devices, particularly the smartwatch, represent an interesting authentication alternative. The Android platform can be configured to allow for a “trusted device” to unlock the phone or an app. In other words, the phone or app can be unlocked if the device detects the presence of a smartwatch. If the device is lost or not in the hands of the user, the smartwatch won’t be detected and the user will be prompted for a password. The Moto X smartphone currently has this software feature incorporated into its build of Android, and it can be used to unlock the device. Celent believes that devices like the smartwatch can act as a solid form of authentication and enhance the user experience. Additionally, banks have been challenged to come up with new methods of providing authentication for mobile banking, particularly since classic multifactor authentication involves something you know and something you have.

The mobile world is rapidly evolving and there is much to look forward to. Please weigh in with your thoughts and comments.

Actual vs. Perceived Value (Behavioral Economics)

Dan Latimore

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Aug 21st, 2014

Our humanity, as individuals and as consumers, continues to fascinate me, particularly as it relates to our irrationality. My dad would drive miles out of his way to save 2 cents per gallon of gas, just for the principle of it (whatever that principle was!). Behavioral economists, of course, have been onto this for years. For some accessible perspectives on the subject, try one of the following:

Thinking, Fast and Slow, Kahneman, 2011
Nudge: Improving Decisions about Health, Wealth, and Happiness, Thaler and Sunstein, 2009
Predictably Irrational: The Hidden Forces that Shape our Decisions, Ariely, 2009

One aspect of behavioral economics that resonates with me regarding banks is this: the notion of actual vs. perceived value. Actual value may be tough to quantify exactly, but it embodies the economic utility of a good or service, stripped of all emotional connotations and baggage. Perceived value, on the other hand, is the satisfaction – the feeling – that people get from that good or service, and is typically evidenced by their willingness to pay a higher price. The two often align, but just as often diverge. For some examples, see the chart.

Actual vs Perceived Value chart

Banks have a problem: they deliver a great deal of value (safe storage of money, ability to transfer funds, source of credit, etc.), and yet customers typically think that most of these functions should be free (on the deposit side) or should cost less than they do (lending). To be fair, many banks have moved away from free checking, but there’s enough advertising out there around free checking that consumers resent having to pay a fee to store and access their money.   In other words, banks deliver a lot more value than they’re getting credit for. Credit Unions, on the other hand, have a different relationship with their members, who value that relationship more highly. We can argue about the actual value CUs deliver relative to banks (lower fees and rates didn’t quite make up for large banks’ breadth of services in my calculations), but it’s clear that CU members feel they’re getting a better deal than bank customers.

An organization’s goal, of course, is to deliver high value and be recognized for it. I’d argue that many free internet services fall in that bucket; the examples in the upper right quadrant above are just a few. Potentially even better is to be perceived as delivering even more value than you actually do. I’d put luxury cars in that category, obviously, but would also put actively managed mutual funds there: the majority (after fees) fail to beat their benchmark over time, yet consumers still feel that they’re getting diversification, performance, and expert guidance. Wonga, a UK short-term lender, offers instant (ok, within minutes) credit, but at very high rates. Their cute commercials help soften the blow and make consumers feel better about paying such high rates, although for credit they likely couldn’t get elsewhere, and certainly not as quickly.

The low/low bucket is for things like junk mail – little value, and we feel it. And yet, there’s enough value for the sender that it keeps coming.

The worst quadrant for a provider is the upper left – it’s where products and services are taken for granted. Electricity is pretty close to a miracle, and the price we pay is miniscule. Yet no one sings it praises. And despite being the butt of jokes, the US Postal Service will deliver a letter from Miami to Anchorage for 49 cents; that’s, objectively, pretty phenomenal. But, we feel like…that’s just the way things should be. And it’s the same for banking services.

How do banks get out of this? Of the two levers, actual and perceived value, lowering the actual value is not an option given today’s competitive landscape, so banks have to increase the perceived value. Part of that lies in improving the actual, of course (through better products and services), but a more significant part lies in engaging customers in a visceral way and in materially changing the relationship that banks have with them. Each bank is going to have to chart its own course, but improving customer perception on a very basic level is critical for future success.

Innovation in Spain: A Way Forward for Banks Globally?

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Aug 8th, 2014

Innovation is global. This isn’t too revolutionary of an idea, neither is it new nor original. Yet, increasingly, conversations with banks, especially in the US, reveal that many institutions aren’t looking too far outside of their market, let alone their vertical, industry, or country, for inspiration on how to innovate. In effect, this is giving an outsized impression by bankers of innovation in banking.

The figure below, taken from a Celent financial services firm survey, and featured in the report Innovation in Financial Services Firms: The Leadership Gap, highlights the disconnect. It might seem intuitive at first glance—51% of respondents think their bank is worse at innovating than other industries. No surprises there. Digging into the other half, however, reveals that a startling 42% of survey respondents think that financial institutions are on par, better, or much better (!) than other industries. It begins to look a lot like Stockholm syndrome, where a hostage is kept for so long in a state of captivity that they begin to empathize and feel positivity toward their captors.

How well do financial institutions innovate compared with other industries?

Source: Celent

The disruption of traditional financial services is very much a global phenomenon, with financial services tech startups filling the gaps where traditional services have lagged behind evolving consumer demand. Moving in step with innovation is a shift in the way in which banks can foster innovation. There are plenty of examples globally.

In Spain, innovation is coming from some of the largest banks themselves. La Caixa recently set out to make Barcelona the first ‘contactless city,’ improving in-store and ATM experiences through a new contactless payment system. BBVA launched innovative customer assistance platforms like a video-conferencing service that allows users to connect to branch personnel for specialized help, the intelligent assistant called Lola, and the Contigo initiative which gives users unprecedented control over contacting personal advisors. Banco Sabadell launched mobile cash withdrawal through “Instant Money,” and one of the first Google Glass banking apps globally. Spain, however, is an anomaly in the financial industry, and while financial institutions in countries like the US have attempted to innovate, success has varied.

One bank, BBVA, has been a leader in innovation, broadening the way in which new technology and value is discovered, fostered, and funded. Consider the following ways BBVA approaches innovation:

  • BBVA Innovation Center: Headquartered locally in Madrid, the BBVA Innovation Center is where many of the innovative ideas and designs are cultivated. Acting as an incubator for creativity, the bank is able to internally design and test prototypes for new ideas. Products like Tu Cuentas, BBVA Contigo, and ABIL ATMs have come out of the work done there.
  • Acquisition: BBVA, in the highly publicized acquisition of the US-based neo-bank, Simple, has ventured into new territory by leveraging acquisition to adopt innovation. It remains to be seen how the two businesses come together, and what role Simple will play in the larger BBVA vision, but the deal offers an example for other banks to follow. As institutions start to look more like software companies, they will begin to do what businesses in industries like tech and pharmaceuticals have been doing for a long time: letting others innovate, and then acquiring them.
  • Venture capital:  Innovation needs resources, and with BBVA Ventures, the bank has taken the step to partner and invest with entrepreneurs to help ideas grow and become successful. BBVA Ventures has already invested in companies like FreeMonee, SumUp, and Radius, and last year announced $100 million for investment into new projects.

BBVA is a mixed bag of approaches to innovation, but perhaps the most telling theme is the way in which it has viewed fintech startups as partners or investments, rather than future business threats.

Look forward to the upcoming Celent report, Innovation in Spain: Profiles of Spanish Financial Services Tech Startups, where the state of innovation is examined by looking at some of the most interesting new startup companies. Innovation doesn’t exist in a vacuum, and gaps in financial services are often global phenomena. Taking a US-specific view of innovation limits the potential for finding the next great idea, and institutions should broaden their horizon.


Why ‘Branch of the Future’ must be a Priority

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Aug 7th, 2014

Bank Innovation published a piece written by Brett King this week entitled, Can we Stop Talking about the ‘Branch of the Future’? In the article, King cites the industry’s use of the “branch of the future” terminology as evidence of “one of the key hang-ups that banks have over changing distribution models”. In other words, an inordinate amount of effort expended to “save” an obsolete delivery model. He argues that pursuing a “branch of the future” strategy, banks avoid the real work of improving customer engagement via digital channels. I think that’s nonsense.

These assertions may resonate with one heavily invested in Moven, a digital-only bank happily growing by serving a niche market. Most retail bankers know the world isn’t as simple as King asserts. The fact is, banks have more than one challenge ahead of them. Specifically:

1. Right-size the branch network. There are two important aspects to this imperative: first is to redesign the branch channel for its emerging purpose: selling and servicing, and away from its legacy — transactional delivery. The second is to reduce branch network costs (both densities and corresponding operating costs) to enable investment in digital channel development.

2. Learn how to sell and service using digital channels. Migrating low-value transactions to self-service channels is no longer adequate. Digital channels must become more self-sufficient. One important aspect involves learning how to engage customers virtually. In-person must no longer require a branch visit.

3. Catalyze growth in self-service channel usage. For the second mandate to have maximum effect, banks must influence digital channel usage.

Branch transformation simply isn’t optional as King suggests. Far from it!

Why is Branch Transformation Imperative?
Many reasons, but two are central in my opinion:
1. Most banks serve a diverse customer base, with widely varying and continually changing engagement preferences.
2. While customers increasingly transact digitally, they PREFER to engage face-to-face. Celent separately surveyed US and Canadian consumers in the fall of 2013, finding similar results. Contrary to what some would have you believe, young adults do visit branches. Both surveys found a rather weak correlation between age and channel usage – except for the mobile channel, which displays a strong relationship between past-30 day usage and age.

channel usage by age

But, past 30-day usage is mostly about transactions, not necessarily engagement. The same two surveys asked respondents, “If you had an important topic you would like to discuss with a banker, how would you prefer to do so?” Responses to that question paint a very different picture – one that explains precisely why most banks derive the majority of their revenue from the branch network. Most consumers – regardless of age – prefer face-to-face interaction on important topics (at least for now). Interestingly, preference for online appointment booking was much stronger in Canada. Not surprizing, since several of the large Canadian banks have been offering (and advertising) the capability for nearly two years, while the same capability in the US is nascent.

preferred engagement by age

But that’s where the puck is. Where the puck is going is towards more widespread digital channel usage – and engagement – across age and income demographics. That’s why mobile channel development is the #1 retail channel priority in most North American banks. It should be. Those same banks, however, neglect the branch channel at their peril.

Banks Aren’t Alone in This
The Wall Street Journal published an excellent article this week that provides some much-needed perspective on the branch channel debate (Seriously, why is there still a debate?). Citing data from ShopperTrack, the article asserts a -5% CAGR in store traffic across a broad mix of retailers. Sound familiar? And, banks aren’t the only retailers enjoying the majority of sales from stores. According to the U.S. Census Bureau, online sales now make up about 6% of total retail sales and are growing at more than 15% per quarter. SIX percent! We can argue about the precision of this figure, but the reality is unavoidable – after two decades of digital commerce growth, in-store shopping still dominates. Why no debate about the “store of the future”? Probably because, unlike banks who have largely neglected the branch channel for a few decades, most stores continually invest in optimizing their retail delivery model.

Moven can neglect the branch channel because it chose a delivery strategy that alienates the majority of consumers that value in-person engagement. That’s a fine strategy for a niche player. Mass market institutions don’t have that luxury.