NCR & Digital Insight – Trouble in Paradise?

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Mar 12th, 2014

Late last year, NCR announced the acquisition of Digital Insight (DI). It’s been quite the ride for DI as they are on their third owner in a very short period of time. Apparently the ride hasn’t been very smooth for DI bank customers – we have heard from a number of them regarding digital banking outages. The press has gotten wind of this as well - Fairwinds Credit Union customers cope with online-banking outages.  

Take a peek at the list of disruptions notices posted on the Fairwinds CU Facebook page.

Kudos to the CU and its President for being transparent and communicating with their customers.

Chase’s Quick Checkout: Leveraging the Power of ChaseNet

Mar 3rd, 2014

In our report The Rise of the New Bank Account: The Quest for Transactional Account Primacy we predicted that in the future customers will want to be able to choose whether they pay with money or with loyalty points. Chase’s Quick Checkout announced at a recent investor day does exactly that. According to Chase’s investor presentation, Quick Checkout will deliver “a simplified checkout experience for Chase cardholders and merchants, positioning us to become the preferred digital ‘way to pay’.”

At the heart of Quick Checkout there are three innovations:

  • A digital wallet, which stores customer’s payment credentials and shipping details, and pre-fills them at checkout. Like other digital wallets, Quick Checkout is “open” – i.e. customers can register their non-Chase cards. However, their Chase cards will be automatically available and kept up-to-date in the wallet when they get replaced in case they expire or get lost or stolen.
  • Ability to pay with points, leveraging the customer base of Ultimate Rewards, Chase’s single rewards platform. According to the bank, 78% of Ultimate Rewards redemptions now occur through digital channels; Quick Checkout will help drive that number up even further. Merchants will also be able to tailor offers based on customer behaviors and specific purchase history.
  • Tokenization which replaces real account data with a highly secure “token” which is useless when taken out of the secure environment.

Of course, any other issuer would face a challenge of creating a large merchant network willing to accept its new wallet. Chase can pull this off because of the ChaseNet platform, a closed-loop network powered by Visa for processing Chase-issued Visa cards acquired by Chase Merchant Services. Chase expects to “leverage ChaseNet to deliver seamless online and mobile payment solutions, enabled by control over entire transaction.” The platform has been “launched as planned” and is currently “in pilot mode with selected merchants.” As ChaseNet is rolled out across all merchants, it will be really interesting to see how consumers and merchants react to the new services enabled by the platform.

What Does the BBVA Acquisition Mean for Simple?

Stephen Greer

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Feb 21st, 2014

The financial world is abuzz about the recent acquisition of Simple by the Spanish banking giant BBVA.  The news is surprising, but not unusual for a banking group that has invested in other innovative companies such as Freemonee, SumUp, and Radius.  The deal also legitimizes a financial start-up that has garnered quite a bit of skepticism among some in the industry, despite a small yet dedicated and growing customer base.  Banks are clearly considering these innovators to be significant enough to validate their acquisition.  Simple is a brand, not simply a product offering. It has recognition outside of the industry, and the effect on existing customers makes this acquisition different from the norm.

As the relationship unfolds, it will be interesting to see how Simple responds to the following:

  • Will Simple really remain independent? The statements released by both parties claim it will. Recent acquisitions of Nest by Google and WhatsApp by Facebook also made similar claims of maintaining autonomy, but that doesn’t mean it will remain the case.  Yahoo acquired Flickr in 2005 with similar promises of independence, yet in the subsequent years drove an up-and-coming innovator straight into the ground.  The fear for Simple customers is that the unbeatable user experience and exceptional customer service that made it so appealing will slowly be lost as the two companies integrate. Accounts will remain at Bancorp bank for the time being, but the inevitable move to BBVA must be graceful, or a once innovative product is liable to lose the only edge it had in the market
  • Does this deal allow Simple to become more complex?  The big attraction of this deal for Simple is that it gives them access to the resource of BBVA, a massive multinational financial institution with a clear penchant for funding innovation.  The main complaint with the start-up since launch was the limitations that came with not actually being a bank.  Simple didn’t do mortgages, it didn’t do investments, and there were no credit cards.  For the PFM features to be truly useful, users would have to go ‘all in’ with Simple.  More resources could allow for more development into a more diverse set of products and financial offerings, increasing the potential of the already well designed PFM platform.  The test will be the following: will Simple be allowed to continue its own brand with its own products, or will it simply become (pun intended) a funnel to push BBVA’s core business?

The acquisition of Simple, no matter what happens, is a good sign for financial start-ups, especially those that compete directly on Banks’ turf.    The industry could learn from the way BBVA has taken a page from tech giants and big pharma. There are hundreds of innovative Fintech companies out there, and great ideas don’t always have to come from internal development—in fact for large banks they rarely do. But Simple has now become part of the traditional banking world they used to decry.  Will the financial services industry’s challenging record of financial innovation rub off, or will the resources of a megabank allow Simple to grow into a true disruptor?  Only time will tell.

The Networks’ Support for HCE Breathes Life Into NFC Payments

Feb 21st, 2014

In my report on Top Trends in Retail Payments published a few weeks ago, I wrote the following paragraph:

“Of course, doubts remain over HCE. For example, the payment schemes are yet to clarify on whether they will deem the security and performance of the technology acceptable. However, we view it as a positive development. Inexplicably, HCE was being described by some as the “NFC killer.” Yes, if successful, it might indeed kill the SIM-based business model (and have a negative impact on Trusted Service Managers), but it might actually breathe life into NFC and contactless payments.”

The developments this week removed some of those doubts. Both Visa and MasterCard announced their support for Host Card Emulation (HCE) technology, paving the way for banks to offer NFC-based secure payments without relying on the secure element inside the phone. HCE reduces the need for banks and telcos to cooperate, thus helping overcome the business model challenge. However, approval and recognition from the networks was a critical pre-requisite to the technology’s success.

Networks executives stressed that it is not an “either/ or” situation and they will continue to support the “traditional” SIM-based secure element solutions. As such, it doesn’t immediately change any of the established ventures, such as Isis, but it certainly makes it easier for others to take an alternative path.

I would expect HCE to be important in Europe, which already is further ahead than the US in terms of deploying contactless terminals. European banks have been issuing contactless cards, and HCE will make it easier for them to make use of that infrastructure for mobile payments as well.

Having said that, HCE technology is only available on Android, so iOS devices continue to be excluded from these developments at least for now. It will be interesting to see what Apple does in payments. I plan to publish a short report soon speculating on how Apple might enter payments more aggressively – keep an eye on it!

Much Ado About Nothing

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Feb 19th, 2014

Today the European Commission released its long awaited study into the cost of merchants accepting cash and card payments. A copy of the preliminary presentation can be found here.

It’s long awaited for a number of reasons. Firstly, it is supposed to finally address the issue of comparing actual costs. Whilst there have been many studies in the past that looked at this, nearly all had a flaw. Those commissioned by one of the interested parties had such inherent biases that it rendered them almost unusable. For example, the anti-cards lobby conveniently chose to inhabit a magic kingdom where labour was free and cash magically appeared and disappeared from stores, free of charge!  Academic studies have typically been too academic – lots of interesting formulae, but not grounded in reality. The Commission set out, once and for all, to get a definitive answer.

That’s the second reason why it is important. The Commission has taken what many believe as an “anti-card” stance, with a view that cards are unnecessarily expensive. At the same time, they are actively promoting electronic payments as paper/cash is costly and inefficient, but not taking into account some fundamental differences, such as cards are a commercial business, whilst cash is supplied in essence by the State (I know, I know – that sentence is a whole debate in itself!). The study then was supposed to create an unambiguous fact-base. The more cynical of us has wondered what happens if the study presents data that is contrary to the stance of the Commission, and that could contradict the last decade of activity from the Commission in this area!

The programme has not been without it’s problems. A previous study commissioned a few years ago has never been released, and has been perceived as not reaching the answer the Commission wanted. This is primarily because the consultancy selected is highly regarded for their integrity and knowledge – by not sharing anything about the study, the market has reached it’s own conclusions. In the introduction to the document today though was a comment that it had “Unsatisfactory methodological recommendations.”

Secondly, the request for a subsequent study was woefully underfunded. Unsurprisingly, the target number of merchants to study was not met by a considerable margin. This isn’t to criticize the firm that won the tender, more that the opportunity to do this right was never there.

Alot of preamble – what did we learn?

Not much. I wasn’t able to attend the presentation, so there is – literally – only the afore mentioned deck to study.

For me the initial take-aways are:

  • The fact that no clear conclusions could be reached yet, and that the sample size achieved was only 50% of the initial target highlights, either just how hard this is to do and/or, actually it’s much closer than they thought. For example, if one payment type had substantially more costly than another it’d surely have been highlighted
  • The low response rate and the bias to large merchants is likely to leave the survey open to criticism
  • More detail is required to give comfort – for example, the cost seems to suggest some significant missing costs (such as CIT fees, bank cash handling fees, etc)

The net result is that we’ve not really any clearer, and we’re left wondering why they didn’t wait until they had reached some conclusions. Whilst we don’t have the commentary given during the presentation, the fact that the event and presentation didn’t even warrant its own press release suggests that not much was said. And so we’re left still in the dark, and probably, on balance, even less optimistic that we’ll get the answer that we all seek. Much ado about nothing!

What banks can learn from airlines

Dan Latimore

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Feb 18th, 2014

Celent thinks that banks can learn a lot from other industries.  Since I spend a lot of time on planes, I’ve gotten to thinking about the similarities between banks and airlines.  They have a lot in common when we think about the way that they interact with their customers.  They are both:

1. A means to an end. Just as no one says, “Let’s go to the bank for fun today,” no one says “let’s pack ourselves onto a metal tube with a bunch of strangers for several hours” (frequent flyers making year-end mileage runs notwithstanding). People bank so that they can have a safe place to store their money, pay for things, and borrow. Similarly, people subject themselves to flying in order to get somewhere a lot more fun than the airport.

2. Typically not held in high esteem by their customers. While this is certainly strongly related to the point above, it’s also the case that even when banks and airlines perform perfectly, customers aren’t excited.  “How was your trip?” “Oh, fine” meaning that the airline did what it committed to do.  Rarely does someone who hasn’t been bumped up unexpectedly say, “That was a fantastic flying experience.” Rather, it’s a case of, “That was uneventful,” or “that was as good as can be expected.” Banks, too, suffer from the curse of being unappreciated (as do, for that matter, utilities).  Only when something goes wrong do people pay attention.

3. Involved with their customers in a very intimate way. Banks know many details of their customers’ personal finances. Airlines put travelers in very close proximity to perfect strangers for hours at a time. This intimacy engenders strong feelings in customers and lays the groundwork for strong feelings to flow.

Despite how much worse the US airline experience has gotten for most customers, airlines are nevertheless returning to profitability. Bankers may want to mull some of the tactics that airlines have used, if not for outright emulation, than at least for lessons that they might provide in a banking context. Five key areas come to mind:

1. Pricing fairly
2. Being human
3. Setting expectations and being transparent
4. Recognizing valuable customers
5. Providing value-added services

1. Pricing fairly
Unbundling products and services is one element of pricing fairly. Charging fees for baggage is the most prominent example of unbundling a service that used to be included in the price of a ticket. Customers squawked, and behavior changed in ways anticipated and not (have you ever squabbled about overhead bin space?), but they adapted and paid up, opening up an annual revenue stream counted in the billions of dollars.

Even as the typical airline seat shrinks, airlines have added rows of more comfortable seats that they either give to their frequent fliers or sell on a variable-priced basis. Airlines are segmenting their frequent fliers and letting other customers self-select with respect to what they’re willing to pay for extra comfort. The lesson: demonstrate the value in the services that you provide, then charge customer segments appropriately.

2. Being human
Because of the intimacy I mentioned above, it’s critical that firms let their employees act as people rather than automatons or faceless bureaucrats. Three key areas help ease the pain of a long flight or a mistake on an account.

Foster personalities and connections: Having a person-to-person conversation, rather than focusing only on the business at hand, can drastically change the tone of an interaction. A simple “are you heading to or from home?” from a flight attendant makes me feel better about the flight, and the feeling is a critical part of the customer experience.

Thank people for their loyalty: When an airline actually thanks me, it again helps with the good feelings. Similarly, the airlines send me coupons that I can give to staff who’ve performed exceptionally – the corporation has given me the opportunity to be human, too.

Develop a brand personality: Airlines are required to give a safety briefing at the beginning of the flight. Some personnel simply read their manual in an incredibly bored (and boring) tone; others personalize it and manage to make it sound interesting. Some, like Delta, even have genuinely funny video briefings (see a YouTube version here: http://youtu.be/eduNjwNvcH4).

3. Setting expectations and being transparent
It really helps to makes rules and expectations (in both directions) clear and easy to understand.  Once those mutual obligations are set, then the firm has to stick to them – think about boarding by rows. When someone in group 4 tries to board with group 2, gate attendants who politely ask them to wait are reinforcing the mutual obligations that everyone on the flight has assumed. And you’ve got to be transparent about what’s going on; airlines still have some ways to go, but they’re making some progress in explaining why, for example, a flight is delayed.

4. Recognizing valuable customers
Banks have recently begun doing a better job of segmenting their customers, but they can still learn a lot from the ongoing refinements that airlines continue to make. Airlines give passengers goals (elite status levels), keep them apprised of their progress, and have devised ways to monetize the desire to achieve those goals.  “Mileage runs” are a topic of discussion on frequent flier community sites, and some airlines have dispensed with that and will simply sell miles at the end of the year to allow people to achieve their desired status.

Providing differentiated service to valued customers is very basic, but airlines do it transparently and consistently while laying out the benefits different elite segments stand to reap. Incidentally, this isn’t to say that banks aren’t doing some of these things now, but if and when they are, it’s not necessarily widespread.

5. Providing Value-Added Services
The basic function of an airline – getting a passenger from one airport to another – is pretty commoditized. Airlines try to differentiate on all the elements that we’ve just discussed, but they also try to make themselves stand out by offering a variety of value-added services.  These are often driven by a web of partnerships that the airline has developed. Some of the most basic include:

  • Building a network of partners (e.g., Delta and Starwood) whose members enjoy reciprocal benefits
  • Booking hotels or renting cars through the airline site
  • Redeeming miles for a variety of goods or services offered through the airlines network of partners
  • Describing the weather at the destination (easy to do, not necessarily a huge value, but a nice touch)

There are a host of other value-added services that airlines offer. Rather than going into an exhaustive list, I’d simply point out that banks should examine what kind of additional value they can offer to their customers on top of the increasingly commoditized product suite on offer today.

There are undoubtedly other salient comparisons that I’ve missed – please comment on what other areas airlines (or other industries) can provide lessons for banks.

 

Bank IT Spending and Trends: 2014 Forecasts & Predictions

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Feb 14th, 2014

The new year brings lots of questions, planning and decision making. IT spending is tied directly to these elements, and as in past years, we have been receiving a truckload of IT spending questions. Celent predicts that 2014 will build on the positive investment momentum and growth experienced in 2013. IT spending growth rates will of course vary by region (4.5% growth in North America, 5.8% in Asia Pacific, and a flat 2.9% in Europe). There is a lot more detail available in the reports and an explanation as to why the European figures have started to rebound.

Here is a quick snippet from, IT Spending in Banking: A Global Perspective (published earlier this week):

Total bank IT spending across North America, Europe, and Asia-Pacific will grow to US$188.0 billion in 2014, an increase of approximately 4.4% over 2013. This upward trend is an encouraging sign and indicative of the emphasis being placed on technology investments.

We have published a series reports that are relevant to all organizations:

Several more trends reports are forthcoming so stay tuned and happy reading!

Finovate Europe 2014: Some Key Takeaways

Stephen Greer

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Feb 13th, 2014

Finovate just ended yesterday, and it was great to see all the new and interesting ideas floating around the financial services space.  For those who may not know, Finovate is a two-day event that showcases some of the best new and innovative things happening in financial services technology.  Over 60 companies coming from all over the world  presented this year, taking part in the rapid format that gives each presenter 7 minutes to show why their product is worth the viewers’ attention.  The event can also be a great networking opportunity, as many of the attendees are from large institutions or influential VCs.

Figure 1: Number of Presenter Products with Aspects of Each Category

 Untitled

Here are some key takeaways after watching most of the presentations:

  • PFM is still going strong:  Banks have been declaring the end of PFM for years now, yet the topic is still one of the most talked about at every Finovate.  At Finovate Europe, PFM was the most prevalent.  What does this mean for the institutions?  Well, first off, it’s obvious that entrepreneurs still see the value in PFM tools.  Banks, many of which adopted PFM solutions long ago, have shrugged at the lackluster adoption, subsequently declaring PFM a failed experiment.  Financial institutions themselves are partly to blame, hiding these platforms in menus, barely showing any desire to market the products. Yet the biggest problem with PFM is shared by all, vendors and banks alike.  PFM doesn’t add value!  Let’s just assume most people want to know how much they spend on coffee each month (I don’t!). What comes next?  Where’s the action?  The fundamental problem with PFM is that the way the data has been leveraged to truly provide value has been disappointing at best.  Until the quality of the data is there, PFM won’t be in the mainstream.  A secondary concern—the misconception that most vendors buy into—is that PFM can be fun, succeeding through cleverly designed games and well-designed UIs.  I hate to say it, but PFM will never be fun! Nevertheless, there were some interesting takes on PFM this year that could offer some new ways to think about it going forward. A company called Tink takes financial data and creates insights for the user like where you spent the most money in the last year, largest one-time purchase, most frequent spending location, and others.  The difference is that these are non-intrusive ‘stats’ that show up only if a user scrolls down from the landing page on the mobile app.  Three takeaways from Tink’s product: everything is done on the bank side, it’s is more interesting than visualizations of spending categories, and the analysis requires nothing from user.  Meniga, a PFM success story in Europe, uses demographic data to help small businesses find market opportunities. It provides competitors’ sales data, locations, profitability, among other things.  It’s not PFM is the strictest sense, but that’s probably a good thing.  PFM needs a little shaking up
  • Moving Mobile Banking Beyond Transactions:  While not a new topic, this was a common theme across a variety of presentations.  The most common involved using the camera to assist in account opening or paying bills (see Kofax, Top Image Systems, and Axa Banque).  Mitek and US Bank have been at this for some time, but the rush of new start-ups looking to fill the gap in the market is telling.  As mobile banking becomes more common, and adoption increases, consumers’ appetite for mobile-based interactions will broaden.  Banks are not only beginning to offer consumers the ability to do more complex transactions via the mobile device, but they’re opening up ways for financial institutions to monetize the channel.  This will effectively make ROI much more tangible, doing away with the misconception that the value of digital channels is ambiguous
  • Replace the Password: Is the password dead? That was the question asked by Wired Magazine in November of 2012, and something that has been on the mind of Celent for quite some time. Finovate produced no shortage of companies looking to innovate on financial security.  Finovate veterans, Behaviosec, continue pushing their gesture-based biometric product that learns how the user moves and interacts with the device to create a confidence score for use behind the scenes.  Encap uses the mobile phone as an authentication device for approving transactions or logging into digital banking.  This was the second most discussed topic at Finovate.  While biometrics is already used in some places globally, the practicality of such solutions is dubious at best.  Security needs to start becoming a little more practical.  One of my favourite presentations was from Feedzai, where they use social media data scraping to assess fraud risk.  For example, if I just checked in at a restaurant in San Francisco, then it’s likely that a transaction from somewhere else is fraudulent.  A few took to twitter to question whether customers would be ok granting banks access to their social media lives.  If Citibank starts poking people, then maybe I could see the point, otherwise, it’s a practical application for enhancing security.  Besides, most social media information is already public anyway
  • Lots of Front-end, Little Back-end:  One thing Finovate teaches us all is that there is no shortage of great UI designers.  One thing Finovate doesn’t teach us is that banking is messy once you start connecting that nice-looking front-end to the messy back-end.  Are most of these front-end products from Finovate really bank-ready? I’m not convinced.  Large vendors like Misys, Fiserv, and Temenos may not have won best in show, but with integrated backend products, they’re in a much better position to succeed. One of my favorites was Five Degrees, a Dutch back/mid-office solution that runs in the cloud and offers a truly innovative BPM product.  Other than that, good examples of back-end innovation were scant
  • Social Collaboration:  It was interesting to see different idea behind leveraging crowd-sourcing and social collaboration.  Nous presented a product for investments that incentivizes users to play a game that aggregates data based on the players’ outcomes.  A company called MyWishBoard uses collaboration, similar to SmartyPig, for goals and wishlists list that can be shared via social media with friends.  Leveraging the power of crowds has been difficult to accomplish in financial services, and most social strategies have revolved around marketing and customer support. While some of these ideas may not be the best business ideas, it’s nice to see different takes on leveraging the power of social
  • No Branch Channel Innovation: Absent from the Finovate line-up were any innovative ideas around branch technology.  Celent has written a number of reports looking at branch technology, and there is undoubtedly still much to talk about in this space.  The closest the show came was with JHA’s Luminous, a Dropbox-like secure storage cloud application for bank documents.  Branches are changing, but they aren’t going away, at least not anytime soon.  Banks have been doing some interesting things in the branch channel, but there are still plenty of innovative ways to maximize the brick-and-mortar experience. Celent did a recent consumer survey showing that branch channel adoption is still very high among consumers, and the first choice for important decisions. Considering the adoption gap between PFM and the branch, the low activity is surprising