AFP 2014

Nov 6th, 2014

I just arrived home from Washington, D.C., where the Association For Financial Professionals – a leading society for treasury and finance professionals in the US – held its annual conference.  It was interesting that the AFP decided to hold its conference in Washington – the first time it has been held in AFP’s hometown – during the run-up to the 2014 mid-term elections, and it was clear that the town was abuzz in activity as Election Day came near.

I’ve been to many AFP conferences during my days at Metavante, but had taken a few years off, and so I was interested how AFP was doing as the economy continues its 5-year crawl out of recession.  Was I surprised!  I was amazed and encouraged how strongly the conference has bounced back since the dark days of the late 2000s, and the vibe reminded me of the recent SIBOS 2014 in Boston, where bankers and tech vendors competed for the attention of … well, bankers.

Perhaps reflecting the post-recession environment in which US corporates operate, I noticed little talk of traditional cash management topics like optimized sweeps or new investment vehicles.  Rather, most of the buzz seemed to be around risk management, Big Data, and treasury dashboards.  It was clear that treasurers are moving to embrace technology to automate routine operational tasks, provide analytics-driven insights that are hard to capture using Excel spreadsheets, and help treasurers see through the fog of data to prioritize their work.

Should Excel spreadsheets be getting nervous?  It’s too early to tell, as they are still the dominant tool in use in treasury departments.  However as treasury technology vendors continue to migrate their offerings from high-priced licensed solutions to flexibly-deployed SaaS offerings, many companies will find it harder and harder to justify holding off on treasury automation.

We’ll continue to study the situation and will hope to bring back some interesting examples and use cases of companies making the leap into full-scale treasury automation.

The Clearing House and Real-Time Payments

Post by

Oct 30th, 2014

The game is afoot!

The announcement from The Clearing House regarding real-time payments last week came as no surprise – indeed, it felt inevitable. The Federal Reserves’ significant work around the topic, and their clear determination that it would happen, seems a clear indication that they wouldn’t rest until it was delivered. The question then is how will it be delivered.

The Feds conclusion from its consultation was that new infrastructure would be required, rather than re-using existing infrastructure. This posed two questions

1) would the Fed build it themselves?

Or 2) do they would expect someone else to build it, and how would that actually happen?

We dismissed question 1 pretty quickly – it would have created a monopoly (just about the only in US payments), and the experience of the Fed Same Day service perhaps highlighted they weren’t perhaps best placed to deliver. Who does that leave?

Having already nailed their flag to the mast with their Same-Day proposal, and stating that they believed that this was adequately fast and would complement a real-time solution, Nacha was unlikely (at least at this juncture) to put themselves forward.

Some seem to have considered the Fed comment about not re-using debit card infrastructure as something of a swipe at PayNet. Given the number of banks already connected to it, and the work around the rules and business model, we think that this rather underestimates what PayNet can do.

CME look to have thrown their hat in the ring, with their investment in Dwolla. Whilst CME claim Dwolla is real-time, it isn’t as the chart on Dwolla’s own website even says itself. Yes, in some instances, but equally, it can take up to 4 days. Unless, of course, there is exciting news coming from Dwolla soon….!

There are a few other names being mentioned as waiting in the wings – we’ve certainly heard lots of rumours about who else is preparing to announce, though have seen no hard evidence so far.

So does this mean that this is a slam dunk for The Clearing House? Not quite.

First, to the point around monopolies, we don’t believe the Fed will be satisfied with just one infrastructure, unless it also has a significant shift in policy in mind.

Secondly, the Clearing House proposal is very high level. Whilst we’re not saying it won’t be suitable, we’ve yet to see enough to be confident that it will be. The Clearing House has a strong track record in this regard, so we think its just a timing issue.

Thirdly, as the proverb suggests, whilst you can lead the horse to water, you can’t necessarily make it drink. We’d define success in this instance as wide-spread uptake. We’re less clear as to how that will happen – will Clearing House Members be mandated to use? Incentivised? As my recent report on real-time payments sets out, the success is in large dependent on how well it is positioned in relation to other payment choices, and how well it is product managed.

One thing is for certain though. This won’t be my last blog on the topic – there will be plenty more to happen yet!

Asian Vendors Looking to Pivot

Dan Latimore

Post by

Oct 29th, 2014

I’ve just returned from a two-week swing through Asia, with stops and roundtables in Tokyo, Singapore, Melbourne and Sydney. Along with my colleague Neil Katkov I was fortunate to meet a large number of clients and market participants, both banks and their ecosystem partners, in a series of more than two dozen meetings.

In each country Celent hosted a half-day session on digital innovation. Attendance was good and discussion spirited; digital and omnichannel is a topic that every bank across the region wrestles with. Their service providers, too, are keenly interested in the topic.

What struck me as particularly noteworthy, however, was that a large number of providers are trying to reposition themselves in the marketplace. Their (legacy) brands are extraordinarily strong, which is a blessing and a curse. Brand strength is great, but when it’s associated with a technology that’s in decline, and not yet associated with new areas of investment, then vendors are put in a difficult position because they don’t get the calls associated with that new fintech. A common question for us was, “how do I get the message out about this new solution I’ve developed?”

There’s no one answer, but I’d suggest to banks that they cast a wide net when looking to address their new technology problems; many of their historical partners are learning (or at least trying to learn) new tricks. That their marketing (broadly defined) has yet to catch up shouldn’t dissuade banks from seeing what new solutions they have to offer.

Are security fears hindering corporate mobile banking adoption?

Post by

Oct 27th, 2014

Corporate mobile has been a popular topic for a number of years now. While many banks have launched solutions, corporate adoption has stagnated. 66% of respondents to a Capital One survey  indicated
“security challenges with sensitive corporate data” as their number one barrier to adoption. There are other reasons for slow adoption of corporate mobile, but this one is quite interesting and can be challenging to overcome.

Should banks and corporations be concerned about mobile banking security? Is it a real threat at this stage? The short answer is that security should always be a concern — there are all kinds of real threats out there. However, it’s important to quantify and understand the risks and myths associated with current threats. At this stage, I would argue that security is an often overlooked BENEFIT to corporate mobile banking. It provides an additional layer of security; when executives receive mobile alerts, they have the ability to intercept potentially fraudulent transactions in near real time. A sandboxed app can also be quite helpful. I can go on and on here, and encourage you to read more about it in, Corporate Mobile Banking Update: Adoption Conundrums and Security Realities.

Do the benefits outweigh the risks? Should banks be investing in corporate mobile given these adoption challenges? There is a chicken and egg situation; it’s quite difficult for banks to prioritize mobile investments when corporate adoption simply isn’t there. Celent believes that all banks should be investing in digital infrastructure that encompasses online, mobile, and tablet banking. Each of these touchpoints should leverage common components and banking modules (e.g., ACH, wires, etc.) This infrastructure should allow banks to eventually support mobile. Banks don’t need to deploy actual mobile solutions immediately, but should be poised to rapidly deliver when customers ask for it. Customer demand should dictate when banks invest their hard-earned IT budgets in corporate mobile apps and solutions.

I’ll be at the AFP Conference next week, drop me a note if you would like to meet to discuss this topic.

Banks vs Fin-Tech Start-Ups and the Digital Transformation Race

Post by

Oct 22nd, 2014

The digital transformation in financial services is about the move from the physical to the virtual world, from person-to-person interaction toward person-to-machine or machine-to-machine.

It is Celent’s view that Integrating and coordinating among disparate and siloed delivery channels will be critical to satisfying ever-increasing customer expectations. This in part encompasses looking at how financial institutions relate with their customers and ecosystem, but also about the underlying infrastructure and processes required to provide a digital experience. It also encompasses re-thinking how a branch should look like and what services it should provide as an integral part of the customer experience.

In this context I had the chance to moderate a panel during last week Next Bank Americas. With the participation of Hugo Nájera Alva – Head of Digital Banking at BBVA Bancomer, Miguel Angel Fañanas – Director of Corporate Customers and Multinationals in Telefonica Mexico, Héctor Cárdenas – CEO and cofounder of Conekta (, and Martin Naor – partner and CEO of Infocorp, we discussed about the digital transformation in the financial industry.

What an excellent moment to do it, along with the BBVA Open Talent that looked into promising fin-tech and digital life start-ups.

I wanted to take this opportunity to share with you some of my take aways from this panel:

  1. Banks have a harder time reconciling digital with their legacy platform and infrastructure, and how they have been doing business for many years. Fin-tech start-ups instead are born digital, without any legacy, but they need to be careful not to build one for themselves as they grow.
  2. Technology doesn’t seem to be the constraint for becoming digital, neither is budget. Banks have much more resources and still we are seeing some interesting start-ups in different aspects of banking disrupting with much better digital propositions. Banks instead need to push the digital concept across the organization, and very tied to the concept of innovation, they need to make fundamental changes in the culture of the organization. This is what banks such as BBVA are trying to do though their Innovation Centers, open API’s, Hackatons and fostering an ecosystem of fin-tech startups in Americas and Europe, and why they partner with Next Bank to propel those.
  3. Digital also needs to reach to those customers that are still analog. This requires banks to re-imagine their branches and provide solutions that leverage the digital components but understanding the customer engagement required. Banks are quite better positioned than fin-tech start-ups in terms of physical presence, though it is no longer acceptable for banks to continue to open (or update) branches under the old branch paradigm.
  4. Banks need to better understand what customers really want, and that is not necessarily other financial product, but maybe help with administering their finances, banks helping them to save money, helping SMEs make more business, even expand globally. These are the type of issues fin-tech start-ups are tackling today. Banks have tons of information but they need to become smarter in how they use it and what new services can they offer to their customers. It is also important to look at how customers use technology in their everyday life to find ways of making banking more convenient.
  5. You just don’t claim that you are going to be more digital and then magically wait for that to happen. There is a lot of effort involved. In cases such as BBVA, acquiring Simple is part of such effort. Understanding the bank limitation in terms of its culture is also important to define what is feasible and what not. Reaching out to understand what the ecosystem is doing, actively engaging and participating to come up with a better digital vision has become an imperative today.

Overall and subjacent to the digital transformation race there is still an open debate whether fin-tech start-ups are a partner or a threat to banks. My take is that they are more a threat than a partner in the long run, but they need each other in this initial stage so partnering seems a good starting point. In the long run banks should incorporate those ideas that work; otherwise they will be cornered to a role where they just process transactions for those companies that dominate the relationship with the customer. The implications of this scenario are daunting for banks.

What do YOU think?

Busy Few Weeks in the Payments World

Oct 16th, 2014

It has been busy few weeks in the payments world. Not surprisingly, reaction to Apple Pay’s announcement is the hottest topic in payments. It even manages to dominate European conferences with no specific agenda items dedicated to Apple. We at Celent added our own voice to the debate by publishing a new report on Apple’s entry into payments, in which we describe Apple Pay and assess its prospects. Celent clients can download the report here, and all are welcome to join me at the webinar next Monday, October 20th. By then, Apple Pay should be up and running – the iOS upgrade which would launch Apple Pay is expected over the weekend.

In the meantime, PayPal announced that it would separate from eBay and its core auction business, and would get a new CEO, Dan Schulman, a seasoned payments executive from American Express. Arguably, both companies will be able to better focus and compete as stand-alone businesses. However, it’s difficult not to think that the separation also makes them both more “in play” in the industry consolidation. Immediately, rumours started swirling around who might buy/ merge with PayPal; some of the loudest noises concentrate around Square, although so far those rumours have been denied by Jack Dorsey via Twitter.

Autumn is traditionally a conference season, and this year again, many of us are attending the leading events from Sibos and EFMA to Money2020, AFP, and BAI. My colleague Stephen and I were last week at Mobey Day in Barcelona, as usual an excellent event; many thanks to Mobey Forum for their cordial invitations! As a sign of its growing presence and influence, Mobey Day became two days this year. It focused on two major themes – Host Card Emulation (HCE) and biometrics. While the latter was brought to the forefront by Apple Pay, the former can certainly be an alternative strategy for banks looking to deploy NFC solutions for Android devices.

Dan Latimore and I will soon be attending Money 2020, and are very much looking forward to spend a few days immersed in payments innovation and meeting our clients. Our diaries are filling up fast, but if you are going to be there and would like to meet, let us know or reach out to your Celent account manager.

However, as much as we all get excited about innovation in payments, we can’t afford to forget what makes it all work in the back office. We have been conducting extensive research this year into card management and transaction processing (CMTP) market and the vendors that serve that market. Our report offering “a dozen observations” on the market trends has been out for a couple of weeks now and I will be hosting a webinar on this topic next week on October 22nd – join us if you can.

Is Your Financial Institution Data Driven? Survey says, ‘Probably Not’

Post by

Oct 15th, 2014

Data analytics is not a new pursuit. SAS, for example, has been offering solutions since its inception in 1976. But owing to the inherent complexity of advanced data analytics platforms, experience with data analytics has been the domain of only the largest organizations. However, the last several years have witnessed an explosion in applications for data analytics, especially in the area of customer analytics. With the growth in applications came conveniently pre-configured software solutions that were fine-tuned for a bevy of specific applications. The combination of product evolution, specialized analytics-savvy consultants, professional services firms, and cloud computing, has brought advanced analytics swiftly down market. Now, even small banks and credit unions can foray into customer analytics with a comparatively small investment and without a legion of data scientists on staff. But are they?

Well, that depends on what you mean by data analytics. Celent recently surveyed about 100 North American banks and credit unions to understand the state of analytics adoption and the drivers behind its growth. In our resulting report, “Customer Analytics Adoption in Banking: When Management Doesn’t Lead” (September 2014), we noted that about half of the financial institutions in the sample had some experience with data analytics. However most of these efforts might be considered rudimentary, such as customer profitability or web analytics applications. A third of the respondents to the survey had experience with social media sentiment monitoring, an example of advanced analytics, but inexpensively available in the cloud and easily used by non-data scientists. In contrast, usage of predictive analytics applications is far less common. Just one in five financial institutions demonstrated experience with next-best-action analytics, and one in ten showed an understanding of customer lifetime value.

What gives? If customer analytics holds such great promise, why aren’t more banks and credit unions deriving value from its use? I think there are at least two reasons. First, we are seeing an immature state of data analytics at most financial institutions. Second, and perhaps more important, there appears to be a lack of interest by leadership at the top of these financial institutions in driving data-driven strategies.

Is Your Organization Data-Driven?
Using data to make decisions is not the same as being data-driven. An organization doesn’t become “data-driven” simply by installing an advanced data analytics application. So, what does it really mean to be a data-driven organization? Celent asserts that data-driven organizations use analytics extensively and systematically to influence and execute strategy. Practically, this takes many forms, but it begins with attitude. Organizations start by deciding to value data, develop confidence in its validity, and make decisions based upon data even when doing so is uncomfortable. In other words, being data-driven amounts to having faith in the efficacy of data and acting accordingly. It means walking the walk, not just talking the talk.

How many banks are true data-driven organizations? Not many, we find. It’s probably fair to say that the concept of an organization being data-driven isn’t a binary thing. Instead of a “yes” or “no” answer, perhaps the question is best posed, “How data-driven is your institution?” and additionally; “How data-driven would your organization be if it were up to you?” The survey found that just 29% of responding financial institutions thought their organizations were highly data-driven. Nearly 90% of that same sample said their organizations would be highly data-driven if it were up to them. In other words, they wished for it. Clearly, we think that the industry wants to be data-driven, but doesn’t think it’s there yet.

analytics self assessment
Source: Celent survey of North American financial institutions, July 2014, n=78

Lack of Leadership
Intuitively, this suggests a leadership problem, but does the data support this conclusion? It does. We cross-tabbed the survey results by respondent roles and found significant differences in attitudes surrounding data analytics. Specifically, responses to the question “How data-driven would your organization be if it were up to you?” varied dramatically by role. It turns out that all respondents in IT/IS roles wished their organizations were highly data-driven – or would be if it were up to them. In contrast, respondents in strategy or innovation roles as well as those in marketing, showed somewhat less passion for being a data-driven organization. Perhaps a surprise, coming in last in support of data driven strategies were those in executive management; compared to those they lead, this group was the least desiring for their organizations to be data-driven.

data drivenness
Source: Celent survey of North American financial institutions, July 2014, n=78

Although surveys aren’t the final word on any topic, the results do suggest a leadership problem, which if addressed, would go a long way towards better serving customers through skilful use of data analytics. As banks better understand the merits of being data-driven, we think that financial institution leadership will ultimately lead the march to supporting data-driven business strategies, particularly those focused on customer analytics.

I will be addressing this topic in more depth in a session at American Bankers Banking Analytics Symposium in New Orleans on Thursday, October 16th.

Should your bank acquire a UX design firm?

Post by

Oct 15th, 2014

I was very intrigued and excited when I heard about Capital One’s acquisition of Adaptive Path. When was the last time you heard of a bank acquiring a design firm? This fresh thinking is exactly what is needed in the banking space. I’d also like to see some of the major software vendors acquire firms like this (cc:@dmgerbino). I think it’s a great idea for several reasons:

  • Design and user experience (UX) are critical to digital AND brick and mortar banking. From a cultural perspective, it makes a huge difference to have designers and UX specialists “on the team” as opposed to engaging external contractors. UX becomes embedded in projects and in thinking.
  • Design / UX should be a horizontal function at financial institutions. Creating a horizontal function can be beneficial to all parts of the bank. There are parts of the bank that require even more help than retail banking (corporate digital banking is a great example) . It can really help to be able to tap into an internal department and have this approach permeate through various parts of the enterprise.
  • Labs and UX go hand in hand. If your bank has a lab or is thinking about a lab, you are likely going to have a bunch of new projects. Development and design belong together.
  • It makes for an awesome PR buzz : )

Banking UX isn’t just about the business case, it’s about an approach. This is the quote I gave to American Banker:

“When the paint starts to peel on the walls of the branch and the carpet starts to fray and the glass is scratched, what happens? It gets renovated,” said Jacob Jegher, a research director at Celent. “Same can be said for digital banking.”

Or so I would like to think… like it or not, banking projects have to be justified, compete for scarce IT dollars, and can be very hard to pull off if they don’t have a direct link to revenue. Banks often come to us for advice on how to tweak their business case to show increasing revenues, # of customers, etc. if they move forward with a new UX and design. Many banks resort to creative accounting in order to get their business cases approved. We often point them in the direction of customer retention metrics since it’s about delighting your customer. Happy customers are loyal customers. I’m looking forward to the day when UX becomes part of banking culture and isn’t just another metric in a business case. Sounds like Capital One is on the right track.


Oracle’s three modes of Progressive Transformation

Dan Latimore

Post by

Oct 9th, 2014

I was able to attend Oracle’s Open World at the end of September, and although it conflicted with Sibos, it was an extravaganza. While there I sat down with some of the folks involved with core systems; they outlined the interesting way they’re thinking about progressive transformation (briefly, how to migrate core systems gradually; the opposite of a “big bang” approach). Oracle agrees with the consensus that a big bang for any sizable bank is going to be problematic. What interested me was that they outlined three different approaches for progressive transformation:

  1. Replace a vertical slice
  2. Replace a horizontal slice
  3. Create a new target state architecture off to the side

Without going into great detail, I’ll describe how Oracle has at least started the journey in three different banks around the world.

  1. Vertical Slice. Suncorp in Australia has started the process of moving off its Hogan core by focusing on unsecured lending; its next stop will be secured lending.
  2. Horizontal slice. KeyBank, based in Cleveland, announced at Open World that it intends to use non-core systems components of Oracle Banking Platform (“OBP”) to enhance and modernize its mobile and online channels. To be clear, KeyBank has not committed to a core transformation. The project is in its very early stages; it’s one we’ll watch with interest
  3. Target architecture. National Australia Bank’s new entity, UBank, is a digital-only bank that NAB created as part of its bank transformation using OBP. Its goal is to change the customer experience, and uptake has surpassed initial expectations.

Celent’s perspective is that progressive transformation (or whatever various name different vendors use for the same basic concept) is a way to purchase a real option as banks think about how to modernize their systems and accommodate the increased demands that digital access place on their technology. It lets banks begin a journey without committing them to course of action that might not be appropriate down the road as the world changes.

Time will, of course, tell how successful each of these projects will be, but thinking about the different ways to approach a phased core transformation is useful for any bank with core on its strategic agenda (which should be…almost any bank).

When $250 Million Can’t Buy Cyber-Peace

Oct 8th, 2014

Last week’s newspapers brought the unsettling news that JP MorganChase’s internal CRM systems were penetrated by unknown attackers, compromising the personal information of 76 million households and 7 million small businesses. The Bank had released a statement to its clients on Thursday noting that “there is no evidence” that account numbers, ATM PINs, or social security numbers were accessed during the cyber attack.

Today, news reports indicate that four other large financial services companies including Citibank and E*Trade were targeted by the same group, thought to be based in Eastern Europe or the Middle East.  In the case of JP Morgan Chase, the investigation has been focused on the personal computer of a single employee whose system may have been compromised by malware.

The incident continues to be investigated by the FBI, Secret Service, and JP Morgan’s own private vendors, so there’s no need to speculate on who is responsible or what other information may have been compromised in the attack.  Still I hesitate to note that the Bank’s soft “no evidence” qualifier gives it plenty of wiggle room should the investigation uncover additional data leakages.

The point here is that like the two other large data breaches of 2014 — Target and Home Depot — the JP Morgan Chase breach occurred in its private data center, the kind that is built at significant cost to resist these sorts of attacks – or at least detect and repel them when they do.

JP Morgan’s annual report shares that the bank spends more than $250 million annually on cybersecurity, and will have 1,000 employees focused on the task by the end of this year.  Most banks do not have the size or management scale to match JP Morgan Chase’s annual investment, but if even $250 million can’t buy cyber-peace, what chance do average sized banks have of protecting themselves from the next malware du Jour?

I contrast this situation with the growing use of cloud services in the financial services industry.  While other industries have been quick to embrace the cost, capability, and flexibility of cloud services, the banking industry lags behind — largely based on valid concerns about information security and control.

JP Morgan Chase’s announcement serves as a wake-up call to banks of every size, informing them that when sensitive client data is concerned, private data centers and public cloud providers are partners in the ongoing fight for data security.  The next bubble to burst will be the long-held presumption that maintaining customer data in a private data center is inherently safer than storing it in a public cloud.

To a cyber-attacker, an IP address is an IP address.  Whether sensitive customer data is located on a physical server on the bank’s premises or a virtual server located on a public cloud is mostly irrelevant.  What really matters is how well a bank (or its service provider) monitors network traffic, detects unusual or malicious activity, and shuts down suspect traffic.  The other lesson here is that as always, a little encryption can go a long way in ensuring that customer data is safe from the prying eyes of clever and determined hackers.