Emerging Innovation in Banking

Emerging Innovation in Banking

Over the past few weeks we have been previewing various content themes we will be discussing at our Insight and Innovation Day in Boston on April 4th. I would like to finish this series of posts by looking at the new Model Bank category we introduced this year – Emerging Innovation.

When we added this category, we weren’t quite sure what to expect, but we certainly hoped to see the banks’ efforts at the “bleeding edge” of innovation. We were very pleased with the number and quality of such nominations, which spanned the gamut of the hottest topics today. Many of these truly outstanding stories are still in relatively early stages, but all are very interesting and pointing to the future of banking.

Model Bank nominations in 2017 showcased the banks’ efforts in the areas at the forefront of innovation in banking:

  • Innovative customer engagement: the most innovative banks go where their customers are; for example, banks are experimenting with ways to engage their customers directly from social media platforms via chatbots and other tools. They are also looking to introduce new channels, such as wearables.
  • Artificial intelligence (AI): Model Bank submissions demonstrated the diversity of AI technologies and their applications:
    • Driving a virtual agent capable to have a written exchange with the customer via a chatbot, or to even hold a verbal conversation on the phone.
    • Powering a robot to support customer engagement in physical branches.
    • Deployed behind the scenes as a tool to help the customer service agents.
    • Helping determine the best marketing offer for the customer.
  • Biometrics: banks are stepping up their efforts to deploy biometric authentication in their bid to provide customers more convenience while ensuring security. They are expanding beyond fingerprints and are experimenting with other modalities such as facial and voice biometrics. And it’s also not just for consumers – banks are beginning to use biometrics in the corporate banking context as well.
  • APIs: we already spoke about APIs when describing Open Banking, but want to highlight this again, given the importance of APIs. While banks in Europe must open up because of regulation, leading banks around the world are not waiting for the regulators and are starting to provide API-based access to their services to others. And some banks are pursuing a “marketplace banking” strategy seeking to position themselves as a banking platform in the centre on which third parties can build a myriad of discrete services. 
  • Blockchain: given how many banks have started exploring blockchain and other distributed ledger technologies, we were hoping to see some nominations describing their efforts in this space. We were not disappointed and received initiatives ranging from collaborative efforts around cross-border payments and trade finance to “solo” efforts of a single bank using blockchain to manage employee incentives.

We will be discussing all these topics and more at our Insight and Innovation Day next week. It is also the time when we announce and award all the Model Bank winners, including our Model Bank of the Year. We are in the final stages of preparation and are very excited! The event has been sold out for weeks, so if you haven't yet registered you might be too late… If you have registered, we are looking forward to welcoming you there, although if your plans have changed, please let us know so that we could invite those on the waiting list. See you in Boston!

“Transforming the Landscape” – My learnings from SIBOS 2016

“Transforming the Landscape” – My learnings from SIBOS 2016

The fall conference season is a business time for us in the industry research business. I’ve finally recovered from a hectic week in Geneva, where I met with over 40 banks, technology companies, and consulting firms to discuss what’s happening in global transaction banking. This year’s Sibos theme was “Transforming the Landscape”, organized around four themes: Banking, Compliance, Culture, and Securities. A selection of Sibos session recordings is available on the Sibos website.

With my research focus of Corporate Banking, my discussions focused on three key topics.

  • SWIFT’s global payments innovation (gpi) initiative:  SWIFT announced that it had successfully completed the first phase of the gpi pilot, surprising some bankers with SWIFT’s ability to meet the first milestone so quickly. The initial objective of gpi is to improve the speed of cross-border payments (starting with same-day) and improve transparency with new end-to-end payment tracking. SWIFT staffers roamed the exhibition hall with iPads demonstrating the gpi’s new payment tracker. It remains for banks to integrate the new payment type into their corporate digital channels and to determine product pricing.​

SWIFT GPI

  • PSD2 and UK Open Banking:  Technology providers, especially those that offer core banking systems along with payments technology, are working closely with regulators and industry groups to enhance their product offerings to accommodate the third-party account information access and payment initiation provisions of PSD2, along with the UK’s Open Banking API Framework. Looking beyond mere compliance, both providers and banks are developing value-added services to capitalize on the significant disruption arising from opening traditional banking capabilities to third-parties.
  • Blockchain in Corporate Banking:  After publishing a Celent report on use cases for blockchain in corporate banking earlier this year, I was heartened to hear “real world” blockchain announcements from the big tech companies, touting their banking collaborations. Swiss bank UBS is working with IBM on a project to replicate the entire lifecycle of an international trade transaction. The FX settlement service, CLS, is building a payments netting service that will enable cash trades on IBM’s Fabric blockchain. Bank of America and Microsoft announced their intent to build and test blockchain applications for trade finance.   Although much progress is being made by blockchain consortia, banks, and technology providers, most people I talked to believe that significant adoption of blockchain for corporate banking use cases is still a few years in the future.

I’m off next week to attend the Annual Association for Financial Professionals (AFP) conference, hoping to bring back developments in the world of corporate treasury and treasury management.

The UK open banking API framework – more questions than answers?

The UK open banking API framework – more questions than answers?

This week the Open Banking Working Group (OBWG) published its framework for the UK Open Banking Standard. The framework seeks to create:
• An open API for data that is shared, including, but not limited to, customer data, and
• An open data API for market information and relevant open data

Secure, publicly accessible Web APIs have been around for more than ten years in the financial services sector. Many popular eCommerce platforms employ APIs to increase adoption by exposing various features of the underlying platform to third-party application developers. These include PayPal, Stripe, Authorize.Net and LevelUp. Payment APIs have grown by almost 2,000% since 2009, with Financial APIs growing at more than 470% during that time.

Banks embrace APIs to modernize and streamline back-office connectivity, especially for customer-facing digital channels. However, except for a smattering of bank API hackathons featuring mock customer account data and the well-publicized external APIs made available by digital bank Fidor, banks are reluctant to publish open, external APIs for customers or third-party to access financial data. Two major government initiatives are forcing their hands.

The account access provisions of PSD2 require Euro Area banks to open access to customer information where third-parties have the explicit consent of the customer. The UK HM Treasury Open Banking initiative strives to improve competition and consumer outcomes by giving customers the ability to share their transaction data with third party providers (3PPs) using an open API standard for UK treasury.

The UK government established the Open Banking Working Group in August 2015, giving it the remit to design a detailed framework for the development of an open API standard in the UK. The detailed framework was published this week after review by the HM Treasury.

Open Banking Framework

Sifting through the 128-page report, several key issues remain to be addressed:

Governance: The report recommends the creation of an independent authority to oversee the development and deployment of the Open Banking Standard. As co-chair of the OBWG, is the Open Data Institute vying to become that independent authority? IMHO, the banking industry doesn’t need yet another standards body. Why not engage the expertise of an existing organization like the International Organization for Standardization (ISO), the governance body of the popular ISO 20022 standard, to ensure an internationally agreed upon approach with the involvement of a diverse group of stakeholders?

Data Standard: The report recommends that existing standards, datasets and structures be reused where possible but also mentions further investigation as to whether the Open Banking Standard will need a separate reference data model. I hope that the OBWG examines the widespread adoption of the ISO 20022 financial industry message scheme and its contribution to standardizing and simplifying financial data exchange worldwide.

Data Protection: The report states that banking customers (individuals and businesses) need to understand their responsibility for informed customer consent and ensuring their data is protected. This is problematic in light of continued social engineering banking losses, an emerging global fraud threat. The report acknowledges that it is likely that cyber-criminals will specifically focus on the open API as a new attack vector. Consumer education needs to be the responsibility of the Open Banking ecosystem: Banks, 3PPs, government agencies, and consumer watchdog groups.

Developer Resources: The recommendation that a central developer hub be created to support developers is a seemingly practical idea. However, there are a number of leading API platform providers and no universally accepted RESTful API design methodology, which will lead to a scramble by the proponents of RAML, SWAGGER and Apiary.io to be the provider (and language) of choice for creation of common open APIs and developer sandbox.

Implementation Schedule: The report outlines a multi-year release schedule with the first release to be completed within 12 months of the report’s publication—February 2017. This seems to be very aggressive considering that detailed design specifications are not yet complete, nor has an independent authority been selected to oversee development of the standard.

Monetization: Respondents to the February 2015 Call for Consultation estimated the cost of developing an open API standard would range from “negligible to tens of millions of pounds.” At first glance the Open Banking initiative seems to provide all of the benefit to fintech firms with all of the cost shouldered by UK financial institutions. Celent anticipates acceleration of bank/fintech partnerships aimed at creating differentiated value propositions.

Interoperability: Banks and solution providers are closely watching the intersection of the UK Open Banking initiative and the account access provisions of PSD2. There is significant overlap between the two initiatives and industry participants hope that they will be joined up, but for now the HM Treasury is actively seeking to take the lead with its aggressive implementation schedule. Interoperability across geographies and sectors fosters sustained innovation and broader participation by third parties, contributing to the UK Treasury’s goal of improving competition and consumer outcomes.

The recommendations for implementing the Open Banking Standard will be carried out by the Open Banking Implementation Entity. Celent analysts are watching developments closely and assessing their impact across our coverage areas. We welcome your feedback—what are your thoughts about opening up customer banking data to third-party providers?

A “Shout Out” to Finextra Future Money

A “Shout Out” to Finextra Future Money
I just spent a couple of fascinating days attending Finextra Future Money in London. The content of the event has already been well covered via a Twitter feed, and Finextra’s own live blogs and a post-event summary. I would strongly encourage to click on those links, as the discussions have been interesting, informative, sometimes provocative and always lively. Rather than trying to summarise all the ideas over the last couple of days, I just wanted to highlight and give thanks to:
  • Everyone at Finextra, but especially Liz Lumley and Nick Hastings, for putting together a great event and for inviting me to moderate a panel on Convergent Commerce.
  • All my panelists – Danielle Anderson (Harris and Hoole), Arun Glendinning (Birdback), Eddie Keal (IBM), Peter Keenan (Zapp) and Paul Thomalla (ACI) – for their insights and making the hour allocated to the panel fly by.
  • Richard Brown (IBM), as I never heard anyone speak so clearly and eloquently about cryptocurrencies and their impact on the future of finance.
  • Dave Birch (Consult Hyperion), who could probably moderate a panel of actuaries and still make it informative AND entertaining (with apologies to any actuaries!) Given that here both his topic (banking apps and APIs) and panelists were genuinely interesting, it is no surprise that it was perhaps the best session over the two days.
  • Bankers, such as Alessandro Hatami (Lloyds), Pol Navarro (Banco Sabadell), Brigid Whoriskey (RBS) and others who bravely presented, engaged and sparred with an audience and sometimes even fellow panelists feisty enough to suggest that “PingIt is nothing more than a PR exercise” or that “Western Union/ SWIFT shouldn’t/ won’t exist in the near future.”
  • Everyone with whom I had the pleasure and privilege to chat during the networking breaks.
I am certainly looking forward to another such event next year.  

Top Trends in Retail Payments: A New Celent Report Is Out

Top Trends in Retail Payments: A New Celent Report Is Out
Last week we published our annual report on Top Trends in Retail Payments, which looks back at 2013 and calls out the main themes to watch for in 2014. In 2013 we observed interesting developments in each of the four dimensions defining the battleground for mobile payments – see the chart below. Starting with customer interface, we are seeing the rise of mobile apps from retailers and service providers. These apps focus on adding a digital layer over service provision with seamlessly integrated payments capability. We call this trend “contextual payments” – recognising that customers engage in a broad set of activities and ensuring they are able to pay in any context, while acknowledging that the actual service provider is likely to offer a richer digital experience and customer interface than a generic open payments wallet. Trends chart One of the effects of contextual payments is the increased willingness of banks to consider enabling all types of payments directly from the bank accounts rather than cards, either by building “push” solutions or deploying APIs to expose banking services and enable account access from retailer and other apps. While there has been no breakthrough in the adoption of NFC-based contactless payments in 2013, the emergence of host card emulation (HCE), might just breathe life into NFC and contactless payments by enabling banks and other providers to host credentials in the cloud while making use of the phone’s NFC interface but bypassing secure element owners. However, in our view BLE and Beacons will play a much more important role in marketing than they will in payments. Celent clients can download the report here. If you are interested in hearing me discuss these and other trends in more detail, please join me for a webinar on February 13th – more details here.