Reflections of Nacha Payments 2017

Reflections of Nacha Payments 2017

Analysts have definite fixed points in our year. For me, one is the spring conference season, and which nearly always includes Nacha Payments, the big US payments conference. I was unable to attend last year, so I was particularly looking forward to returning this year. Indeed, there are groups of people I often only see at the event.

After being away, the first thing was that struck the exhibition floor was now much, much smaller. Not just that the stands were smaller, but there were fewer of them as well. Indeed, no banks had stands (though several had meeting “pods”). I also noticed that, at some point (or perhaps I had never noticed it), Nacha had snuck onto the Payments logo the word Faster. And the floor and conference sessions were abuzz with talk of real-time payments.

This had some interesting side effects.

First, the belle of the ball was The Clearing House, with virtually every conversation I had referencing their real-time solution directly or indirectly. Same Day ACH, by comparison, didn’t come up in a single conversation at all. Even in the few sessions I managed to attend, it was only briefly mentioned.

Second, the number of attendees (by our estimates) was up, though still down on a few years ago (my trip report blog for 2012 reported 2,500 vs. the 1800 this year). The result was a definite buzz, particularly on the exhibition floor, where most vendors reported good activity and good levels of conversation.

Third, the topic of conversation was real-time. If name checks in discussions are a valid, albeit unscientific, measure of which real-time solution will succeed, then The Clearing House is significantly ahead of Zelle, but with no other real-time solution even mentioned. Indeed, there seemed to be surprise that so many solutions were going through the Fed process. Whilst the Fed obviously is respecting confidentiality of those going through the process, the vendors themselves need to be very vocal and visible, or they could find themselves being seen as late to the party. I’m party to a number of the names, but I’ve not seen anything from those organisations at all.

Finally, and most interesting, was the sudden appearance of APIs. In Europe, because of PSD2, for the last couple of years, APIs have been something that banks have to discuss because they will become mandated. Their appearance in the US has quite probably been triggered by some of the international banks, but the types of banks discussing them was much broader. In Europe, APIs and real-time will most likely go hand-in-hand – it’ll be interesting whether that will be the case in the US too.

Next year Nacha Payments is back in San Diego. Given where the real-time adoption will be, it’s likely to be a pivotal moment in the industry. I think that sets up the event to be a must attend event. See you in San Diego!

Celent Model Bank Awards 2017: Banking Products Innovation

Celent Model Bank Awards 2017: Banking Products Innovation

This is the next article in a weekly series highlighting trends and themes from Celent’s Model Bank submission process. For more information on how the Model Bank Awards have evolved, see the first two pieces from my colleagues, Dan Latimore and Zil Bareisis

This week’s article focuses on Model Bank entries in the Products category. Part of the criteria for this category is that the solution needs to be in production and demonstrating business benefits. The Products entries for 2017 fall broadly into four sub-categories:

  • Payments Product — for launching the best consumer or business payments product.
  • Lending Product — for the most impressive consumer or business lending or collections initiative.
  • Open Banking — for the most impressive API strategy and results so far.
  • Product Innovation — for demonstrating the ability to launch multiple innovative products.

The majority of submissions in the Products category came from banks in developing markets, with only a handful from large global banks. The Model Bank award submissions came from Argentina, Germany, India, Korea, the Philippines, Poland, Russia, Singapore, South Africa, Spain, Taiwan, Turkey, UAE, and USA.

The Products category submissions were impressive indeed:

Payments: The submissions in this area focused on modernizing existing banking and payments infrastructure. With consumer expectations growing for real-time transactions and unified information across channels, banks are layering new capabilities onto legacy frameworks. Capabilities include accelerated check clearing, enhanced mobile wallets, simplified fraud controls, and streamlined charitable donations.

Lending:  Possibly threatened by alternative lenders, banks in this sub-category are improving the speed and convenience of loans for micro and small businesses. Some entries focused on expanding application channels, both digital and physical. New digital channels include SMS/text, ATM and Facebook. Physical channels include the local coffee shop. All of the submissions featured faster loan decisions through advanced analytics and paperless (or almost paperless) loan closings.  

Open Banking: Open Banking APIs have moved beyond hackathons and proofs of concept to production implementations. While some banks are rolling out Open API development portals in response to regulations like PSD2, the Model Bank candidates in this category are using APIs to improve the customer experience. The submissions represented two approaches to Open Banking. The first is the use of open APIs to connect directly with customers and developers, enabling transactions including B2B payments, personal remittances, loan disbursements, and e-Commerce refunds. The second is the use of open APIs as the core foundation for digital-only banking models. Third-party developers then create value-added client-facing applications using the bank’s exposed API services.

Product Innovation: This sub-category features partnerships with both traditional financial technology and start-up Fintech firms to make banking more convenient, create new offerings, improve customer service, expand a bank’s digital footprint, and personalize marketing offers.  

Want to hear more about the Celent Model Bank winners for payments product, lending product, open banking, and product innovation? Join us for the 10th annual Innovation and Insight Day on April 4th in Boston. In addition to revealing the winners of all the awards, Celent analysts examine the trends that are driving innovation in Banking. I look forward to seeing you there.

Key Takeaways from Sibos 2016

Key Takeaways from Sibos 2016

Having just returned from the whirlwind that is Sibos, I (along with many other industry observers) feel compelled to contribute my two cents on the top takeaways from the event, along with one observation on the mood. Nothing about Sibos can be exhaustive, but three key areas stood out: Cyber, PSD2, and Open Banking / APIs.

Cyber was the first topic mentioned in the opening plenary address. Its seriousness brought into stark relief by the $81mm Bangladeshi incident (something my cab driver in Boston asked about on the way to the airport!), Cyber was a focus throughout the conference. While it has long been an important issue, it has catapulted to the top of the agenda of every member of SWIFT’s ecosystem given the recognition that the system is only as secure as its weakest node.

PSD 2 is often thought of in a retail banking context, but its implications will carry over to the corporate side as well. There are two critical points: 1) Banks must make their customers’ data accessible to any qualified third party, and 2) Third parties can initiate payments. These changes will have profound second-, third-, and even fourth-order effects that can scarcely be imagined today. Banks are thinking through what they need to do to comply, as well as what their strategies should be once they’ve implemented the necessary (and not inconsequential) technology changes. For a primer on the current state of PSD2, see Gareth Lodge’s recent report on the subject.

Open Banking is enabled by APIs. While PSD2 is certainly accelerating the concept, it would have been gaining momentum even without the external pressure. There are simply too many activities that can be done better by third parties than by banks, and the banks have realized that they need frictionless ways to tap into these providers. APIs are a critical mechanism to enable this interaction. Technology, of course, is a necessary but not sufficient condition for success; banks must be culturally able to integrate with new partners quickly and flexibly.

On a final note, the mood was pragmatic. The atmosphere wasn’t one of consternation, panic, or confusion. Instead, the buzz was focused, purposeful, and businesslike. Bankers and their service providers are ready to roll up their sleeves and get the job done instead of wringing their hands about all of the possible ill-fated futures that could arise. We at Celent look forward to the progress to come in 2017. What are your thoughts?

Top trends in corporate banking webinar

Top trends in corporate banking webinar

Please join me on Thursday, April 21st at noon EST for an overview of the 2016 edition of our Top Trends in Corporate Banking report, which was published in March.

2016-04-18_15-40-50

Corporate banks continue to place an enormous focus on investing in digital channels to meet the ever-increasing demands of clients for enhanced tools while boosting security and fraud prevention. Despite this investment, corporate banking has lagged in terms of adoption of innovative technologies. To improve that performance, corporate banking lines of business are undertaking a broad set of initiatives to overcome the inertia that has left clients behind in terms of innovation. Among the top trends, we will examine the opportunities in trade finance and customer onboarding for improving efficiency and enhancing client satisfaction.  Other top trends include fintech partnerships, distributed ledger technology and open APIs and adapting liquidity management strategies.  I look forward to having you join us on Thursday! 

Click here to register

 

 

 

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?