Mobile in the time of digital

Mobile in the time of digital
Bank of America recently announced that it would triple spending on its mobile app. While no exact dollar amount was given, it made me wonder: what exactly does that entail? In the past, Celent has praised the Bank of America mobile banking apps as some of the best out there. The bank has been going strong with its digital strategy for years, even closing branches and reducing overhead to drive adoption. Bank of America recently added features like touch ID, debit card toggling, two-way fraud alerts, and more to its app, and has been outspoken about the desire to personalize the digital experience. Its commitment to new features and functionality is reflected in the comments and ratings on iTunes and Google Play. Shown in the graph below, the bank´s mobile banking adoption has been steadily growing, with a growing share of deposits. Pictureforblog                     Source: BofA Annual Reports/ Investor Presentations So again: what does “tripling” mean when talking about an app that has obviously been well-funded for quite some time? As digital assumes a larger role with the business, the funding required to build a digital customer experience will extend beyond the reaches of mobile. The capabilities many consumers demand can be difficult if not impossible without significant effort on the backend to align technology. Banks are starting to realize this, building out unified digital platforms that streamline the architecture and better position institutions to offer truly modern, data-driven, and value-added consumer experiences. These kinds of initiatives can often run in tandem with larger cultural and multi-channel efforts. In the press release for the announcement, Bank of America said it was launching a digital ambassador initiative which, similar to the Barclays Digital Eagles program, will see front-line branch staff reskilled to be able to assist with digital channels. The bank is also launching cardless ATMs later this year. I´m assuming the coincidence of these announcements is anything but, and that the funds for “mobile” will largely be dispersed over (or fit into) a wider array of strategic digital initiatives. Institutions need to create a solid digital base within the institution, bringing in culture, personnel, and technology across all channels and lines of business to start transforming digitally. Banks are being challenged by the notion of “becoming digital.” Many have reached the point of recognizing the inevitable digitization of the business model, and are in the throes of decision making that will determine how equipped they are to appeal to the new digital consumer. Most institutions are experiencing these growing pains, and very few have committed to digital at the level demanded by customers. If Bank of America is indeed tripling its budget just for mobile, then I´ll be very interested to see the kind of features the bank develops over the next few years. Yet there´s a lot that goes on to make the front end look good and spending more on the front will mean more spending on the back. Mobile banking is a significant part of digital banking, but remember that it’s only ONE part. While new functionality gets the headlines, it’s what’s under the hood – culture and backend – that truly matters.

Sibos 2015: banks reacting to the threat of blockchain and other FinTech

Sibos 2015: banks reacting to the threat of blockchain and other FinTech
Singapore hosted Sibos this year, and judging by the reported 8,000 attendees, transaction banking is alive and well. That also means there were 8,000 different experiences, impressions and takeaways. Here are mine: Banks are fully aware of the threat of posed by technology and are beginning to act on it. Two technology vendors I spoke to said that every single bank they met with asked about blockchain, an extraordinary change from six months ago when it was only beginning to be seriously discussed. It’s encouraging that banks have evolved their positions so quickly. While no one know yet what the killer blockchain uses will be, banks are ramping up experiments along all facets of the value chain. Celent will have more to say about that shortly. Another facet of technology change is the need for banks to partner with FinTech innovators. Based on my conversations with many of these vendors, banks were a lot more willing to discuss new ways of working together. There may even me some movement toward value pricing (that is, mutual sharing in beneficial outcomes), but it’s still very early days; banks seem loathe to give away upside and are unsure how to structure enforceable deals. Sibos’ ambivalence about innovation manifested itself physically with Innotribe. The space was relatively small, and every time I went by I was unable to get in because it was filled to overflowing. Innovation clearly needs to be given even more attention despite the threats it presents to the existing structure. Was this perhaps a physical metaphor of Banking’s relationship with and attitude towards FinTech? Having had four straight nights of canapés for standing dinners, getting home to digest the whirlwind that is Sibos was very welcome. On to Geneva next year!

Helping build the fintech ecosystem in Latin America

Helping build the fintech ecosystem in Latin America
A few weeks ago, Dan Latimore and I had the chance to attend Finnosummit in Mexico City. IMG_1341 While Dan was the one really working (he presented on “How Big Data can change Financial Services”) I mingled around the participants of this vibrant ecosystem encompassing entrepreneurs, financial institutions, investors, and regulators among other stakeholders. It is amazing how the ecosystem continues to grow and how fintech start-ups are booming.IMG_1349         Celent has been collaborating to help create the fintech ecosystem in the Latin American region since its inception and I had the honor, for 2nd time, to judge the fintech start-ups participating in the BBVA Open Talent, which brought the Latin American finalists into town as part of Finnosummit. They had their 5 minutes of glory (or suffering) by pitching their venture to the audience and two winners were selected at the end of the day. Discover the finalists of all regions here. In Latin America two chilean start-ups were the winners: Destacame.cl, aiming to financial inclusion by creating a credit scoring based on utility payments; and Bitnexo which enables fast, easy and low cost transfers between Asia and Latin America, using Bitcoin. In the US & RoW the two winners were: ModernLend enables users with no credit profile to create one in just 6 months by using alternate metrics; and LendingFront which facilitates short term commercial lending through a simple platform. In Europa the winners were Everledger, specialized in anti-fraud technology for financial services and insurance; and Origin an electronic platform that facilitates bond issuing in the capital markets. Many fintech startups that made it to the finals focus on Blockchain technology and payments. These seem to be the areas of major investment for the last two years. If you are interested in these themes I suggest that you follow my colleagues John Dwyer, Zilvinas Bareisis and Gareth Lodge. Coming back to Dan’s presentation, he made a very interesting observation around the need to move from the old paradigm (Customer response optimization) to a new paradigm (Anticipate and shape customer intent) based on the use of big data and analytics, but also warning that disruptors are out there applying the new paradigm today. If you want to get deeper into any of the subjects covered here, please let me know. By the way, is there any fintech start-up you believe has great potential? Share with us please!

Why banks should pay attention to “Assistant as an App”

Why banks should pay attention to “Assistant as an App”
Last week I had the pleasure of going to Finovate, a biannual event (at least in NA) where startups and established vendors show off their newest creations. My colleague Dan Latimore wrote an in-depth piece about it last week. It’s usually a good temperature read of where the market is and what banks are thinking about. PFM used to be hot, now it barely makes an appearance. Mobile account opening and on-boarding was massive. Each year you can count on a few presentations tackling customer communication, whether it´s customer service applications or advisory tools. While this year was no different, I didn´t see any presentations representing an emerging trend in mobile: assistant as an app. What is assistant as an app? Basically, it puts a thin UI between two humans: the customer and the service provider (e.g. retailer or bank). The UI layer enhances the interaction by allowing each party to push information back and forth, whether its text, pictures, data visualization, etc. There are a wide range of possibilities. Apps are already starting to incorporate this idea. For a monthly fee, Pana offerings a human personal travel assistant who will take care of any travel related need. The concierge books restaurants, hotels, rental cars, and flights, all via in-app communication. Pana Vida Health allows users to push dietary information to a health coach that can then send back health plans, ideas to diagnose health issues, or create a weight loss regimen. The dating app Grouper uses a concierge to coordinate group dates. EasilyDo is a personal assistant that can manage your contacts, check traffic, schedule flights, etc. The app Fetch uses SMS to let users ask the concierge to buy just about anything. For a small fee (sometimes free, subsidized by business or premium services) these companies provide value-added premium services to customers through a mobile device. The applicability for banks is obvious. Finances can be complicated; most people aren´t good at managing money, and according to Celent research, consumers still prefer to speak to a human for important money matters. Assistant as an app would offer institutions a clear path towards monetising the mobile channel, moving interactions away from the branch, and capturing a growing base of digitally-directed consumers. I predict this will be a major trend in financial services in the future. What do you think? Feel free to comment below.

Practice what you preach?

Practice what you preach?
This is the next – I have a terrible feeling its not the last though – of seeing the cards world through the eyes of a consumer. The story so far is contained in three previous posts, with the last reporting that my card details were skimmed (we assume) in the US. This post however looks at the experience at home. As a consumer, we often get warnings from our banks about phishing attacks – we will never do this, our emails will look like this, etc. Then consider what a daily average inbox looks like – full of identical emails from fraudsters, often better written, and better laid out. Furthermore, banks only focus on emails and outbound calls. I’m possibly wrong, but I’m fairly sure never had the same warnings about text messages, tweets etc. Consider then these channels and how many spam messages you get on a daily basis. (It’s probably ok though, as all the PPI claims I’m told I have should more than compensate me for all the recent accidents I’m alleged to have been in!) Saturday afternoon I received this text: fraud Note that it comes from a mobile number, and texts from my card provider have their details in the text. I deleted it, assuming it was spam, and that if I replied I’d be signed up to some premium rate text service…again. Something made me pause, so I rang my card company, using the number that I already had. And I was right to do so, as it was from them. Thats why I’ve blurred the full number – this is an active line that they are using, but don’t advertise They seemed surprised that I was querying the method, yet when I asked how many people responded to texts, they seemed less certain (to be fair, it was a call center operator!). As a consumer, I appreciate the attempt to make it as seamless and easy as possible. Yet it contradicts the advice we’re given. It would be very simple to text people randomly and ask them personal detail to confirm who they are or to log into a man-in-the-middle website. It feels a little chicken and egg. Consumers need educating. Explaining that the layers of security are providing them protection. At the same time, banks need to think about how consumers will – or should – view their messaging. Given the nature of the message, and the reputational issues, I wonder whether it’s time for the banks collectively to find a solution. Detecting fraud and managing it could be a competitive differentiator – or it could prove far more powerful to do collectively. Across providers, across channels, across products. Best practice across the industry surely has got to benefit everyone long term?  

Unbundling, Fidor, and the model for approaching financial startups

Unbundling, Fidor, and the model for approaching financial startups
I´ve recently had multiple conversations with financial institutions about the trend of unbundling financial services by FinTech startups. In fact, it’s hard to discuss the future of the industry without touching on it. Articles from Tanay Jaipuria, Tech Crunch, and CBInsights speak openly about inexorable disruption. They all tell a fairly similar story. Unbundled products and services disintermediate financial institutions by improving on traditional offerings. Banks lose that value chain. Banks become a utility on the back end, essentially forced by the market to provide the necessary regulatory requirements and accounts for nonbank disruptors. With images like this (see below), it’s hard to argue that it isn’t happening—at least at some level. Unbundling-of-a-bank-V2 There are plenty of reasons to be skeptical about the hype surrounding disruption by FinTech players (shallow revenue, small customer base, etc.), but even if only a few manage to become sizable competitors, that still represents a significant threat to banks´ existing revenue streams. There’s also data pointing to higher adoption in the future. A study from Ipsos MediaCT and LinkedIn showed that 55% of millennials and 67% of affluent millennials are open to using non-FS offerings for financial services. This number is surprisingly high, and the largest banks in the world are paying attention. The threat of losing the customer-facing side of the business is a legitimate risk that banks face over the next 5-10 years. But there´s a possible solution that could enable banks to remain relevant even as they begin to see some of their legacy products or services fall to new entrants: be more like Fidor Bank. Fidor Bank is a privately held neobank launched in Germany. It has a banking license and wants to transform the way financial institutions interact with their customers by creating a sense of community and openness. The bank views its platform, fidorOS, as a key differentiator that allows it to offer customers services from start-ups or new financial instruments. For example, it offers its customers Currency Cloud for foreign exchange as well as the ability to view Bitcoin through its platform. Going forward, it may make more sense for financial institutions to take this approach. Banks can´t be everything to their customers, and there´s a healthy stream of market entrants trying to chip away at the banking value chain. A middle way is that banks become an aggregator for popular nonbank FinTech offerings as they become popular. This would preserve the benefits of traditional bundling by aggregating offerings and re-bundling them alongside its home grown services. Some benefits include:
  • Maintain the consumer facing side of the business by letting customers access these service through your platform
  • Increase cross-selling and marketing opportunities
  • Preserve a convenient and frictionless experience by reducing the fragmentation of unbundling
These benefits would provide value to both the FI and the FinTech partner, and it´s not a new concept. Netflix is effectively an aggregator of content from a variety of production companies (along with creating great content of their own). The music industry has been offering bundled services for more than a decade. Banks are loath to forfeit parts of the business, but as other industries have seen, the longer they wait the more disruptive the change will be.

IBM’s Cognitive Bank: Big Data, bigger problems

IBM’s Cognitive Bank: Big Data, bigger problems
Last Wednesday I attended IBM’s analyst presentation on Transforming Banking and Financial Markets with Data. The crux of the presentation was the benefits of big data and cognitive analytics for financial markets. The return from better understanding the desires of an individual bank customer are well understood and IBM did a good job of illustrating the up-lift. But what were not discussed are the daunting challenges and complexities a bank will face in implementing and managing a big data project. The implementation and ongoing management of data will make or break the success of cognitive computing. What I would like to see is an open discussion on the successes and failures of big data implementation programs by the banks, IBM, and other vendors working in this space. How smooth was the implementation process (time/budget/resourcing etc.)? Were your expectations set correctly? Did you get the required support from management? What were the lessons learnt? What value do you see from your big data program? It’s not easy Structured data tends to sit in multiple databases housed in silo-ed legacy systems; it is customized, lacks consistency, has incomplete fields, is often latent in nature and is prone to human error. All of which compounds the complexity of managing the data. Add to structured data the volume, variety, and velocity (known as the 3 Vs) of unstructured data and the challenge of implementing and managing information becomes even greater. And, the larger and more complex the bank the more likely its data architecture and governance process will hinder data-based implementations projects. Automating the management of data is time consuming and laborious and scope creep is significant, adding months onto implementation projects as well as extra expense and frustration. Resourcing such projects can be taxing as there is a limited pool of big data expertise and they are expensive. To perform cognitive analytics, massive parallel processing power is required and the most cost-effective operating environment is through the cloud. If you get the data right, cognitive analytics can be very powerful. Cognitive analytics Cognitive analytics (also referred to as cognitive computing) is a super-charged power tool that allows data scientists to crunch vast amounts of structured and unstructured data and to codify instincts and learnings found in that data in order to develop hypotheses and recommendations. Recommendations are ranked based on the confidence the computer has in the accuracy of the answer. How you rate confidence was not made clear by IBM and I would argue that this can only come after the fact, when you can use KPIs to validate the scoring and criteria. The modeling techniques include artificial intelligence, machine learning and natural language processing and, unlike us mere mortals, the more data you feed the computer, the higher the quality of the insight. If you do get it right, the rewards are significant We continue to leave behind mind-boggling amounts of digital information about our lifestyles, personalities, and desires. A sample of sites where I know I have left a hefty footprint include Facebook, Reddit, LinkedIn, Twitter, YouTube, iTunes, blogs, career sites, industry associations, search history patterns, buying patterns, geo locations, and content libraries. IBM Watson offers banks a cost-effective way, through the cloud, of scouring such data to build up clues that provide a more in-depth view of what their customers’ desire. Current analytic segmentation is requirements-based and is modeled on past behavior to determine and influence future behavior. The segmentation buckets are broad and all within them are treated the same. Cognitive analytics allow a much more precise and immediate analysis of behavioral characteristics in different environments and, therefore, a more personalized and satisfying experience for the customer. I’d welcome any feedback from those of you who have been involved in implementing or are in the process of implementing big data in banking. And, if you’re interested, take a look at Celent’s Dan Latimore’s blog Implementing Watson is Hard On a side note, IBM introduced the term Cognitive Bank and it is not a phrase that works for me. It is disconcerting to describe a bank as having the mental process of perception, memory, judgment, and reasoning. Looking forward to hearing from you.  

New banks, new names

New banks, new names
Dave Birch over at Consult Hyperion wrote a very interesting article today around the need to better name the stream of new non-traditional banking entrants. Have a read here. This is something we’ve talked about with Clients in a similar way, but in the context of traditional banks. When you run a brain storming sessions, particularly for innovation, it’s often useful to “blow up” the problem. That is, magnify the problem to its maximum so you look at truly radical solutions rather than incremental ones. One such example was a scenario where traditional banking ended up with two types of banks – 1) IT banks, providing products and services to others. Citi with its co-opertition model might be an example of this. I labelled these manufacturers. 2) The other extreme was banks focusing on the customer, and focusing on providing the best products and services, an agora of things built by the manufacturers. I called this ISO banking. Dave used iso to define one of his groups but in a very different way. He used iso from the Greek to mean equal. I wasn’t quite so clever – I used ISO as in the US group of card solution providers known as Independent Sales Organisations. Which leads to a broader thought. The PSD2 introduces the concept of XS2A – essentially any third party can access account level information of any financial institution in Europe and be able to initiate a payment from that account. That muddies the distinctions above even further. For example, Dave’s descriptions imply (I think!) two components – a front end (a mobile app) and a back end (a funding account). In the neo- and iso- flavours, it’s the back-end that distinguishes the two, with neo a traditional platform, and iso with a far simpler account platform (a pre-paid card). In PSD2, there are numerous variations. Three examples off the top of my head that illustrate what I mean:
  • No-back-end. PSD2 could create a third category where the “bank” provides the front end, but no back-end at all as it uses the platforms of one or more other FIs
  • Every end. This is in some ways an extension of the above, but with a slightly different spin. Bullet 1 reflects that consumers often have products spread across multiple institutions. At its simplest, XS2A allows true PFM for the first time in some countries. But this second point reflects that the lines are blurred already, particularly for a consumer. I suspect many would want to include all their money holding accounts – say your PayPal acount. Most consumers would think that as an non-FI, but, as they have a banking licence I assume they would be included as well under PSD2 (thoughts please!). But what about the true non-FI’s?
  • Front/back weighting. With XS2A, how many will be provider slick but simple skins, and how many will provide functionally rich front-end (and perhaps back-end too) that will far enhance the standard offerings. You can imagine this particularly in the wealth management space. These feel very different beasts, and need distinguishing.
The upshot is that Dave has hit the nail on the head in that we need more/better/different nomenclature. However I wonder if in Europe in particular we probably need a much more fundamental rethink. As the regulator explicitly seeks to disaggregate the payments value chain, this, coupled with technology advances, have much broader implications, and make traditional labels misleading at best. I’ve only just started really thinking about this – but the more I do, the more I realise the more I need to do.  

Surprises from the Consumer Financial Decision Making Conference (Behavioral Economics)

Surprises from the Consumer Financial Decision Making Conference (Behavioral Economics)
A highlight of my year is the Boulder Summer Conference on Consumer Financial Decision Making put on by the Leeds Business School’s Center for Research on Consumer Financial Decision Making. An event geared towards academics, its rigor is a refreshing complement to the work that I see from market practitioners at traditional industry shows. A handful of private sector folks come each year, but most are from academia or policy; being able to bridge the two worlds is extraordinarily refreshing. Why consumers make illogical (or even harmful) financial decisions is the general theme of the conference. I’ve put together some of the most interesting, surprising, or relevant tidbits that I heard over two and half days of presentation. Academics are a careful lot, particularly with their disclaimers, so my caveats are these: I’m an educated layman relating what I heard in broad strokes. I’m not attempting to replicate the precision of the presenters or discussants, nor am I going to cite them in accepted academic fashion. Instead, if you’d like to investigate the source papers, please go to the conference website, or click the conference program. What follows is a synthesis of what I heard, sometimes from one person, other times cobbled together from multiple sources. I’ll try to tease out the implications for banks and make some very high level recommendations. The devil, of course, will be in the details of implementation (an undercurrent running through the conference itself). Look for an expanded version of this in a forthcoming Celent report. As I tweeted during the conference, “Fascinating #counterintuitive #behavioraleconomics Boulder results on nudging and alerts; unintended consequences abound, intuition suspect.” What did I mean? Well, more savings is unambiguously good, isn’t it? Alerts are a great way to nudge people, aren’t they? And more information will help consumes make informed decisions, right? Well….not always. Let’s look at each. Savings Not all savings is good; sometimes you should be spending it or using it to pay down debt. Although people save for a purpose they will, on occasion, need to dip into that savings. In one case, old age, they may be able (or need) to start tapping into their savings earlier than they think, but they’re often reluctant to. Banks can help with this decision making process. Another case arises when consumers have high interest rate credit card debt. Rationally, they should tap into that savings to pay down the higher-cost debt. But many don’t, generally because they’ve engaged in earmarking and don’t necessarily believe that their future selves will have the self-control to replenish the savings account. Again, banks can help by setting up ways to help customers make the savings process easy, transparent and seamless. Alerts Not all alerts are good. Focusing on alerts only in the context of trying to stimulate behaviors (and leaving aside their potential to help in fraud, balance notifications, and the like), researchers found that some people who were told that their FICO score was good became complacent and indulged in behavior that subsequently lowered their score. Information Anchoring on credit card disclosures is very powerful. Initial experiences with the new credit card disclosures shows that borrowers are anchoring on the minimum payment figure, and on occasion paying less each month than they otherwise would. Scattered throughout were additional fascinating nuggets. Here are a few, in no particular order. I’ll expand on them in the upcoming report. We all know that what you say is important, and intuit that how you say it also matters. Indeed, much of behavioral economics is devoted to the framing of issues. But there’s a much more subtle point, one that practitioners are beginning to experiment with, that seems to be fertile ground for further academic inquiry. There are variations in how an issue is framed – the exact same words can be used to ask the same question, but the font, the background – any elements of the user experience – will also have an effect. These “UX” nuances matter, and refining the details of the user experience will be hugely important. Here are a few other tidbits that I’ll expand upon in the full report:
  • People don’t like to pay taxes (no surprise). But tax costs are perceived more negatively than other costs; Betterment got people to trade less by highlighting the tax consequences of the trade.
  • There is no such thing as the “right thing” for everybody. The right choice architecture will help people make the right choices for themselves
  • Lottery wins can cause neighbors to go bankrupt
  • Regulations may give consumers the confidence that they can undertake transactions (loan repayments under foreclosure) that they might not otherwise
  • How a person writes a justification for a Prosper loan has some predictive power (up to 5.7%) about subsequent default probability over and above the typical financial information
  • Save to win savings accounts (“lottery savings”) in Nebraska are a substitute for gambling –and help people make better financial decisions
  • Credit utilization (that is, the proportion of a credit limit that a consumer uses) remains fairly constant over time
  • Day Traders in Taiwan keep on trading even though they have cumulative losses. They are not rational learners
  • People misunderstand the benefits of diversification: most tend to think it increases volatility and leads to better performance
  • People have different learning mechanisms for positive and negative lessons.
Academics are sometimes a bit…academic (as they should be!). As practitioners venture into new territory, having them keep us honest by testing our naive, and often wrong, intuitions is incredibly valuable. A final caveat: any misinterpretations are of course my responsibility. If you’d like to learn more and are a Celent client, please look for the upcoming report. And if you’ve got comments or questions, please let me know.