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.

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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! 

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Corporate digital delivery channels and the customer experience

Corporate digital delivery channels and the customer experience

Celent feels (and others agree) that it’s important that banks deliver an omnichannel digital customer experience, but the term means different things to different people. Based on our own research, we believe that omnichannel is about delivering a customized but consistent financial institution brand experience to customers across all channels and points of interaction.

An omnichannel experience is even more critical when delivering services to corporate clients. Each client has a unique set of business and technology requirements based on their corporate treasury organizational structure, geographic footprint, and treasury technology sophistication. A consistent financial institution brand experience is important to corporate clients, but the experience needs to be tailored to each client segment’s unique needs. For the largest, most complex organizations, an even more bespoke and customized experience is critical.

With banks investing increasing amounts of capital in technology incubators and startup accelerators, the pace of innovation in digital channels continues to grow. But for corporate clients, innovation isn’t about incubators, accelerators, or hackathons. Innovation is about simplification — increasing usability, straight-through processing, and digitization. As outlined in the new Celent report, Tailoring the Customer Experience: External Forces Impacting Corporate Digital Channels, the competitive environment, regulatory climate, economic conditions, and technology impacts are shaping the evolution of corporate digital channels. But emerging technologies will have the largest impact. External Forces Corporate digital channels are just one component of a complex treasury technology landscape, but a critical one. Corporates maximizing the efficiency and transparency of digital channels today are enabling and preparing themselves for innovative technologies for the future.

What does “Digital” mean in banking?

What does “Digital” mean in banking?
Everyone in banking is talking about “Digital.” Celent has hosted fascinating roundtables on the topic, and it’s the basis of one of our three themes. And yet, there’s a startling lack of consensus on what Digital means. There’s a famous proverb of a group of people in a dark room who touch different parts of an elephant; each describes a completely different experience. Digital is like that: how you experience it depends on where you’re coming from. To help bring perspective to the Digital debate, Celent has put its own stake in the ground with a new report, Defining a Digital Financial Institution: What “Digital” Means in Banking. We describe a framework that helps financial institutions make sure that they’re addressing all the possibilities of digital comprehensively, from the mundane to the sophisticated, from customer-facing channels to the back office. Rationales for digital investment vary widely, as the graphic below demonstrates. All have validity; banks have to decide how digital aligns with their specific strategic goals. rational for digital There must ultimately be an economic rationale for digital investments. Celent clients can download the report for more information.

The challenges of the new neo bank

The challenges of the new neo bank
Since the launch of neo-banks like Moven, Simple, and GoBank, financial institutions in the US have been avidly monitoring their popularity. Some have written them off as non-starters; others have praised them as disruptors. In recent months, however, the neo-bank model has hit a few stumbling blocks that call into question the promise of the digital-only model, and gives credence to the sceptics. GoBank recently announced that it was going to stop allowing account opening via the mobile device. Users will now have to purchase an account opening “kit” from a store, adding significant friction to the process. Simple has experienced a number of issues related to payment scheduling, the “safe-to-spend feature,” and service outages or delays. Moven received $8 million to begin moving their app overseas in an effort to garner higher adoption. The promise of these new start-ups was a drastic improvement on customer experience, ditching traditionally stale financial services with improved digital offerings, social media integration, and a familiar/casual communication style. Yet these recent issues serve as a reality check for the neo-bank model—when your value proposition is customer experience, technical issues look 10x worse. It´s far from clear what will happen to these new market players, but Celent envisions a couple of different paths over the next few years.
  • Neo-banks are acquired and rolled into larger digital channels offerings: I wrote earlier this year about banks acquiring technology companies, thereby acting more like tech companies than traditional banks. The neo-bank model and acquisition of innovation are not that dissimilar, and BBVA´s acquisition of Simple is the conflation of both strategies. Through acquisition, BBVA is able to jump the steps of creating a culture for digital channels innovation, establishing a customer base (albeit small), and aligning internal resources required to launch a new service. There aren´t many neo-banks, but digital channels start-ups are numerous. This could be the way forward for institutions that are struggling with adapting the existing operating model to digital financial services.
  • Traditional institutions begin offering their own neo-bank, digital-only services: Fundamentally, there`s nothing truly disruptive about a neo-bank. There´s no secret algorithm, intellectual property, or disruptive idea at work, and many banks are more than capable of offering similar levels of service. Indeed some of them have already begun offering digital services through a separate digital brand. Examples globally include NAB´s UBank, ASB BankDirect, Banamex´s Blink, Hello Bank by BNP Paribas, and Customer Bancorp’s new mobile brand. With new brands, and often new platforms, these banks are testing the digital model. This should satisfy a growing number of digitally driven consumers, as well as provide a clear path for banks looking to move accounts to more digitally-focused services.
  • Neo-banks never become viable stand-alone business models, but they influence the way banks think about digital channels: Currently, most neo-banks aren´t banks–they rely on other institutions to handle the deposits, making them simple prepaid services with additional functionality. The reliance on third-parties is becoming a bottleneck for delivering the value neo-banks have come to represent. Without diversified financial offerings that encompass the entire financial need of the consumer, these “prepaid” services are pressed to create enough value to validate adoption. This is a major question when assessing viability.
There´s even a fourth scenario that could play out over a longer period of time: neo-banks become the primary way digital natives interact with financial institutions as they mature into adulthood. No matter which scenario plays out, neo-banks have undoubtedly moved the conversation around user experience and digital channels forward in a way that would not have happened otherwise. They are setting the bar high, with the big question being whether they will be able to gather the adoption needed to make their services sustainable. What do you think? Will the concept of neo-banks have a place within traditional banking?

Wearables in Banking: Google Glass

Wearables in Banking: Google Glass
Not too long ago I was at a client event and had the pleasure of trying on Google Glass for the first time. The presentation used a simulation of how it might work to make a payment using the voice commands of the device. I found the experience to be much less intrusive or distracting as I expected, but the applications within banking were still too immature to be useful. The much-anticipated technology went public earlier this year, and the industry is already abuzz about specific applications. In October 2013, Banco Sabadell in Spain became one of the first banks to create a retail app that allowed users to locate the nearest ATM, check account balances, and use video conferencing for technical support. PrivatBank in the Ukraine released a video in July 2013 previewing some of the features it plans on releasing for its own Google Glass app (see video below). The device is receiving a lot of hype, and it’s a natural fit for functionality that hasn’t taken off through mobile, such as voice recognition or augmented reality. Financial Institutions and vendors like Fidelity, Discover, La Caixa, Wells Fargo, Westpac New Zealand, Intuit, MasterCard, and LevelUp have already voiced interest in Google Glass or other wearables. But should banks take Google Glass seriously as a possible channel? There are two ways to look at it. Google Glass, and more broadly wearables, should be taken seriously inasmuch as they COULD represent what the future of banking might look like. Wearable smart technology is indicative of the growing number of devices and channels. Whether those devices will be smart watches, Google Glass, a smart fridge, or whatever else is anyone’s guess. As banking becomes more digital, however, banks are going to be pressed to meet the customer on their terms, no matter the device. It’s the culmination of customer-centricity that’s so often talked about in the industry, and which forms the basis for most retail banking strategies. https://www.youtube.com/watch?v=YwMzg0keYOs Simply put, these devices are not yet worth the investment by banks. As with most new technologies, hype precedes real value, inflating expectations. A TNS survey from January 2014 found that, between August 2013 and January 2014, awareness of wearable technology grew in direct proportion with lack of interest, while adoption hovered around 1%. For head-mounted devices, awareness grew from 52% to 64%, while lack of interest went from 34% to 46%. At a time when many banks lack dedicated tablet or smartphone apps, it would be foolish to rush into a wearable app. Even the largest banks have struggled to keep up with number of smartphone and tablet devices that have much higher adoption. Why complicate the process by releasing or developing functionality for wearables? Banks are better served dedicating time to figuring out and overcoming the challenges of a unified customer experience, or building out existing, proven channels that are popular today. Multichannel banking will assuredly get more complicated in the future, especially as transactions move out of the branch and become more digital. Banks looking to plan for the future, one that may necessitate a Google Glass or smartwatch app, would be wise to design a multichannel strategy that is agile enough to move with the market. For many institutions, this kind of timing will allow them to stay up-to-date with the trends, while not allocating resources too quickly to devices that may become liabilities.

What Does the BBVA Acquisition Mean for Simple?

What Does the BBVA Acquisition Mean for Simple?
The financial world is abuzz about the recent acquisition of Simple by the Spanish banking giant BBVA.  The news is surprising, but not unusual for a banking group that has invested in other innovative companies such as Freemonee, SumUp, and Radius.  The deal also legitimizes a financial start-up that has garnered quite a bit of skepticism among some in the industry, despite a small yet dedicated and growing customer base.  Banks are clearly considering these innovators to be significant enough to validate their acquisition.  Simple is a brand, not simply a product offering. It has recognition outside of the industry, and the effect on existing customers makes this acquisition different from the norm. As the relationship unfolds, it will be interesting to see how Simple responds to the following:
  • Will Simple really remain independent? The statements released by both parties claim it will. Recent acquisitions of Nest by Google and WhatsApp by Facebook also made similar claims of maintaining autonomy, but that doesn’t mean it will remain the case.  Yahoo acquired Flickr in 2005 with similar promises of independence, yet in the subsequent years drove an up-and-coming innovator straight into the ground.  The fear for Simple customers is that the unbeatable user experience and exceptional customer service that made it so appealing will slowly be lost as the two companies integrate. Accounts will remain at Bancorp bank for the time being, but the inevitable move to BBVA must be graceful, or a once innovative product is liable to lose the only edge it had in the market
  • Does this deal allow Simple to become more complex?  The big attraction of this deal for Simple is that it gives them access to the resource of BBVA, a massive multinational financial institution with a clear penchant for funding innovation.  The main complaint with the start-up since launch was the limitations that came with not actually being a bank.  Simple didn’t do mortgages, it didn’t do investments, and there were no credit cards.  For the PFM features to be truly useful, users would have to go ‘all in’ with Simple.  More resources could allow for more development into a more diverse set of products and financial offerings, increasing the potential of the already well designed PFM platform.  The test will be the following: will Simple be allowed to continue its own brand with its own products, or will it simply become (pun intended) a funnel to push BBVA’s core business?
The acquisition of Simple, no matter what happens, is a good sign for financial start-ups, especially those that compete directly on Banks’ turf.    The industry could learn from the way BBVA has taken a page from tech giants and big pharma. There are hundreds of innovative Fintech companies out there, and great ideas don’t always have to come from internal development—in fact for large banks they rarely do. But Simple has now become part of the traditional banking world they used to decry.  Will the financial services industry’s challenging record of financial innovation rub off, or will the resources of a megabank allow Simple to grow into a true disruptor?  Only time will tell.

The demise of Blockbuster and the rise of the new independent video rental store

The demise of Blockbuster and the rise of the new independent video rental store
Earlier this year, Celent released a report, Branch Boom Gone Bust: Predicting a Steep Decline in US Branch Density, which made comparisons between the decline of brick-and-mortar video rental stores, like Blockbuster, and branch banking in the US.  Celent argued that the decline of Blockbuster at the hands of digital alternatives is a cautionary tale for banks that still value a traditional branch network. As I’m sure no surprise to most, Blockbuster recently announced that they would be shutting down all remaining retail locations—around 300—effectively ending operations.
“This is not an easy decision, yet consumer demand is clearly moving to digital distribution of video entertainment,” said Joseph P. Clayton, DISH president and chief executive officer. “Despite our closing of the physical distribution elements of the business, we continue to see value in the Blockbuster brand, and we expect to leverage that brand as we continue to expand our digital offerings.”
From the chart below, taken from the above Celent report, its clear that this has been in store for a while.

Blockbuster

Yet as countless blogs and news articles praise or nostalgically lament the once-great video giant’s downfall, an old question is being explored once again: what will happen to the independent video rental store?  Put simply, they’re evolving. Faced with years of low business and an ever shrinking cult customer-base, many small video retailers are innovating in an attempt to draw business back into stores, adding value in areas un-served by Netflix or Redbox. From the an article by Indiewire.com:
“Videology in Brooklyn put a bar in front and a big video screen in back, where customers can sit at tables and drink while watching free screenings. It doesn’t even look like a rental outlet anymore — it moved all the discs aside from the new releases off the floor and put in computer kiosks for customers to browse the inventory. Vidiots in Santa Monica, supported by its community and patrons from the Hollywood film community, raised money to open a screening room and a non-profit foundation that holds workshops, classes, and outreach programs. It’s redefining its sense of purpose.”
Is this an example for banks?  Sure it is.  Similar to what’s happening in retail, banks can add value to a branch-based experience. Consider this line from the above quote: “[The video store] doesn’t even look like a rental outlet anymore.”  Small video retailers are refreshing the idea of what a video store is, and what it could be.  Smaller banks like Umpqua Bank have already explored this idea years ago, and even megabanks like Wells Fargo are exploring the possibility of compact “boutique” branches. The rise of digital The other day I came across a cool chart from Horace Dediu that does a good job at visualizing the change in consumer behavior that drove Blockbuster underwater, and is driving younger generations toward less branch engagement.  A larger version can be found here.   The adoption of smartphones and tablets, even in relation to internet and mobile phones, sit in stark contrast to the group.  The second part of the graph shows the duration of growth from 10% adoption to 90% adoption in years. For smartphones and tablets (estimated), these numbers are in the single digits. The result is a substantial decrease in the development life-cycle of innovation, early adoption, and late adoption. For branches, this means a dramatic and rapid shift in the way consumers interact with their financial institutions. Blockbuster trailed both Netflix and Redbox by almost five years before releasing competing products.  The company not only failed to react to shifting demand, they arguably contributed to it. The founder of Netflix started the company after he paid $40 for a late video rental.  Blockbuster continued to remain unmoved by customer complaints over late fees, eventually settling a series of lawsuits over the matter.  Customers in turn, looked to innovative start-ups (i.e. Redbox and Netflix) to fill the void.  Blockbuster failed to adapt. The path forward is a mix of early adoption and, like independent video stores, a rethink of traditional business practices.  Let’s be clear, branches won’t die, but it’s difficult to make the case that significant redesign won’t happen. Will banking bloggers someday down the road, sitting in an independent video rental coffee shop, write about the nostalgia of traditional branch banking?  Probably.