Is the branch the newest digital channel?

Is the branch the newest digital channel?
The branch is an important channel is every bank, but the rise of digital raises two questions: what’s its role in with a digital engagement model, and how should banks think about its value? First, consider some of the challenges of the traditional branch for the modern, digital consumer:
  • Branches suffer from lack of talent availability. The best person for the job is not always going to be in the right location at right time. Yet mobile is driving “right time, right place, instant” contextual interactions, and consumers are increasingly expecting this level of service.
  • Many of the frontline staff are underpaid and undertrained, yet are the face of the institution. They often aren´t trained properly or paid enough to care about delivering the kind of customer service banks are trying to deliver through digital.
  • It’s difficult to distribute foot traffic across locations. Some branches suffer from massive queues, while employees at other locations are killing time on Facebook. This adds cost, lowers efficiency, and is incompatible with demand for instant service from consumers as well as modern IT delivery.
Digital has allowed industries to overcome some of the barriers facing other customer experiences. The challenges facing branches are no different. Virtualizing the workforce, aggregating talent, and allowing customers to access them remotely, either in a branch environment or from a personal device, is at least one path forward. Banks need to start thinking about the branch as a digital channel. Some institutions like Garanti Bank in Turkey, ICICI in India, and Umpqua Bank in the US are already starting to think in terms of remote delivery. As video service becomes more mature (i.e. video advisory through tablets), user experiences across devices will begin to blur, and the branch of the future will look even more like a digital experience. In the new environment, the branch becomes another presentation layer. Vendors like Cisco are already starting to move in this direction, combining telepresence, remote signature, displays, and other infrastructure to allow banks to facilitate remote interactions using context information. Others in the market are beginning to follow suite. The branch of the future has been a topic of discussion since the advent of online banking and mobile. While some meaningful progress has been made in branch transformation, some large institutions have launched numerous pilot ideas and concept branches that have amounted to little more than PR stunts. The role of the branch is changing, but it’s obvious that many aren’t exactly clear what that role is going to be. By talking about the branch as a digital channel, institutions may be better able to craft a true omnichannel strategy for customer experience.

Predicting the future

Predicting the future
Monday was the UK bank holiday, so some of us just came back to work after a long weekend. Many across the country used the extra time to do a bit of spring cleaning. I also found myself rummaging through some old materials and came across an interesting paper on how financial markets might look in 2020. Let me share a few quotes:
  • “The basic financial functions […] will not change, although how we perform these functions will change.”
  • “By 2020, a true global marketplace will be established, with everyone – individuals, companies, investors, organizations and governments – linked through telephone lines, cables and radio-wave technology. With the touch of a button, people will have access to other individuals and vast databases around the world. Such access will be readily available through phones, interactive television, workstations or hand-held “personal digital assistants” that combine all these functions. […] There will be no special need for retail financial branches because everyone will have direct access to his or her financial suppliers through interactive TV and personal digital assistants. […] True “global banking” will have arrived, as every household will be a ‘branch.'”
  • “A key feature of 2020 is that nearly everything could be tailored to a client’s needs or wishes at a reasonable price, including highly personalized service from financial companies. Firms will be selling to market segments of one.”
  • “Supplying financial assistance will be a free-for-all. It will not be limited to those calling themselves “financial institutions” […] That means an organization that specializes in financial matters may at times find itself competing directly with its clients.”
  • “The progress is geometric because each element – computation, availability of data, communications and algorithms – feeds on the others.”
If you attended any recent conferences on digital banking, this will sound very familiar – just replace “personal digital assistants” with “smartphones.” However, these quotes are not from a recent conference presentation. They are from a paper given by Charles S. Sanford, Jr., serving as the Chairman of Bankers Trust at the time, at the Kansas City Fed’s economic symposium. The date? August 20, 1993… Many of these predictions ring true, although we are not quite there yet, 22 years after the paper has been delivered with only five more left to go. Why? The clues might also be in the paper:
  • “Human nature will not change. […] A very basic element of that nature is a hunger for security – law and order, job security, retirement security, decent and affordable health care and financial security.”
  • “Dishonesty will be around in 2020 as it is today. Voice recognition, DNA fingerprinting and secure data encryption will instantly verify transactions, preventing today’s scams. But new forms of “information crime” will appear.”
  • “Technology will never replace the subtlety of the human mind. People will be the most important factor in 2020, just as they are now. We must learn how to grow wise leaders from the ranks of specialists, a difficult task.”
As humans we also bring the baggage of unpredictability, irrational behaviour and desire for comfort and the familiar. We should bear this in mind next time as we contemplate how technology is changing our lives and what the future might bring. P.S. The entire paper is available here.

More comments on the “branch is dead” debate

More comments on the “branch is dead” debate
*As mentioned in an earlier blog, the persistence of the “branch is dead” debate seems to be to betray the deeply invested interests on each side of the debate. In many financial institutions, digital and physical channels still have separate reporting structures (Figure 1). In Celent’s October 2014 survey of North American financial institutions, we found that less than a third of responding FIs have a single person responsible for all delivery channels. Interestingly, this appeared to be more likely among large banks. Channel Org Another observation is that much of the debate is deeply polarized – all or nothing – as if banks serve a static and homogeneous market. Neither is true. Most banks serve a diverse client base whose needs and preferences are in a state of change. Niche players, such as Moven, can take a more polarized (or shall we say extreme) position. A third (and my favorite) observation is that all too often, inaccurate assertions are made about channel usage as if demographics were a sole and causal determinant. We hear it all the time; “Millennials don’t use branches.” “Old people don’t use digital channels” and so on. In March, the US Federal Reserve published its third instalment of comprehensive consumer research on the topic, Consumers and Mobile Financial Services 2015. It makes for insightful reading. One myth the report busts is that digitally driven consumers have little use for other channels. Nothing could be farther from the truth – at least for the present. The survey (an online survey administered with a managed panel of nearly 3,000 consumers designed to be representative of the U.S. eighteen and over population) sought to understand how mobile banking users (35% of the panel, up from 30% in 2013 and 26% in 2012) used other channels. The results may surprise you. A few tid-bits:
  • Between 2011 and 2014, mobile banking usage has grown strongly across all age groups. Among 60+ consumers, usage has nearly tripled.
  • Hispanics reported the highest incidence of P12M mobile banking usage (53% of those having bank accounts, compared to 39% in the overall sample).
  • While mobile banking users are using the platform frequently and consistently, they also interact with their banks through more traditional branch and ATM channels. 72% of mobile banking users frequented a branch in the past month.
Channel Access Chart *1 Of those who used channel in past 12 months *2 Of those who used channel in past month Separately, respondents were asked to rank the three main ways they interact with their bank or credit union. 21% of mobile banking users ranked the mobile channel first. 13% ranked the branch first. Two implications from the diversity of channel usage that characterizes today’s consumers:
  1. Omnichannel is a legitimate pursuit. All channels need to be optimized.
  2. Banks neglect the branch channel at their peril.

Debrief from India: It’s all about DIGITAL

Debrief from India: It’s all about DIGITAL
I’m on a plane over the Arabian Sea collecting my thoughts after a packed week in Trivandrum, Bangalore and Mumbai. The impetus for my trip was the honor of presenting at Suntec’s User Meet on the occasion of its 25th anniversary. The clients who attended were extraordinarily open about their stories and presented extremely compelling case studies. Learning about the pricing practices of Telcos showed how much opportunity is left for banks in this space. I spoke on Customer Experience Orchestration in a Digital World. It proved to be a perfect set up for the rest of the week, since the clients I met with – old, new and prospective – were extraordinarily consistent in their focus on a single concept: DIGITAL. Like Celent, many of the Indian service providers I visited have defined their vision of digital and begun the process of aligning their offerings to it. The best focused on a customer-oriented foundation (like Celent!) and then described how their combination of technical expertise, product / consulting delivery, and segment concentration combined to help their banking clients fulfill their digital vision. Innovation centers – spaces for client co-creation and brainstorming – continue to be hot: I saw two new ones this trip. Demos trump powerpoint every time, and there was a good focus on this. If you’d like to learn more about my impressions, please arrange for an Analyst Access call; I’d be happy to chat about them in more detail.

A preview of Innovation and Insight Day

A preview of Innovation and Insight Day
Celent’s Innovation and Insight Day is about a month away, and I couldn’t be more excited. We have great external speakers bookending the day, and we’ll be exploring exciting technology implementations with 18 Model Banks in five categories (plus Celent’s Model Bank of the Year):
  • Digital
  • Omnichannel
  • Legacy and Ecosystem Transformation
  • Innovation and Emerging Technologies
  • Payments
Our first speakers, Betsy Hubbard and Debra Jasper, are from Mindset Digital, an online social media training firm. As financial firms grapple with their approaches to social media, Betsy and Debra’s perspective, delivered in a completely different style than what most banks are used to, will provide ample food for thought and some concrete next steps. Suresh Ramamurthi, Chairman (and CTO!) of CBW Bank, will tell the story of how a fintech entrepreneur bought a small ($13 million in assets, 7 employees) bank in Kansas and is in the process of turning it into a bank of the future. You may have seen the bank profiled in this story in the New York Times. Registrations are running well ahead of last year, and our Carnegie Hall venue may well get to Standing Room Only (although you won’t be able to buy tickets at TKTS on Monday morning). We hope to see you there on March 23rd; to learn more and to register, please visit our I&I day site.  Model Bank Logo

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.

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

Banks vs Fin-Tech Start-Ups and the Digital Transformation Race
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 (conekta.io), 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?

Creating an ecosystem to drive disruption

Creating an ecosystem to drive disruption

We usually talk about how hard it is for the financial industry to innovate at the right pace, and doing the right bets. In my opinion Latin America lags a little bit behind, in part for not having anything similar to the US’ Silicon Valley. We see though, increasing efforts to generate the environment and providing places for the ecosystem to mingle.

Adding to Dan’s post about Celent attending the several industry conferences around the world as part of our job, and keeping our finger on the pulse of the industry, I wanted to share a relatively new conference that is gaining a lot of traction in Latin America as a result of its effort to bring together traditional players with fintech start-ups: Next Bank.

I will be moderating a panel on Digital transformation in financial services next October 16th, 2014 at Next Bank Americas. The idea is to create an environment where innovators from within and outside financial services institutions come together to explore the digital transformation of the industry.

It is a collaborative conference that covers innovation, transformation and startup-driven disruption in financial services in Latin America. The theme is re-think and connect – addressing the reality that the industry is undergoing momentous change and it’s time for a new collaborative approach.

You will more likely encounter traditional players like banks, consultancies and technology vendors sharing the stage with alternative players like startups, digital ecosystems and players from other industries. All of these players, the old and the new, coming together to create a new community of innovators in financial services exploring the real future of the financial services industry and the big ideas that will forever change the industry in the region

As part of the conference, it will host the final of BBVA Open Talent for the US, Mexico and Canada, a startup competition in search of today’s most disruptive tech startups in these countries in two categories, New Banking and Digital Life. Celent will be writing a report of those more promising start-ups, so expect it coming soon after the conference.

Celent is also a conference partner, so feel free to use our discount code (C3L3NTNB4M3) to get a deal on tickets.

More information @ www.nextbankamericas.com/en

Hope to see you there!

What does Digital mean to you?

What does Digital mean to you?
Celent held a client roundtable on the subject of “Digital.” We had a sneaking suspicion that there wasn’t a lot of consensus on what that word actually means, so just prior to the event we asked participants “to list three words or initiatives that you associate with digital in your organization.” Here’s what we found: of 30 responses from 10 people, only two terms were mentioned twice: “mobile” and “customer experience” (which isn’t quite a single word). Every other word was unique. Digital WordCloud I find this fascinating: there’s no agreement on what digital means, and yet it’s one of the hottest topics in financial technology today. How are we going to deal with this issue when we can’t even agree on what it is? We’d suggest that defining what digital means in your organization is a vital first step to refining your digital strategy. My colleague Will Trout has also blogged on what we found during our roundtable.  You can find his thoughts here: http://wealthandcapitalmarketsblog.celent.com/2014/04/12/celent-roundtable-exploring-digital-in-financial-services/  

NCR & Digital Insight – Trouble in Paradise?

NCR & Digital Insight – Trouble in Paradise?

Late last year, NCR announced the acquisition of Digital Insight (DI). It’s been quite the ride for DI as they are on their third owner in a very short period of time. Apparently the ride hasn’t been very smooth for DI bank customers – we have heard from a number of them regarding digital banking outages. The press has gotten wind of this as well – Fairwinds Credit Union customers cope with online-banking outages.  

Take a peek at the list of disruptions notices posted on the Fairwinds CU Facebook page.

Kudos to the CU and its President for being transparent and communicating with their customers.