Getting creative about banking alliances

Getting creative about banking alliances
I travel. A lot. And in the spirit of full disclosure, Delta and Starwood are my go-to airline and hotel chain. It helps that they have a mutually reinforcing arrangement whereby I receive miles for my Starwood stays and SPG points for my Delta flights. It just so happens that I’d already settled on these two, so I didn’t have to change my alliances, but on balance, even had I been another hotel patron, this alliance would have weighed heavily when deciding where to lay my head on the road. It helps, too, that Delta status gives me SPG benefits (late checkout, etc.), and vice versa. This is a nice extension beyond the airline code-share alliances of OneWorld, StarAlliance and SkyTeam. Because of my travel I tend to pay attention to emails and offers that many might ignore. The most recent was a note that I recently received from Hertz offering to bump me up in Hertz status if I had a certain level on Delta. I rent cars much less frequently than I fly or stay at hotels, but it’s easy to guess which car rental company I’ll be sure to use in the future. What does this have to do with banking? Credit card companies already partner with airlines (e.g., Delta and AMEX, American and Citi) and banks cooperate with merchants to offer Merchant Funded Rewards, but these are relatively superficial. What might the next, more substantive, level of partnering look like? Are there opportunities for deeper symbiotic relationships with retailers, phone or cable companies, or the like? The details will vary depending on the industry, but as we kick off the new year, it’s an interesting strategic question for banks to consider.

Moven inks deal with TD Bank – For PFM?

Moven inks deal with TD Bank – For PFM?
The rumors have been swirling for some time now that Moven was going to sign up a Canadian bank. This was announced today and I read about it in The Globe and Mail. Curiously, the article is titled, “TD Bank helps its customers pinch pennies with new app.” What does this mean exactly for Moven and TD? Is TD going to start a digital only bank/account or are they merely going to add PFM capabilities? It’s not clear to me if this will require the opening of a new account or not. I’m also not clear on if this will be a separate app or if it will be integrated into the existing TD apps. It is however quite clear that TD is honing in on PFM capabilities.
“We’ve been interested in [personal financial management], but adoption is very low.” – Rizwan Khalfan, SVP and Chief Digital Officer, TD Bank Group
The Canadian banking scene is super conservative, so this is no doubt an interesting move. This deal can provide great opportunities and also comes with some challenges. Great opportunities:
  • Banks absolutely need to try new things. Kudos to TD for taking a leap here in an effort to innovate and try something new. Their recent mobile wallet announcement is another great example.
  • Canadian consumers could benefit from new, exciting and useful mobile tools. The Canadian mobile landscape has been pretty quiet, with the most recent “innovation” being the launch of mobile remote deposit capture by some of the banks. There have been interesting mobile payments announcements (e.g. RBC and Bionym), but not much as it relates to classic banking.
  • Consumers need help managing their money and turn to their bank for advice. Our US consumer survey and Canadian consumer survey point quite clearly to this. Americans and Canadians prefer to use bank provided tools to manage their personal finances.
Possible challenges:
  • Adding features to TD’s simplistic mobile app could present technical and user experience challenges. Moven has a keen focus on the user experience. The existing TD smartphone app – well, not so much. TD’s Canadian tablet app is slow and buggy. We could not even install this app on our Android test tablets due to compatibility issues. This leads me to believe that TD will either completely overhaul their app or release Moven as a separate app/account.
  • Most PFM endeavours have not been very successful when it comes to customer adoption. Will Moven and TD manage to figure out how to get customers on board and actively using PFM? This is going to be extremely challenging. Celent has done all kinds of research on PFM and will be publishing a fresh report on this topic in the new year. The report will encourage banks to take a completely different approach to PFM – stay tuned for our insights on this topic.
  • The viability of a digital only bank is questionable. Can Canada or the United States sustain a digital only bank? Is there a future for the neobanks? See the following blog post for our viewpoint on this. The Canadian bank switch rate is quite low overall, though it is quite high (13% in 2013) for the 18-25 year old segment. Neobanks have a place, though they will have difficulty being successful in the near term.
Overall, I think this is a great announcement. I love the fact that TD is going to try something new here, and attempt to shake up the market a bit. I’m looking forward to seeing how this one plays out.

Highlights from Money 20/20

Highlights from Money 20/20
I’m on my flight back from Las Vegas and thinking about how to encapsulate the highlights of Money 20/20. Its third year was the biggest yet, capped at 7,500 people (not counting the Fire Marshals patrolling the hallways). At many conferences I’m able to distill several distinct themes; this time, the overwhelming impression was the emphasis on … PARTNERSHIP Celent’s been talking about the need for banks (and others in the ecosystem) to partner better for quite a while. At Money 20/20, the word was on everyone’s lips. Discover, Visa, and a host of others mentioned their eagerness to team with other members of the ecosystem to drive more activity in ways that are better, faster, and/or cheaper. Some other random observations:
  • The big four U.S. banks sent an average of 40 attendees, with the high being 55 and the low being 30.
  • MCX said that CurrentC is in pilot with merchant employees in several cities, but missed the chance to show us a demo. And as an interesting counterexample to the partnership theme, Visa told us that they “look forward to MCX presentations so that they can learn what’s going on.” I’ll stop there.
  • Customer Experience continues to be a big theme
  • There was way too much emphasis on Point of Sale terminals – and why does every POS terminal still look like it came from 1985 (Poynte and Clover being two exceptions)?
  • What happens when there is no Point of Sale, like with Uber? (Incidentally, I wish I had a dollar for every time someone has used Uber as an example over the last twelve months – I’d be on my way to Tahiti)
  • Facebook is doing some really interesting things on the commerce side: if they identify a group of profitable customers who have a certain profile (e.g., mid 30s, likes dogs and hiking), they can go find other Facebook users with the same profile.
  • Security, as always, was a hot topic
One of the things we do is attend conferences so that you don’t have to. If you’ve got questions about this or other events, please let us know.

Asian Vendors Looking to Pivot

Asian Vendors Looking to Pivot
I’ve just returned from a two-week swing through Asia, with stops and roundtables in Tokyo, Singapore, Melbourne and Sydney. Along with my colleague Neil Katkov I was fortunate to meet a large number of clients and market participants, both banks and their ecosystem partners, in a series of more than two dozen meetings. In each country Celent hosted a half-day session on digital innovation. Attendance was good and discussion spirited; digital and omnichannel is a topic that every bank across the region wrestles with. Their service providers, too, are keenly interested in the topic. What struck me as particularly noteworthy, however, was that a large number of providers are trying to reposition themselves in the marketplace. Their (legacy) brands are extraordinarily strong, which is a blessing and a curse. Brand strength is great, but when it’s associated with a technology that’s in decline, and not yet associated with new areas of investment, then vendors are put in a difficult position because they don’t get the calls associated with that new fintech. A common question for us was, “how do I get the message out about this new solution I’ve developed?” There’s no one answer, but I’d suggest to banks that they cast a wide net when looking to address their new technology problems; many of their historical partners are learning (or at least trying to learn) new tricks. That their marketing (broadly defined) has yet to catch up shouldn’t dissuade banks from seeing what new solutions they have to offer.

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?

Oracle’s three modes of Progressive Transformation

Oracle’s three modes of Progressive Transformation
I was able to attend Oracle’s Open World at the end of September, and although it conflicted with Sibos, it was an extravaganza. While there I sat down with some of the folks involved with core systems; they outlined the interesting way they’re thinking about progressive transformation (briefly, how to migrate core systems gradually; the opposite of a “big bang” approach). Oracle agrees with the consensus that a big bang for any sizable bank is going to be problematic. What interested me was that they outlined three different approaches for progressive transformation:
  1. Replace a vertical slice
  2. Replace a horizontal slice
  3. Create a new target state architecture off to the side
Without going into great detail, I’ll describe how Oracle has at least started the journey in three different banks around the world.
  1. Vertical Slice. Suncorp in Australia has started the process of moving off its Hogan core by focusing on unsecured lending; its next stop will be secured lending.
  2. Horizontal slice. KeyBank, based in Cleveland, announced at Open World that it intends to use non-core systems components of Oracle Banking Platform (“OBP”) to enhance and modernize its mobile and online channels. To be clear, KeyBank has not committed to a core transformation. The project is in its very early stages; it’s one we’ll watch with interest
  3. Target architecture. National Australia Bank’s new entity, UBank, is a digital-only bank that NAB created as part of its bank transformation using OBP. Its goal is to change the customer experience, and uptake has surpassed initial expectations.
Celent’s perspective is that progressive transformation (or whatever various name different vendors use for the same basic concept) is a way to purchase a real option as banks think about how to modernize their systems and accommodate the increased demands that digital access place on their technology. It lets banks begin a journey without committing them to course of action that might not be appropriate down the road as the world changes. Time will, of course, tell how successful each of these projects will be, but thinking about the different ways to approach a phased core transformation is useful for any bank with core on its strategic agenda (which should be…almost any bank).

Spending a day with IBM’s Watson

Spending a day with IBM’s Watson
As an IBM alumnus (but no longer a stockholder) I’ve gotten pretty used to seeing the company do things a certain way. And then I attended a day-long “Watson at Scale (aka Ecosystem 2.0)” event on October 7 and had a lot of my old notions upended. Watson, of course, came to prominence when it won Jeopardy in 2011. Immediately after that IBM began experimenting with a select number of industries (Healthcare, Travel and Retail) to demonstrate proofs of concept and learn what works and what doesn’t. Beginning in January of 2014, Watson expanded dramatically and is now covering 26 industries. IBM proclaims that Watson is the harbinger of a new era of computing, what they call “Cognitive Computing.” There’s just too much information being created today for any single person to digest; Watson aims to “amplify” experts’ capabilities. Doctors, salespeople, and wealth managers are but a few examples. IBM says there are four key attributes to understand:
  • Watson understands natural language (computational linguistics).
  • Watson is a voracious reader
  • Watson provides recommendations with confidence levels
  • You don’t program Watson, you teach it
Mike Rhodin, the IBM SVP who leads Watson (under an unusual board-governed structure), described the key insight about Watson: it’s not that Watson gives answers, but rather that it generates hypotheses, gives confidence intervals around those hypotheses, and provides evidence trails. It does this by ingesting enormous amounts of data, being taught by humans with a series of questions and answers, and then learning on its own as it proceeds. The more data it has, the better it performs. Watson does a better job providing recommendations for people when it knows something about them. A salesperson will sell differently to an introvert than an extrovert, as a simplified example. Watson can generate a personality profile on the basis of a person’s twitter feed or blog posts – I’m not sure how accurate it is, but the concept alone is pretty startling. Terry Jones, an entrepreneur previously associated with Travelocity and Kayak, introduced a new company called WayBlazer that uses Watson’s technology. It aims to be able to answer queries like, “I want to go on a golf trip with my buddies in October,” or, “Give me an itinerary for Costa Rica in May with my two kids.” Watson might ask clarifying questions, and then would come back with recommendations. The prototype is currently in place for Austin, but a service like this highlighted clearly what Watson has the potential to do, if implemented successfully. Another lightbulb for me was Terry’s description of Watson as a liberal arts major, not a math geek. It could do airline pricing optimization, but that’s not what you’d buy it for. WayBlazer is but one example of the ecosystem that Watson is building. Realizing there’s a shortage of skills in Cognitive Computing, IBM has teamed with ten universities to offer courses on the subject; this fall all of the classes were oversubscribed. From a standing start in January, IBM has about 100 partners and expects that to continue to grow. Watson had 1 API in January; it now has 8, with more than a dozen in development. IBM may have finally figured out how to execute at startup speed under the umbrella of Big Blue. Watson’s interest in financial services is currently very focused. Insurance is one key space, particularly around underwriting. Wealth Management is the other key area, with risk and compliance being a third. You may disagree with Watson’s prioritization, but their intentional focus is spot-on – they’ve got to demonstrate some tangible successes before they begin to branch out. Based on different discussions, Watson’s revenue will come from four sources:
  1. Consulting to investigate and establish what Watson will do for the firm
  2. Priced products (e.g., oncology)
  3. SAAS revenues from running Watson for individual projects
  4. A cut of the revenue that partners earn from Watson projects
What’s ultimately different this time? In this new IBM (a place the company has been forced to by intense competition), Watson:
  • Is playing the role of an ecosystem platform
  • Is using partners to reach consumers, realizing that IBM’s strength is as a B2B company
  • Has built a new physical space, reversing a trend of selling real estate and having employees work remotely
  • Is not trying to do this on the cheap
  • Is focused on just a few areas
What does this mean for banks and financial services firms? The IBM take is, of course, that you’ve got to be exploring Watson or you’ll be hopelessly behind. That’s overly broad, but I recommend that firms at least get up to speed on the potential of the technology and see whether it can apply to them. We’ll have to watch to see if Watson carries through on its promise, but efforts like this are a necessary (if not sufficient) first step in the right direction for IBM.  

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!

Quotes from the Innovation Roundtable

Quotes from the Innovation Roundtable
They said it couldn’t be done, but we held the latest installment in Celent’s series of innovation roundtables in Tokyo recently. Our innovation roundtables put the focus squarely on interactive discussion among the participants. This is a relatively untried model in Japan, where events typically take the form of conventional conferences with presentations. We’re glad we tried it though, because we got a very interesting line-up of firms. Participants included the whole spectrum: banks, capital markets firms, and insurers; Japanese and foreign firms; traditional mega-institutions and alternative new entrants. The discussion was lively; below are some quick notes I took of some of the more interesting comments made, to capture a bit of the flavor of the day. Why Innovate? “Innovation is not the goal, it is a method and a tactic.” “We need to innovate because it has become difficult to differentiate us from our competitors.” “In today’s environment, innovation is necessary if you want to stay profitable.” Paths to Innovation “Incremental innovation is an axymoron. You can’t innovate by increments; innovation requires a big bang change.” “It might be possible to rearrange existing elements to create something new.” “When to innovate? If our clients think a new service is interesting, we try and create it for them and see if it succeeds.” “Innovation needs to be business driven.” “Financial institutions need to have an innovation division; an incubation unit that accumulates ideas from throughout the company.” IT and Innovation “IT is not the impetus for innovation, but because IT inevitably evolves, that creates need for innovation.” “Legacy is a barrier: it is hard to throw things away.” Cultural Challenges “We need to justify ROI on any investment each fiscal year. It is hard to show this on an innovation project.” “If you think about it, financial institutions don’t even have R&D departments.” Quote of the Day “Changing company culture is really about changing oneself. I personally enjoy innovation and change. Innovative culture is about getting a bunch of people together who enjoy change.”

IPS 2014 Roundup

IPS 2014 Roundup
So you’ll have gathered from recent blog posts that it’s conference season. This is the first of a few posts rounding up some of my recent events. This post is about International Payments Summit (IPS) which took place last month. Jacob mentioned in his Finovate post that he ensures that he attends as many sessions as possible – IPS is very much turning into my equivalent. I wrote last year about my return to the event after a long absence. This year didn’t disappoint either. For me, there is a great mixture of depth but also variety, with many speakers I’d not seen before. It’s not a cheap show, but content wise, worthwhile. If I had to make some suggestions, I’d suggest perhaps fewer 20min presentations. Whilst I can think of one speaker where that was probably 18m too long, there were some others who deserved longer. Lots of notes and things to follow-up on, but two themes really stood out. 1)      Innovation. Some great presentations, some challenging ideas. For me, the most provocative was from Mark Stevenson, of Flow Associates. The famous baseball player Yogi Berra once famously said “The future ain’t what it used to be”. Mark left me feeling somewhat like that! I can’t do his presentation justice here, but from the advent of cheap solar power to impact of 3D printers, the picture of the world that Mark painted was necessarily, radically different than the world of today. But effectively the punch line to the presentation was that this future was not 50 years away, but only 5. Scary, scary thoughts ensued as we thought this through! 2)      Regulation. The second day of the conference fell the night after the second draft of the PSD2 was voted upon in Brussels. The speaker had attended the session, and then hot-footed it to London – content can’t get much fresher! But across the conference, there were some very deep, technical discussions, which even I struggled with at times. Regulation seems to be getting ever more complex and specialised. The conference closed with the panel that I sat on, where we summarised the key points of the conference. My take away was labelled “Mind the gap”. I was particularly struck about how little overlap there was between the innovation and regulation discussions, and noticeably, how they were moving further apart. It would seem, considering the sheer volume of regulation that banks face, an obvious place for innovation to take place.