How to Unleash Payments Innovation in Banks?

How to Unleash Payments Innovation in Banks?
Late last year I had the privilege of being invited to be on a global payments innovation jury and the new report, ‘Payments Innovation 2011 – The Global Jury Decides’, has just been published last week. The report focuses on understanding the challenges facing the payments industry and their impact on innovation in the next 12 months. The jury this year consisted of 22 panelists drawn from 14 countries across five continents and was chaired by John Chaplin, President of Ixaris, itself a very innovative payments company. The report has a number of interesting findings. For example, the jury expects that innovation in 2011 is most likely to come from Asia (a top region by clear margin) and North America, in low value and micro payments, and from improved product access (rather than the products themselves). However, for me the most interesting results had to do with sources of innovation. Perhaps unsurprisingly, the jury believes that new entrants and technology providers are best equipped at driving innovation; unfortunately, retail banks do not score well at all here. And the main reason why banks reject innovative ideas is the inability to guarantee customer uptake. The desire for “proven innovation” is so overwhelming that it outweighs all other factors in launching new products, such as technical challenges, costly development or compliance difficulties. As one of the jury said, “Opportunities are often over-analysed. With many innovations you just cannot predict how customers will react, so you have to make the developments and then hope for the best; that just isn’t how banks work.” Celent has written extensively over the years on payments innovation and developed a number of frameworks that can help banks manage their innovation efforts. For example, the report Payments Opportunities: Finding the White Space argues for a need to develop targetted solutions addressing inefficiencies in specific payment flows, industries or consumer segments, and proposes a payment product design framework. Another report, Would OBeP Be “iDEAL” for the UK Market. A Guide for the Decision Makers, includes a framework which can be used to assess whether a new payment solution is likely to succeed in the market. Of course, not all is lost for the banks. There are plenty of payments innovation examples from banks around the world (e.g. many Turkish banks) and some organisations seem to be consistently good at innovation. For example, Barclaycard in the UK has been at the forefront of innovation since inception, from the first UK credit card and the first ATM transactions to the most recent efforts in contactless and mobile payments. And Citi continues to demonstrate that it “never sleeps” with its recent announcements around 2G cards, social media efforts and importantly, Global Enterprise Payments group. I would be interested in your thoughts – what can banks do to be more innovative in payments? Do they have to come up with new ideas themselves? Or is it really a question of letting the new entrants innovate and then striking the winning partnership deals?

Is SEPA in danger of becoming FEPA?

Is SEPA in danger of becoming FEPA?
I spent quite a bit of my time last week attending various industry events and conferences and discussing payments-related topics with industry participants. As it always is in Europe, the conversation inevitably turns to SEPA and PSD, and the overwhelming sentiments there these days seem to be frustration and confusion. Banks are frustrated by the lack of progress in migrating to SEPA instruments and decommissioning old instruments and infrastructures. Most are in favour of a clear end date – as one banker said, “we, banks, are excellent at meeting deadlines and terrible at implementing anything without one”. Some are confused by the apparently increased flexibility in interpreting the proposed SEPA standards, leading another commentator to quip that “at this rate, SEPA will soon become FEPA – a Fragmented European Payments Area”. There were times at the conference when I had to pinch myself and ask if it was really 2010 and not the late 90s, as banks continued to lament their inability to measure the P&L of their payments business and corporate customers continued to lambast their banks for being unable to meet even the most basic requirements, such as delivering a payments message in full rather than truncated (and STP benefits wiped out) or opening an account in less than five months (yes, really!) or without reams of complex documentation in Greek or Italian. I am yet to attend an event which would not discuss payments innovation and iDeal and PayPal were among the most frequently cited examples of what can be achieved via innovation. While iDeal is a Dutch banking industry initiative, I was somewhat perplexed that the banking establishment did not seem to be moved much by PayPal’s progress. To some extent this can be explained by the fact that most PayPal’s transactions to-date have been funded individually using one of the banking payment instruments, such as card or bank transfer. Banks still seem to view PayPal as an “overlay” on the banking infrastructure and therefore, ‘nothing to be worried about’ – a dangerously short-sighted perception in my opinion. And, while we are on the subject of innovation, expect to hear more in the coming months about Ixaris and Syncada – two of the most interesting and innovative companies I met last week.

RBC Launches myFinanceTracker PFM. Strong Start or False Start?

RBC Launches myFinanceTracker PFM. Strong Start or False Start?
I am always excited when a bank launches an innovative product. RBC (in Canada) recently announced the launch of myFinanceTracker. RBC is “using the services of a California-based online financial solutions company” to offer the solution. To my knowledge, RBC is the first Canadian bank to offer PFM. It is a great move on their part and testament to where the online banking market is headed. RBC has, however, committed a false start by deciding not to include account aggregation capabilities in the launch (see “Can I View All of My Accounts Simultaneously in myFinanceTracker?“). Potentially interested customers who try the service will be frustrated by this. Many of them have multiple accounts (including cards) at a variety of institutions, and the ability to view their complete financial picture is a must. Once an online user is turned off, it will be very difficult to turn them back on, even if/when account aggregation is introduced. Throw in a few potential competitors (non-banks, or other Canadian banks that follow suit), and the ability to capture the customer’s PFM needs and precious customer data may be lost. I will be exploring the role of PFM in online banking in an upcoming Celent report – stay tuned!

Financial Technology Startups 2010: Giving Banks a Run for Their Money

Financial Technology Startups 2010: Giving Banks a Run for Their Money
On May 11, I attended the Finovate conference in San Francisco (see my quick take here). A slew of startups presented their wares to an enthusiastic audience. Out of the 36 firms that presented, a few stood out to me. I decided to pick my top 10 and produce Celent’s second annual financial technology startups report. The report examines and analyzes the startups – a short profile is provided for each company/product as well as Celent’s impressions. I am sure you are all curious to know who we selected to include in the report. Here is the list of firms in alphabetical order along with a link to their Finovate video demo:
Congratulations to all firms selected!
If you would like to read the report, please click here (subscription required).

Can banking really be simple? Twitter engineer quits to become co-founder of Banksimple.net

Can banking really be simple? Twitter engineer quits to become co-founder of Banksimple.net
The folks at Twitter must have a secret love for financial services. First Jack Dorsey goes off to start Square and now Alex Payne jumps ship to become co-founder of banksimple.net. What is banksimple.net? A recent TechCrunch post led me to some interesting info on the firm. Their web site states that they are “an easy, intuitive, and social bank for people who appreciate simple online services. Unlike other banks, we don’t trap you with confusing products nor do we charge any hidden fees. No overdraft fees. We use sophisticated analytics to help you better manage your finances by providing you a individualized service, catered to your needs and goals.“ A recent blog entry further expands on their intentions. “We have absolutely no intention of spending your money on high-budget ads. The best way to sell a product is to have a kick-ass product. And for us this means no hidden fees, fantastic online experience, awesome customer service and, a much simpler, personalized financial service.” Does their idea sound great – absolutely. Is it as simple to pull off as they make it sound? Not even close. Startups consistently underestimate the requirements of jumping into the banking space (as was recently demonstrated by Square at their NACHA Payments keynote address). Banksimple.net has lofty goals. It sounds like Nirvana and I’ll believe it when I see it.

Finovate Spring 2010 Roundup

Finovate Spring 2010 Roundup
On Tuesday, Red Gillen and I attended Finovate in San Francisco. The conference brings together a slew of fintech startups as well as a handful of established players. Thirty six companies showcase their wares in 7 minute demos. Sounds like a short time frame, but if done properly, is more than enough time for a firm to pitch their product. The event was well attended and I was very pleased to see quite a number of financial institutions in attendance. I attended last year as well, and was disappointed by the number of banks present. Perhaps travel budgets are better, and/or maybe banks are attempting to increase their emphasis on innovation. The majority of the 36 demos were lackluster but there were a few standouts. I plan to profile my top 10 in an upcoming Celent report. The report will single out the innovative startups that Celent believes will have an impact on the banking space and/or the consumer market (many of these startups bypass the bank channel and market their products directly to consumers). Here are some of my selection criteria:
  • Realistic business model (I was surprised at how few of these firms actually had a business model)
  • Innovation and new product development
  • Potential for the solution to be sold by banks
  • Potential for the solution to fill a void in the market
The audience did have their favorites, and were asked to pick their top 4. The best in show awards went to (in alphabetical order) Bobber Interactive, Expensify, oFlows, and Wikinvest. On a related note, I enjoyed the live tweeting at Finovate. It was great to hear what the folks around me were thinking as the presentations were taking place. Click here to check out the Finovate Twitter feed.

Peeking Out From Under The Hood – Next Generation Online Cash Management

Peeking Out From Under The Hood – Next Generation Online Cash Management
It’s been about a year now since I wrote the report, Web 2.0: A Quantum Leap for Wholesale Banking. I predicted it would take a good 12-18 months before we would begin to see cutting-edge corporate online banking sites complete with Web 2.0 elements. Alas, we are starting to see some interesting solutions peek out from under the hood. At SIBOS this week, Citi unveiled CitiDirect BE, its next generation online banking platform. “BE” stands for Banking Evolution, and there are certainly evolutionary components to the new solution – electronic bank account management, the use of a dashboard, a video section, etc. The new solution leverages Microsoft SharePoint. This announcement is material for several reasons:
  • Banks must emphasize innovation. In order to remain competitive and take a leadership position, banks need to work on innovation. It is important to recognize customer requirements, and stay one step ahead of them.
  • Banks need to focus on customer experience. Innovative banks are on a path to improve the overall online customer experience of their core cash management products. Cash management features are mature for the most part. Customer experience and ease of use is where the real challenge lies.
  • Banks must embrace online trends, not shy away from them. The online world moves at lighting speed and banks need to keep up with some of the trends. A great example is the use of media (e.g. video, blogs) to further knowledge and emphasize education.


Further details and some screenshots can be seen in the following video clip with Gary Greenwald (Chief Innovation Officer at Citi). Gary Greenwald’s efforts have not gone unnoticed – he was named yesterday to the Bank Systems & Technology Elite 8.

Citi wasn’t the only bank to come out with interesting news at SIBOS. Bank of America signed a deal with Fundtech for its Global PayPlus platform. The goal is to create a payments hub that will be part of BofA’s next generation cash management solution. It’s all about efficiencies, and when everything is said and done, Bank of America will have a single payments processing platform. The payments hub will support payments initiated across all channels. It sounds pretty impressive and I look forward to learning more about this when it goes live (target is second half of 2010). American Banker published a good article that highlights both of these initiatives.

Financial Technology Startups: Giving Banks a Run for Their Money

Financial Technology Startups: Giving Banks a Run for Their Money
At the end of April I had the opportunity to attend Finovate Startup in San Francisco. I already blogged about my experience the day after returning. I also decided to writeup a report on financial technology startups – that report will be coming out next week. I decided to produce the report because much of the competition (to banks) and innovation in the financial services sector is coming from non-banks. The report singles out the innovative startups that Celent believes will have an impact on the banking space and/or the consumer market (many of these startups bypass the bank channel and market their products directly to consumers). Celent has selected the following companies to profile in this report: I am curious to hear your comments on these firms as well as your thoughts on innovation in the banking industry. Please feel free to post your comments and interact!

IT innovation: any good for banks?

IT innovation: any good for banks?
During interactions with banks it is becoming more frequent the request to organize regular internal workshops to talk about IT innovation and future programs The purpose of these workshops is to create a discussion forum among banking stakeholders, by injecting items for discussion on how, and when, will new technologies affect the banking business I have identified a number of items that deserve attention and further investigation, trying to assess the impact they will have on the business of banks going forward. SOA This loosely coupled modular services layer exposes the IT core system to the expanding number of front end solutions, and enables the orchestration of various back end services to create new products and processes. The most significant impact it is already having on the banking business refers to the implementation of payment gateways. Model-driven development (SOBA) This technique translates business models into executable components. We have already seen an application of it with a Trade Alerting Portal Solution adopted by ABN Amro Grid Computing The technique of sharing networked resources has a potential impact on the banking business in the support of the analysis of transactions, both within a single bank and between organizations, for AML purposes Green IT Dematerialization, virtualization, and mobile are the watchwords. We see a growing attention of banks to this innovative subject. HSBC’s “Climate Confidence Index”, and the “Green Globe Banking” award are but two examples. E-invoicing and Payment platforms The benefits of dematerialization can be further extended within the banking business through the implementation of a Collaborative Infrastructure. A unique platform that integrates information, physical and monetary flows on behalf of communities of interest (e.g., supplier consortia; regional industry districts; municipalities), which become themselves part of the infrastructure to provide services to other constituents. Agent-based modeling It is a technique based on software components, which continuously run, exist as semi-autonomous entities, and perform various activities for the completion of a transaction. In banking we see its application in the creation of a dynamic model of liquidity provision in a payment system (RTGS). SaaS (software as a service) It can turn into a fully hosted online banking and bill payment functionality across multiple channels (e.g., mobile devices, ATMs, kiosk, teller stations and contact centers). Social lending The application of Web 2.0 technologies and models in the banking business has already surfaced with Zopa, an exchange platform where people lend and borrow money with each other, sidestepping the banks. Co-creation A collaborative process facilitates the development of highly customized enterprise technology solutions, balancing between off the shelf and a completely customized solution. For banking, this means the possibility to build a solution for commercial and small business lending that processes and manages loans of all sizes. Event-driven supply chain finance Identify events in the physical supply chain that trigger correspondent services in the financial supply chain. Turning this into the banking world means the provisioning of supply chain finance services based on product lifecycle events.