Earlier this year, I blogged about Online Banking e-Payments (OBeP) solutions which allow consumers to pay merchants online directly from their bank accounts via online banking channel (e.g. iDEAL in the Netherlands). I mentioned that eWise and VocaLink have announced their partnership to launch such a solution in the UK market and shared my thoughts on some of the challenges the solution would have to overcome.
Lately, I had a closer look at OBeP payment methods in general and the plans for the UK specifically, and I have just published a report titled “Would OBeP be iDEAL for the UK Market? A Guide For the Decision Makers”, which explores the feasibility of OBeP-type solution in the UK.
To evaluate a new payment solution, I proposed a framework which considers three most important constituents in determining the success of any FI-led payment product – consumers, merchants and financial institutions – and asks the following questions:
Why would consumers get the payment product?
Why would consumers use the payment product to transact?
Why would merchants accept the product?
Why would Financial Institutions offer the product?
The framework proposes a series of success criteria important to the corresponding party, categorised along the three major steps in the payments value chain – payment instrument provision, transaction and post-transaction activities.
Having applied the framework to OBeP, I concluded that OBeP can be a very attractive payment instrument for all major parties, particularly merchants. However, in the UK, given the dominance of cards and, increasingly, PayPal, it is financial institutions that hold the key to the success of OBeP. Their consumer and merchant relationships and willingness to invest in shifting consumer payment habits will be crucial in creating the necessary network effects.
In order to make a decision on OBeP adoption, the UK banks should, among other things, develop a business case, which takes a holistic FI perspective and explores multiple scenarios for key revenue and cost drivers. In particular, it will be important for banks to draw their own conclusions on the expected sources of OBeP transactions (i.e., incremental to cards or replacement of cards), the future of card interchange, and the expected growth and business model of PayPal and other similar solutions. If the UK banks do get behind OBeP, the UK e-commerce payments landscape could change significantly over the next few years.
During my webinar on Taxonomy of Payments in September I mentioned that I have been conducting research on Payment Services Hubs (PSH). Since then I received a lot of interest from clients asking when the research findings would become available. I am pleased to announce that Celent will be publishing a series of reports on Payment Services Hubs very soon.
One of my findings is that more work is to be done to get everyone to speak the same language and to agree the key definitions. Despite the fact that over the last few years, the PSH concept has been promoted by vendors and industry analysts as the leading approach to modernising banks’ payment infrastructures, there is plenty of confusion and lack of clarity. ‘Payment services hubs’, ‘payment engines’, ‘payment factories’ and other terms seem to be used interchangeably.
The first report will be published this week and will propose Celent’s definition of key terminology related to payment services hubs.
The second report will assess the capabilities of nine leading
vendors and will name the XCelent award winners. Expect that report to be available before we all break for the holiday season.
The third report will take a bank’s perspective and discuss the drivers for building a PSH and the key decisions a bank needs to make when embarking on a PSH project. It will also include a number of case studies describing different approaches various banks take to implement a payment services hub.
Look out for Celent press releases announcing these reports formally. And please get back to me with your thoughts. For example, do you agree with my proposed definitions? What other alternative approaches do you see in the market?
In the last couple of weeks, there have been a few announcements in the US and the UK about new ways to pay for e-commerce goods – via your online bank account.
SafetyPay announced its formal entry to the US market and eWise, a company behind Secure Vault Payments in the US, announced a partnership with the UK’s VocaLink to develop a similar offering.
They both promote a payment method, which takes the customer from an online merchant site to the customer’s online banking site, from which the customer can make a payment to the merchant. The attraction to the customer is that they don’t have to disclose the card details and they are safe in the knowledge that their payment has been authenticated by their bank. The merchant receives a guaranteed payment and in return pays a processing fee, which is shared between the payment provider and the bank.
Such payments are reasonably well established outside of the US and UK – iDeal in the Netherlands and giropay in Germany are just two very popular examples. So, surely, the US and the UK must be ripe for these types of payments?
I am not so sure though. I think these solutions will face a two-fold challenge:
1. Consumer adoption. Both the US and the UK have well established card markets, both debit and credit. Add PayPal into the mix and the consumer has a decent range of payment options online. Will they trust another unknown brand, even if it’s backed up by their bank? Just as some might be reluctant to enter the card details online, will they find it equally unnerving to type in their online banking credentials based on a link generated by an unknown online merchant? And will they find the whole process more convenient than paying by card? I doubt it…
2. Bank adoption. iDeal succeeded because the Dutch domestic debit card (PIN) had zero interchange and most of the cards could not be used online. Here, the new providers will have to convince the banks that it’s a good idea to cannibalise their card interchange fees for an alternative revenue source. Having said that, in the post-Frank-Dodd act world, these alternative revenues might actually be quite attractive.
I would love to hear your thoughts on this. What do you think about payments online and specifically these new products?
Consumer mobile banking has already created quite a stir. Hefty marketing campaigns aimed at the consumer market are being used to promote mobile banking services. While the potential of the consumer mobile banking market is certainly attractive, little emphasis is being placed on the corporate or small business markets. This is quite surprising given the penetration of mobile devices in the business world.
Mobile access is a natural and innovative add-on to today’s cash management services. Businesses of all sizes are already indicating that they would like to gain access to mobile services. Banks have to be able to offer these services in order to innovate, respond to market demand, and remain competitive in a crowded and highly mature playing field. The time to provide mobile banking services to business customers is now.
The state of the mobile world is opening an array of opportunities for corporate users. Because corporate users are so in tune with the benefits and flexibility of mobile technology, they make excellent candidates for mobile banking services. Device evolution, Blackberry and iPhone mania, faster networks, and the prevalence of data plans will drive the adoption of small business and corporate mobile banking services.
Introductory mobile solutions are already providing static information in the form of alerts, account balances, customer service features, etc. As applications mature and customers begin to appreciate the value that they are obtaining from mobile access, additional banks will begin to introduce more interactive functionalities like positive pay decisioning, payment approvals and some forms of payment initiation.
There are first movers in this space. Wells Fargo is the pioneer – they launched their CEO Mobile solution back in 2007. This product has now evolved to encompass many of the features mentioned above. More recently, other banks have started to dabble in this space. Most have basic small business solutions that provide traditional consumer mobile features, although a few have taken a step forward to provide more sophisticated functionality. Small business examples include Chase, CIBC, Wachovia, and Wells. Large corporate examples are still few and far between, however, there are a number of banks that have fully developed solutions and it is only a matter of time before they are marketed to the masses.
I would love to hear your thoughts on the market for business mobile banking solutions. Do you think this is something all banks will have? Is there a business case or strong value proposition here?
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!
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:
Last Thursday, we hosted our annual Banking Innovation and Insight Day at the Westin Times Square in NYC. Celent Senior Analyst Bob Meara opened up to a packed house with his presentation on top tech trends. This set the stage for the day as we moved into more specific subjects including, social media, risk management, core banking, mobile payments, and more. We had a good number of journalists in attendance to cover the event. Bank Systems & Technology was first out of the gate with a story, and wrote up a detailed piece on the social media panel that I moderated (Citi, USAA Execs Share Social Media Best Practices).
I also had the honor of presenting awards to the 18 banks that were selected for our 2010 Model Bank initiative (group photo below). If you would like to obtain a copy of the 2010 Model Bank report please click here. If you are interested in submitting a nomination for our 2011 Model Bank report, or for more information on Model Bank, please visit www.celentmodelbank.com.
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.
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.