Start-up of internet-only banks in South Korea

South Korea’s government has begun to move to permit internet-only banks. It is in discussion with a group of financial institutions, vendors and other institutions, and the outline for internet-only banking services will be set up around April. In South Korea, most banks, we can say all banks, already offer direct banking including internet, mobile and smartphone, and many customers are accustomed to them. However, dedicated internet banks have not been allowed to date due to regulatory and other issues. Currently, there are two main challenges to setting up an internet-only bank in South Korea. 1. Identity confirmation through direct channel: the current law requires customers to open a new bank account at a face-to-face channel with their ID. So people visit a bank branch at least once to start banking transactions, although direct banking services are at a quite mature level in South Korea. The requirement for identity confirmation should be revised accordingly when permission is granted for dedicated internet banking. 2. Relaxation of the Separation of Banking and Commerce: in the current law, institutions belonging to the commerce sector cannot provide banking services, and their ownership share in a bank is stringently limited at 4%, compared to 25% in US and 20% in Japan. To encourage the entry of various kinds of sectors into the internet-only banking market, the relaxation of this law is one of the important issues. Currently, a number of institutions including banks, vendors and other sectors are negative on entering the market and will keep a wait-and-see attitude for now. Before entering the market, they should learn from case studies of overseas internet–only banks. To cite a case, there are many good examples of online account opening using the advanced facial recognition tools. I will appear at a conference on internet-only banking in Seoul on March 10, and will present case studies and learnings from the Japanese market. Anyone interested in the event details, please visit http://fintechkorea.com/.

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.

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.

Why I’m not Buying an Apple Watch

AplWatch42_34R_HomeScreen_HERO

First reason –I’m an Android user and enthusiast : ) Like it or not, Android and iOS don’t play nicely with each other, and the Apple Watch is a companion device for the iPhone. It’s definitely an intriguing device though, and I enjoyed learning more about how Apple plans to tackle the wearables space. The Apple Pay announcement was also extremely fascinating – my colleague Zil has prepared an excellent and informative review of Apple Pay. Back to the topic at hand. Why would I stay away from this device? A few reasons come to mind, some are banking related, and others are not:
  • The battery life is expected to be pitiful. The rumour is that this device will POSSIBLY last through the day and will need to be charged every night. I have to regularly remember to charge my laptop, mobile phone, Fitbit, tablet, Kindle, kid’s iPad, and a bunch of rechargeable batteries that are used in various toys and gadgets around our household. I don’t want anything else that I need to charge regularly, and I certainly don’t want to travel with another charging cable or dock. My goal is to downsize our chargers and we need better battery life and a set of charging standards to be able to do this. Note that this comment isn’t specific to the Apple Watch – it’s an issue for the Android Wear watches as well, and the primary reason I’m hesitant to dive in. I’m also a believer that the success of mobile payments will be contingent upon battery life (among other things). Who wants to end up at the POS with a dead device or worry that this could happen?
  • It only comes out in early 2015.  The slew of Android smartwatches has clearly put pressure on Apple to ANNOUNCE a device but they obviously aren’t ready to release it. Otherwise, it would have ended up on the shelves as rapidly as the new iPhone 6 and 6+.
  • It’s a first generation offering. This builds on the previous point regarding battery life and release date. Like most new products, this first gen device will require some improvements. It will certainly be fun to tinker with, but will be frustrating at the same time. If you are an iPhone user and you want a smartwatch you are limited to this first generation offering. Note that competing Android offerings from Samsung have already gone through multiple product iterations and will be even further along by the time the Apple Watch is released. Motorola and LG also have first generation products out there that will be rapidly refreshed.
  • I don’t think it’s very fashionable. I like watches and there is much to appreciate about a beautiful timepiece. A watch is my primary if not only “accessory.” To me this watch looks a bit childish and cheap. Not to mention that if you want a nicer band or colour it will cost more money. My wife disagrees with me, she thinks it’s awesome and she is an iPhone user. Most of the Android watches aren’t that fashionable either, with the exception of the Moto 360 (save for the black bar at the bottom of the screen) and the LG G Watch R. The watches will get nicer over time and it will take a generation or two for these to become more elegant timepieces. Note that not everyone shares my opinion about the Apple watch as a fashionable timepiece – Hodinkee, a watch review site (not a tech site), finds the watch to be well made and fashionable. Hat tip to Jimmy Dinh for pointing me to this particularly informative review.
  • Health reasons. Radios communicating everywhere – in my pocket, my house, at the office, etc. Do I need another, particularly one that is stuck to my body? I have no scientific data to back this up at this point, but I do think about harmful exposure.
Now that I’ve vented, here are a few reasons why I would consider the watch. I’m not sure they are enough though to justify the price tag:
  • I’m a gadget enthusiast. I’d buy a smartwatch for pure tinkering purposes. You’ve probably gathered by now that I like this stuff. Even if it’s not practical, I enjoy a hands on approach to understanding how these devices work and what they can be used for.
  • As a fitness device and companion. I currently wear a Fitbit, and while I really like it, I’d like to get rid of it. It’s just something extra to remember, carry and charge. This class of devices will likely disappear as heart monitors, step counters, etc. get built into smartwatches and mobile phones. The Apple Watch, or any other smartwatch could make a great bike computer or running computer.
  • To experiment with Apple Pay (in the morning of course, when the battery still works!).
  • As a conversation starter with bankers. I enjoy demoing cool technology to our banking clients that unfortunately don’t have the time to think about new technology or devices. Their day jobs are demanding and they turn to us for opinions on how emerging technology with impact the banking landscape.
Enough about me. More importantly, what does all of this mean for financial institutions? I recently blogged on wearables for banking and you can read more about that here. Even if the masses aren’t flocking to smartwatch banking, I believe that every bank should buy this watch and a couple of Android watches. It’s critical for banks to understand the impact of new technology and the best way to learn about it is hands on experimentation and experience. Buy a couple, give them to your senior digital banking product folks and tech staff so that they can form educated opinions. This will require some budget of course – a budget that every bank should have for research and development and the creation of new products. What I’m suggesting certainly isn’t typical or commonplace, but well needed if banks want to be the digital powerhouses that they are aspiring to. Will you buy the Apple Watch? Why or why not? How does Apple Pay factor into your purchasing decision? Please weigh in with your thoughts or comments.

Wearables – banking hype or opportunity?

Lately there has been much fanfare around wearables. From Google Glass to smartwatches, there has been no shortage of press releases, articles and hype surrounding these devices. I must say that I personally find all of this stuff amazingly cool, and love trying out new things. I am also super excited about the Moto 360 smartwatch and will likely pick one up when it launches. My interest in these devices however has absolutely nothing to do with banking. Don’t get me wrong, I think it’s critical for banks to try out new technology in order to understand how devices are evolving and how consumers will use them. In other words, banks should proactively throw stuff against the wall in order to see what sticks! Will wearables be the next big “channel” or consumer touchpoint? I have a hard time believing that consumers are going to want to “bank” using these devices – there is a lot of hype here that needs to be filtered. Wearables, specifically smartwatches, will act as more of a companion to a smartphone. There are however a couple of specific areas where wearables can have an impact on banking:
  • Alerts and notfications. The alerts that pop up on a watch should in theory be the same ones that appear on your smartphone. Most day to day banking alerts may not be that critical, however there are some that the user may want to have access to at a glance. Security at the point of sale is also a possible use case. If a credit card is swiped an alert can be sent – it’s simpler and faster to have this appear on your wrist then in your pocket.
  • Authentication. These devices, particularly the smartwatch, represent an interesting authentication alternative. The Android platform can be configured to allow for a “trusted device” to unlock the phone or an app. In other words, the phone or app can be unlocked if the device detects the presence of a smartwatch. If the device is lost or not in the hands of the user, the smartwatch won’t be detected and the user will be prompted for a password. The Moto X smartphone currently has this software feature incorporated into its build of Android, and it can be used to unlock the device. Celent believes that devices like the smartwatch can act as a solid form of authentication and enhance the user experience. Additionally, banks have been challenged to come up with new methods of providing authentication for mobile banking, particularly since classic multifactor authentication involves something you know and something you have.
The mobile world is rapidly evolving and there is much to look forward to. Please weigh in with your thoughts and comments.

Is St. George Bank really getting rid of online banking?

There was an interesting headline in the news last week that grabbed my attention – St George Bank to ‘decommission’ online banking for mobile. I read this article with great interest, particularly since St. George was such an early mover in online banking. The message is confusing, as is the quote from the bank’s CIO:
“We will have our first implementation for tablet in October 2014, a second mobile implementation in March 2015, and then desktop sometime in 2015, so we’ll have it as one system altogether.”
All this really tells me is that the bank is going to have a single digital platform and they are focusing on a mobile first approach. The next gen desktop implementation will arrive next year!  This also begs the question of what really is mobile or desktop these days? Is a Windows 8.1 convertible unit a tablet or a desktop? If I access “online banking” through the web browser on my iPad is it online or mobile banking? It doesn’t really matter. Customers expect to pick up their device of choice and have the appropriate experience. The burden is on the bank to provide it. The controversial nature of the headline certainly grabbed my attention. Online banking is far from dead. Feel free to add your comments, I’m interested in your opinion on the St. George bank announcement.

Would You Go Shopping To Your Bank?

This week I saw the news that Bank Zachodni WBK in Poland, part of the Santander Group, “embedded an extensive m‑commerce marketplace into its mobile banking & payment application.” The users can log into their mobile banking app, and from there shop at a variety of merchants embedded in the application. According to the announcement, “the purchase is made with one click only and all user’s financial data is protected by the bank. Customer does not have to trouble with attaching multiple credit cards, remembering shops’ logins or learning their functionalities (all shops and financial services share one unified UI); a delivery address is already stored.” Poland is a very innovative market in payments, from being one of the leading markets on contactless POS penetration to working on solutions for payments directly from a bank account (e.g. IKO). This is yet another example of creative thinking in payments and commerce, and the bank should be applauded for its innovation efforts. But is this the right model? I can understand the attraction to banks: the opportunity to earn additional revenue while giving more reasons for your customer to use your app. It might make sense for the merchants as well. If payment is processed directly from a bank account rather than a card, they are likely to have lower costs. And one-click purchasing might increase the conversion rates, a crucial metric for success for online merchants. The big question is whether customers are prepared to view their banks as online malls where they go shopping across a broad range of retailers. What can such a bank mall bring over and above individual merchant sites? O2 Wallet in the UK has tried to build a similar mall, by enabling shopping at selected merchants directly from the wallet, but has recently shut down to re-think its strategy. Nectar, a multi-merchant loyalty scheme, also has partnerships with many online sites, including leading brands, such as Apple, Argos, Currys, Debenhams, and, until recently, Amazon. If the customer goes to the participating retailer’s site via Nectar website, they would earn Nectar loyalty points for their shopping. As much as I like my Nectar points, I can never remember to go to their website first; I either go to the merchant website directly or Google to find what I am looking for… My view is that such a model may work for small local merchants, which need help to be discovered and lack ability to build an online/ mobile presence themselves. Combining with a single sign-on, unique offers and one-click checkout you get a viable proposition. It is much more difficult to imagine a customer going to Amazon or another leading brand via his bank. Understandably, banks want to play a bigger role in the broader commerce, not just payments, and will continue to experiment with different models. Ultimately, it will be consumers and merchants that will determine what works best for them. What do you think is the right model for banks?

Does native advertising have any future in mobile banking?

A new trend in the digital publishing world is a shift toward ‘native advertising.’  Advertisers are beginning to make ads more subtle, blending them into the actual content of the website.  The ads are presented in a way that flows seamlessly with the voice and style their environment.  Sites like Facebook, Twitter, Google, and others have been doing this for a while, but only recently has editorial media adopted the style.  Some predict native ads will dominate digital channels across all industries in 2014. See below for examples from Twitter and Facebook.

Native ads in mobile emphasize minimal disruption in UX

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Source: Facebook iPhone App; Twitter
Unsurprisingly, banner ads have proven to be increasingly ineffective.  The unnatural placement of banner ads makes them all too easy to block or simply ignore, and the flashing lights, noises, ridiculous promises, or distracting mini-games can be extremely annoying.  In mobile apps, where real estate is more limited, native advertising has allowed for a much more natural flow for the marketing (as shown in the figure above), and the effectiveness has been impressive.  A study by IPG Media Labs showed that users looked at native ads 53% more than display ads.  They also were 32% more likely to recommend the product to a friend. Banks can learn important lessons from the way native ads effectively gain the attention of the user while still respecting user experience, especially in mobile app design.  Financial institutions are understandably wary about trying to push anything through mobile that might be considered an annoyance.  Adopting some of the principles of native marketing and integrating them into a cross-selling strategy may be a much more effective route to take. A couple of key takeaways:
  • Native ads don’t disrupt user experience: The key principle of a native approach to advertising is a seamless integration of the advertisement into the user experience.
  • Marketing can be well designed to fit into existing interfaces: Evernote (seen in the figure below) uses this principle to show that a properly design user interface can make ads appear very natural.

Evernote’s UI Allows for Ads While not Sacrificing UX

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Source: Evernote iPhone App
To drive adoption, banks have often been hesitant to heavily push marketing, fearing the disruption in user experience.  User experience is clearly one of the most important aspects of digital channels, but applying some principles of native advertising could enhance sales effectiveness.   Could this be the logical next step for banks with strong mobile adoption and a proven digital strategy?

NCR Acquires Digital Insight – What’s Next?

NCR announced yesterday that it is acquiring Digital Insight for $1.65 billion. This is a rather quick “flip” for private equity firm Thoma Bravo, as they purchased Digital Insight from Intuit for $1.03 billion this past summer. The move makes a lot of sense for a firm like NCR. However, I am left scratching my head as to why they didn’t purchase Digital Insight from Intuit a few months ago. Was Intuit in a rush to sell of the Digital Insight assets? Was NCR not ready or not aware that Digital Insight was for sale? There are some unanswered questions here that don’t add up. They add up however for Thoma Bravo as a quick $620 million is nothing to sneeze at! The acquisition presents several opportunities and challenges. Opportunities:
  • NCR is aiming to become a fintech powerhouse. Yes, NCR is already a large player. However this acquisition allows them to expand further into digital banking . We have seen similar stories with ACI’s acquisition of S1 and Online Resources, D&H’s acquisition of Harland, Fiserv’s acquisition of Open Solutions, etc. This is the next wave of solution providers competing on digital and multichannel banking. In other words, there is plenty of opportunity for banks to look beyond the classic core banking providers for online and/or mobile banking. 
  • NCR will be able to focus on multichannel banking and cross-selling their solutions. Online, mobile, ATM, branch transformation – these are all areas that NCR can zone in on. Not to mention that the firm has a multichannel marketing solution. Both firms have solid client bases that can be tapped into.
  • NCR already has digital banking solutions. The firm will now add a host of new and modern solutions to their digital banking arsenal. The Digital Insight assets will allow NCR to become a more significant player in the online and mobile banking space.
Challenges:
  • Digital Insight can’t afford to be in limbo for so long. The firm has been caught up in the M&A doldrums for quite some time, starting from when Intuit decided to sell the firm. Other firms spent this time investing in their solutions and building out new capabilities.
  • NCR is going to have to move very quickly in order to compete. Newer firms like Q2 have been gobbling up market share from the classic providers. Other startups are emerging on the scene. NCR will have to forge ahead rather quickly in order to stay relevant in the online and mobile banking market.
  • NCR is going to have to manage the expectations and concerns of Digital Insight clients. Digital Insight clients have bounced around from Intuit to Thoma Bravo to NCR in a very short period of time. This can be a frustrating experience and NCR is going to have to work hard to make these clients happy.
  • NCR and Digital Insight both offer digital banking solutions. Some of this product overlap will need to be rationalized.
This acquisition is certainly big news for the fintech industry, and I’m curious to see where it will take NCR. Please feel free to weigh in with your thoughts and comments.  

Omni-Channel Roundtable in Toronto — the Summary

We recently held a banks-only roundtable at our offices in Toronto to discuss “New Imperatives for Omni-Channel Delivery.” With representation from Canadian and US financial institutions, we had a robust conversation around the movement from “multi-channel” (old and siloed) to “omni-channel” (integrated and mutually reinforcing). Some of the attendees had interesting – and fairly recent – titles: “Director, Multi-Channel Experience” and “Director, Multi-Channel Strategy” were two that were particularly noticeable, while two others had “Channels” in their title.  Taking an integrated view of the channels portfolio appears to be catching on in Canada! Some interesting observations surfaced.
  1. Banks are rolling out channels and touchpoints without necessarily teaching the customer how to best use them.  When ATMs (or ABMs, north of the border) first came out, bank personnel would walk customers over to them and give them a basic tutorial. There is precious little analogous activity in our new digital channels; we simply assume that customers will pick up on how to use them.  Apple has trained us to think that really good experiences need no tutorial, but that’s not necessarily the case in banking, particularly when it comes to security concerns.
  2. The session didn’t address Personal Financial Management (PFM) directly, but when we touched on it, the group took off on a twenty-minute tangent!  There’s clearly a lot of interest in PFM despite anecdotal adoption rates that continue to hover around 10%.
  3. Piggybacking off existing infrastructure, e.g., the AppStore ratings engine and comments section, is a great way to garner customer feedback. The key, obviously, is to listen and act on the comments that customers provide, and at least one bank watches its ratings assiduously and uses the feature requests and complaints as a key driver of release improvements.
  4. As in the U.S., the fate of the branch network is an important strategic issue. One component that will have some bearing on this is video banking, whether through hardpoints or consumer devices (laptops or tablets). Bankers are clearly keen to determine how video can supplement other channel experiences.
  5. A sneak peek of a Celent survey of Canadian banking customers showed their behavior to be remarkably similar to Americans’.  While there were a couple of exceptions (to be detailed soon in an upcoming report), there were no huge disconnects.  Despite some of the differences in the structure of our two banking systems (oligopolistic vs. fragmented, and cooperative on infrastructure vs. wildly independent), our consumers tend to view and use their banks similarly.
We’re looking forward to additional roundtables in 2014.  If you’ve got specific topics you’d like to see addressed, or cities you’d like us to visit, please let us know!