Looking Eastwards for Payments Opportunities

Looking Eastwards for Payments Opportunities
Last week I published a new report called “Retail Payments Market in Japan: A Land of Contrasts and Opportunity” – an overview aimed primarily at those seeking to get an introduction to payments in Japan. Our clients know that we don’t publish country-specific reports that often; instead, we tend to focus on themes and topics that have relevance in multiple markets. However, I had the opportunity to take a closer look at the Japanese retail payments market as part of a consulting engagement last year. Given how different and interesting the market is, I couldn’t resist the temptation to share the findings with our clients. It really is a land of contrasts. Despite Japan’s deserved reputation as an advanced payments market, it remains a cash-heavy society. Credit cards are popular, although the numbers have remained flat in recent years. On the other hand, transactions on debit cards are virtually non-existent. Credit cards are issued by a broad range of companies, not just banks, and most serve as both issuers and acquirers. The e-commerce market is large and fast growing, and it has a number of unique payment methods, such as konbini. Japan is often presented as an advanced case of mobile contactless payments, but those have been based on a proprietary standard (Sony Felica) and only now the country is starting to migrate to NFC payments. The report explores all these and other trends in much more detail. It’s also a land of opportunities. Based on our analysis, we see opportunities falling into three categories with different risk and investment profiles:
  1. A mobile app with sophisticated capabilities for cardholders to manage their cards and engage with their finances should be a “no regret” move for nearly all issuers.
  2. Some opportunities require a clear business case decision. Examples include card-based money transfer services, m-POS services, and targeted offers, coupons and rewards.
  3. Finally, Japanese issuers and their partners should make careful decisions where to place their bets and what kind of business model to pursue in mobile payments, as those opportunities represent relatively high investment and risk.
Japan is a mature payments market and may be overshadowed by the growth of China, India and other emerging markets, but it certainly represents opportunities for players both inside and outside the country.

Omni-Channel Roundtable in Toronto — the Summary

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!

Microsoft and Nokia: What Kind of Marriage Will It Be?

Microsoft and Nokia: What Kind of Marriage Will It Be?
Today Microsoft announced that it has purchased Nokia’s mobile phone business. According to the announcement, “Under the terms of the agreement, Microsoft will pay EUR 3.79 billion to purchase substantially all of Nokia’s Devices & Services business, and EUR 1.65 billion to license Nokia’s patents, for a total transaction price of EUR 5.44 billion in cash.” Both companies have been struggling to adapt to changes in mobile computing – Nokia has lost its leadership in handsets, and Microsoft was rather late in announcing its latest Windows mobile operating system, which remains a distant third to Apple and Android. So, what can we expect from this marriage? One of the commentators on The Times website summed up the question rather bluntly and concisely: “Interesting. Microsoft, who failed to anticipate that computers would become more like phones, merges with Nokia, who failed to anticipate that phones would become more like computers. So will they end up in a perfect partnership of complimentary skills and experience? Or will this create a behemoth that consistently fails to predict the future?” In many ways, the merger is a natural progression of the deep partnership that the two companies struck two years ago. It appears now that both agreed that the next step in the integration was required. Or was it perhaps a defensive move for Microsoft to make sure its main handset partner does not fall into competitive hands? Mobile platforms so far have been characterized by two rather distinct approaches. In the “closed” camp, there is Apple with its tightly controlled and integrated ecosystem, from operating system to handset to strict app approval process. In the “open” camp, we have Android – an open operating system available to multiple handset manufacturers. Microsoft and Nokia alliance so far seems to have fallen in between the two camps – it was neither as tightly integrated as Apple, and given Nokia’s dominance of Windows-based handsets, perhaps not as widely open as Android. While the merger is pointing towards increased integration, the question remains whether the combined Microsoft/ Nokia indeed want to fully emulate Apple’s closed strategy. One of the selling points of the latest Windows platform is its seamless integration across devices, from desktops and laptops to mobiles and tablets (a move Celent applauded when it was announced), and I don’t think Microsoft has any intentions of entering the hardware market in the traditional computing space. The outgoing Microsoft CEO Steve Ballmer described today’s announcement as a “bold step” and “a signature event in our transformation.” It certainly is. More competition in the mobile platform space is very welcome, so we wish Microsoft and Nokia’s marriage is a success.

The Mobile RDC Cost-savings Myth

The Mobile RDC Cost-savings Myth
Mobile RDC (mRDC) is so hot right now. And, for good reason – the capability matters to consumers. In fact, consumers value it rather highly compared to other mobile banking functionality. In a June 2013 Celent survey of US internet active consumers, mRDC was the second most highly valued capability surveyed, with two-thirds of smartphone users ranking the capability “highly valuable” (6 or 7 on a 7-point scale). Among those surveyed, mRDC was more highly valued than person-to-person payments (54%) and the emerging capability to enroll a new bill payee using the phone’s camera (46%) which a handful of banks offer. Mobile Value Despite the obvious wisdom in adopting mRDC, there’s a growing chorus advancing the assertion of prodigious cost savings realized with every mRDC deposit. Some assertions are in the $4.00 per deposit range. The argument is based on estimates of average per-deposit transaction costs of $4.50 or greater for branch deposits and as little as $0.25 for mRDC. Vendors cite these numbers as if the business case were inviolate and cost savings immediate. I think this is hogwash for several reasons. 1. Cost savings through mRDC – or any self-service mechanism for that matter – is only realized when a commensurate operating cost reduction in the branch infrastructure is affected. Easier said than done. Most banks have long since thinned their teller ranks. More substantive cost reductions must come through process redesign, automation, physical redesign and organizational change. These are huge undertakings. Banks are grappling with the unsustainability of their branch networks. mRDC isn’t their silver bullet. It’s simply contributes to the erosion in foot-traffic already taking place. 2. Branch transaction cost estimates, even if precise, are usually fiction. Most banks I’ve interviewed concede their activity based costing models are rudimentary at best. More importantly, branches serve multiple, important functions beyond deposit processing and these are often not reflected in the transaction cost estimates. 3. mRDC cost savings are argued to be a result of displacing teller transactions with low-cost self-service deposits. Great idea, but what about the ATM channel most banks just invested in? How much cannibalization of image ATM deposits are assumed in the calculation? Not much I dare say. To the extent this occurs, it erodes the theoretical cost savings of mRDC. 4. And lastly, the total costs of mRDC are typically understated once licensing, maintenance, support, compliance and training are included. Where does this leave us? mRDC is a great innovation; a real win-win. But, unless your head of retail is willing to commit to $4.00 in cost reductions for every forecasted mRDC deposit (I haven’t met one yet), the cost savings claims may be more theoretical than real. Said another way, migrating transactions to self-service channels remains an important objective. Let’s not overstate the short term cost savings associated with doing so.

Insights from our Omni-Channel Roundtable

Insights from our Omni-Channel Roundtable
Celent recently hosted a client event called New Imperatives for Omni-Channel Delivery.  Motivated by the convergence of channels, we designed this forum to explore banks’ need to coordinate all the ways they touch customers across the entire set of organizational silos. Celent’s belief is that in the New Normal, retail delivery will never be the same. Retail banking customers are driving the most fundamental change in delivery that the industry has ever seen; these empowered consumers have new knowledge and expectations that are forcing banks to up their game.  Additionally, because the way that banks make money is changing radically, banks have no choice but to reconsider their overall system of retail delivery. A large expense for retail banks is their branch network.  It will have to change.  The branch of the not so distant future is more than just talk this time; it’s not optional.  It will entail transaction and sales/service automation; physical re-design; and cultural and organizational change.  Moving to this new branch mindset is a journey, not a destination.  Results will almost always delivered in increments, not via a “big-bang.”  Additionally, branch transformation needs to be executed in a multichannel context, and quickly.  Ultimately, this will result in fewer, smaller, more efficient and more effective branches. On the more technology-oriented side, Celent surveys show that mobile banking and multi-channel delivery are “top retail banking technologies.”  The tablet will act as a catalyst to the redesign of online banking as online and mobile are growing rapidly in priority.  Tablets are unique devices that provide a unique experience and shouldn’t be thought of us simply larger phones.  Digital startups are challenging the status quo with slick experiences and innovative business models.  In response, banks have to become digital powerhouses; they must take advantage of emerging opportunities and use them complement physical channels. We opened up a free-flowing discussion with a few questions for our banking attendees.  We think retail bankers of all stripes will do well to ponder them.
  • What is the customer’s perspective?
  • How do you coordinate between the branch, digital and other channel teams?
  • Do you watch other industries?  Who and how?
  • What are you doing to grow digital sales?
  • How will the role of the branch change in an omni-channel environment?
Celent clients can explore these topics more deeply through a host of current reports.  We’ll be reprising this event in Toronto on November 18; here’s the link:
http://www.regonline.com/builder/site/?eventid=1256874 Additionally, we’ll be hosting a bankers-only roundtable called “Evolve or die: the future of the bank account” in London on October 17. Details at http://www.regonline.com/builder/site/Default.aspx?EventID=1259271 Finally, we’ll be hosting a broader cross-industry event on October 3 in San Francisco.  Entitled “What’s Next: The Search for Disruptive Innovation,” you can find out more at http://www.regonline.com/builder/site/Default.aspx?EventID=1237201 Hope to see you there!

What’s Next for Google Wallet?

What’s Next for Google Wallet?
Last week saw a number of important developments at Google Wallet. Let’s recap what we’ve learned:
  • Osama Bedier, the Head of Google Wallet, left the company.
  • Google Wallet scrapped its plans to introduce a physical card to support purchases at the physical POS.
  • Then, at Google I/O Developer conference, the company made a series of announcements about new features, such as:
    • Ability to send money to friends with Gmail and Google Wallet.
    • Instant Buy Android API designed for merchants and developers selling physical goods and services who are looking to simplify the checkout experience for their customers.
    • Storing of payment credentials in Chrome browser to speed up check out online.
    • Wallet Objects API to connect any loyalty programs, offers and more to Google Wallet.
So, what do we make of it all? Well, it seems that Google’s strategy for physical stores remains in limbo. When Google re-architected its wallet solution it solved some of the challenges, such as provisioning of payment credentials by moving them to the cloud. However, its continued reliance on NFC means that it remains difficult to scale rapidly. Google was widely expected to follow PayPal’s strategy of introducing a physical card for its account, but for whatever reasons that announcement never materialised. While Google is not pulling the plug on physical POS payments, it now appears to have re-directed its efforts to facilitating payments online, whether through desktops or mobile devices. Some observers likened its strategy as “death to PayPal by a thousand cuts.” But I think Google is taking on more than just PayPal. It seems to follow a “best of breed” approach by incorporate interesting ideas from various players:
  • With email payments, Google takes on PayPal, but also many other P2P players, from Popmoney to Dwolla.
  • Instant Buy Android API sounds remarkably similar to V.me and other digital wallets designed to help customers fill out their payment and shipping details at a click of a button.
  • Leveraging the browser to facilitate check-out reminds me of what Dashlane is offering via its browser API.
  • And Wallet Object API is almost a direct take on Apple’s Passbook down to notifications using the location services.
Google started its payments journey in the online space (remember Google Checkout?), went after the physical POS with Google Wallet and is now coming back full circle to payments online. Google’s multiple assets, such as the Android platform, Gmail and others, combined with these new ideas certainly seem like the right ingredients to succeed. However, as every cook knows, ingredients alone are not a gurantee of success. And it will be merchants and consumers that will decide whether they like the taste of the latest offering from Google Wallet.

How to give a killer Finovate presentation

How to give a killer Finovate presentation
I’m attending Finovate Spring in San Francisco (Finovate.com). We’ve seen a number of great demos, and others that haven’t gone so well.  If you think of a classic consultant’s 2×2, with one dimension being strength of the idea and the other the strength of the presenter, probably the most unfortunate quadrant is the one that has a great idea, but shoddy delivery. Here are a few tips to help Finovate speakers give a killer presentation that will have the twittersphere take notice (with apologies to those who prompted the observations):
  1. First, before you do anything else, State the Problem that you’re trying to solve
  2. Have a demo that works; extra credit for something live
  3. Involve the audience, preferably with something live (see #2)
  4. Have a catchy slogan
  5. Print catchy slogan on a tee-shirt
  6. Speak in a Commonwealth accent (Australian, British, Kiwi, South African – they’re all good).  Americans think you sound smart
  7. Avoid using the terms “security,” “identity,” or “authentication.”  These are all terribly important, but from a presentation perspective, you’re starting from a hole ten feet deep.
Good luck to all of you presenting! And kudos, by the way, to Finovate for their iOS and Android apps.

Striking consensus at the NetFinance conference

Striking consensus at the NetFinance conference
I spoke recently during the mobile track at the annual NetFinance conference in Arizona.  My slot at the end of the first day meant that by the time my turn rolled around, I was faced with good news and bad news.  It was good that there was so much agreement among all the participants, and that the messages that I’d prepared were consistent with those of other presenters.  The bad news was that few of my messages were new, and I didn’t want to bore my audience by repeating what they’d already heard.  So I started by recapping the threads that kept appearing over the course of a stimulating day. Key takeaways on what was important:
  1. Mobile: Critically important; the change from just a year ago is stunning
  2. Location:  Especially as a distinguishing feature of mobile
  3. Customer experience: You’re competing against expectations set by non-financial firms. It’s not just mobile, it’s not even just digital, it’s the unified customer experience, across the bank.  And that’s not easily quantifiable
  4. Business case:   Those in the room agree it’s a little squishy, but make-able, but it’s critically important to executive leadership. Many of the exhibitors and speakers are working toward providing solutions that will make capturing that data easier
  5. Data: Capturing insights and measuring / analyzing results is critical; it’s best to build in these capabilities at the beginning; experiments are even better so that the causality / correlation puzzle can more easily be solved
  6. Regulation: Serving customers digitally is harder for banks than, say, retailers, but that’s no excuse – customers still expect a great and valuable service
  7. Customer: The number of banks who touted putting the customer first was extraordinary.  Now we have to see whether their actions follow through on these encouraging words.  Is mobile a chance to teach them new habits?
The degree of consensus around the importance of mobile was striking.  The challenge for the bankers attending, and for the vendors helping them, is to move from preaching to the choir who attended NetFinance to bringing new members into a broader congregation.  Business cases coupled with compelling anecdotes, examples and case studies will help with this. Before embarking on any new digital strategy today, firms should embrace experimentation and data analysis. Here’s the NetFinance link: http://www.wbresearch.com/netfinanceusa/home.aspx

Mobility and the Channel Challenge

Mobility and the Channel Challenge
I’ve had several recent conversations about channels and mobility. The discussions often start from different points, but they all are trying to get at how to characterize and address the differences between online, smartphone and tablet. Like many knotty issues, it’s important to frame the question correctly. I’d like to frame this issue by asking, “Is the notion of channels still relevant to consumers?” My response is that not only is the traditional notion of a channel outdated, its continued use can be detrimental to banks. I’ll give you my bullets, and then elaborate a little more. • Mobile is part of the digital channel, which today consists of online, smart phone, text and tablet (and even some elements of ATM) • Devices are ways to access the digital channel; each has distinctive characteristics • Banks should formulate their digital channel strategy holistically; strategies and tactics with respect to one device will affect, and should inform, others Channels originally existed because they were distinct means of interacting with customers for different sorts of transactions. The original channel was the branch. Then came the call center, and ATMs, and then online. Each of these channels had a different group looking after it within a bank. And yes, they ultimately came together nominally under the head of retail banking, but banks were (and still are!) tremendously siloed organizations. That siloed organizational structure has persisted, even with the advent of online, mobile phone and tablet. In the worst case, different channel organizations can work at cross purposes due to their different success metrics (who wants to have their domain shrink, for example?). Consumers, on the other hand, don’t think in terms of channels. They simply think in terms of getting access to what they want, when they want, and how they want it, and generally as easily as possible. Conditioned by great digital experiences from retailers and other service / app providers, they wonder why banks can’t deliver equivalent services. Part of the reason is that the different product organizations in a bank don’t coordinate very well, and as each pursues its own agenda with different emphases, the customer is underserved. Banks are getting to the point where they truly think of the needs of the customer, rather than the needs of the bank, first. They need to think about the customer and her use cases (checking a balance while waiting for the bus is mobile phone; looking at a check image on the couch is tablet; serious bill pay is a PC online, for example). But there’s ultimately just one digital channel. There are different ways of accessing the digital channel, but they should all derive from the same source data, and they should all ultimately provide the same experience to consumers – not the literal experience, but one that’s comparable in terms of general navigation, look and feel, and vibe. And that’s where the art comes in – the experience is visceral, subjective, and unquantifiable — and the customer doesn’t care through which channel the bank deems the experience to have been delivered.


I recently spent several days in New York speaking to a host of clients, both technology providers and banks, many of whom are focused on driving adoption of new technologies.  I was struck by the consistent increased focus on simplicity in the customer experience. Why is this important?  I contend that in human behavior generally, and financial services specifically, the most powerful force is inertia: a body in motion tends to stay in motion.  To get people to do something differently, you’ve got to make it worth their while to change.  There are two components to this equation: the size of the potential benefit, and the effort required to reap the benefit. As the perceived value decreases, so too must the effort to achieve it.  Because in financial services the perceived benefit is so often uncertain, reducing the effort required to achieve it is critical. Let’s look at the Apple music ecosystem (iTunes, iPod, iPhone, iPad, etc.).  The iPod wasn’t the first mP3 player to hit the market.  Wikipedia says that the first commercial players arrived in 1998.  But they were very clunky to use, requiring several steps to transfer music from a digital library on a computer to the player.  And while it was easier than recording a vinyl album to a cassette tape (to date myself), it was nevertheless a cumbersome process. Enter the iPod in 2001.  Moving music onto it was fairly seamless, requiring only a couple of steps.  Organizing music was easy, and the whole system just plain worked.  Simplicity (achieved consciously and with a great deal of hard work behind the scenes) played a critical role in the meteoric rise of iTunes. Now apply that same kind of thinking to banking, particularly the mobile and tablet experiences.  Reducing a process from 10 steps to five isn’t going to change much behavior; moving from five steps to two will. Your task is to make new processes simple enough for the average consumer to be convinced that she should start doing something new.  How can you eliminate those crucial last few steps to get to something elegantly simple?