Why banks should pay attention to “Assistant as an App”

Last week I had the pleasure of going to Finovate, a biannual event (at least in NA) where startups and established vendors show off their newest creations. My colleague Dan Latimore wrote an in-depth piece about it last week. It’s usually a good temperature read of where the market is and what banks are thinking about. PFM used to be hot, now it barely makes an appearance. Mobile account opening and on-boarding was massive. Each year you can count on a few presentations tackling customer communication, whether it´s customer service applications or advisory tools. While this year was no different, I didn´t see any presentations representing an emerging trend in mobile: assistant as an app. What is assistant as an app? Basically, it puts a thin UI between two humans: the customer and the service provider (e.g. retailer or bank). The UI layer enhances the interaction by allowing each party to push information back and forth, whether its text, pictures, data visualization, etc. There are a wide range of possibilities. Apps are already starting to incorporate this idea. For a monthly fee, Pana offerings a human personal travel assistant who will take care of any travel related need. The concierge books restaurants, hotels, rental cars, and flights, all via in-app communication. Pana Vida Health allows users to push dietary information to a health coach that can then send back health plans, ideas to diagnose health issues, or create a weight loss regimen. The dating app Grouper uses a concierge to coordinate group dates. EasilyDo is a personal assistant that can manage your contacts, check traffic, schedule flights, etc. The app Fetch uses SMS to let users ask the concierge to buy just about anything. For a small fee (sometimes free, subsidized by business or premium services) these companies provide value-added premium services to customers through a mobile device. The applicability for banks is obvious. Finances can be complicated; most people aren´t good at managing money, and according to Celent research, consumers still prefer to speak to a human for important money matters. Assistant as an app would offer institutions a clear path towards monetising the mobile channel, moving interactions away from the branch, and capturing a growing base of digitally-directed consumers. I predict this will be a major trend in financial services in the future. What do you think? Feel free to comment below.

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.
  • 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!

Recapping Future of the Bank Account Roundtable

We just assembled a group of UK retail bankers for a discussion on The Future of the Bank Account. Against the backdrop of the month-old implementation of the directive that bank switching be seamlessly completed in seven days , banks were keen to understand the implications of changing consumer needs and behaviors, evolving regulations, and new competitors. Celent see a consumer’s bank account serving three main purposes:
  • Receiving funds (money in)
  • Storing and Managing funds
  • Paying funds (money out)
We were interested in exploring how these key functions might evolve and what banks need to do to respond. The group crystallized three key notions central to making tomorrow’s bank account a success:
  1. Trust
  2. Perceived fairness
  3. Value added services
Customers must trust their primary account provider to keep their money safe and to do right by them.  The opportunity lies, though, in not avoiding breaches of trust, but in seizing the opportunity to do the unexpected right thing – going above and beyond to earn customer loyalty.  Trust also implies transparency: being upfront with your customers about how you’re going to deal with them, and demonstrating the value that you provide. It’s all too easy for customers to take for granted something marketed as “free.” Banks need to do a better job demonstrating that there is actually a lot of value in a “free” banking account (which is admittedly much easier said than done). The psychology of retail consumers generated a good discussion, particularly around the notion of fairness, which in the end comes down to perceived fairness.  Tied closely to trust, fairness means that consumers have to feel that they are being treated the way they deserve, not in a series of one-off transactions, but in the context of a continuing relationship. Finally, because bank accounts (and payments, the most salient feature) are, by and large, commoditized, the opportunity for differentiation comes from value added services.  Still nascent, most of these services will revolve around relationships and data (in one form or another). Banks will need to determine what their portfolio of value added services will be. In conversation there was a clear belief that proponents of the seamless switching scheme, and the potential idea that bank account numbers be make portable if not enough people start to switch banks, may fundamentally misunderstand people’s relationship with their bank. In mandating that everyone have access to a free account, regulators may have inadvertently made it harder to compare accounts on an apples-to-apples basis.  Additionally, banks face the challenge of serving these accounts in a cost-effective way, no small task. Inertia is an extraordinarily powerful force in personal financial services; getting people to change banks or the way they do things with their bank is hard.  However, the right value added services might be enough to persuade consumers to switch banks, although the jury is still out.  The challenge that many new payments schemes face is, “why is this different than simply tapping your card.” There was some belief that success and failure will be determined at the bricks and mortar side of the bank, rather than through digital channels. Many would dispute that notion; they next few quarters will give us an indication of whether that’s true. Clients who’d like to explore this further can read Zil Bareisis’ report, The Rise of the New Bank Account?

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

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!

Higher Education: Another Lesson in Multichannel Delivery

Celent recently published a report, Branch Boom Gone Bust: Predicting a Steep Decline in US Branch Density. As expected, some misunderstood the report as another piece decrying the death of the branch channel. It isn’t. Instead, the report advocates embracing a “right-sizing” of the branch channel as a means to strategically invest in retail delivery models more appropriate for the market’s rapidly changing consumer preferences. More recently, FMSI released its 2013 Teller Line Study, demonstrating the continued decline in branch foot traffic and growing per transaction costs experienced by its many, mostly smaller bank and credit union clients (see below). These aren’t new trends, and they’re not confined to the US. Yet, too many banks remain invested in historic operating models – despite the growing body of evidence that suggests dramatic change is needed. FMSI 2013 I found one example of this occurring in higher education to be particularly fascinating – and bold. The Georgia Institute of Technology (Georgia Tech) plans to offer a $7,000 online master’s degree to 10,000 new students over the next three years without hiring much more than a handful of new instructors. Georgia Tech will work with AT&T and Udacity, the 15-month-old Silicon Valley-based company, to offer a new online master’s degree in computer science to students across the world at a sixth of the price of its current degree. The deal, announced Tuesday, is portrayed as a revolutionary attempt by a respected university, an education technology startup and a major corporate employer to drive down costs and expand higher education capacity. The story has been widely covered. If closing branches sounds like heresy to retail banking executives in dire need of low-cost revenue growth, Imagine what the idea of offering an online master’s degree for less than 20% of the cost of a traditional, in-person lecture format will do to tenured professors heavily invested in their own traditional delivery models? Some bankers argue the inadequacy of digital channels for sales because so many consumers desire a face-to-face experience for “complex” product sales. Is not a master’s degree complex? What about buying window treatments? Blinds.com has become the largest purveyor of window treatments through its online presence. But, buying blinds can be complex. There’s sizing, placement, color choices, degrees of light transparency, texture…the list goes on. Blinds.com addresses this by offering a by-appointment online videoconferencing experience it calls face2face. Consumers schedule an appointment with an expert online for a free video consultation. Consumers send blinds.com a picture of the window(s) in question, and the design consultant provides expert consultation at a convenient time – including showing you what your windows in your room would look like with various treatment options using the picture you provided. To be clear, it’s too early to read the results of Georgia Tech’s experiment, but I applaud its aggressive approach to dramatically alter the cost and accessibility of higher education. Similarly aggressive banks step forward!

Mobile Chat – Passing Fad or Key Capability?

Earlier this week, RBS launched a mobile chat feature, available to its business mobile banking users.  RBS isn’t the only one jumping onto the mobile chat bandwagon – San Diego County Credit Union announced a similar offering . The concept is pretty straightforward, and is similar to the online chat tools that some banks have incorporated into their web sites and/or online banking. I’m a big fan of online chat tools, though many banks I speak to have mixed feelings about them.  The launch of mobile chat capability raises a few pertinent questions:
  • Will users take to texting with their bank? Mobile chat is quite similar to texting with a bank representative. It’s a familiar experience to most mobile users and therefore could catch on. On the other hand, mobile banking is very much about quickly taking care of banking activities. Users get in, do what they need to do, and then get out. I question if mobile chat falls into the category of quick activities. Mobile chat on a tablet is an entirely different story, as the experience and activity type is similar to classic online banking.
  • Will text chat evolve to video chat? I have heard rumblings about this at a couple of banks, and I think it’s a great idea for specific markets where high touch service is required. Wealth management and business banking are great examples. It’s not a perfect solution as often customers in these segments often have dedicated representatives, and they can’t be available by video chat 24×7!
The larger question is, how can banks most effectively service their customers across channels? What is the most efficient way to service the growing number of mobile users in a multichannel environment? Chat is but a piece of the puzzle. Banks have to effectively service customers across channels, and bank representatives require a full record of all past interactions. For example, branch staff should be able to effectively service a customer, if  the customer originally initiated a mobile chat session and subsequently walks into a branch. What are your thoughts on mobile chat? Is it a passing fad or a key mobile capability?

Using the Branch to Sell Mobile

American Banker published an article last week describing Bank of America’s quest to bolster the ranks of its mobile banking customer base. According to the article, the bank is outfitting its teller stations with quick response (QR) codes that can be scanned by mobile devices to download the mobile app. What a great idea! For too long, most financial institutions have limited the merchandizing of mobile banking capabilities. Even after investing in sought after capabilities such as mobile remote deposit capture, many banks enrol mobile banking users primarily through the online channel. Go figure! In-branch merchandizing is a logical way to leverage remaining foot-traffic for the mutual benefit of online banking enrolment, and QR codes at the teller line is a great way to do so in my opinion. After reading the article, I was eager to see them for myself at a local Bank of America Branch. Upon entering the branch, I was instantly greeted by a charming and enthusiastic employee who was quick to answer my query. She had no personal experience with the in-store merchandising though, and even asked me what app I use to read QR codes. The merchandising wasn’t at the teller stations, but at the deposit preparation desk (below) and also prominently positioned at each new account desk. Once scanned, the QR code directs the user to the appropriate app store to download the bank’s 4.2.69 version of the mobile banking app.

Selling mobile deposit right where customers fill out deposit slips is a great idea

Note that the merchandising didn’t simply advertise mobile banking, it sells the benefits of the bank’s newly released mobile deposit capability. Placement was perfect – right where in-branch depositors will be filling out deposit slips. Use of QR codes is smart for their ability to allow consumers to easily inquire without taking bank staff’s time. It reminds me of another clever application of QR codes. My wife is a first grade teacher. She enjoys the use of iPads in her classroom and integrates them into her curriculum. One way she does so is by loading a variety of educational games onto the iPads for use throughout the day to reinforce lessons. She makes a number of “low-technology” games available as well. Games are a great way to provide some educational fun while she is working with other students. Like new banking capabilities, the problem with games is that they must be explained. Having to do so in the classroom is distracting and diminishes the value of “self-service’ learning games otherwise provide. To address this problem, she recorded instructions for each game on YouTube and provides a QR code for each game that links to the explanation video. Students wishing to explore a new game simply scan the appropriate QR code and they’re off. It saves her countless interruptions.

Even First Graders think QR codes are easy

Apparently Bank of America tellers will soon be enjoying the same benefit.

How Many Bank Branches do we Need in the US?

Finextra published an article yesterday that was also picked up by American Banker and others. The news was twofold: 1. Bank of America announced it enjoys 10 million mobile banking customers, up about 3 million from a year ago – about 43,000 new active mobile customers per week. 2. Concurrent with its swelling ranks of active mobile banking customer, the bank is closing branches and unplugging ATMs. The bank closed 154 branches and eliminated 631 ATMs in Q1, citing the move to online and mobile channels as a contributory factor according to the Finextra article. Celent is not surprized by the branch closure news. As explained in a recent Oliver Wyman report, Branch Flexing: An Agile Approach to Cost Management, April 2012, “to maintain profit levels in the face of a post-crisis and regulatory-reform decline in net revenue of about 32%, US banks would need to increase revenues by 12% a year for the next three years or cut costs by 18% a year, or a combination of the two.” Cost cutting isn’t optional, particularly among larger US banks. Making material cost reductions will require a re-examination of branch networks, which typically contribute between 40% and 60% of a modern retail bank’s costs. Branch flexing refers to a strategic realignment of branch resources (and cost) with customer profitability. Ultimately, branch flexing involves investments in technology, training, culture and compensation. Celent has advocated departure from traditional, teller centric retail operating models for some time. But what about the total number of branches. Is there an argument that the industry has built an unsustainable number of branches, flexing or not? We think so. The argument begins with a simple observation that the US branch density (branches per million inhabitants) has nearly tripled since 1970. Thus, before consumers enjoyed the ATM, telephone banking, internet banking or mobile banking, the industry served consumer’s collective needs with less than 22,000 FDIC insured branches. Do we really need 90, 000 now? branch-density1 We think not. But it’s not so much if they’re needed (The Economist had a great debate about that topic earlier this week), but will they remain profitable? If indeed we’re in a “new normal” of sharply reduced retail banking profitability, than the answer – to one degree or another – is “no”. Celent is developing a more detailed perspective on how many bank branches the US is likely to support over the next ten years. Stay tuned.