Is the tablet banking honeymoon over?

Only a couple years ago, as mobile banking was growing rapidly, and the conversation around development strategies was at its height, tablets played a prominent role in channel strategies at the largest and most digitally mature institutions. The consumer interest in tablets over the last year or two, however, has plateaued—even waned. Tablet is nowhere near dead, but sales have started to level off. According to ABI Research, tablet sales experienced a 19% YoY decline in growth from 2014-2015. There are a few reasons for this:
  • Tablets have low replacement cycles: Tablets aren´t being recycled at nearly the rate of phones. Partially this has to do with wear and tear—tablets typically sit at home, aren´t charged as often, and aren´t dropped nearly as much—but likely a bigger reason is the lack of major advancements in hardware.   There simply hasn’t been a new tablet feature in the last couple years for which consumers are choosing to shell out another $400-600 (or more).
  • Phablets have taken over as the preferred device: consumers are increasingly going for phones that can provide the screen space of a tablet with the mobility of a smartphone. Phones have been steadily growing in size to meet this need. Phablets can provide the processing power to accommodate the needs of consumers for less.
  • Tablets haven´t carved out a distinct enough use case: It´s still unclear to what extent tablets are devices of leisure, business, lifestyle, etc. There´s the Surface 4 and others that are starting to seriously go after the laptop market with a full operating system and keyboard, but the best-selling tablets on amazon are all those with small screens and cheap price tags.
Celent´s discussions with banks have largely echoed this change, moving to a broader understanding of digital strategy and what it means to be “mobile.” It´s not that tablets aren´t important—far from it—but banks have limited resources dedicated to digital channels, and institutions should be thinking about prioritizing development where the opportunity is highest. A recent Celent report on digital transformation showed that more than 65% of banks cite resources and availability as a barrier to digital maturity. So what’s a financial institution to make of all this?
  1. Use responsive design: A bank may have been able to manage native apps when there were only a handful of devices, but that´s no longer the case. Responsive design has evolved to the point of being able to provide the same look and feel through an experience automatically tailored to the user´s device.
  2. Think about the consumer-facing branch tablet: This could be roaming personnel in the branch, tablet-like ATMs and kiosks, or as a way to streamline the on-boarding process.   The characteristics of tablet interfaces should influence design in other channels.
  3. Design the right app if large tablets are going to continue to be a priority: As the form and function of smartphones and tablets begin to move closer together, institutions will have to reassess where the full tablet experience sits within its strategic digital priorities. The consumer-facing tablet experience may need to reflect the evolving use case.
Celent will continue to discuss the role of tablets in financial services going forward, but the conversation around mobile banking will reflect the larger digital channels picture, rather than tablet vs smartphone vs. online banking. We feel this is more in line with the way the market is moving.

Proposed new cyber security regulations will be a huge undertaking for financial institutions

New York State Department of Financial Services (NYDSF) is one step closer to releasing cyber security regulations aided by the largest security hacking breach in history, against JP Morgan Chase. The attack on JPMorgan Chase is revealed to have generated hundreds of millions of dollars of illegal profit and compromised 83 million customer accounts. Yesterday (Tuesday, November 10), the authorities charged three men with what they call “pump and dump” manipulation of publicly traded stock, mining of nonpublic corporate information, money laundering, wire fraud, identity theft and securities fraud. The attack began in 2007 and crossed 17 different countries. On the same day as the arrests, the NYDSF sent a letter to other states and federal regulators proposing requirements around the prevention of cyber-attacks. The timing will undoubtedly put pressure on regulators to push through strong regulation. Under the proposed rules, banks will have to hire a Chief Information Security Officer with accountability for cyber security policies and controls. Mandated training of security will be required. Tuesday’s letter also proposed a requirement for annual audits of cyber defenses. Financial institutions will be required to show material improvement in the following areas:
  1. Information security
  2. Data governance and classification
  3. Access controls and identity management
  4. Business continuity and disaster recovery planning and resources
  5. Capacity and performance planning
  6. Systems operations and availability concerns
  7. Systems and network security
  8. Systems and application development and quality assurance
  9. Physical security and environmental controls
  10. Customer data privacy
  11. Vendor and third-party service provider management
  12. Incident response, including by setting clearly defined roles and decision making authority
This will be a huge undertaking for financial institutions. Costs have yet to be evaluated but will be in the millions of dollars. It will be very difficult to police third party security because, under the proposal, vendors will be required to provide warranties to the institution that security is in pace. The requirements are in the review stage and financial institutions should join in the debate by responding to the NYDFS letter.

Biometrics: the next generation of corporate digital banking authentication

Corporate treasury departments initiate and approve millions of dollars in high-value payments on a daily basis. As an example, in May 2015 the average amount of a US Fedwire transfer was $5.7 million. Because of the dollar value of these transactions, banks were early adopters of enhanced authentication for corporate online banking applications. Many banks continue to offer one-time-password authentication (on top of traditional username and password) using RSA SecurID or Vasco DIGIPASS hardware tokens at both login and payment initiation. When Celent published its report “Corporate Mobile Banking Update: Adoption Conundrums and Security Realities” in September 2014, it highlighted alternatives to traditional two-factor authentication for corporate online and mobile banking applications. Alternative methods include voice, pattern and biometric authentication methods. As discussed in the Celent Banking Blog “Logging Into Your Bank in a Heartbeat”, several banks have rolled out Apple’s Touch ID fingerprint authentication technology for consumer online banking login authentication. However, as quickly demonstrated by clever hackers, Touch ID is vulnerable to various hacking methods. For this reason, banks are turning to more sophisticated biometric authentication methods for its corporate online and mobile banking applications. The focus remains on layered, multi-factor authentication, but combines authentication technologies in unusual and unique ways. Barclays Bank’s offering combines biometric and digital signature technology in an offering called “Barclays Biometric Reader.” To overcome limitations with traditional fingerprint scanners, Barclays is implementing Hitachi Europe’s Finger Vein Authentication Technology (VeinID) which reads and verifies the user’s unique finger vein patterns. The latest authentication announcement comes from Wells Fargo who is combining facial recognition with voice biometrics. Wells Fargo is working with SpeechPro to pilot the new bi-modal security solution (VoiceKey.OnePass) and fine-tune the biometric authentication features. The solution uses a standard smartphone microphone and camera to capture a facial image and voiceprint. Wells Fargo is also working on authentication using eye vein scanning (as opposed to typical retina scans). Biometrics New authentication technologies, from a slew of relative newcomers to the financial services space, could eventually replace traditional hardware tokens and eliminate multiple authentication hoops throughout the digital corporate banking experience. Watch this space.

Why the branch banking controversy will continue

The branch is dead, long live the branch! Controversy around the wisdom (or not) of investing in the branch channel amidst rapidly growing digital banking adoption is showing no signs of letting up. Consider three articles published in the past week:
  • Bank Innovation covering Associated Bank branch closures to fund digital channel initiatives.
  • BTN coverage of Wells Fargo branch/digital convergence alongside the banks’ steadfast advocacy for maintaining its massive branch presence.
  • Brett King’s Op Ed in Banking Exchange, critical of the recent FDIC report, Brick-and-Mortar Banking Remains Prevalent in an Increasingly Virtual World
  I’ve observed that most advocacy is binary; either branches are next to worthless or the branch is king. Where is the middle-of-the road position?   I’d like to offer one. For starters, retail banks serve a diverse market with diverse needs and preferences. Why then do so many critics insist banks must react to digital banking’s growth in lock-step? How many times have you heard the comment, banks are lemmings? Well, this time they’re not. Get over it! We will continue to see a diverse response to the digital ascendency.   But, I do struggle with the sustainability (or even desirability) of the current branch density in many markets – particularly in the US. I don’t think it will be defensible for very long. Let’s put it into perspective. Between 2000 and 2010, US bank branch density grew from 230 to 270 branches per million. Celent looked at a dozen other retail categories and couldn’t find a single one (except banks) that grew store density over the same period. Just the reverse happened, even though digital commerce remains less than 20% of total retail sales.
Source: US Department of Commerce, FDIC, Datamonitor, Celent analysis

Source: US Department of Commerce, FDIC, Datamonitor, Celent analysis

Like retailers, banks have certainly embraced digital channels. But, unlike retailers, banks have not invested in digital engagement. Until recently, digital channels weren’t about sales and servicing (that’s what branches are for…) but about facilitating transactions. Rare is the retailer of any size that does not have a digital presence designed to conduct commerce. But, the significant majority of banks do not yet have that capability. And, in some cases, the user experience is poor. Why? In part, because banks have focused on transactions, not sales and service in the digital channels. As this changes (and it is), I believe we will see a corresponding contraction in branch densities – just like in most other retail segments. Until banks demonstrate the ability to sell and service customers digitally, they will be overly reliant on the branch channel.
Source: Celent survey of North American financial institutions, October 2014, n=156

Source: Celent survey of North American financial institutions, October 2014, n=156

The next few years will be telling. What do you think?

Are security fears hindering corporate mobile banking adoption?

Corporate mobile has been a popular topic for a number of years now. While many banks have launched solutions, corporate adoption has stagnated. 66% of respondents to a Capital One survey  indicated “security challenges with sensitive corporate data” as their number one barrier to adoption. There are other reasons for slow adoption of corporate mobile, but this one is quite interesting and can be challenging to overcome. Should banks and corporations be concerned about mobile banking security? Is it a real threat at this stage? The short answer is that security should always be a concern — there are all kinds of real threats out there. However, it’s important to quantify and understand the risks and myths associated with current threats. At this stage, I would argue that security is an often overlooked BENEFIT to corporate mobile banking. It provides an additional layer of security; when executives receive mobile alerts, they have the ability to intercept potentially fraudulent transactions in near real time. A sandboxed app can also be quite helpful. I can go on and on here, and encourage you to read more about it in, Corporate Mobile Banking Update: Adoption Conundrums and Security Realities. Do the benefits outweigh the risks? Should banks be investing in corporate mobile given these adoption challenges? There is a chicken and egg situation; it’s quite difficult for banks to prioritize mobile investments when corporate adoption simply isn’t there. Celent believes that all banks should be investing in digital infrastructure that encompasses online, mobile, and tablet banking. Each of these touchpoints should leverage common components and banking modules (e.g., ACH, wires, etc.) This infrastructure should allow banks to eventually support mobile. Banks don’t need to deploy actual mobile solutions immediately, but should be poised to rapidly deliver when customers ask for it. Customer demand should dictate when banks invest their hard-earned IT budgets in corporate mobile apps and solutions. I’ll be at the AFP Conference next week, drop me a note if you would like to meet to discuss this topic.

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.

“End the Carnival!” – Innovation as Part of the Business – Practitioner Roundtable

We just held our 3rd Innovation Roundtable in New York City and the event further underscored how important this area is to financial services institutions.  The format of these gatherings is discussion-based and senior leaders from banks and insurers share their experiences in building innovation capabilities in their firms. The New York group included large insurers (all were $5B DWP and above) and a variety of banks, from among the largest in the world to smaller, regional providers.  Mick Simonelli, previously the Chief Innovation Officer at USAA, also attended and contributed his experience. Across these firms, there is a real diversity in their approach – a reflection that innovation programs are most successful when they adapt to the culture of a company. One attendee describes their innovation strategy as making big bets only on carefully selected areas that are the highest importance to their company. Another wants to increase their “innovation velocity” and pursues incremental initiatives that, when added together, result in meaningful contributions the short to medium term. In contrast to these differences, the participants agree that that their senior leaders recognize emerging disruptive threats and/or opportunities posed by new entrants, increasing commoditization, and changing consumer expectations.  For example, one bank reports that its senior leaders are very actively tracking Amazon’s recent activity offering loans to small businesses. This awareness in these companies is not surprising, since these roundtables are attended by organizations which are already actively pursuing innovation.  Most attendees mentioned that they regularly report to their Boards of Directors on their progress. In Celent’s opinion, just the presence of a firm at the roundtable signals that they are building, or on their way to building, a competitive advantage. Without identifying individual participants, here is a sampling of the content of the afternoon:
  • One company, in their 5th year of a focused innovation program, describes their current approach as “moving away from the Carnival”, away from event, one-time crowdsourcing ideation efforts and towards making innovation a systemic and continuous part of their business. Their objective is to “create a social layer of innovation.” They were kind enough to detail the technology and process that they have used so far.
  • There was agreement that financial services firms advance innovations much too slowly.  This has been confirmed in numerous conversations that Celent has had with clients and has also validated our research. In order to address this, one company actively establishes 3rd party partnerships in order to move innovation faster. They partner with startup firms in order to increase their velocity of change.
  • A common theme throughout the day was evolving digital capabilities and how other firms, outside of financial services, are changing the customer experience.  One firm concentrates on building a “macro view” of what they want their customer to experience. As they improve and innovate their current customer process, they are using this this wider set of considerations to ensure that they remain focused. This is exactly consistent with a recent post on this blog regarding designing digital platforms (see Stop Designing to be a Digital Insurer; Use a Business Value Proposition)
  • The attendees were also global, both by birth and by company.  They report the greatest adoption of mobile platforms occurs in Asia and in emerging economies.  It was also noted that in EMEA, the experience of dealing with multiple languages, cultures and multiple European regulatory regimes increases their companies’ agility and, thus, their innovation capability. For firms that have global operations, concentrating on reverse engineering innovations from one region to another is a valuable investment and a viable strategy.
  • During the discussion about changing company culture to further innovation capability, one practitioner noted that innovation leaders have to be very careful about the manner in which they discuss emerging threats (and opportunities) with their business partners.  Leaders must be very careful to use what was called “empirical specificity” in such discussions. In other words, before beginning a discussion about an emerging threat or opportunity, an innovation leader must do their homework and be prepared to offer exact examples of actual cases where the threat/opportunity has actually taken place. Otherwise, the communication is ineffective and “Pollyannaish”.
There were a number of other very useful areas that we covered – governance, prioritization, prototyping, building to a minimal level of functionality, testing innovations, etc. Thanks to all of the participants for an active, open and productive dialog. Celent is continuing this series and we invite senior innovation leaders to join a session.  Listed below are the dates and links to the upcoming roundtables. Tokyo Feb 26: London March 5: Chicago March 20: Many thanks to my colleague Mike Fitzgerald who posted this blog originally.

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!

Is Online Banking Dead?

Mobile banking is clearly a huge trend. Financial institutions have embraced mobile and are slowly but surely moving forward with updated apps, features and functions. I spend a lot of time talking to banks of all sizes about digital banking. From tablets to smartphones, mobile banking has dominated most of my conversations with banks and software vendors in 2013. Whatever happened to good old online banking? Are banks working on improving it? Are they spending money on online banking enhancements? Whatever happened to the promise of PFM? How is this all going to play out as we move into 2014? Banks can’t afford to drop the online banking ball. There are several key reasons for this:
  • The online channel is still the most popular with consumers of all ages. The results of our most recent consumer survey (September 2013) are quite clear.  While mobile is certainly growing in importance and popularity, online still rules.
  • Most tablet banking apps are pitiful. Kudos to the banks that have ventured down this road as it’s an interesting and exciting space. However, we recently reviewed the tablet apps of the top banks in the US, and most can’t compete with the features, functionality or experience of classic online banking. I recently spoke with a bank that had just finished doing some customer research to evaluate how customers were using their tablet app. Some customers had 2 programs running simultaneously on the tablet – the banking app and the online banking site in the browser – the simplistic nature of the standalone app simply wouldn’t cut it.
  • Digital banking needs to be more than a transaction hub for balance checks, bill pay and transfers.  Commerce / shopping, PFM, financial education, and so much more belong in online banking. They also belong in tablet banking, and pieces belong in smartphone banking –  but that’s a different yet complementary story.
Online banking isn’t dead, it’s a critical component of a bank’s digital banking portfolio. Banks need to balance their budgets accordingly so that they are able to efficiently invest funds in a common framework that can serve the customer. Users expect to pick up any device and have the appropriate experience. The burden is on the financial institution to provide it.