What I learned at IBM’s Watson for Financial Services briefing

What I learned at IBM’s Watson for Financial Services briefing
Last week I attended an IBM Watson briefing geared toward Financial Institutions at Watson HQ on Astor Place in Silicon Alley. The event was oversubscribed, a testament to FIs’ interest in Watson. I learned three things.
  1. Implementing Watson is hard. IBM had a panel of three financial services firms (Nationwide (the US mutual), USAA, and Monitise). Of the three, USAA is farthest along, and is to be commended for experimenting with Watson, but there’s no getting around the fact that there’s no such thing as a turn-key Watson implementation right now. Ingesting the data to train Watson is, as they say, non-trivial, and then honing how agents can use it to augment their customer interactions takes time and persistence. Companies preparing to embark on a Watson journey should understand that it likely will take more than a single budget cycle to realize results.
  2. Negligent tugboat captains have something to teach banks. Bear with me here: in 1932, Judge Learned Hand found that a tugboat company towing a barge that sank in bad weather was liable because it did not use readily available technology. His opinion stated, in part, “Indeed in most cases reasonable prudence is in fact common prudence, but strictly it is never its measure. A whole calling may have unduly lagged in the adoption of new and available devices. . . . Courts must in the end say what is required. There are precautions so imperative that even their universal disregard will not excuse their omission.” This certainly seems to have some interesting implications for bank operations, even if Watson doesn’t quite meet the standard yet of “readily available technology.” (For more information on the case, see this itlaw wiki.
  3. Moving to pay for purchases, rather than pay for eyeballs / impressions, is getting closer every day. Alastair Lukies, the CEO of Monitise, had a very compelling vision of the future of payments, particularly with respect to mobility. One insight: the days of retailers or other sellers paying advertisers for impressions are dying more quickly than many thought. They’ll be replaced by paying for a referral only when a sale is actually made. The technology to track this accurately exists now, and banks who embrace the ecosystem approach will reap the benefits. For Celent’s take on Merchant Funded Rewards, see Using Data to Create Value for all Customers, by Zil Bareisis.
Speaking of commerce, I also saw, at a different conference hosted by the Electronics Transaction Association, a great discussion of Allure (the women’s lifestyle brand) using MasterCard’s ShopThis to let consumers almost seamlessly buy items they see featured in Allure’s editorial content. They can click on a lipstick they like from one retailer, and a scarf from another, and both will be placed in a single shopping cart. MasterCard takes care of the (substantial) back-end heavy lifting to make the consumer’s experience incredibly simple.

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.

PayPal’s March Into the High Street

PayPal’s March Into the High Street
The readers of this blog and Celent clients with access to our reports will know that when we talk about “mobile payments” we are careful to specify what we mean by it. While many talk about NFC payments, we prefer to discuss “mobile at the retail point-of-sale”, recognising the diversity of ways how a mobile could be used to make a payment. Last year we predicted that the biggest rival to the emerging NFC solutions (and a threat to the banks and card issuers) would be PayPal with its “wallet-in-the-cloud” approach to in-store mobile payments. This week PayPal announced two massive steps in that direction – a deal with two large POS manufacturers, Verifone and Equinox, and new relationships with 15 retailers, including household names, such as Abercrombie & Fitch, American Eagle Outfitters, Barnes & Noble, Foot Locker, JC Penney, Office Depot, and Toys “R” Us among others. This is in addition to the last year’s pilot with Home Depot, which has now seen the solution rolled out to 2,000 stores. Some of the press has already called PayPal the “world’s fifth payments network.” In case you are not familiar with PayPal’s in-store vision, essentially, you are checking out with your PayPal account rather than your Visa/ MasterCard/ Amex card or cash. You may have a PayPal card, but it’s simply a way to identify and communicate your PayPal account credentials. The same could be achieved by entering your mobile phone and a PIN into the terminal. The solution does not rely on NFC, so the consumers don’t have to purchase NFC-equipped handsets and merchants don’t have to do hardware upgrades to their terminals. Usually, software upgrade is sufficient, which is why the deals with POS manufacturers as well as POS software developers are crucial to make it easy to the merchants. Of course, the merchants still need to have a commercial agreement with PayPal to accept it as a payment method, which is why securing relationships with the US leading merchants is so important. However, PayPal understands very well that scaling up the merchant relationships on a global basis is going to be the hardest task in creating a truly universal payments scheme. That could be one of the reasons why PayPal continues to position itself as a “bank’s friend” – it understands how difficult it would be to achieve the necessary global scale on its own. However, that would require to “open up the scheme” and go from a three-party to a four-party model. Would PayPal be prepared to do that? Would banks be willing to join in?

How Simple is “Simply Tap”?

How Simple is “Simply Tap”?
Last week the UK saw the launch of the Mobile Money Network’s (MMN) new Simply Tap mobile shopping service. Is this yet another mobile app destined for obscurity or will it truly re-design our shopping and payment experience? I’ve downloaded the app to give it a try. The registration process was simple and straightforward. The idea is that you register your card and the shipping address with the app and then you can shop by simply entering a product code to have it shipped to you. So, what do I like about the solution?
  • I can see this working for billboard/ poster/ TV/ etc advertising, where a customer sees the code and uses it to buy the goods.
  • It’s not trying to develop a new payment solution – the actual payment is still done over a registered card. This is, essentially, a new way to shop and check out
  • Card details are not shared with the merchant
  • It’s backed by an impressive list of partners and individuals, such as Charles Dunstone, Sir Stuart Rose and others
  • It’s built on a proven technology platform provided by Monitise
However, I also have a number of other observations and questions:
  • I don’t think the buying process is as simple as the name of “Simply Tap” implies. When Google Wallet talks about “Single Tap”, you indeed pay by simply tapping the phone against the terminal. This version of “simply tap” involves finding the product code, then typing it in on your phone’s keyboard (in the demo it appears to be 7 characters – 3 letters and 4 numbers, but I guess the codes will vary), then pulling out your card to enter the three-digit security code on the card, etc.
  • While there was talk of adding QR-code or even image recognition functionality, the app just launched doesn’t have any of those capabilities. Perhaps something for the future?
  • The merchants need to assign codes to their products and to have a relationship with MMN, which offers two services – fully integrated and fully managed. How quickly will MMN be able to sign up and integrate new merchants? Also, I wonder if the code only points the customer to the product, or also includes channel information, allowing the merchant to understand better how their products are bought and which advertising channels pay off?
  • This is clearly not a solution when a customer is buying multiple items and wants to check out at a traditional point of sale. The way it could work in the physical retail environment is if you see a product you like and type in the code to check out without queuing for the product to be sent home. This, however, assumes that you don’t just want to walk away with the product from the store – one of the remaining advantages of actual, rather than online shopping. Of course, it would be handy for large bulky items or the items that are out-of-stock in a particular store.
  • A week after launch I couldn’t find online any product codes to type in. I haven’t been to the participating physical stores yet, but I checked a number of websites of participating retailers (e.g. moreTvicar, thehut.com and even Carphone Warehouse, a founding partner) and could not find a single code…
  • The only code I did find was on the Simply Tap website, where a box of Thornton’s chocolates was advertised as being available for £5 instead of a regular £15. I entered the code (6 letters) and indeed, a box of chocolates came up on my mobile screen. However, the price was £15 and not £5. I logged-in (typing in an 8-character password), as I thought that perhaps the discount would be applied as I proceed with the purchase, but I got to the Buy button and there was no discount. I exited the app… I am sure these are teething issues and things will get better.
  • The app includes offers and promotions that could be pushed to the customer, but they don’t seem to be integrated and making use of geolocation or other unique mobile feature to truly enhance the shopping experience.
  • The success will also be dependent on the economics. If MMN will take a cut on a transaction, the cost of card acceptance would increase for a merchant. While this would likely be acceptable if it generates more impulse purchases off the billboards and posters, it would not be easy to convince merchants to offer that as an alternative online or in the physical stores. A service-based fee might work better assuming the merchants can be convinced of the additional value the solution generates.
  • Best Buy Europe, one of the key partners in the MMN venture, have not been very successful – they lost £47m in the first 6 months and are pulling out of the UK, shutting every store.
  • MMN says the solution works on any handset, and then points you to the Android or Apple store. Not clear how it works for non-smartphones (that is, its claim of any handset, any network)
In summary, while I can see how the solution could be useful in a number of use cases, I don’t think it will revolutionise our shopping on a mass scale. At least not this holiday season yet. Do you agree?

First Look at PayPal’s Mobile Strategy

First Look at PayPal’s Mobile Strategy
With preparations for SIBOS (see Gareth’s earlier blog), it would have been easy to miss PayPal’s announcement this week amongst all the other pre-SIBOS press releases. And it would have been a mistake, because it is important. PayPal talked about “re-imagining money” and “new normal in retail”. Often such platitudes don’t mean much, but if PayPal can implement what their slick video demonstrates, it might indeed be something special. Details are still scarce, but PayPal showed how it would change the retailing experiencing through mobile, but without changing the retailers’ terminals. No NFC, but code scanning; cards with PayPal logo (but no Visa/ MasterCard and not even a number). Checkouts possible without queuing at the tills. Deciding how to settle for purchases after a busy shopping day by putting some on PayPal credit and paying for others immediately through a card or bank account. More details will be needed to understand if and how this vision is going to be turned into reality, but for now, enjoy the film and I will see you in Toronto.

Convergence across industries

Convergence across industries
Attending an SAP analyst conference, Dr. Kerstin Geiger raised the issue of convergence, specifically that the boundaries between industries are blurring. We at Celent see this quite strongly in banking. We lots of entries into the banking market from various industries, some of which are quite closely aligned to banking:
  • Insurance (USAA and MetLife)
  • Brokers (Charles Schwab, Merrill Lynch)
And perhaps more surprising, some that have nothing to do with banking.
  • Supermarkets (Loblaws in Canada and Tesco in UK)
  • Retailers (Wal-Mart, Azteca in Mexico)
  • Mobile Network Operators (KDDI, Globe Telecom in Philippines)
  • Transit operators (Japan Rail, London Transit, Hong Kong Transit)
What are the implications for banks, and the technology providers that support them? Celent believes that banks need to be more responsive to the customer as a whole. Combinations of banks and supermarkets, or banks and MNO can offer powerful new value propositions around convenience, payments, and incentives that banks alone can’t offer, creating bundles and relationships that banks alone can’t touch. These new types of customers are going to want to mix and match banking capabilities with other capabilities in their core competency. Do you give frequent transit riders a cost advantage on their deposits? Do you give heavy telco users a better rate? Do you give people who keep large balances in their prepaid telco incentives on their mobile rates? Does a mobile operator offer location based marketing to its customers used in conjunction with its payment infrastructure? These are areas in which stand alone banks just can’t compete. Celent believes that technology vendors in this space need to build modular, service oriented architectures for these customers. SAP is doing so, placing all of their industry vertical content on a single platform….except banking. Red Gillen, a senior analyst at Celent, will soon publish a report on Jibun Bank, a joint venture between KDDI, Japan’s #2 telecom provider and Bank of Tokyo Mitsubishi UFJ, one of Japan’s megabanks. This is a mobile only bank making inroads into the mature Japanese market, no mean feat. What do you think about this new convergence in banking and across all industries?