This Week’s Reads: IBM, Disruption, Mobile Payments

Below are interesting stories the staff has been reading over the past week.

What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

The Price of Ethics

In financial services circles, it’s hard to find a more venerable name than Lloyd’s Banking Group. The institution’s history goes back to the founding of Lloyds Bank in 1765, making it older even than the United States. It’s still massive—the fourth largest company on the London Stock Exchange, besides having a listing on the New York Stock Exchange—and it has significant global influence with operations in the Middle East and Asia as well.

Now imagine this august institution’s activities being slammed as “highly reprehensible, clearly unlawful,” with possible “criminal conduct on the part of the individuals involved.” Sounds like Occupy Wall Street rhetoric with a British accent, but it’s not: That’s coming from Mark Carney, Governor of the Bank of England, as part of a verbal lashing administered in late July. In these hallowed circles, it takes a lot for the head of one big institution to bash another, but it’s definitely happening.

The reason is not a secret. In the latest fallout from the ongoing Libor scandal, Lloyds had to pony up some $380 million while admitting to extensive manipulation of the markets, which in turn affected the Bank of England.

While this has to do mostly with shenanigans across the pond, it fits into the pattern of misbehavior on the part of financial services conglomerates. Remember, it’s been six years since the industry tottered on the brink, with some big names going under and others surviving only with a taxpayer-funded bailout. Back then, it was widely assumed—and generally promised—that there would be systemic changes to prevent this kind of malfeasance.

So what’s happened?

Sadly, the drumbeat of news around breaches at conglomerates shows no signs of even slowing down, let alone ending. To name just a few, there’s Citigroup’s Banamex fiasco in Mexico, manipulations by Barclays employees in New York and JP Morgan shelling out billions to regulators and investors alike. It’s no wonder that a leading light of the industry like the Governor of the Bank of England publicly vents his frustration. And of course, he’s not the first. Nor is he likely to be the last, given the ongoing scandals.

Indeed, when the phrase ‘too big to fail’ first emerged, and ‘too big to jail’ came not long after, they seemed to encapsulate all that is wrong about an otherwise great industry—unparalleled arrogance matched by a lack interest in learning from mistakes. Still, the hope was that it was only a moment in time, an unfortunate episode destined to fade from memory. After all, how often do multibillion-dollar conglomerates need to be bailed out by taxpayers thanks to overreach on the part of highly compensated executives?

To be sure, we’re not there just yet. Indeed, the government is even less inclined now to step forward with bundles of cash. But the repeated ethical violations by corporations that really should know better is a sorry sight anyway. There is also the painful awareness that the people at the top will be just fine, a few Bernie Madoffs notwithstanding—that ‘too big to jail’ cliché is lamentably accurate.

In the recent past, every time a new scandal or giant settlement comes to light, it gives ammunition to the chorus of critics clamoring for harsher punishments. The statement made by the Bank of England governor is having exactly that effect over there, and there’s no shortage of similar calls here.

There’s no question that the vast majority of banking professionals are able to do their jobs, and their part to boost the economy, without breaking the law or going to the government for a bailout. But given their high profile, a few bad apples continue to make that task much more difficult.

5 Positive Aspects of Mobile Banking

Over the last five years or more, mobile banking services have been steadily gaining greater popularity with consumers. What was once a convenience that appealed only to the tech savvy has slowly transformed into the type of service that most, if not all, customers will soon expect from their banking institutions. Research firm, Frost and Sullivan estimate that nearly 45 million consumers regularly take advantage of mobile banking options, and they predict that number will only increase as more and more people make the move to smartphones and other mobile devices.

While the benefits of mobile banking for consumers is clear (convenience, security, ease of access), it also presents some distinct advantages for the banking industry itself. As more and more consumers turn to mobile banking for their primary services, banks and credit unions will be in a unique position to offer their customers improved products and services, all while streamlining their operations and increasing revenue.

Increased Efficiency

As more and more consumers switch to mobile banking services, financial institutions will be poised to improve their overall efficiency. For example, the costs associated with a mobile transaction are as much as ten times lower than a standard ATM transaction. Further, the cost of a mobile phone transaction can be as much as fifty times lower than an on-site branch transaction. Clearly, this offers a unique opportunity to both increase efficiency, and to lower operating costs. Banks and credit unions that are able to move 20% to 30% of their standard transactions to mobile services will reduce customer dependency on local branches. In effect, poorly performing branches can be closed, and tellers can be reassigned to sales and customer advisory positions ultimately resulting in enhanced customer experience, improvement in overall efficiency, and reduced operating costs.

Moving from Regional to National

Banks offering a full range of mobile services will be able to expand their operational footprint. No longer anchored to a single geographical location, they will be able to expand their market and increase their customer base. This also presents new opportunities to cross-sell and up-sell banking services to both existing customers, as well as to a larger pool of potential customers. True, the competition for new customers will become more vigorous, but the potential to expand into other markets and increase revenues is undeniable.

Improved Access to Products and Services

Mobile banking appeals to the consumer on the go, which is one of the primary reasons for its speedy adoption by the public. As mobile banking apps become more sophisticated, and more widely available, customers will have a greater opportunity to consider all of their financial options when making any purchase. It will be like having a virtual banker constantly on call. This is a two way street, so it gives banks and credit unions the ability to engage with their customers in real time. When a good customer is considering a significant purchase, his or her financial institution will be able to offer complimentary services, such as financing or insurance, while the transaction is in progress.

Building New Relationships

Mobile banking presents a unique opportunity for banks and credit unions to build a new type of relationship with retailers and manufacturers. Mobile banking can become more than simply a convenient way for clients to make purchases. After all, consumers use their mobile devices to research products and services before they spend their hard earned money. By partnering with the retail sector, banks can offer select incentives (discounts, coupons, etc.) to their customers before they reach the ultimate point of sale. A symbiotic relationship with the retail sector gives value to the customer, while generating a potential new revenue stream.

Leveraging Customer Analytics

Banks and credit unions are in a unique position when it comes to customer analytics as they have a more informed view of their clients’ spending habits. Information on where customers shop, what they purchase, and how much they routinely spend, is part and parcel of a client’s banking data. This opens up a new, and potentially significant, revenue stream. There is a large, and continually growing, market for consumer intelligence. Customer analytics can be bundled and sold on to retailers and others who use the data to target certain markets. However, the privacy of the banking client must always remain paramount. Still, as mobile banking becomes the norm, this type of analytical data bundling can provide an alternative value stream for banking institutions.

Mobile banking is no longer the niche service that it was five years ago. As smartphones and other mobile devices become more sophisticated, more and more consumers will turn to mobile services as their primary method for banking. While the advantages of mobile banking for consumers are obvious, the benefits to the banking industry are equally significant. As mobile becomes the new norm, financial intuitions are in the position to improve their customer service and grow their customer base, all while exploring potential new revenue streams.

Author Bio:

This is a guest post by Sarah Brooks, from people search. She is a Houston based freelance writer and blogger. Questions and comments can be sent to

What Causes Profitability?

In this three part series, Digital Insight staff discusses how financial institutions, can increase their profitability through offerings and customer usage.

In our first article, we examined research from Digital Insight during a two-year period that proves that digital bankers increase engagement and profitability with their financial institution. Looking at the specific banking applications, we can begin to see some interesting results.

Changing Consumer Behavior

It’s no secret that new technology promotes convenience and creates a more engaged banking consumer. Take Mobile Remote Deposit Capture (Mobile RDC). It is a game changer for financial institutions – think Bill Pay 15-20 years ago – as the convenience of being able to take a picture of a check, deposit it into an account, and have the funds available same day is driving customer engagement of this service.

However, while the increase in consumer engagement is somewhat obvious, technology like Mobile RDC is also changing customer behavior. Mobile RDC is driving away routine, yet costly “human” interactions at the branch and allowing the customer to bank the way they want to bank.

After measuring results across several financial institutions during an 18-24 month time period, Digital Insight found that Mobile RDC causes customers to utilize the branch less, and those customers actually grow their deposit balances more heavily than bankers who do not use Mobile RDC.

Therefore, it can be said that financial institutions have the ability to not only create a more profitable consumer through engaging technology but can also change their behavior, thus making them more profitable.

Reward Your Users

Rewards programs have been commonplace across many lines of business – credit cards, travel, Starbucks – and we can see why. By encouraging consumers to use a product or service, businesses –  and specifically financial institutions – help build loyalty and satisfaction.

Understanding the value rewards programs bring to financial institutions, we couldn’t help but raise the question of what other correlations do reward programs create? So we took a look at Purchase Rewards, a rewards program that is tied to debit card purchase usage and helps customers save real money with personalized cash-back offers within online and mobile banking.

Specifically studying digital banking causality between the Purchase Rewards product and debit card usage, Digital Insight saw that customers who began using the debit card rewards program experienced a 5% growth in their monthly debit card purchases following the initial month, compared to 2% growth for customers who were not engaged in Purchase Rewards.[1]

As these findings show that banking debit card rewards programs cause customers to increase their debit card activity with their financial institution, the value for a rewards program goes much deeper than building loyalty among your customers.

In our next article, we’ll take a look at adoption of digital banking, and how to keep these profitable customers coming back for more.

The data used for this article was analyzed by the following Digital Insight team members: Heather Youngo, business analyst, Jason Weinick, manager of analytics, Brenda Shimmons, manager of analytics and Russ Tarver, marketing manager.

[1] Internal study of 15 Digital Insight financial institution customers, July 2009 through March 2014; claim based on comparison to Digital Insight online non-Purchase Rewards customers.

This Week’s Reads: ROI of Social Media, Google in Banking, Customer Experience

Below are interesting stories the staff has been reading over the past week.

What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

Tablets and Banking: A Potent Mix

When we think about tablet computing—and we should be doing that a lot—here’s just one figure we need to absorb and fully internalize: 138 million.

No, that’s not how many tablet users there are now, or might be in the near future. It’s how many individuals will be using their tablet to do their banking by 2018.

Think about it: Just four short years ago, tablets basically didn’t exist (apologies to those with longer memories of the Newton and other attempts to create a full-on mobile computing market). Then the Apple iPad arrived, and the world changed.

Now, according to “Tablet Banking Forecast 2014 – 2018: Design and Deployment Strategies for Mass Adoption,” a new report from Javelin Research, tablets are well on their way to replacing laptops in the standard consumer environment. Adoption has officially hit the 50% mark, a stunning achievement by any measure.

Sure, there are inevitably signs of a slowdown. It was just reported that iPad sales fell by 9% in the last quarter, and the company’s revenue has also been hurt (in relative terms, of course—Apple still has big profits) by the fact that people are buying cheaper models. But on the flip side, Apple is also partnering with previous arch-nemesis IBM to sell industry-specific iPads, starting as soon as this fall. That could have a huge impact on tablet adoption and use.

But whatever happens in the big picture, the most relevant statistic may be that the number of people using tablets to do their banking has increased tenfold in just the past three years. That’s likely a growth spurt we’ve never before experienced in our industry, and we need to take note. It means undertaking a full evaluation of what we’re doing now to cater to this market, and what we should be doing instead.

Here’s the reality: We all acknowledge that there’s been a steady march toward mobile banking—the numbers are undeniable. Bank of America had 13.2 million mobile customers last year; now it’s up to 15.5 million, a 17% rise. Wells Fargo just announced that it’s got 13.1 million active mobile customers, a 22% spike over last year. It’s 23% in Chase’s case, and 21% for Citigroup.

So is that a march or rather a sprint? And if it is a sprint, are we keeping up?

Let’s also acknowledge that this is all a good thing. The practice not only helps save banks money but also offers enormous convenience to those who have accounts but might live in remote areas, and a new level of access to those who are unbanked. By any definition, this is a source of incredible new revenue and profit streams.

But change doesn’t come easy. When the Internet itself first arrived, the sheer level of opportunity caused consternation in many industries, and financial services was no exception—for online banking to succeed, many standard operating procedures had to be radically transformed, which inevitably created problems. Then the move toward company-specific applications, especially as they applied to the mobile universe, brought another transition. That was accompanied by its own high level of discomfort, thanks to the diversity of form factors and operating systems involved.

So that brings us back to the tablet. Yes, it’s one more mobile device, a fundamental component of the larger mobile universe. But is there more to it?

After all, the laptop was the original mobile device—we carried it around in a way that the desktop PC never allowed, and that changed our basic relationship with the computer. It took a while for many companies and their application developers to grasp that fact. As tablet adoption speeds forward at a breakneck pace, replacing laptop usage in the process, should we be developing strategies that are specifically for this form factor, rather than the laptop above and the smartphone below?

It may be a little early to be asking that question. But then again, looking at the numbers, maybe not.

How will EMV impact fraud in the US?

This post originally appeared on Alaric’s blog.

The EMV roll-out in the US is building speed at long last. It’s been a long bumpy road to get to where we are today, and there is fair bit to go yet. Given all the effort so far it’s important that EMV has the desired effect; to reduce fraud.

But just how will the change impact card fraud as EMV is rolled out across the US? We recently looked at this issue in a whitepaper entitled EMV in the US – how far have we come and where are we going?

Where are we?

A recent report from EMVCo shows a sharp rise in the cards worldwide. There were 2.37 billion EMV payment cards globally, excluding the US, by the end of 2013, up from 1.62 billion 12 months prior.

But so far virtually nothing in the US. However, as the whitepaper shows, things are turning around. From October 2015 the liability for domestic and cross-border card-present transactions will shift to merchants. “The party that is the cause of a chip transaction not being conducted (either the issuer or the merchant’s acquirer or acquirer processor) will be held financially liable for any resulting card-present counterfeit fraud losses,” says Visa. In other words it will be merchants who have to foot the bill if they do not have a suitable terminal for the EMV card.

Jane E. Cloninger, partner at Edgar, Dunn & Company, tells us there is now “very little now to suggest that the timetable for implementation will be blown off course”. A recent Javelin Strategy & Research report suggested the US would achieve EMV “parity” with the rest of the world by 2018.

So if EMV in the US is a done deal, what will the effect be? How will it impact fraud?

Let’s look again at where we are. Right now more than 90 per cent of fraudulent transactions in the US used credit, debit or prepaid cards. Fraud on plastic cards costs more than ACH or check/cheque fraud. The Nilson Report reckons losses for the US payments industry from card fraud could hit $10 billion a year by 2015.

EMV will change the landscape. It will direct fraud away from the card-present sphere just as we have seen happen in other markets where the standard has been adopted. But this time we won’t see the same increase in cross-border fraud. Instead, card-not-present payments, identity theft, internet banking and corporate payments will be targeted.

As the whitepaper point outs, this means it becomes “critically important” for payment service providers, independent sales organisations, processors and acquirers to ensure they have effective fraud detection systems that can protect all channels, all accounts and all payment types from a single platform.

The fact is that EMV doesn’t eliminate fraud; it fragments it. This can be a challenge for organisations that have legacy systems that cannot adapt to the changed environment.

Even in the card present area we can’t expect the EMV wand to eradicate fraud as if by magic. Figures from Visa on EMV transition in other markets indicate merchants can be slow to get ready. If past experience is anything to go by we can expect just 50 per cent of US merchants to be prepared for the liability shift when it happens.

So EMV is not a silver bullet to fix all our payment fraud worries. Some people have even wondered if it’s worth skipping out EMV altogether to focus on new technology that could cut fraud losses. However, I’m certain that without EMV card fraud losses would be significantly higher.

For now I can’t see any point in hanging around to see what happens. Late adopters to EMV will be easy prey for criminals; whether you’re a financial institution or merchant, don’t be the one who’s left with the check at the end of the party.

To learn more, check out NCR and BAI’s webinar on Changing the Game in Fraud Detection.

PFM, Banking Experience, Device Fraud

Below are interesting stories the staff has been reading over the past week

  • SunTrust Ranked First for Online Banking Experience from Javelin Strategy & Research – Market Watch
  • Banks Open Their Wallets Wide for Mobile Banking: Survey – American Banker
  • Next Gen PFM: Contextual Money Management – The Financial Brand
  • Global Banking is Being Reinvented on Mobile – Payment Week
  • Mobile Banking Keeps Catching On – WSJ
  • Device fraud – a serious threat to mobile banking? – Finextra

What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

Fintech Investment: Where Is It Going?

There’s always been intense competition to become the next Silicon Valley.

After all, the original is not much more than a collection of towns in northern California that just happen to be dedicated almost exclusively to the pursuit of information technology. The entire local infrastructure essentially supports this practice, and it draws the bulk of investment and other kind of resource. However, it’s not as if there’s some geographic underpinning to this hub of innovation. Many other industries, from energy to retail, require other natural assets; new technology doesn’t.

So if that’s the case, why can’t the model be replicated elsewhere? And with certain industries, aren’t other places eminently more suited to don this mantle? For example, should technology developed for financial services come more from the other side of the country, as in, the hometown of Wall Street?

This old question is gaining new traction thanks to a report from consulting giant Accenture and the Partnership for New York City, a powerful group of CEOs from 200 corporations headquartered in the Big Apple but with global reach. The organization exists specifically to invest in development projects throughout the city, and otherwise boost the area’s visibility.

The new report, which came out late in June, identifies significant opportunities in New York for the ‘fintech’ sector. In fact, deals in this market have been coming thick and fast—the venture sector focused on this area has been growing at twice the rate of Silicon Valley since 2008, and the trend continues to accelerate.

To be sure, Silicon Valley still draws more investment in fintech that its East Coast equivalent, but the gap is unquestionably shrinking.  The report notes that New York went from a third as many deals as Silicon Valley in 2011 to two-thirds as many in 2013 and almost the same in the first quarter of this year. The numbers matter in part because this is a big market: fintech investment tripled between 2008 and 2013 from $928 million to $2.97 billion, and should double again within the next four years.

Actually, the story behind the numbers is even more interesting. Think of what characterizes Silicon Valley as more than just a geographic entity. It’s a hub of global innovation. It displays small business entrepreneurship at its finest. Most new ventures exist independently of the government, not seeking nor receiving subsidies or other kinds of assistance. Indeed, the industry serves as a poster child for the free market in that, unlike most other verticals, the products regularly get better, faster and cheaper. But in reality, there’s even more to it.

First, the technology industry in Silicon Valley was the first to realize the game-changer that is Big Data. Jargon aside, this staggering wealth of information gives every entity the tools and opportunity to drill down into each demographic more than ever before. There are now hundreds of pieces of data available on each individual, and that feeds new kinds of marketing. On the flip side, the next generation—and every generation after it—will respond only to increasingly personalized appeals. That started with technology and now affects every industry.

Similarly, good technologies succeed not by anticipating needs and changes but by causing them. Some 10 or 15 years ago, no one was clamoring for mobile capabilities—whoever thought we could do more with the phone than just talk? Today, the millions of smartphone and tablet apps have drastically transformed consumer and professional habits.

That’s the kind of mindset that true competitors to Silicon Valley will have to emulate. Those areas that have successfully created technology hubs of their own—Research Triangle Park in North Carolina; wide swaths of Austin, Texas; Route 128 in Massachusetts; New York’s own Silicon Alley, among many others—have imported this kind of forward thinking more than a given set of best practices. And while they’ve grown, so has Silicon Valley.

So sure, there may be more fintech investment in New York, but that doesn’t mean it will be at the expense of Silicon Valley. It looks like the fintech market is set to keep growing, and as it does let’s hope New York gets more, Silicon Valley gets more, and other hubs emerge as well. This way everybody wins. . .especially the user.

Are Online Bankers More Profitable?

In this three part series, Digital Insight staff discusses how financial institutions, can increase their profitability through offerings and customer usage.

Correlation is defined as a mutual relationship or connection between two or more things. Causation is defined as the idea that something can cause another thing to happen or exist.  Recently, the Digital Insight team conducted thorough analysis on correlation and causality amongst different digital banking products and services. To measure causality, customer behavior was analyzed through a before, during, and after time period over the course of two years.

Digital Insight data showed that highly engaged customers that used multiple digital banking services are 51% more profitable than customers who do not actively utilize online or mobile banking. [1] In addition, customers who actively use digital banking services are correlated to having higher account ownership, balances, retention, and debit card purchases when compared to offline bankers. [2]  It is evident that those customers using multiple digital banking services become more “profitable” and engaged, when compared to the offline banking segment.  The question that remains is, “does online banking cause a more profitable customer?”

After analyzing several hundred thousand banking customers across dozens of financial institutions, We have quantitatively concluded that digital banking does indeed cause a customer to become more profitable to his/her financial institution.

Simply stated, when measured against customers who remained offline (non-digital banking) over two years, those customers who became engaged in digital banking increased their account ownership, total deposit/loan balances, and propensity to open additional accounts more heavily than offline bankers.

Internal study of 86 Digital Insight FI customers, July 2009 through March 2014; claim based on comparison to Digital Insight online versus offline customers. Internal study of 16 Digital Insight FI customers, July 2009 through March 2014; claim based on causal analysis of Digital Insight online and offline customers.

While all of the customers in the analysis maintained an open checking account with their financial institution during that two year period, the customers who eventually adopted online/mobile banking became more engaged with their bank or credit union. Some examples include migrated accounts over from other financial institutions, renewed lines of credit, or reached a point in their financial lifecycle that warranted opening of a retirement account.

So keeping this in mind, it’s interesting to further examine how specific digital banking applications increase engagement and profitability. In the next article in this series, we’ll look at remote deposit capture and loyalty rewards.

The data used for this article was analyzed by the following Digital Insight team members: Heather Youngo, business analyst, Jason Weinick, manager of analytics, Brenda Shimmons, manager of analytics and Russ Tarver, marketing manager.

[1] Internal study of 67 Digital Insight financial institution customers, July 2009 through March 2014; claim based on comparison to Digital Insight online versus offline customers.

[2] Internal study of 67 Digital Insight financial institution customers, July 2009 through March 2014; claim based on comparison to Digital Insight online versus offline customers.