Retail banking technology update

[Dave Birch] I was asked to chair Intellect’s now-annual Technology in Retail Banking Update, this time featuring analysts Kieran Hines from Datamonitor and Daniel Mayo from Ovum. As the chair of Intellect’s Payments Group, I was naturally most interested in their observations on payments, but both of them gave much wider and more comprehensive overviews to the assembled vendors.

On the customer facing side of things, Kieran identified individualism, digital lifestyles, convenience, fear, trust and exclusivity and some of the main drivers. Amongst other observations, he said that (and this is my paraphrasing, not quotations) that:

1. Customer interfaces will see an improvement as banks try to improve their services to retail customers. Somewhat surprisingly, to me, this means increased spending on call centres at the expense of online channels. The top three areas by expenditure will be mobile wallets, marketing and online channels, but the growth in online channel spending will slow. One of the key reasons for spending on customer interfaces is to improve the cross-selling of products (hence a substantial fraction of the expenditure will be on digital marketing).
2. Mobile payment strategies are becoming mobile wallet strategies. New retail models need new payment options (such as APIs into retailer solutions, for example). Kieran had some survey figures from around Europe showing that a quarter of all consumers use mobile commerce at least once per month already in UK, Italy and Spain. Similarly for a fifth of consumers in Germany and a sixth in France;
3. The consumer view of mobile payments seems stable. Still around half of mobile users want to use their phones to pay for things. Kieran did, however, paint a rather negative picture of mobile proximity. He said that he gave mobile NFC payments a less than 1% chance of succeeding, which I think is a little on the slow side, because the convenience technology of NFC will be adopted for payment mechanisms beyond conventional secure element-based EMV (of course, I was not able to say this at the time).

It’s interesting, to build on that last point, to look at how people pay with their phones now. If you exclude retail POS as statistically insignificant (!), then they are still overwhelmingly using card-not-present solutions. A February 2013 survey of the UK digital channel (mobile and internet) found that the majority of

• 54% card-on-file.
• 19% PayPal.
• 17% 3D Secure.
• 2% virtual currency (e.g., Facebook credits, Bitcoin).

That whole card-on-file segment should (as PayPal are doing) be subsumed into API-based wallet interfaces. Datamonitor’s study showed that some 7.5% of UK mobile users already have a mobile wallet of one form or another but less than half that number actually use it. And, more worryingly, even the people who do use them aren’t that crazy about them, with only a quarter of the users say that they “liked it and found it helpful”. My conclusion: API-based hyper-wallets are the path through the roadmap, not card-on-file based mobile wallets. I hope to have the opportunity to test this idea out today at the Tomorrow’s Transactions Forum where I’ve assembled a panel of people who have experience building payment businesses that were go enough to be sold — Jane Zavashalina from Yandex Money, Greg Wolfond from SecureKey, Anil Aggarawal from Google and Tony Moretta from We’ve — to hear their views on what might make for a successful for wallet business.

But back to Intellect. I thought it was significant that Kieran used Simple and Moven to illustrate his points about mobile giving customers access to their own data in more useful ways. He referred to this as “small data”, a phrase that has stuck with me, and I’ll get back to it later on.

Daniel didn’t focus as much on payments. He talked about overall IT investment priorities in retail banking for the coming year. He said that the main priorities would be around sustainability, security, identity and privacy. In payments, Daniel highlighted mobile contactless, mobile wallet and prepaid as still attracting spend. This seemed to me to be an interesting combination, but I wonder if I’m reading too much into the coincidence of the three since I suspect the mobile wallet investment is decoupled (pun intended) from the mobile proximity and prepaid investment. He also said he thought card-based contactless spending would fall as their is low interest from issuers because they see little business case. I liked the way he distinguished between areas attracting interest (e.g., big data, analytics and cloud) from areas attracting investment around what he called “IT-enabled innovation”. Daniel also talked about the substantial investments going to risk management, payment processing and collections and made some thoughtful observations about the reasons for this.

My favourite stat from Daniel all morning? I was even more astonished to learn from him that a quarter of UK retail banks will be investing money in cheques over the next year to 18 months than I was to learn about the renewed investment in call centres. Cheques! What next? Horseless carriages?

One of the questions that came up during the discussion session that followed their presentations was about security. The discussion brought some input from the floor to the effect that studies seem to show that not only do customers not care about security, they will actively switch to service with less security if it is more convenient or cheaper despite telling researchers that they value security and think that security is important.  Another reason not to listen to consumers, as I blogged about yesterday. Kieran had shown some survey results indicating that around half of consumers in the UK are not confident about the security of mobile wallets, but I was left wondering about how much that matters in the great scheme of things?

The point that I wanted to take out of the discussion might be summarised as “Big Data vs. Small Data”. Daniel talked about banks wanting to do more with their Big Data whereas Kieran mentioned banks giving the customers the ability to do more with their personal data, which as I mentioned he labelled “Small Data”, and I found both of these very interesting. This view of co-evolving bank-side “big data” and consumer-side “small data” strategies struck me as a realistic framework for planning and I’ll certainly be feeding it in to some of our client work.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers