Category Archives: Banking

How To Fix a Bank in 100 Days

Banks have existed in a world of comfort. The high barriers to market entry like regulation and capital controls mean banks have enjoyed stable profit for decades.  This made competing with banks on their terms very difficult.

The problem is there are now players entering the market who play by entirely different rules. The days of being comfortable and relying on a strong cash flow / stable customer base are over. For banks it’s war time, just look at the facts:

  1. The major disruptors are now making inroads into banking after years of threatening to do so. Alibaba has a banking licence, credit scoring capability, insurance, takes deposits, facilitates payments and lends… and it has ~750 Million customers. It’s able to execute with the scale and efficiency of a technology company not the lumbering slowness of a bank…
  2. Start-ups such as Lending Club and Funding Circle are winning the small business loans market that banks just can’t play in because acquiring those customers is too costly. Not to mention nutmeg and Wealth Front taking some of the more profitable advisory business away.
  3. Increased capital requirements mean that more equity is required on the balance sheet for the same level of Interest Income. At the same time regulators pushing for increased competition in Retail banking means less deposits are available to make Interest Income.
  4. We’re not out of the Sovereign Debt crisis and bank balance sheets are still a long way from where they should be. Deflation is a real probability too, so how should banks react?

These are some almighty headwinds.  So it makes sense to look far and wide to see how to react.

What Strategies Are Out There?

If we look at all the different types of company eyeing fintech, they all have some characteristics that could be useful.   Below I’ve focussed on four research areas, Tech Players, Start-ups, Incumbents and Looking Internally.  Warning, this is not business as usual!

What can we learn from the Tech Players?

Technology is the focus of the entire business, not a department that is subservient to the business. In Tech companies some business based staff bemoan being second class citizens, in banking it’s the opposite. The CEO needs to be a technology focussed (or better yet obsessed) character to deliver the type of technology it takes to compete in the Tech arena. This doesn’t mean being a coder or founder, I’d look at Tim Cook of Apple or Satya Nadella of Microsoft as individuals who are obsessed with how Tech will meet customer needs.

Technology companies are arguably the best in history at building massive scale. Apple has sold over 800 Million iPhones, Alibaba, has ~750 Million customers, Facebook has over 1.3 Billion DAILY Active Users, the majority of which are mobile. These companies have built the technology to support this scale and used two key techniques to achieve this kind of growth

  1. Don’t Dabble. In banking having an accelerator or venture fund are considered table stakes, but getting the most of them is a different thing. Rather than being some the tech department can play with, they must become central to corporate strategy. Alibaba knows  exactly what they want to acquire, and are willing to pay hundreds of millions, if not billions to get it. Name a bank playing in that league? Look at Apple and Google acquisition history, it’s strategic, and based known strategy goals of the business.
  2. Growth Hack. First, hacking isn’t a bad word. Now we’ve got that sorted, if you’re not familiar with Growth Hacking and you’re a CEO or executive in a bank. Study it, internalise it, live it and breath it. The core concept is having the flexibility to tweak product appearance, settings and features and watch the reaction on user growth.

To do this you need products that can be adjusted real time, the analytics to watch the results and the skillset internally to manage that process. Facebook famously industrialised their growth hacking and (pre-IPO) saw user growth as it’s core metric. How will you Growth Hack to increase customer numbers? What’s your developer to user ratio?

The additional insight from Uber and AirBnB is one banks may not immediately feel comfortable with, but I think there are strategies where you can implement regulation digitally and with creativity. I would go as far as to say regulators are consistently underwhelmed by creativity coming from banks, and banks are like a puppy who has been kicked. Scared to go near the regulator with anything but spreadsheets and deference.   Regulation can and should be more automated.

What can we learn from the start-ups?

Segmenting the market works. Most of the really good Fintech success stories of the past decade haven’t been new banks, but in meeting a need not met by the major banks. PayPal, TransferWise and WealthFront all fit into this category. New proposition development in a bank plays in known boundaries, with assumptions about markets it can and cannot serve.

Constraints create innovation. When you have 4 employees and $100k in seed capital, paying $500k for a web server is not an option. So you’d instead buy a little AWS cloud and let it flex up and down as required. A bank’s risk teams will find 1000 things wrong with doing this, but it works so well for start-ups that often its not until they hit hundreds of millions of users they build their own data centres. How many data centres per user does your bank have I wonder?

Acquisitions are a nice exit if you’re a start up. Again look to Google, Apple, Amazon et al here. It’s not the only path to growth if
you’re an incumbent but it’s a damn good one. Start-ups want to partner with banks, banks just need to get a lot better at meeting them half way.

What can we learn from the incumbents making moves?

Embracing Growth Hacking.  I particularly liked this statement from the BBVA CEO – that they saw a

“10% increase in online mortgage sales from simply changing the colour of the calculator”.   BBVA CEO Francisco Rodriguez

Who’s doing that in your bank?

Buying and Building Innovation.  BBVA’s recent investment in Coinbase turned some heads,.  What I like about it this example is that they’re not just buying into another bank, but something quite different.

Experimenting with New Technology. UBS, Rabo and ING have all made public statements about the importance of experimenting with (for example) Blockchain technology.  As CEO if you were to look at your IT Departments R+D capabilities, would you rate them against PayPal’s for experimenting with such technologies?

What can we learn from the challenger banks?

To me the two most interesting challenger bank types are the Branchless of the late 1990s (ING, First Direct), and the Mobile First banks of the late 2000s (Moven, Simple etc).

First Direct and ING carved a comfortable niche with a strong focus on the customer experience and leaving the pain of the plumbing to someone else. Whilst stagnating in recent years, these challenger brands have been useful to grow the customer base for their larger parents.

The newer brands (MovenSimple etc). have renewed the focus on customer experience. It seems the new entrants are able to get closer to what a customer wants than the incumbents can, and if maximised with existing bank scale could be a major tool for attracting customers.

Especially when you consider customers are most likely to be delighted by Mobile and Digital products, they use them far more frequently too…

customer-loyalty-in-retail-banking-2012-fig-09-02_embed

What Can We Learn by Being Critical of Banks Current Operating Norms?

Operational costs are inflated by poor senior level understanding of the Tech best practice, and under empowered junior staff. Banks are still building late 1990s style IT architecture, with standard software being forced onto servers whether or not its needed.

IT Spending will need to increase by an order of magnitude to compete going forward. To unlock this spending, banks will need to be more efficient about how they spend (much more efficient) and unlock cash from other cost bases around the bank. We’ve seen the beginnings of downsizing the branch network, but this needs to go much further if the image below is anywhere near accurate.

IDC Tech Spend

If you’re about to spend this much, it pays to be critical about how you spend it, and how you measure success

SImply having a Mobile App isn’t enough anymore. Sure your app has grown by 200%, but is it making you any profitable revenue? Do your users actually like it? If your App can’t cross sell or open accounts, it’s simply serving the customers you already have. Having X million App users that can’t generate you any profit doesn’t allow you to close branches.  Benchmarked against the Tech Companies the User Experience Banks Offer isn’t good enough either.

In summary, the evidence suggests banks need to increase customer numbers, by focussing on user experience, M+A and an order of magnitude increase in Tech spend / efficiency.

What would I do if I were CEO of a bank for 100 days?

After the strong response to last week’s False Certainty Post  David Brear asked me a very interesting question

“What would you do if you were CEO for 100 days?” (other than buy a snappy suit)?

I have some sympathy for bank senior executives. Making a decision isn’t enough. Having the budget isn’t enough. You can send all the emails you want, but the bank has evolved to put in place lots of checks and balances. Much like politics, making any real change isn’t about having the title it’s about having the strategy, people and capability to execute like a Technology Company. To institutionalise the change I propose some key strategic shifts, organisational change and prioritisation of budget.

Strategy Focus Points:

1) Become A Technology Company that Does Banking

Create more of a technology company culture. I’ve seen this go wrong and create a culture clash in the financial services industry. Technologists and bankers struggle to meet in the middle, but is there a way to get your employee base engaged? I’m willing to bet the vast majority own smartphones. How many of them have access to the sheer amount of openly available, free software development resources out there? A start-up does. If even 1% of the workforce started to build in a sandpit the snowball would start to roll. Google Mail and Google Maps both started as pet projects by staff. How many bank products start that way vs on a powerpoint slide?

Embrace DevOps There is simply no excuse in 2015 for not embracing DevOps. DevOps (short for Developer Ops) means instead of having one set of people that provide new services, and another set of people who develop code. The developers use automated tools to spin up new servers in real time *click* new server, *click* new server. That simple. Unleashing developer creativity is central to the entire company’s strategy of becoming more technology focussed.

2) Become Laser Focussed on Scaling Customer Growth

Growth Hack. 4 Million users isn’t cool, you know what’s cool? 400 Million. AirBnB and Uber as challenger brands started with a laser focus on user growth.  What does your mobile suite need to look like to grow at that speed? Simply put make mobile and digital not just an acquisition channel, but THE acquisition channel. Yes, it can be done, and the business depends on it. Do not take no for an answer from compliance or anyone else. You might see a ~1% increase in Fraud, but that is more than worth it for a 1000% user growth in Mobile ARPU (Average Revenue Per User).

To implement Growth Hacking go find the best growth hackers from silicon valley, and put them in golden handcuffs. Support them in their battles with the organisational anti-bodies.

Build or Buy a Challenger Brand: What if banks had a challenger brand, that they owned 49% of, with an option to acquire at a later stage, and it had the ability to growth hack the overall customer base?  This would give the bank a far greater scope for experimenting and bringing what works into the bigger machine.

3) Define the Key Strategic M+A and Product Development Areas

Think about the Alibaba example earlier in this post, they know exactly what they’re going after and why. As CEO do you know who’s the single person responsible for partnering with start-ups and M+A in that space? Or does it vary on geography and business line?

Make it a priority to know who that person is and empower them to think about questions like: How do we partner with P2P lenders? What are the opportunities in blockchain technology? What bets should we be making (Like BBVA with coinbase)? Does every employee know where to send these ideas to?

Group the key areas into themes that have their own tiger team with a handful of developers, strategists and risk people. The areas would be no surprise. Customer Growth, Use of Data, Alternative Payments, User Experience etc.

4) Give a Clear Mandate for Innovation

Give Innovation It’s own Budget and Structure.  Teams focussed on innovation should have their own budget (or ideally sit inside a challenger brand / subsidiary) and a clear mandate to execute when they identify M+A, partnerships or products that meet their criteria. That mandate normally only exists in multiple committees, making getting anything done impossible.

If this group sits inside an existing Group Function, it will be subject to that functions finance processes, HR processes, risk teams etc. Your organisation can’t innovate in it’s current shape, so create a new shape and then think about how the business lines that are there today should interact with it. Feeding in a shopping list of needs, sense checking outputs etc. Innovation will not succeed with 25 different risk areas trying to fight over the eventual user experience and T+Cs.

Staff the Innovation / Strategy Capability with key skill sets. Consider the type of employee that would fit in a new function / challenger brand. Where do they work now? How will you convince them to come work for you? They want autonomy (to be able to deliver and execute) and mastery (to get really good at something). A new interior design won’t cut it. They don’t want to see corporate comms that talk about “how a committee met and agreed 12 principles to strategic alignment for forward planning purposes”. They want an internal video from an impassioned leader who’s getting the best from them and empowering them.

Ensure Innovation is being Reported to you Correctly.  If someone tells you mobile usage is up 200%, the next question is how does that benchmark against PayPal? If someone tells you mobile transactions are up, ask them what the ARPU is (Average Revenue Per User).

  • Ban any KPI that doesn’t come with a benchmark against competitors in banking and in tech
  • Ban “doesn’t need to worry about that” – I’ll decide that!
  • Sense check your directs – do they get it?

Bringing It All Together

Lisa Phillips had a great suggestion “Start with a Summit for the CEO’s direct reports (and 1 -3 others who should be)”, perhaps around the themes above. Aim to leave with a new organisational structure. Heritage (we’re not going to touch it) and Growth (The new org structure for being a Tech Led company). The key with this session will be identifying who’s grasping the importance of this change and who’s paying lip service.

From here think about the reshuffle at the top and new hires needed. If they’re paying lip service, perhaps they fit will keeping the
heritage business going, or somewhere else. If you’re creating a subsidiary or new unit priorities will be finding

  • A Chief compliance officer with amazing relationships but that gets tech and surround him with technologists (e.g. Circle the Bitcoin wallet has hired tremendous experience and surrounded them with Tech talent)
  • Strategists or VCs who are experts in the emerging Fintech space
  • An HR and Finance Exec who could lead a new unit and fundamentally understands the challenges of being a technology company focussed on user growth

Assuming the board understands the need to grow the customer base as being the key to shareprice raising and the story you outline the hard part will come once the change is made. Seeing it through, getting personal daily updates as CEO on Daily Active Users, Cost of Acquisition and ARPU…

Well that’s my £0.02, and if you’re still with me, I’d love to get your thoughts. Do you disagree? What would you do?

What is Preventing Mainstream Bitcoin Adoption?

Arguably Mid 2014 was peak Bitcoin in both the major news outlets as well as in the price.  Since then the price has fallen, competitors have emerged and the hype as dipped.

Despite Microsoft and others are “adopting” Bitcoin and actual transaction volume increasing, this is not at nearly the exponential rate required to upset incumbent payments players.

Therefore something is either holding back Bitcoin or this is a temporary bump in the road.  I believe this is evidenced by the two narratives dominating  discussion in the industry:

  1. The price fall is temporary and it’s a matter of time before it comes back and goes past 10,000 USD vs
  2. The technology is interesting not the currency.

Chart  shows Searches for “Buy Bitcoin” (Blue) vs “Blockchain” (Red) (credit  for chart to @Pierre_Rochard)

buy vs blockchain

The chart above shows that interest in the technology is outstripping interest to buy bitcoins.

What’s really going on here? This post explores a number of ideas and attempt to establish what is actually happening.

Why did the Price Spike?

There are a number of theories on this, my own opinion is the following were key factors

  • A belief (championed by Marc Andreessen) that the technology will eat institutions and open up the trillion dollar financial services industry to competition from start-ups.
  • A virtuous circle of press releases about “Merchant X” now accepts Bitcoin (at least til mid July) and link with price
  • A dollop of Tulip mania as the main stream took notice
  • Technology enthusiasts and those who generally had an issue with banks investing to try and “beat the banks” out of existence

Why has the price dropped?

Rationally the price should be going up because the price drop reduced reward for miners and has led to less mining hardware being added to the network.  In turn reducing the supply of coins in the market.   Less supply + sustained demand (as shown by the flat blue line in the chart above) = increased price right? Not exactly, there are two issues, which are related outlined below:

Issue #1 – Bitcoin isn’t particularly liquid, with the vast majority being hoarded or held on to. (70% of Bitcoins have not moved for 6 months or more)

7-hoarding-chart

Issue #2 – Perhaps controversially – regulators and existing banks have been effective in preventing bitcoin from becoming mainstream due to a lack of identity and consumer protection capabilities. The cause of #1 may in fact be #2.   Bitcoin needs to be widely adopted for it’s price to continue increasing.  So this point bears exploring.

If Bitcoin Forcefully Disrupts Banks the Price WIll Rise

I believe this is highly unlikely.  There’s a school of thought that says banks will be forcefully disrupted. Consumers can use bitcoin by simply managing their own PGP keys without the need for the slow, painful and poor service provided by banks. Why wouldn’t consumers and corporates want this yesterday?

Whilst I think this pays a huge compliment to the majority of humanity it also misunderstands it. The vast majority of humans  want services that are super simple to use and require almost no responsibility to manage.  This is why we historically centralised trust, to make complex things someone elses problem.

Banks and Regulators play a Useful Role – Understand and Protect the Consumer

To the credit of the bitcoin and start-up ecosystem, I think bitcoin is focussing more on the rails and leaving the consumer experience to others. There also start-ups such as Circle, coinbase and Xapo providing strong consumer experiences. Whilst this is imperfect from a bitcoin libertarian perspective, it is pragmatic from a human context perspective.

Yet experience alone isn’t enough, start-ups like bitstamp are learning the hard way that as much as people hate banks, they are generally quite good at the basics like not getting hacked for individuals or corporates own funds (and where they are, mechanisms exist to rectify it quickly).  Start-ups that focus on this will create a well protected consumer experience, but there still needs to be a compelling reason for consumers to adopt their products vs using a bank account.  “Not being a bank” isn’t a good enough reason.  The protections and the functionality of banking need to exist in full.

This would suggest for Bitcoin to gain adoption it might be optimal for banks to adopt the Bitcoin rails.

If Banks Adopt Bitcoin the Price WIll Rise

This has potential, but is unlikely until a number of problems are solved (discussed in “Future Foundations” below). Banks and regulators are reflecting consumer and corporate demand by taking responsibility for protecting money under an understood regulatory and legal framework.

Yet banks and regulators have proven ineffective at driving out cost or improving customer experience in the same way a start-up would (or Bitcoin could).  I believe this is because

  1. Banking has limited shared infrastructure – it is a mesh of proprietary technology trying to interoperate
  2. The shared infrastructure it does have requires a lot of change at member banks (e.g. SWIFT)
  3. This change is typically very slow because many banks have to change, and the way change is implemented involves lots of paper and committees.

Paper and committees are very 20th Century solutions,  and not conducive to change at pace. Imagine if a blockchain (like bitcoin) could bake into it’s protocol some of the regulation for example.

The concept of a decentralised payments rail could be very advantageous for banks, but to meet the needs of consumers (taking responsibility for their money) there are three main things that need to happen to increase adoption.

Future Foundations for Increased Adoption

1) Solve for Identity and KYC

Silk road a, Mt Gox and other headlines created the perception that the technology “cannot do KYC or protect money” has created a perception that Bitcoin (the brand) is “poison”.  Yet banks and institutions can see benefit in moving to shared clearing and settlement system for money.

The major barrier for banks and regulators alike is how do you prevent, detect and report on Money Laundering, and who has responsibility for doing so?

There are solutions out there from the likes of www.matrixvision.eu and others, and many exchanges have examplary KYC (Know Your Customer) processes to eliviate these issues. The gap is in creating consensus about who needs to do what, and who’s responsible for what in a decentralised system. In bitoin it’s perfectly possible for a bank customer to send money to a bitcoin wallet. Who’s responsible if money laundering occurs at the wallet or beyond?

2) Build Regulatory consensus
Regulators like the CFTC, EBA and central banks such of the Bank of England have been surprisingly open to discussion on how to adopt the technology, and equally underwhelmed by solutions coming from the digital currency businesses. It is entirely possible to be regulated within existing frameworks. The onus isn’t on the regulators to create new regulation, it’s on the industry (start-ups and incumbent banks) to figure out how to implement existing regulation… and that’s really hard, dull and slow.

3) Build industry consensus
The banks are coming off a decade of having their balance sheet hit by the regulators, leading to an ever decreasing appetite for risk from the compliance departments. Nothing is more risky than an unknown quantity, that has a very bad reputation. In the banking fraternity, perception is everything, regardless of reality. The banks themselves are hugely motivated to reduce their cost base, if they can figure out how to collaborate in this space and create the global highways of tomorrow they may be able to do just that.

There Appears to be Limited Desire to “Fix” KYC for Bitcoin

Current regulation fits the the architecture banks have today making banks responsible for being the police of money, whilst money is on their system.

No equivalent exists for Bitcoin. Whilst banks are looking for ways to reduce cost as an alternative to the current banking model
bitcoin remains incompatible without a solution to this problem.

Perhaps though, that isn’t the fault of bitcoin but it’s current implementation. I’ve been using the metaphor lately, it’s like blaming the inventors of the car for not creating traffic lights. The types of people who would create a traffic light (regulators and silver haired bankers) are typically not technologists and see many of the consumer protection issues the technologists do not.

Perhaps Bitcoin itself shouldn’t solve for identity, but the users of it (banks, regulators and start-ups) need to be more proactive in doing so.

What has any of this got to do with the Price of Bitcoin?

If bitcoin (or it’s competitors) had the foundational backing outlined above the price in mid 2014 will look cheap. This may be why whilst
Bitcoin has dropped in price, over the same time period Ripple (XRP) is up 16x. Perhaps the Future Foundations I point out above are unpalatable to Bitcoin purists, and in all honestly, I don’t think it’s up to Bitcoin the protocol to solve alone. I would encourage it’s developers and enthusiasts to reflect on how they might meet those challenges, especially given the traction the alternatives are getting with institutions by doing so.

One thing is for certain, there is no lack of belief in the potential for the technology, there are just a number of very real problems before you can do so.

If you solve these, you’ll increase adoption and liquidity, which in turn will increase price.

What are your thoughts?

The Secret to Corporate Innovation, Revealed!

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Ever felt like this little guy when trying to innovate in a large corporate?

Creating a “thing” is so much easier than creating a “thing” on top of the last 1000 things.  This is exactly where the big banks and many big corporates are right now with Mobile, Innovation and Customer Experience, hamstrung by:

1)      Regulation
2)      Data protection
3)      9 – 5’ers
4)      Fraud prevention (and liability)
5)      Legacy IT equipment / process
6)      Risk management
7)      Delivering *something* instead of delivering the *right* thing

Creating a beautiful UX takes the kind of skill, dedication and vision to deliver differently and break the BAU mold.  Very difficult when the “BAU machine”  is usually the only game in town for getting things done.

Why Start-ups can execute

Start-ups focus on eyeballs first, revenue second and risk. Risk in the very nature of a start-up because there is a very good chance the business will fail before anyone will ever notice.  When every decision you make is about eyeballs, driving scale is your only focus.

For a mature business, with millions of customers, billion dollar profits and a giant PR / reputation management machine a corporate looks the other way… Avoid risk first, drive revenue second and if you have an energy left do something for customers.

The Secret to Corporate Innovation: Become Obsessed with Metrics

When I think of a business that is very large, with similar obligations and obsessed with metrics I think of Amazon.  Whether it’s their warehouse, distribution or data centres they take a traditional business model and constantly tweak it or turn it on its head, until they see a change in the customer metric.

“[Amazon CEO Jeff] Bezos relentlessly conveys to his team that even small issues are far from trivial. For example, one of Amazon’s metrics shows that even a minuscule 0.1-second delay in a webpage loading can translate into a 1% drop in customer activity.”

Every web page, process and product is relentlessly poured over and tweaked to drive a spike in conversion, or sales or time on site.  It’s my experience that big corporate’s can see maybe 1% of the valuable data to make these decisions and are acting on 1% of that.

There are of course Key Performance Indicators (KPIs) in any successful large business, but this obsession with metrics is not in the DNA of many, many organisations.

Identifying the “Hidden” Metrics

Start with an interesting question like:

What is hidden in the server logs?

Then

  1. Get the data
  2. Explore the data
  3. Model the data
  4. Communicate the results
  5. Change something

Making Magic with Metrics

Once you’ve proven that being obsessed with metrics works, the goal is to bake this into the DNA of the company.  Think about:

  • If you report on them regularly, and share them daily, will we make every employee obsessed with metrics?
  • Can you  empower people to make suggestions / improvements to design and digital delivery with a culture of metrics?  
  • Are they thinking about the right thing to drive a strong page load, and UX, or are they just trying to ship something that validates

I’m interested in your thoughts.  Have you worked at a company that really gets data like a start up or an Amazon does?

Can Banks have Customer Loyalty of a Brand like Burberry?

For a long time banks felt they didn’t need a local relationship with YOU their customer because rates were the most important factor for competition. (Image credit: Ron Shevlin)

This mindset forever changed customer interaction.  Branches became a cost, and cost is ruthlessly attacked.  This created a concerted effort to push customers out of the branch, reduce the overall number of branches and have customers self serve more. This was all OK until 2008 when…

Customer Loyalty Fell Off A Cliff!

The ideal bank customer became one who never interacts, gets into a lot of debt and never changes bank.  A pattern of behavior we the consumers have been very good at complying with!

The Race to the Bottom with Rates is Over

Switching bank will become simpler.  Banks now face a consumer who doesn’t trust them and will find it easier than ever to change their banking relationship.

Customer Trust is the Key to Increasing Customer Sales and Customer Retention

The marketing departments now understand customers want a bank that they can trust.  Marketing videos from 3 of the UK Big 4 are about helping customers achieve their ambitions #1, #2, #3, spotting the trend? Only HSBC are still harping on about how global they are, and Santander about rates.

What Does the Marketing Department Get That the Board Doesn’t?

In 2008 customers view of banks changed from good stewards of money and would not sell you something that was bad for your financial health.

So whilst, banks have begun to return to profitability through their investment bank (making the same mistakes as before), the war for the retail customer is only just starting.

How can banks protect their core and grow ROE in retail banking?

BY REALLY Knowing Their Customer

Know Your Customer or “KYC” is the single biggest misnomer in the corporate world, let alone banking…

“KYC check” is a term used in banking for proving a customer is who they say they are.  KYC or “Know your customer” could be so much more.  In the 1950s the branch manager knew their customer, was a good steward of their finances and trust was at all time high.  Is there a 2013 equivalent?

What if banks knew their customers like Burberry knows theirs?

Wealth Management banks have for a long time built deep and personal relationships with their customers.  How can using and properly implementing these techniques and technologies benefit retail banks ROE?  Customer Relationship Management (CRM) may have the answer for scaling out the Wealth Management practices.

Banks Must Rationalise the CRM Estate

Most banks will have 3 maybe even 5 or more CRM tools for different uses, in different parts of the business.  There is no one CRM with a single view of the customer base.  It takes incredible discipline (and investment) to move away from CRMs that may have individual strengths to see the long game of a single customer view, but the benefits are huge and they key area of competition for the next decade…

Imagine if your bank:

  • Spotted when you were likely to get into financial trouble in 2/3 months and offer support to ensure utility bills still get paid?
  • Acted as a conscience (for customers who want that) when you are in a shopping center? (Meniga have some excellent and playful examples)
  • Used to help you achieve your life’s ambitions (like the adverts claim).
Banks can no longer expect the customer to navigate the spiders web of IVR, online and financial jargon.

In 2013 the customer no longer comes to you.  You go to them

CRM Will Drive Tangible Benefit:

  • Increase Sales: Incentivise customers to move more products to your bank through debt / savings offsetting (similar to how corporate banking works today)
  • Reduce Churn: Build sticky personal relationships by being trustworthy and helping customers improve their net worth
  • Reduce Cost: Having one view of a customer, and a trail of their history / likes / dislikes and profile and treating them as an individual through digital channels.  Leveraging branches as an outpost for financial planning / advice.
… and as customers, we’d have banks we could trust!  Do you agree? Should banks help customers grow? Will this aid or detract from ROE?

How to Fix NFC and Help it Go Mainstream…

Near Field Communications (NFC), promised to turn your phone into the digital key to your identity, transport and money.

The problem? This promise has been around since the late 90s, and shows no sign of crossing the chasm

How Does NFC Work?

The idea is you present your NFC device, to the NFC reader… and almost instantly the transaction is complete.  This will be very familiar to those of you who use the Oyster card on the Tube.

The User Experience Problem

Have you tried paying with a contactless card?  You’re never quite sure when to present the card to the reader, and often it can take a couple of seconds for the reader to recognise the card.  This creates a sloppy experience, and one that means only those with unlocked Nexus devices are using NFC today.

Google solved this in peer to peer using the “tag dispatch” system.  Sadly, the likes of Igenico, Verifone and Streamline who build the payments terminals most retailers use do not react nearly as well as an Android device does.  Herein lies the problem.

How *should* NFC work?

  1. NFC must be as easy to use as a touch screen.  This means overcoming any lag (like the contactless card example above).  This requires the same kind of user experience as touch screens now have.  If you remember those awful touch screens from 10 years ago? Or the one at your local supermarket… vs your phone.  NFC has to make that kind of leap in user experience.
  2. NFC software needs to be context sensitive.   When recognising another NFC device, both devices need to know how to play with each other and what the rules of the game are.  For a specialist NFC App working with an NFC terminal, this isn’t a huge problem… but if you just want to put your phone near the ticket machine at the train station… this becomes a problem.
  3. NFC must become more open.  NFC being a standard that has been driven by the GSMA is needless to say, very Mobile Operator driven.  The whole ecosystem is designed to be managed and leased by the provider of the NFC chip, who in turn re-sells that access.  This is a huge financial hurdle to adoption.  Why should OEM’s and big business adopt NFC, if the MNO gets to be the gatekeeper and charge for the privilege?

Crossing The Chasm

To solve these challenges, old school hardware manufacturers will need to embrace a Google like approach to NFC.  Speed and user experience is everything.  Contextual sharing (media, contacts, documents) has largely been solved, and I expect Apple to follow where Google has led.

Adopting This Approach Would Benefit

  • Security (door locks, car locks, building access)
  • Transport (rail, airlines – similar to how barcodes work today)
  • Ticketing (events, sports)
  • Form of Identify (Passport app, Driving Licence app)
  • Logistics (RFID style self aware packaging)

I’m sure you can think of plenty more, but the above are some of the more common examples.  My speculation is that this is why Apple has focussed on Passbook initially.  Apple owns a portion of the user experience.  The older organisations that own logistics and specialist ticketing equipment may take a little longer to catch up…

Your Thoughts Here:

Do you think NFC has what it takes to go mainstream?  Will another contender like Bluetooth 4 become standard because it’s not driven by the GSMA?  How can older manufacturing led businesses improve their NFC performance?

Big Data = Big Brother??

Big Data can make your life simpler, profit for businesses and at a lower cost than traditional business intelligence solutions.  Sound too good to be true??!  Read on…

What’s the problem with Little Data?
When you call a bank, they essentially validate who you are, against the information you gave on an application form.  The way they make sure that is you, is by validating that against a credit agency (like Experian or Call Credit) to make sure you are who you say you are, and that you can afford what you are buying.

Now as you well know, a lot can change between the day you opened a current account and today. Not least your mobile number, email address and importantly things like your lifestyle and buying habits.  What you buy and wanted 10 years ago, are very different to today I imagine!

What is Big Data?
Many modern businesses are made up of products that have been bolted on over the years.  These systems rarely talk to each other, and if they do, it’s even less likely the business is linking the data to be valuable for them, and valuable for you.

Big Data describes the patterns that emerge from analyzing trends across systems inside and outside the company.

Companies like ClouderaDatameer specialize in very quickly doing what business management have dreamed about for at least a decade, without the expense of a data warehouse, and in real time.  They have the tools to connect to all of your data sources, then provide very visual, actionable analysis.

Where does Big Data come from?
As you go about your life, you leave behind data, like a trail of crumbs.  Every time you correspond with a company, government department or make a purchase – all of that data is logged.  What’s more that has been standard procedure for many years.

On it’s own in a dark corner data about what you bought for lunch isn’t very valuable.  When that data is linked to data in other dark corners it becomes tremendously valuable.

What can you do with Big Data?

  • Predict when you might be coming into financial trouble (because your MOT and car insurance is due) – and offer you a temporary credit limit increase (That’s helpful banking!!)
  • Send you offers or deals from Burger King if you eat and McDonalds a lot – saving you money, and making money for the bank by selling that data.  (That data might also be of interest to a health insurance company!!)
  • Check your driving record against the DVLA, instead of relying on you to inform them of speeding offenses etc.
  • Offer an appointment with your bank branch manager when you are looking for a new house and asking friends for advice on social networks.

I’m sure you get the idea, and there are plenty more too.  The Big Data revolution has the potential to make your life a whole lot simpler, whilst giving struggling companies another way to make money if sales are down.

What about my privacy?
Always the big worry.  The key will be to make all of these services opt in.  Under the Data Protection Act and Freedom of Information Act, no entity can store information without your express permission.

As I find myself saying often lately… your data is the cost of free

Will you take advantage of Big Data?
Companies are heading this way, very slowly.  Centralized contact data bases, improved cross business data sharing, and developments like data.gov show even the UK Government endorses a Big Data future.  Big Data doesn’t have to mean big brother, and doesn’t have to be feared.  For most of us it will mean less painful interaction with companies that have the data they need to actually be helpful.  Some further reading on how Big Data is different from Business Analytics

What do you think of Big Data?

  1. Will it be profitable for business?
  2. Will it struggle against privacy laws?
  3. Do you trust it?

Hey Techrunch: This is What’s really happening in Payments in 2011

So Techrunch have been spending a lot longer looking at Payments lately.  Their high level overviews suggests that they just don’t get it yet.

The article suggests the 5 or flavors of the month in Payments (Facebook, Square, Apple, Google and PayPal) respectively, all have a viable play at the wallet.  Which is fair, but misses the big picture.  They’re not playing in whitespace.  Payments already happen.

What’s really happening

Let’s skip right past the hyperbole and make a bold prediction.

2011 isn’t the year for payments at all, because nobody quite see’s all the parts of the puzzle.  Bricks and Motar retail is a $4 Trillion industry.  Online Commerce is a $400 billion industry.  Mobile, Social and Virtual Currency payments combine to about $4 Billion in 2011 (US based figures, do some googling…).

Defining the Change

The likely outcome is that these will all converge.  They can only converge by working with the infrastructure that already exists within western markets (emerging markets are a much more open play for startups).  Try as they might in the West the start up brigade cannot circumvent financial institutions or the schemes.

By the same token: Try as they might, financial institutions can’t ignore the fact that a large percentage their customers are on Facebook.

What financial institutions need to do

So your customer is on Facebook, and everyone is gunning after payments, outsourcing CRM and your brand is losing value.  Whether it’s PayPal, the Mobile operators or the startups, the squeeze has started.  Your branch network and existing customer base is a great asset, but consumers are changing.

If I were a financial institution I would:

  1. Develop a strong presence on facebook
  2. Build your e-portal into the page on facebook
  3. Talk to customers via the web chat / page
  4. Help them with the e-banking portal
  5. Speak to facebook about a revenue share on virtual currency payments funded via ACH / Direct Debit

What the startups need to do

Google are interesting, they’re making a more direct play at sitting on top of Mastercard, and working with verifone to win the physical card sales, and bring those into the searchable world.  Selling advertising revenue to reduce interchange is smart.  Facebook, Square and Apple all have some way to go to reach that point, with segmentation strategies.  Amazon too have a horse in this race.

If I were a startup I would:

  1. Work with schemes (Visa / Mastercard) under a revenue share
  2. Develop an e-wallet capability
  3. Sell that to financial institutions as a whitelabel, brandable product

The dream would be if you knew a company who already works with financial institutions for technology, that was able to do all of this for you.  In my opinion there is a killing to be made, helping banks go social.  Consultancies will spring up in this gap in the next couple of years.  Although having seen a recent KPMG presentation on the subject.  2011 isn’t the year for payments.

I have my eye on 2014.

Your thoughts.

  1. Who’s going to win the start up race?
  2. Which banks are embracing social well?
  3. Does anyone in the market have a holistic view?

Understanding Social Media – Four Steps to Social Media Revenue

Social Media is very much the buzzword at the moment, because the board level execs, and therefore middle management have recognised the massive user base.  Their thinking is along the lines of “We know there are a lot of users there, can we plug what we do today into that?”

In a word, No! It’s a very different space.

Before you can plug your product into a social space, your brand and business needs to be on there.  You’re dealing with real people in a much more intimate way than via a call centre or your website.  The rules are different.  Before you can even think about making money from it, you have to accept you have some learning to do.  Then we can talk about monetisation strategy.

Four Levels of Engagement

Joe Wiggins at Perfect Circle PR, lists the four levels of engagement in the financial sector.

  • Let’s Be Social – simply using social technology to build the brand and community
  • Enlightened Engagement – informing customers through reviews, experts or other respected sources
  • Store of the Community – customers help drive product selection assortment and merchandising
  • Frictionless Commerce – the buying experience is completely redesigned to create a fully customer-centric experience

Let’s be social

Step 1 “Let’s be social” whilst a starting point, is usually a siren of a business who’s marketing department convinced the board that they needed to “just put out press releases” because the competition is doing that.  This is akin to using a telephone for morse code, a waste of potential, but a step in the right direction

Enlightened Engagement

This usually happens when someone high up in the business has the Eureka moment and gets it.  It’s when the business recognises that their customers are talking to each other, and their friends about the business and interactions with your company.

It’s a paradigm shift.  Not everyone outside your employee list is against you.  In fact, some of them really like you and want you to succeed!

Social Media gives you insight to those conversations, and as an insight & perception management tool is invaluable.  This is real time feedback, from people who want to help your brand or business.

Store of the community

Also known as an “App Store”, is a big topc in itself, and a massive investment for businesses that are not already on the cloud infrastructure route.

The idea of having an ecosystem and marketplace of developers vying to make your channels better, for free seems like a tempting one.  It’s entirely possible with the developments in coporate IT Infrastructure and software to begin to make your services open for integration with clients, or 3rd party systems.  PayPal X is a solid example of how to do this in a gentle, risk averse way.

An open platform a huge stepping stone onto the quest for the holy grail…

Frictionless Payments

I’m willing to bet everyone see’s the value in this, pay any merchant from any account, anywhere.  On a pure technology roadmap, you could certainly get there without going social… but then how do you interact with this new world of Social Networks once you get there?

You may have the worlds greatest product, but if it doesn’t play well with social networks you’re stuffed.  More importantly, if your business doesn’t support it on the human level, consumers won’t trust you, and the service will fail.

That’s why it is vital your business follows the social and open technology and values equally. It’s as much about how you do business, as the technology.

Spend time getting to know your professional and human audience.  Listen to them.  Interact.  Then let them build the services they want, on top of your core value!  In effect the community will do the integration for you, you just have to open the front door, by being a platform.

What do you think?

  • Will business truly embrace social?
  • How would you implement it?

WikiLeaks fallout: What does it mean for your business?

Key points that have been missed during the WikiLeaks debate:

  • The vast majority of leaks suggest diplomats do an incredible job. Sensationalist media seems to be owning the narrative and is the real cancer of this story.
  • The US government by increasing security, has defaulted to secrecy. This is not how you win the trust of the people.
  • Assange comes from a breed of hacker who’s motivation is that the truth shall set you free. If we’re all caught with our pants down, nobody has the upper hand.

Personally, I disagree with his methods, his style and the term “Wiki” being used. His intentions are right, but he has let the narrative be controlled by a media who want to turn it into something else.

What is more frightening is the reaction, politicians calling Assange a terrorist is ludicrous and counter-productive. Brett King’s printing press analogy is correct. You cannot close the lid on pandoras box.  You cannot fight a problem caused by secrecy with more secrecy.

What does it all mean? Like the MP expenses scandal, it will die down.  Be aware however that transparency is coming, and those with the most to lose are those hiding something.

You can trace this “open” trend back to the invention of the internet itself. The motivation is inspired by the “hacker” ideal, who believe that “open” creates a better world.  They believe a re-distribution of knowledge is good for innovation, and good for the global economy. Diversity of input = stronger product.

The key message to take from this episode is that your default should be transparency. This would limit the impact of Assange and the WikiLeaks dramatically.  My advice? If you have secrets, get there first.  The acid test is your conscience.  The most motivated hackers are those who believe they are just.  If you find yourself in a WikiLeaks storm

  1. Launch a full internal investigation, and publish the results
  2. Commit to transparent process that will prevent the re-occurrence of any wrong doing
  3. Use the announcement as a platform for building trust with the public and your clients

Do you run a business? How would you react to WikiLeaks publishing your internal dealings?

Banking Disruption

All this talk of clouds, social media, mobile and the like isn’t going away.  The financial sector has moved from “I don’t care” to “I don’t understand”.  Whilst it’s not a monumental shift, it is important.  As Brett King puts it

Bankers are simply used to owning the pipes, the network, the wires and perceiving that their exclusivity on ‘banking’, their ‘lock on customers’ comes from having a banking license. Clearly, however, disintermediation of the retail front-end of banks is rife. Banks are becoming wholesalers, networks and product manufacturers, but clearly with the lack of innovative capability, the rapidly growing gap between customer behavior and retail banks as poor service companies, the question of whether we need banks has been answered…

We don’t need retail banks – we do need the back-end networks that process payments, we need organizations that are prepared to take on the risk of lending (social lending is unlikely to scale up to mortgage level), and we need mechanisms that give us access to trading systems and markets.

This is an all too common view.  We’re reeling from the “bigger is better” attitude of the past decade, and waking up to notice that plenty of companies have positioned themselves to render banks less and less useful.

Major retailers now offer financial products of their own, Twitter founder Jack Dorsey has just made it possible for anyone in the US to become a merchant if they have an iPhone.  Virtual currencies and mobile payments are almost completely alien to high street banks.  The fear of the unknown has caused inertia.

In effect high street banks are fighting a losing battle, as lumbering, slow moving, poor service companies.  What can they do?

  1. Focus on giving the most value to the consumer, not the least & profit taking (which is still rife, sadly)
  2. High Street brands have scale, and scale can often buy value.  Pass that on to the consumer!
  3. Bank’s IT departments are a black hole, they need a much more rapid service development cycle.  See Google: “Always in BETA” for how to break a new product
  4. Branches are a massive opportunity to leverage a brand name.  Face time for consumers is paramount
  5. Owning the pipes doesn’t make the consumer subservient to you, it makes you subservient to them.

The focus is so very risk averse, and focussed on tangible ROI that banks will likely be the last to move.  It’s often impossible to show a 5 year return on a wholesale perspective change.  What can banks do in the medium term?

Deutche Bank are represented by their CIO on the Enterprise Cloud Leadership Forum and at SIBOS 2010 made statements that are alien to many high street banks.

  • Learn about the cloud by leveraging the cloud (Use Google Apps, Youtube, Facebook for business!)
  • Have the internal debate about what to open up and how
  • Provide a platform for other developers to add value to your services

Can you imagine a CIO saying these things even 2 years ago?!

I look at Visa & Mastercard who now both have a development platform & a payment service provider as key leaders in the area.  PayPal & Bling Nation are then a neat front end to a scheme based auth’s engine.

What is a bank in a cloud based connected world, other than a database and risk carrying entity for financial products?  The separation between service and risk is also demonstrated by people like BankSimple who are primarily consumer focussed.

Interesting times…