Category Archives: Finance

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?

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?

Want Mobile Payments?

The EDC 2009 Global Payments Survey suggested that in the USA, the mobile would replace the wallet over the coming half decade. A bold statement indeed, and something we have all heard before. It’s an argument that is winning traction since Square has won itself a lot of attention, mostly for some snazzy web design, and having a certain Jack Dorsey at its helm.


The problem facing these upstarts is that some very exciting companies are trying to create a solution where the consumer doesn’t see a problem. Perhaps the greatest degree of disruption will come from developing economies. Payment processors and banks have been attempting to load these territories with credit cards. Whilst this might give a short term revenue burst, where is the strategy?

Africans are already using SMS as a form of payment, because its simple and low tech. Payments in the western world need to be simpler, and have no barrier to entry for the consumer. The consumer has a phone, and has a bank account. They don’t have a payment mechanism that works as well as the card.


Until that is the case, we’re in an interesting but risky place with mobile. mPayy and oboPay both show a lot of promise in solving the Mobile Payments problem. However until someone is able to package this service and sell it to the banks, Mobile Payments will not take off. Given that most Payment Processors still think “e-commerce” is the future (scary I know), that could take a while.