Banking on Connected Cars

May 18, 2016

Post 2 of 4 of the ‘Bank of Things’

The future is already here with self-driving cars and the race is on globally to full legislate for them to be acceptable. Dubai has set a target of 25% of vehicles to be driverless by 2030. This alone will have huge impact not only to laws, but insurance and jobs. It is easy to see that such automation will be a big factor in predictions that within 25years we could see unemployment reaching 50% in the USA! On a positive front, today 96% of car accidents are caused by human error. However even eliminating a large number of accidents has an impact on jobs in hospitals and for insurance companies.

The connected car is a great example of IOT, compute power + huge array of connected sensors + extensive data collection. Car designers have already moved their focus to car interiors as much as if not more on the exterior as they imagine spaces we can relax or work in. There are already car panels with built in sensors so that a knock or dent is detected and can be reported automatically. Cars may automatically report potholes. Smarter interaction will allow car’s to book themselves in for a service while you work. And manufacturers are already designing boots that can be used to accept parcels while your out – the courier notifies you of their arrival and you open the boot for the delivery or collection remotely via an app.

As cars will become much more interactive what role can Banks provide? Clearly they can allow the car to make payments to pay for tolls and charging (fuel) themselves. Banks could also look to provide accounts dedicated to the car so that a full picture, including servicing and insurance, can be ascertained on the cost of owning a car (personal finance management for car’s).

Some of us may choose never to own a car, and simply use Uber to order a self-driving car on demand. This will create the possibility of “car landlords” – people buying cars to earn money by driving others. Clearly this represents an opportunity for banks in terms of mortgage style loans for “fleets” of cars as an investment.

Last year Santander teamed up with CarZapp to provide car dealership’s the option of providing a car sharing scheme to their customers. Customers of the scheme can pick up and drop off cars as they please from participating dealerships using the App. It’s a very different customer experience than just providing a loan for the car. It enables customers the option of driving different cars rather than just owning one. The scheme was launched in Germany where Santander is already one of the largest car financers in the market. It’s this market share that allowed them to innovate the concept of car sharing using an App.

In Poland you don’t need to got o a branch if you’re a business banking customer, Idea bank has a bank that comes to you! Idea bank is expanding it’s fleet of car’s that have been customised with a built in secure deposit box and ATM. It is possible to order the car to come to you and currently it is driven to the customers location. However it’s easy to see that this is a great candidate for a bank on demand ordered via Uber.

Elsewhere in Canada, Blueshore, looked at connected cars in a very different way. They thought about the passengers and how they may utilise their time. Focusing on wealth management they looked at the possibility of new user interfaces designed specifically for windscreens so that a passenger can review their portfolio whilst being taken to their destination. This allows car journeys to be much more productive.

Initially it may be difficult to think of the role of connected cars in banking beyond payments, but as you can see Banks are not short of imagination already. What is for sure is that there is much more to come and now is the time for banking to think about customer experiences and the connected car.

Banking in Connected Cities – Post 1 of 4 of the ‘Banking of Things’ Series

May 11, 2016

Banking in Connected Cities

City planners, councillors, governments and architects have been considering the possibilities of connected cities for years now; it is only people outside of these professions that are surprised by how advanced the thinking is on this topic. The given aspect is ubiquitous WiFi, however this could be enabled in different ways for different purposes – see this article ‘Examining The Future of Wifi’.-  Each one providing a different reach, bandwidth and speed. These new types of WiFi will be necessary to connect everything in a city: from streetlights to parking meters and bus stops, as well as connected cars and people.

Connected cities features a large focus on transportation which I will cover in the next article. However, from an infrastructure perspective, we should expect that traffic in cities would flow much better as the city gathers more information, directly from vehicles but also from traffic lights, CCTV and even street lights, while processing it all in real-time.

Street lighting will go through a huge change. Initially this will be to use more energy efficient LED and solar powered lighting, but will progress to become smarter to detect people and traffic, so lights aren’t on unnecessarily. This could also be used to identify potential crime by becoming brighter or changing colour to highlight the danger, while alerting the law simultaneously.

Apart from the proliferation of charging points, clear glass solar panels aren’t a too distant future and could potentially make every building largely self-sufficient for power. With utilities, we expect monitors to automatically report leaks and outages. And while not strictly in the space of IoT, we expect cities to be much cleaner as litter is cleaned up by robots, and smarter CCTV will automatically fine those that drop litter.

Expect billboards and advertising to personalise content and special offers, by detecting who is nearby and within vision. The technology already exists to dynamically personalise video adverts so that merchandise labelling can be changed to match the target person’s preferences. We have barely scratched the surface of the possibilities that technology can bring to transform our cities.

From a banking perspective, we expect to see far fewer branches in the high street, and those that remain are likely to be very different to the traditional branches of the past; much more open, with fewer staff members and more self-service machines. Many could be consumed into being part of a very different customer experience. For example, while planning a wedding, the advisor is able to help you find loan to pay for your event and provide insurance in case anything goes wrong.

Expect to never have to reach into a purse or wallet to use cash or a credit card, as you’ll simply be recognised (either through an implanted chip, or through biometrics like facial recognition) and charged as you enter buildings (e.g. museums and cinemas), or leave a shop with merchandise.

Banks have already looked at presenting offers to customers as they walk past certain stores, but they could also use the same approach to provide advice on:

  • Spending: skip Starbucks as you already overspent there this month (Ally bank in the USA are already trialling this concept with an app called Splurge)
  • Healthcare: skip Pizza Hut as you’ve not exercised enough today
  • Saving: delay going into the city by an hour will save you money because current congestion has increased toll fees

Clearly a big area for banking will be the facilitation and control of payments in a smart city, but the bank also has the opportunity to be a trusted infomediary for the customer, not just in providing real offers, but also by providing advice and rewards to drive advocacy or retention.

 

The Dawn of the ‘Bank of Things’ – 4 Part Blog Series

May 11, 2016

The Dawn of the “Bank of Things”

Over the past ten years, I’ve seen analysts’ forecast of the number of devices connected to the internet grow from 2 billion to 50 billion. The reality is we simply don’t know and the ever-spiralling number is a sign of just how big the potential for this new technology is.  It seems it will soon be possible to connect anything and everything.

We already have a mattress cover that monitors your health; socks that tell you how many times they’ve been worn and washed; 3D printed clothes that adjust to temperature; and milk bottle tops that tell you if the milk has gone off. Meanwhile, toothbrushes, light bulbs, door handles and even pens, can all be connected and can all deliver new services as a result.

New types of information

A new era of connectivity has begun and with it comes a whole different level of “big data”, as these devices emit a constant flow of information.

Just as the number and variety of things connected to the internet continues to grow, so does the range of information coming from them. Sensors can provide data on location (GPS), movement (accelerometer), temperature, pressure and light, for example. And it quickly becomes apparent that the possibilities for this stream of information are limitless.

Interconnected “things”

What’s more, it doesn’t stop there as these connected “things” can also communicate with each other.  Imagine a washing machine that warns you that you’ve left your phone in the pocket of the jeans you just placed inside it to wash.   Or curtains that open when the alarm on your phone wakes you up in the morning (possibly a little later than usual because your phone has checked your diary for the day ahead and also detected you haven’t slept well during the night).

Again, the possibilities of what could result from devices that are able to talk to other devices are only limited by our imagination.

Children are already learning the basics of wiring up sensors and finding ways to use the information using kits such as Wunderbar, SAM and Kano to build their own gadgets. These are the skill sets of the future – electronics (circuits), APIs/scripting, and analytics (data).

The future of banking

The implications of this new connected world are only just starting to be felt. Every industry is in a state of transformation and none more so than banking.

Banks are thinking about how this new world of big data could potentially transform what they offer to customers and their relationship with them. This is what I call the “Bank of Things” and in this new world it is likely that banks will want to become the trusted:

  • Custodian of the customer’s data – helping them to manage privacy and control sharing
  • “Infomediary” – acting as an adviser between the customer and sellers
  • Payments manager for the customer’s “things”

A glimpse of what’s to come

We are on the cusp of a new technological dawn that will clearly bring huge changes for banks and banking. In this series of blogs I will be exploring this topic from a banking perspective and looking at what it means in terms of Connected Cities, Connected Cars, Connected Homes and Connected People.

Given the huge potential of the technology I recognise I’ll only be able to provide a glimpse of the possibilities, but I hope it gives you a taste of what’s to come and welcome any feedback you might have on other applications of the technology.

 

 

 

 

 

 

 

 

 

 

 

POST 4: Digital banking is all about Interactions not transactions

April 22, 2016

 Post 4 of the series Transformational Banking – Digital banking is all about Interactions not transactions

After my previous posts API’s and Big Data I was asked by a few people, “these are great ideas, but how does a bank make money from doing this”. This to me was an eye-opener as I assumed it was clear that this drives customer engagement, what I hadn’t appreciated is that not everyone see’s the link between engagement and creating revenue.

We know customers are moving online, banks can expect 90% of customers to interact with them through digital channels. As this happens, how do Banks sell, advise, reward and drive advocacy? The answer is simple they have to:

  • Provide good content and useful services to drive more interactions and to gather data about the customer interests, habits, life stage etc.
  • Drive even more interactions by being able to identify the customer wherever they are online be it on your or another website, mobile/internet banking or social media. Be where the customer is online, I call this Omni-Presence
  • Provide more ways to interact online email, IM, Video, social media…
  • Use each interaction to communicate with the customer, but respect privacy, channel communication preferences and acceptable frequency.
  • Provide communication in timely (real-time), relevant and appropriate way
  • Use analytics and machine learning to improve the decisions you make on what to communicate, when and how

Each opportunity (interaction) is a chance to sell, advise, reward, retain or engage the customer.

So how does this link with API’s and Big Data?

Banks can profit from API’s directly by either selling / licencing access to partners or just making money from the underlying transactions driven by the API’s. However API’s used to create more innovative services (either by the bank or partners) can drive much more interaction. Every interaction is not only a chance to communicate with the customer but is also a valuable source of data. As the result of any communication can be captured and if successful can replicated to other customers, if not then refined and another approach tried. The continuous improvement of communication creates a self-learning, self-tuning engagement model that is more effective than traditional marketing.

By incorporating 3rd party API’s Banks can also open up new revenue streams from 3rd parties, for example by taking a margin on ticket sales for travel or music festivals in the case of students.

In a similar way creative use of Big Data can also drive greater interaction and create new revenue streams. In terms of the latter some banks are already capitalising on PFM (Personal Finance Management) data to provide 3rd party offers and rewards to their customer base. The customer gets something for nothing or a discount, the bank gains a commission from the merchant and the merchant gains a customer. This is a win-win-win scenario driven by the banks being able to provide more targeted offers (based on customers spending patterns) than the merchant would be able to themselves. There are many more opportunities to profit from data that Banks hold but this is a stark change to their current business models, but one that challenger banks are already looking to exploit.

There’s money to be made from API’s, Big Data and driving customer interaction but it will require a mind-set focused on transformational banking rather than incremental change of existing banking services.

Post 3 of Transformational Banking Series – Getting the right focus on API’s to transform banking

April 15, 2016

Post 3 of Transformational Banking Series – Getting the right focus on API’s to transform banking

Whilst mobile, cloud, big data and social (Gartner’s nexus of forces) have stolen the limelight in being transformative, a relatively silent storm has been brewing in the world of API’s. For business people it doesn’t help to have an acronym like API (Application Programming Interface) as it sounds very technology oriented and something that IT should manage. However the good news is that many banks IT have been very active in the API space. Many have participated or led their own “hackathons” – essentially a short fixed time period to use API’s to create new software.

Regulations like PSD2 and initiatives like OpenBankProject and a driving banks to publishing API’s to their systems and data (of course in a controlled and secure way). And the benefits for banks to drive innovation through a plethora of start-ups and software companies is clear:

  • Developers get access to bank data/services to create new applications to sell to the banks customers
  • Customers get a wider range of useful applications from a broader range of suppliers than the bank alone
  • The Bank creates a broader eco-system based on their data/services that will help differentiate and compete harder against their competitors.

Done well, it really is a Win-Win scenario. And yes there is a but, are the banks making the most of this technology? Whilst a lot of focus is given by Banks on publishing API’s, not as much focus is given on foraging and consuming 3rd party API’s.

API’s are used broadly across all industries and there is huge potential for banks to create real value added services and products or to dramatically optimise processes. Also to drive real transformation in Digital Banking. For example look at CommonWealth Bank’s property search app, although the “augmented” reality feature stole the headlines, it was the use of 3rd party API’s to provide sale prices, property history and details that is the smart feature. Of course the customer can go to the different sites themselves, but this puts everything in one place, aggregating data from multiple sources to make the buying experience much easier.

Similarly there are opportunities to create better experiences around key decisions that have financial implications like buying car, planning a wedding, going to university, having a baby. Transformational digital banking solutions can create better experiences for all life stage events, and API’s are the key to creating a seamless experience where the customer perceives all the data and service is being managed by you.

Hence in the same way that Banks need to think beyond banking data (link to previous blog), Banks also need to think beyond banking products and services. Again the opportunities can seem so vast that this can be an overwhelming task, but a focused approach could be to specialise content and services for a more targeted customer segment (link to 1st blog in this series). So for example using API’s could Student banking also provide:

  1. Purchase travel tickets
  2. (http://www.nationalrail.co.uk/46391.aspx)
  3. Notification of festival ticket availability
  4. https://darwin.affiliatewindow.com/documents/ticketmaster/Ticketmaster%20API.pdf
  5. Price checker/locator (buy anything at lowest price locally)
  6. (https://developers.google.com/shopping-content/ + https://developers.google.com/maps/ )

Almost 15000 sites/apps have listed their API’s on http://www.programmableweb.com/apis/directory so there’s already a huge amount banks can do to drive innovation in Digital Banking for all customer segments today. The bank customer of the future however might want something more though.

Whilst there is a lot of focus on Millennials, this generation weren’t mandated to learn coding, not like the generation after them who have yet to leave school! This is a generation that will have done their hour of code (http://hourofcode.com), many will have written their first apps before reaching puberty. We have yet to learn what this generation will be fully capable of, especially as they utilise even simpler scripting capabilities using sites like ifttt.com or zapier.com. It’s likely this generation will be scripting their own interactions, mashing up banking operations with other sites themselves.

What’s clear is that API’s are as strong an enabler for Banks as Cloud, Mobile, Social and Big Data, and that Banks have to take advantage not only by publishing their own API’s to create an ecosystem of partners, but also to consume 3rd party API’s much more voraciously than they have done so to date.

 

Post 2 on Transformational Banking: Big Data Not Banking Data

April 8, 2016

As everyone in the banking industry is well aware, banks hold a lot of data and many have spent several years utilising it. Some banks I know have been mining, analysing and really making their data work for them for over 25 years…but there aren’t as many banks like this.

Banking data has been used broadly: sales targeting, fraud, credit scoring, retention etc. And now in the era of “Big Data” more banking data is being collected, especially through online and mobile channels. All good? Yes, and here comes the “but”; it’s all “banking data”. Some may argue that clickstream data is not banking, but it is if the clicks are on bank pages, whether it’s internet banking or the banks web page.

Initiatives like PFM (Personal Finance Management), whilst useful, have further legitimised the collection of financial data only. However, for transformational digital banking, banks have to be more voracious about collecting data and more creative in its use.

For example a bank’s typical approach to credit scoring involves financial analysis of the customer’s income, outgoings and payments history. This approach assumes you need to check financially a person’s ability to pay. Companies like FriendlyScore and Veridu turn this model on its head and use social media data to validate a person’s identity and trustworthiness to pay. Similarly, last year China launched an initiative which will be rolled out nationwide by 2020 to create a “Social Credit” system. Initially, 8 companies have been invited to define scoring approaches, and these vary from analysing online spend (Allibaba/Sesame) to scoring on online dating (Baihe).

Imagine how much more customer service can be improved by understanding the customer’s emotional state when they are contacting you. Companies like Affectiva.com are leading the way in providing emotional detection and analytics. Similarly, several years ago Samsung demoed a prototype phone with in-built emotional detection that worked with several sensors. Their analytics worked on things such as the speed of typing, errors made, pressure and vibration. Microsoft have also demoed “mood sensing” couches and even a “mood” bra.

Some banks have investigated the use of geo-location, for example to highlight the nearest ATM or branch. Some have gone further with geo-fencing, using “beacons” to present offers in real time, or to change electronic billboards as customers walk by locations pinpointed to 5m2.  But how about using Google image search to help you identify where a picture was taken. How could this be useful to a bank? If you could identify the location, you may understand the kind of holidays the customer takes, providing you with an idea of their lifestyle. Customers that use sites like Instagram will also give away how frequently they go on holiday.

The sources and use of data that banks can access are clearly vast, and with the Internet of Things the growth of data is about to explode further still. It will soon be possible to record a person’s entire life: what they saw, what they ate, where they went, how they felt, what they like/dislike, their heart rate, how often they brush their teeth, even how often they wear the same socks before they are washed, and more.

The key to using big data to transform a digital bank will be to gain the customer’s trust, giving them reason to volunteer the data to you, and this will happen more easily if the customer sees value for themselves in the way you use data. For example, being able to extend a credit facility instantly and easily whilst out shopping, getting discounts on things the customer likes, or even just helping them to manage the privacy of their data online.

For some time, one of my favourite sites (I wish a bank would do this for the UK) has been http://peoplelikeu.com.au/ launched by UBank, which allows you to compare how you spend your money with people similar to you (by age, earning, location, marital status etc). It recognises that either consciously or sub consciously we make comparisons and decisions based on other people. This site can be used by anyone, not just bank customers.

Going back to China’s social credit system. Some of the feedback from users was that they were happy to give up their data as it simplified processes; for example they could make a hotel booking without having to pay a deposit. Also, as less than half the people in China have a financial credit history, something that works on data broader than financials will also allow people access to credit.

It is clear there is a huge amount of data available and that with the right value for the customer in providing it, they will volunteer data to you. Even regulators with initiatives like PSD2 are pushing for data to become more openly available with the aiming of improving service and products for customers.

To drive digital transformation it time for banks to think broader thank bank data and really get creative about big data, before somebody else does!

Post 1 on digital transformation: Why Customer Experience is NOT the proposition for Digital Banks

March 23, 2016

For many years, banks have been advised to focus on customer experience and it has become very much a C level issue, with some banks going as far as appointing a Chief Experience Officer. Wikipedia defines Customer Experience as:

“Customer experience (CX) is the product of an interaction between an organization and a customer over the duration of their relationship. This interaction includes a customer’s attraction, awareness, discovery, cultivation, advocacy and purchase and use of a service.”

However, for many of us not from a marketing background, we couldn’t see the fuss. Surely every bank makes their website as attractive as possible, or their online banking as easy to use as possible? Can banks really compete solely on this kind of “experience”?

Of course, as a technologist, I am not meant to understand; this is the domain of the creative marketing teams. However, even speaking to bank marketing managers I found many lacked clarity about their customer experience strategy, sometimes not even understanding that a strategy was required.

Yet if you swap the word “experience” for “proposition” and start talking about “customer value propositions” things start to make much more sense. Indeed banks that shifted their focus like this even publish their customer value propositions online. For example, OCBC in Singapore make clear it is the solid credit rating, best in class products and expertise that provide a compelling proposition of leadership for their customers.

Charryse Scapignato of Macquarie in Australia, provides a useful six point checklist of how to create a strong value proposition.

  1. Does it resonate with your target market?
  2. Is it clear, simple and succinct?
  3. Does it really set you apart?
  4. Does it sound good when you say it out loud?
  5. Could it trigger a conversation?
  6. Is it true?

For digital banks, creating a highly targeted offering for finer segments will allow them to successfully differentiate and provide value to customers. After all, many banks will claim to have fantastic customer service, market leading products or easy access through any channel.For example, in the UK looking at the student segment identifies over 2.3 million students in higher education, of which 1.5 million are first time degree students. Or if you take micro-business, and consider those with less than 9 employees, there are over 5 million. The point is that “niche” segments can be large opportunities and high street banks are still treating these like generic banking customers.

For digital banks, without the legacy of requiring “physical presence” and traditional marketing like printed brochures, there is a huge opportunity to leverage their cost advantage with targeted offerings for these segments. However, whilst the vehicle might be banking, the destination has to be a clear differentiated proposition specific to that market.

For students, it might be “the most rewarding bank” – a bank that seeks to understand all your preferences, hobbies and habits, and turn those into rewards and freebie promotions. After all, how many students would turn down a discount to see their favourite band or get a cheap meal? For micro businesses, it might be “the bank that works for you” – a bank that helps them easily keep track of business expenses, helps them with tax returns or offers to find the best P2P funding.

Whilst customer experience is important, banks wondering how to beat challengers should look to define a clear customer proposition by leveraging the benefits of going digital. As Bill Gates poignantly said, “Banking is necessary. Banks are not”. A focus on customer experience for banks only improves an existing bank; a focus on customer proposition can help redefine banking services. The former is cosmetic; the latter is transformational!

On the same basis, a bank’s approach to big data and API’s can also enhance or limit transformational banking… More to follow in my next post.

 

 

 

Transformational Banking

March 23, 2016

I just finished watching “The Big Short”; a film about the financial crisis and how one person, Dr Michael Burry, predicted the banking crisis. Despite being contrarian to the major Wall Street banks, the US Government, the credit rating agencies and the regulators, he stuck by his analysis and view and bet against the industry. A couple of smaller investment houses latched onto his theory, agreed, and also backed it. Effectively the banking industry had buried its head in the sand; it denied a collapse could be possible, let alone imminent.

When I see banks respond with a lack of urgency and investment to the changes in the industry driven by digital, I wonder if heads are being buried again. Will the impact of digital be as hard as the financial crisis? Changes are already starting to filter through and to me it seems inevitable that a number of banks will cease to exist in the near future.

Customers are already telling banks that they’d prefer to bank with Google, Apple, Amazon or Facebook. P2P lenders are facilitating billions in lending, and more brand new banks have been created in the last 2 years than the previous 100 years. In parallel, technology innovation grows apace from even smarter phones, smart/connected cars, home and cities to smarter AI and robots. Technology is having a profound impact in every industry, from farming to health care, manufacturing to retail; in fact I struggle to think of any industry not impacted by technology.

So it still begs the question why some banks are doing very little? I’d love to hear from banks that aren’t investing in digital why this isn’t a priority.

However, even for those that are investing: will they succeed and beat the newer players? If you’ve read Clayton Christensen’s “The Innovators Dilemma”, you’ll know even successful, well run banks with smart people can fail when a market is disrupted. Why? Well, one of the reasons is because what made them successful previously holds them back from innovating the future. These banks have a deep ingrained understanding of today’s customers; they have products and services for these customers and complementary processes for managing them. Tomorrow’s customers are inevitably not their focus.

Steve Jobs has provided many relevant quotes on this; here’s a couple of my favourites:

“It’s not the customers’ job to know what they want” and “get closer than ever to your customers. So close that you tell them what they need well before they realise it themselves”.

Perhaps BBVA is getting this right by acquiring disruptors: first Simple and now Holvi. Or perhaps taking Bre Bank and HSBC’s approach of spinning out a separate new bank is the right approach?

As the industry strives to find the answers, I’ve spoken to many banks that do understand that digital will have an impact and that it has to be a priority, and are forming their strategy for transformation. In a series of four posts, I’ll be sharing some views and insights on transformational thinking for digital banks. I hope they’ll provide some help and, as always, I welcome feedback…

 

 

Banks are facing challenges on all sides as fintech players seek to disintermediate the old model; But some banks are successfully responding to the threat

February 19, 2016

The fundamental model of banking is simple: take deposits and lend them at a profit. Until now, this model has not really been challenged, and banks have competed by trying to do these basics better than others, whether it’s paying competitive rates of interest, offering sweeteners, being operationally efficient or having better reach or customer service.

In any industry, disruption occurs when the old business model is overturned, and this is the approach of banks’ current challengers. They realise that the future can’t be created by re-inventing the past. And existing banks will find it difficult to compete with this vision of the future.

There’s lot of talk about user experience being the differentiator for banks. It’s important, but it’s not the be all and end all. Great design is nice, but if a bank is unable to produce the right products, market them at the right time and provide compelling service, then a flashy website and mobile app will mean very little.

So unless a bank’s back-end technology — the core system — is advanced enough to handle the swathes of data created in modern retail banking, the experience will eventually break down. Just look at the system crashes we’ve seen at several high street banks in recent years.

Three key trends are currently driving change in financial services. These are peer-to-peer networks, crowd-sourcing and regulation around open data; all three challenge the banks’ existing models causing disruption and stimulating competition.

Let’s take a look in more detail at the areas currently shaking up the banking market.

Peer-to-peer

Peer-to-peer loan firms such as Zopa, Lending Works and Ratesetter have also emerged as new competition to banks. These firms take funds to lend on in return for better rates than high street banks. For example, Zopa has lent £1.14bn and has 59,000 active lenders. The overall sums are limited, but these players are making a dent in the banks’ businesses. There is also the small business loans equivalent, called FundingCircle.

A related offshoot is crowdsourcing; start-ups are using platforms such as Kickstarter or Indiegogo to source seed financing directly from investors and bypass bank loans. This model has been effective for innovative start-ups, which can pitch direct to lenders and by-pass complex credit-check processes of banks.

Infomediaries, fintech

Fintech companies are using these developments to push into financial services by dis-intermediating banks and becoming “infomediaries,” or digital brokers, operating between clients and the deposit takers or loan makers.

Among the most compelling “infomediaries.” are those developing services and apps for banks and other firms, or those launching alone on the market as a go-between for the customer and the bank.

The fintech explosion covers a host of value-added services. Some companies offer compelling user experience and “banking as a service”. They aim to make their money from new revenue streams and by becoming banking marketplaces, which sell products from different providers and take a commission for doing so. The sectors covered are as diverse as digital asset management, portfolio risk management tools, payments hubs, document filling, consumer risk profiling, biometrics passwords, interest rate comparisons and virtual piggy banks for kids.

Take fund management. Now, the consumer is able to track other investors and their portfolios using platforms like eToro. Using artificial intelligence platforms, or robo advisers, it helps to match risk requirements and asset preferences with individuals. There is a host of other matching services – call it Tinder for financial services – such as assetmatch, for investors looking for illiquid shares. There have been plenty of winners, and there will be more, especially where companies adapt to local markets.

But there also needs to be an element of caution. There is a bubble and lots of duplication. There are few real “unicorns” – privately held technology firms valued at over $1 billion – hence many are predicting a shake up. Recently, it emerged that Square, a firm handling credit-card payments for small merchants, priced its initial public offering at $2.9 billion, down by half from the valuation during a private fundraising last year.

Reinventing Banks

While fintechs are disrupting the business model, the banks themselves — whether digital start-ups or divisions of existing lenders — are pushing hard to create the kind of services that will engender customer loyalty, and hence help them survive the upheavals.

One country that has been a surprising source of financial innovation is Poland. There, cheques have almost disappeared and contactless payment is standard. MBank has a small branch network and has launched a mobile payment service with contactless technology. It also offers a retail advice and discounting service, using client data and behaviour patterns, alongside geo-fencing, to alert customers to offers. That allows them easily to build rewards programmes — and loyalty. Idea Bank developed Europe’s first business account based in the cloud. It has also piloted a program where clients can summon an ATM-equipped BMW to deposit and withdraw funds. Customers simply need to download and register the app, then request one of four cars to any location within the user area. Alior has a mobile and internet platform similar to mBank’s, while PKO Bank Polski is pushing mobile phone payment technology.

In Turkey, DenizBank became the first bank anywhere to let customers access deposit and credit card accounts through Facebook. Prior to that, it already let prospects apply for credit through SMS and Twitter. İşbank has developed an iPad app that offers access to a wide range of accounts, payments and transfers, as well as a store selling event tickets and novels. It uses biometric authentication at ATMs. Turk Ekonomi Bankasi was the first bank in Europe to give customers debit cards with built-in authentication technology.

In Japan, Bank of Tokyo-Mitsubishi, showcased a robot bank teller last year at a Tokyo branch. NAO, the programmable 58cm mini-robot, is equipped with sensors, and responds to customer requests with pre-recorded responses. It speaks Japanese, Chinese and English.

India’s ICICI has launched a digital wallet and pioneered virtual access to safety deposit boxes. It also pioneered video banking for non-resident Indians, has a service enabling customers to transfer money to anyone in the country who has a Twitter account and has launched an app for Android and Apple smartwatches.

Regulation

Changes in the rules governing the sector obviously play a crucial role in determining the actions of banks and related service providers and challengers, and their ability to innovate. Without delving into too much detail on the supervisory backdrop, it is worth noting that the British government has thrown its weight behind a report calling for the creation of an open banking API standard to make it easier to share and use financial data. The move can be expected to improve choice for customers, promote competition and stimulate innovation.

At the European level, the EU’s Payment Services Directive 2 includes an Access to Accounts (XS2A) provision that will require banks, when customers request it, to provide third parties — via application program interface (APIs) — with access to customers’ data.

Where are we going?

As banks and financial services companies improve the offerings for Millennials and digital-only customers, they need to remember that the next generation will have very different demands and expectations. Coding, for example, is starting to become mainstream among youngsters.

And that means that the bank of the future will have to allow more responsive and flexible APIs and allow clients to build their own “banking interactions,” probably by voice commands.

How banks can use digital expertise to increase sales, engender loyalty and push up profits.

October 22, 2015

Up to 90% of interactions between banks and customers now take place over a mobile phone, leaving banks with little face time, the time they traditionally used to sell their products.

But this massive shift should not be a threat. It can play to a bank’s digital strength, creating opportunities to sell better, in a more timely and targeted manner, create more loyalty, and generate greater long-term profitability.

Digital banking delivers a consistency of service, depth of customer knowledge and the facility to make real-time reactive offers. Combined, these make for a powerful sales opportunity.

A sales team will always have good and poor performers. The good seller reacts to the customer, gains and uses insight into the customer’s needs and adapts the offer accordingly. When someone walks into a branch to deposit a large cheque, a good teller will work out whether to offer savings and investment products versus maybe mortgage deals or insurance by seeking to understand more about the deposit. A less successful teller will just take the cheque, missing the up-sell opportunity.

A digital system can be programmed to behave like the good seller, to spot an opportunity and make suitable offers. It can even be self-learning, working out that something didn’t work the first time and adapting accordingly.

Not only does the bank benefit from a more comprehensive sales programme, the selling behaviour will be consistent across the entire client base, maximising each opportunity with relevant offers – even the best sellers can’t know all their employer’s offers all the time. In addition, it eliminates the chances of selling customers products they don’t need.

Digital systems allow any offers to be made in real time, directly in response to customer action. A bank can analyse spending and saving patterns and deliver timely offers that correlate to those patterns, or even to an aberration within a pattern.

In this way, online banking will become an advisory service, rather than just a transactional operation, as the banks draw on a complete picture of their customers and access their full histories instantaneously.

Finally, the digital experience will help banks to build loyalty, offering targeted rewards directly related to recent spending patterns. For example, a customer who usually buys a Starbucks coffee every day suddenly goes to Costa for a week; the bank can send a free Starbucks coffee voucher to the customer, on Starbucks’ behalf, enticing them back. It’s a relevant, targeted reward that is likely to be taken up and engender goodwill towards the bank.

The opportunities offered by digital banking are possibly the most exciting development in banking for decades. While the mobile revolution is clouding the picture right now, it’s a cloud that really does have a silver lining.


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