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.

Profiting from digital banking technology

September 25, 2015

Three ways to increase revenues and three ways to cut costs by exploiting digital banking technology

Increasing profit is simple: it will go up if you can cut costs and increase revenues. Automation can work in your favour on both sides of that equation. It kicked off the agricultural revolution and really got going with the industrial revolution. Now it’s digital change that is revolutionising profitability. Here are my top three ways that banks can use digital to cut costs and increase revenues.

Increased revenues

  1. Timely and relevant personalised mail Personalised marketing campaigns to date have meant sending Mr Jones a letter starting with Dear Mr Jones. What followed was generic and untargeted. Today, banks can do so much better. They have the data that reveal exactly how much and on what Mr Jones is spending and they should use this to sell products.For example, Mr Jones’ bank can look at his spending, see that he’s just paid an unusually large bill that might leave him short of funds later in the month. With this knowledge it can send an offer for a new credit card, short-term loan or overdraft facility. The pitch is relevant, timely and clean and more likely to be taken up. Indeed, EY research showed that 60 per cent of customers said they would expand their relationship with their bank if they were recommended products that they really needed.
  2. The marriage broker Banks are in the fortunate position to be able to hook up their business clients with their retail clients, promoting the former to the latter and getting a cut of any sale. By looking at spending patterns, banks can see what customers are interested in and make the introduction. It’s been done by credit cards for a few years and Lloyds and Barclays Bank have recently started, too.  It’s simple and effective.For example, a business client could be a golf shop. The bank offers the golf shop the ability to analyse an anonymised customer database. With this data the shop owner identifies 40,000 of the bank’s customers that are within shopping distance of the golf shop and who buy golf equipment. It can target them, sending out promotions. It can construct a push portal a bit like Groupon, and each time a retail customer responds, it gets a bit of the action.
  3. Be like Amazon’s marketplace But banks will need to go further and become a marketplace, selling competitors’ products too. Amazon does this brilliantly, offering its own products as well as other companies’ versions, which might even be cheaper. It’s about selling more products and taking a cut.

Banks will have to do this to survive. The disrupters are already taking market share and by making them a revenue stream they will no longer be a threat – it turns competitors into partners.

Success will depend on being timely and relevant, having high levels of customer service and delivering exactly what the customer wants. The process and delivery must also be transparent.

This is the future for general banking, and already we are seeing it in wealth management. YourWealth, for example, offers masses of tools and content for its customers and aggregates rivals’ offerings on its site.

There will come a point when banks that aren’t doing this will get left behind. The next generation of customers will be switchers with no bank loyalty. They will change accounts according to offer, need, price and service.

Costs lowered

  1. Go direct The more a bank goes directly to the customer, the fewer buildings and people it needs, reducing a huge cost burden. The mobile revolution is already having a massive impact, with banks closing thousands of branches and having far fewer people per square foot.HSBC is cutting 50,000 jobs as it shifts services online and into self-service channels, expecting to save $5bn a year by 2017. JP Morgan is closing 300 branches by the end of 2016 as a direct result of the increasing popularity of its mobile banking app. It revealed that seven years ago 90% of consumer deposits were made via a branch teller. Last year, that had dropped to 42%, with 48% made via an ATM and 10% via the mobile service. The result is a 50% cut in cost per deposit and that’s from just a mobile app.

    The next step is automated, full-service kiosks, which are already appearing in branches, and it won’t be long before we see them in service and railway stations, airports and shopping centres – the bank is coming to the customer.

    Taking this mobile service a little further, Idea Bank in Poland is sending a car to the customer to collect cheques or cash for deposit, which it then takes back to the bank. One day that car service will be driverless.

    We’ll have robots in branches soon too. Santander had an innovative trial back in 2010, but this year the Japanese Bank of Tokyo-Mitsubishi put a small humanoid robot into an Osaka branch. Called Nao, the robot can explain in four languages how to open an account. When it is not banking, the robot dances to entertain customers.

  2. Cloud Banks still largely have bespoke core IT systems, of which they have to own two, one for disaster recovery. These are expensive, finite and reaching the very limits of their abilities. Switching to the cloud offers limitless resource to run far more powerful software, opening the door to new ways to sell. It’s cheaper, too, so banks can get a more efficient platform and cut their cost base.The disrupters are already in the cloud, traditional banks must follow.
  3. Data mining Leveraging data will help banks to sell better, but it will also help them to cut fraud. Fraud is hugely expensive, costing banks billions every year. Indeed, in 2010, the UK financial services sector alone recorded £3.6bn in fraudulent losses.

We’re not saying that fraud can be eliminated, but by analysing patterns banks can dramatically reduce these losses and they can almost entirely end swindles and scams by introducing a program that looks for patterns and raises an alarm. For example, a common credit card scam is to apply for multiple credit cards, rack up the spending, and disappear. If banks marry the data on applications to household addresses, they can set an early warning system.

The technology is already available, most of it is bolt-on and modular and the benefits are clear. Digital brings consistency, it brings opportunity, and it brings down costs.

It’s up to banks to disrupt the disruptors

March 10, 2015

Being ‘omnipresent’ and making the most of different channels means banks can yet fend off Amazon and Apple in financial services

 There’s a pervasive fear that a number of new “disruptors” are going to Balkanise the financial services market in coming years, eating into banks’ traditional revenue and profit sources.

The second annual survey of retail banks, released 10th March 2015, conducted by The Economist Intelligence Unit (EIU), on behalf of Temenos, might reinforce that sentiment. It found that 35% of the 200-plus senior bankers surveyed thought new entrants and competitors would have a major effect on the market in the next five years. That figure rose to 52% in North America.

Over one third believed that the biggest threat would come from tech and e-commerce giants like Apple and Amazon. They are disruptors by nature and experts at exploiting customer data and extracting additional retail dollars.

The newcomers, with deep pockets and the best IT platforms and skills, will certainly want to nibble at certain profitable dishes. But banks should be confident that they can remain at the head of the table if they respond in a smart and measured way, making the most of their inherent strength in data and forging new strategies for different channels.

The survey forecasts that the disruptors will grab market share from current accounts (24%), deposits (14%) and savings lines (25%). Electronic wallets and foreign exchange and remittances are merely the start. Of course, we’ve already seen that happening with Amazon Payments, Apple Pay, Google Wallet, PayPal, Samsung Wallet and so on.

The advantage for the likes of Apple is that their customer data is already refined, meaning they know client preferences and can target relevant offers. Most Apple users have long abandoned fears of surrendering data in exchange for convenient service and quality products.

Facebook is also well placed to take advantage of its huge potential customer base, already corralled inside its ecosystem and likely to stay there for the free services that are put to daily use.

The disruptors might next consider targeting the “underbanked” market. This refers broadly to those digitally savvy consumers who have less trust of traditional financial institutions and a view of banking that differs greatly from their predecessors. They are young now, but will be tomorrow’s financial decision makers.

Already, the “underbanked” conduct some of their financial transactions outside the mainstream banking system. According to one KPMG study from a few years back the “underserved” segment represented more than 88 million individuals and nearly $1.3 trillion in wages in the United States.

It’s important though not to overstate the overall trend. We’ve seen a number of false dawns before, for example mobile banking was apparently poised to dominate the market around the turn of millennium.

To be clear, banks retain inherent strengths. Clearly, the tech newcomers don’t have the local networks, the spending and savings data, the Basel-compliant capital buffers or the regulatory structures to wholeheartedly enter the universe of universal banks.

And banks are still in a great position to respond digitally. In the US, about 90% of retail banking transactions now occur online or via mobile. Banks can easily get to know their customers better by mining this data.

To do that, they will need to become omni-present and place themselves where the consumer is online, while also developing channels, allowing them to track customers better and communicate with them in a timely and relevant way. The banks can leverage their data via personal financial management and create new data-driven services like digital passports, digital vaults and digital wallets.

The survey showed that some banks are starting to think this way. For example, BNP Paribas Fortis, KBC, ING and Belfius have set up Belgian Mobile Wallet, operating as Sixdots. Wells Fargo and Standard Bank have created their own labs to test new technology and apps. And the Spanish bank BBVA acquired the Big Data firm Madiva and the digital bank Simple.

Or take ICICI Bank in India, which has launched Pockets, an app-based digital wallet which, on installation, generates a virtual Visa card that can be used for payments with numerous online merchants. Pockets also offers the option of a physical card.

The next step would be for banks to better use the data, for example by deploying real-time, tailored marketing or guidance that offers the right product at the right time, whether that’s services, products or financial advice.

In the future there are likely to be two main types of banks: those that provide core banking transactions will compete on scale and cost and be happy for others to manage and own customer relationships; others will focus on customer relationships – they differentiate themselves via experience and intimacy with new uses of data and online channels, moving away from the previous model of interaction via branches and call centres.

2013 in review

December 31, 2013

The WordPress.com stats helper monkeys prepared a 2013 annual report for this blog.

Here’s an excerpt:

A San Francisco cable car holds 60 people. This blog was viewed about 2,000 times in 2013. If it were a cable car, it would take about 33 trips to carry that many people.

Click here to see the complete report.


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