Archive for the ‘digital channels’ Category

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 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!

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.

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.