Posts Tagged ‘digital banking’

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.

 

 

 

 

 

 

 

 

 

 

 

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.