I'll never login with Facebook to my bank!

We’re experiencing a massive shift in consumer behavior right now with the explosion of Facebook, Twitter, YouTube, and other community collaboration and social media platforms. A world where Facebook has 800 million inhabitants and a President who is a college dropout (albeit Harvard).

We’re seeing the global domination of mobile across the entire world, where before long every person on the planet will have a mobile phone – and soon that phone will be a wallet. Smartphone owners will be the majority in just a few years as smartphones are virtually free on contract, and unlimited data is bundled free. Already the average smartphone user spends more time using Apps than they do using an Internet browser on their computer.

The traditional players amongst us say that such things don’t really change the fundamentals, that “it will take time for people to trust these new mechanisms”.

I’ll never login with Facebook to my bank.

I won’t pay with my mobile phone unless I understand how secure it is. This NFC technology is too new and there’s no common standard.

Huh?

The same people who said this probably said…

I’ll never use email, there’s nothing like calling someone or a face-to-face discussion to solve a problem

I’ll never use an ATM machine, I don’t trust a machine to give me money.

I’ll never get a cell phone – I don’t want people to be able to call me whenever and wherever I am.

I will never put my credit card details on a website online – are you crazy?

I’ll never bank online. Not in my lifetime…

I’ll never need a Facebook account – it’s a waste of time, it’s just for college students.

Really?

If you are saying you won’t do something that millions of other people are already doing, that’s a sure sign that it’s going to disrupt the hell out of your business and you’re in trouble.

If you’re not planning to work differently, if you’re not thinking differently, then you’re just out of touch, you’re just one step away from irrelevance. You’re fighting the flow upstream and getting pushed towards disaster.

The one constant of the internet-enabled world is that you have to be ready to change constantly. Resistence is not only futile, it’s stupid and very costly in the long run. It’s cheap and easy to be social right now, same for mobile – it won’t be in the future.

Right now you have two choices.

Start experimenting with how to adapt to these new methods

Start figuring out what people want to talk about on social media. When they’re using their phones at a store, for searching on products, when they check-in, tweet or update their facebook status.

Start talking to them. Start sharing content that isn’t marketing messages pushed down their throat, but helps them.

Start trusting consumers to talk to you about your brand, your products and about what they want from their bank or services provider. Understand you can’t control the conversation, but you can and should participate in it.

Open up new products and services based on social media. Get consumers to give voice to their needs and help you form those ideas. OCBC, DBS, First Direct, ASB, Comm Bank are all trying different types of crowdsourcing to develop better relationships with their customer base.

OR… Ignore the obvious, get ready to be displaced

Our customers don’t feel safe using Facebook for login!

But some of them might… how long before most of them will? How do you meet your KYC requirements and keep customers safe when allowing them to do this? Are you going to wait till everyone else is doing it, or are you going to learn how to do it properly and securely now. Are you asking your compliance teams to find ways of figuring out how to do this stuff safely?

It will take years for the mobile wallet and NFC to take off!

Right now Google and Apple are eating your lunch and you don’t even know it. You are getting ready to write off the one device that is most critical for connections and context with your customers in the later part of this decade. Someone else is going to own your customers, and as banks we’re going to be paying the likes of Google to include our branded card in their wallet, or our products and services and messages on their platform.

We already have to ask permission from Google and Apple to give our customers our App.

Don’t want to change! You will…

The fact is most of the last two decades we’ve been facing constant change, and no one organization has been able to resist the shift because customers decide how and when you’ll engage with them.

Customers have already decided they want their mobile device to be their bank. They’ve already decided that they want to discuss your brand and your service capability in the open community of social media.

Now it’s time for you to decide that you want to stay relevant to your customers. Or ignore the obvious and go away.


Who's easier to save, a banker or a dictator?

Bankers often talk about the ‘trust’ consumers have in banking as a defining characteristic of why customers give banks their money instead of simply keeping it under a mattress. Some bankers might have difficulty understanding why customers of today seem perfectly happy to give money to the likes of PayPal, M-PESA, Lending Club or Zopa. The fact that I trust PayPal to send money on my behalf, in lieu of banks, might have been unthinkable just a few years ago. The concept of lending money through a social network would have seemed laughable too. Part of this is that we just don’t trust banks like we used to, and alternatives seem far less risky comparatively.

Reputational risk is surfacing in the sector as a whole today through social movements like “Occupy Wall Street”, “Bank Transfer Day” and other actions led by frustrated consumer groups and collectives. As an industry, we’re not organizing a structured approach to this challenged perception of ‘banking’. Instead we’re often trying to defend the indefenisble, a system saddled by inertia that assumes we have far greater responsibility to our shareholders, than we do to the customers we are supposed to serve.

Not the Regulator’s problem

At the European Retail Banking Summit held in London on November 8th, 2011, I pitched to European regulators the issue of Social Media, the Occupy Movement and what their position was towards the increased transparency that retail banks were facing. Martin Merlin (Head of Financial Services Policy and Relations with the Council, European Commission) and Philip Reading (Director, Financial Markets Stability and Bank Inspections, Oesterreichische Nationalbank) were at a loss to understand the role of regulators in defining a coordinated industry response. Martin’s response was telling:

“It’s simply not on our radar yet as regulators”
Martin Merlin, Head of Financial Services Policy, European Commission

Customers finding their voice

The new voice of the populace is demonstrated with no greater effect than through the so-called “Arab Spring” across the MENA region. If Twitter, YouTube and Facebook can overturn regimes in Egypt, Tunisia and Libya, I’m pretty sure they can totally undermine the brand of a bank that we’ve previously thought was “Too Big To Fail”.

To add credibility to that notion, in just months we have seen the Occupy Movement develop into a global protest against the economic and social inequality promoted by the current “system”. Consumers today have found their voice. Increasingly that voice is about choice, about rewarding organizations that listen and punishing those that think their decisions are immune from public debate or dialogue.

Prior to social media, the thought of rapid political change in a country like Egypt would have been considered extremely unlikely, a real outlier. Is there a measurable effect of this voice of the consumer on retail financial institutions today? Absolutely.

In January 2011, Bank of America’s (BofA) post financial crisis share price had recovered to $15.31 at its peak. As of this blog post, BofA’s stock is ranging at $5-5.50. This is instructive. Stocks with a historical Beta (β) of 1 are generally tracking flat for the year. So why has BofA lost more than 50% of its value in the last 12 months, compared with a market and contemporaries that have remained flat over the same period?

Bank of America’s share price is at a 2-year low

Overlaying stock trading volumes and pricing, against average and cumulative sentiment (via social media analysis) shows that public displeasure with the company direction and engagement has been a core driver in BofA’s troubles. What is clear is that BofA would not have considered consumer sentiment a significant driver in their share price in the past. They simply could not have run their retail bank badly enough to result in this type of dip in the past unless there was some sort of significant and very public scandal resulting in massive losses. The market is obviously now pricing in concern about the long-term viability of a brand that doesn’t have affinity with the consumers it serves.

A great infographic from EvoApp showing the correlation between sentiment and share price for BofA

What to do next?

Understanding consumer sentiment, and actively managing the brand in this open dialog is going to be a key skill in the near term. This is not about ‘spin’ or control, because as Egypt and the Occupy Movement has shown, you can’t control these forces.

Instead what will be critical is the capability to respond visibly to the markets concern, to improve sentiment. In BofA’s case, the leveraging new Debit Card fees, claiming BofA had a “right to make a profit” and then dropping the planned fees – is no way to demonstrate strategic understanding of consumer sentiment in the social age.

We need a lens on sentiment that drives strategy. This requires a very different board room and executive feedback loop that simply does not exist today.


Changing your banking instinct

Without thinking consciously about it, over time core behaviors change producing different instinctive reactions. When a phone rings today, we go to our pocket or purse, not running to a device on a desk or on the wall. When we are interacting with a mobile phone that is not our own or an ATM machine, we’ll instinctively touch the screen to navigate, even if it is not a touch screen device. When you go from reading on a Kindle or iPad to a real book, the pages are frustratingly manual to turn. When we need to take a photo with friends, increasingly we reach for our phone, even if we have a camera stuck somewhere in our bag.

What was our instinct in banking?

The earliest instincts around banking was a safe place to store your assets, and in many ways that is still the case. However, banking in its infancy didn’t necessarily involve a bank or money at all. The earliest forms of banking involved the deposit of commodities or valuables that were traded, and often they were deposited in temples or palaces, the safest physical locations. It wasn’t until the 16th and 17th centuries that organized banking started to emerge globally, particularly as the wealthy tried to keep their assets safe during the dark ages. Even then, banking was still exclusive. It really wasn’t until the 20th century that banking became more mainstream and people started considering storing their savings in a bank.

Since then banking has been an instinctive part of the lives of most people in the developed world.

It wasn’t long before it became instinctive to pull out our cheque book to pay for a large ticket item. Some would also use lay-away or lay-buy plans, but these largely disappeared over the last decade or so. Over time those instincts changed to use credit cards, and more recently debit cards at the point of sale.

In the past our instinct when we needed cash was to think about where the nearest branch was and figure out when we would need to go to withdraw cash. Over time that instinct changed to using an ATM machine, and we went from planning when we’d withdraw cash, to just picking the nearest ATM machine when the cash in our wallet was getting low.

In the past our instinct when paying a bill was to write a cheque and send it in the mail, or to go down to a post office or office of the utility company and pay the bill in person. Today, that instinct has changed to where we pay online in an instant.

It’s ironic that we think of banking as a slow and steady institution that doesn’t really change, but in reality the utility of our money means that our behavior in respect to banking has always been changing.

The future instincts of banking

So what will your instincts for banking be in the next decade?

Not a place you go, something you do…

Firstly, we won’t instinctively think of banking as a place you go. The concept that a branch is at the centre of our banking relationship has been central to retail banking for over 800 years. This is the primary instinctual shift that will occur in the next few years.

Instead of looking for a place to store your money, we’ll look for a trusted brand that is safe to store our money, but equally important will be a brand that offers strong utility and a seamless connection to the things we do with our money. A safe and trusted banking partner will be a bank that offers me access to my money and access to financial services when and where I need them. A bank that demands or prefers a physical interaction, will increasingly be avoided instinctively as too hard to work with, as irrelevant to my daily life, and as slow and unwieldy.

On rare occasions for the minority of us that have complex asset allocations, trust structures and so forth, we’ll look for a physical place to go where we aspire to get the high-touch service of a personal banker who recognizes our status as a special class of banking customer – but this will not be an overriding instinct day-to-day, it will be incidental to our general banking experience. The majority of the time, even for the high-net worth client, instinct will simply dictate a much more efficient engagement of the ‘bank’.

Move and Pay, Safely and Efficiently

When it comes to day-to-day interactions, the emphasis on the movement of our money will be speed and security. Inevitably in the short-term our instinct will be to pull out our phone at the point-of-sale to pay for goods and services. We’ll do this not only because it is much faster than using cash or a card, but because our money management will be articulated through this personal device – we’ll see our balance, what our monthly expenditure is, what upcoming expenses we have and be able to understand the context of this payment on our financial life in an instant. The same would have taken much more effort with cash, our cheque book or our card.

Your instinct for payments is changing again

Security of our cash will be also a primary reason for the shift to digital money. Increasingly we’ll look to the technology of encryption, geo-location tagging, biometrics and active identity management to secure the flow of our funds. We won’t trust a piece of plastic or a piece of paper that can be easily corrupted or stolen, and the technology of ‘hacking’ our cash from a secure device will require a level of expertise and high-performance computing that make it far less frequent than the compromise of traditional physical ‘payment’ artifacts.

At the point that it is simply no longer safe to do things with cash and plastic, our instincts will quickly change to keep our finances safe once again. Being able to see what has been happening with our money over time, will also drive us to increasing digital management of our money.

Core instincts are at the heart of the change in bank modality

First and foremost our instinct for banking is keeping our money safe, secondly is the need for the utility of our money. Neither of these core instincts will lend us to continue to support the physical elements of banking and payments that we’ve been used to in the last 100 years. We will measure ‘safety’ in the trust of a brand, not in the bricks and mortar of branches. We will measure ‘utility’ in the seamless access to our cash, and the availability of the bank in our life when and where we need it.

Our instincts are rapidly changing. We don’t store grain and gold in Temples or Palaces anymore. Already most of the world doesn’t use cheques anymore. If you’re heavily invested in branches and the physical, you don’t understand the core instinct that banking is.


Your online marketing and website don't work…

There’s generally a very poor understanding of the dynamics of the role of the website in retail financial services interactions today. There is an acceptance that ‘some’ customers use the web, when deciding on a new financial services relationship, but not of the critical nature of the web in that choice. Let me explain how things are different from a behavioral perspective.

The inertia assumptions

Historically the majority of acquisition in the financial services space was either from brand marketing and/or campaign activity that drove a potential customer to purchase or apply for a Retail FS product/service.  There is an assumption that the web, social media, mobile and other e-channels support that goal as marketing channels where we can extend the brand and campaign paradigm. That is, we can broadcast more messages, perhaps with a tighter demographic or psychographic focus, to an audience that is more diverse in their message consumption.

The problem is that the Internet has been responsible for a significant process shift in buying behavior, namely that the dynamics of buyer response has significantly flattened. In the past marketing stimuli was used to create first awareness, then interest that led to the buyer mentally listing your ‘brand’ on a sort of short-list of providers, and then finally based on further marketing stimuli (promotion, pricing, location, features) the consumer engages with your brand for your product or service. This approach to marketing is all based on the premise that consumer behavior is latent or responds to a marketing message over a defined period of time.

Now with digital interactions being what they are, a consumer can go straight from research to purchase or need to application instantly. So the ‘stimuli’ works differently today, it needs to be a ‘live’ interaction strategy, not a message strategy that waits for a latent response. The loser in this context is the traditional marketing campaign mechanism, because a campaign is a latent stimuli tool, not an interaction tool.

The new engagement model

So in this new world, buying behavior is very different. Assume a customer needs a retail financial services product like a mortgage, a new bank account, a credit card or a personal loan – what does he or she do?

The overwhelming behavior today is to think about how they will apply for that product or service, with the least fuss. They will probably be largely ambivalent to their choice of financial services provider, in that, the fact that they have a bank account with you does not automatically mean they’ll come to you for another product necessarily. What the majority of customers will do is start by looking at their options – and for that they use Google (or perhaps YouTube) as their starting point.

This research phase is critical, because it is the empowerment of the customer. Them matching your product to their needs set. What’s critical in this stage is not the features of the product generally, but the utility of the product. Take a mortgage – how quickly can they buy their house, how much do they need to pay each month and how quickly will they own their  home? They don’t start by asking what are the early pay out fees, what’s the rate, and can they change their payment terms or habits midstream.

The concept that this research needs to happen at ‘your bank’ is a holdover from our traditional branch approach to FI product sales. In fact, we build our Internet banking sites just like a branch – assuming that you’ll come, ask some questions and then apply for a product. Most of the time, we won’t let you apply for a product seamlessly through our Internet branch, and we’re aiming to push you to a ‘real’ branch. This is inertia talking and it is counter-intuitive based on behavior today.

The easiest thing to do is simply shift me straight from research to a buying action once I have you online, but the more complex that is, the more chance that I’ll simply leave your Internet branch and go looking online for a faster path to the solution. What won’t happen is that I’ll suddenly be inspired to walk into your branch and start talking to a person after reading your website.

What the new web looks like

The new web we need to build right now is a set of tools to empower customers and help them complete the buying task they are looking for as seamlessly and as frictionlessly as possible. In that environment, the rolling promotions and offers we see dominating many retail FI websites today will be largely gone, relegated to simple landing pages connected to those dying campaigns.

The new website will be rich in imagery and process workflow for the engagement process, heavily personalized around what I already know about you, either through cookies, login or something like your facebook connected profile.

Additionally, the new website will be built from the ground up to be browser agnostic. It will work on a tablet, on a mobile phone, on a laptop with a whole range of resolutions and screen sizes – seamlessly. You won’t build buttons that require a mouse click, you can use your finger. You won’t populate with lots of text or links, when big images or stories will accomplish the same stimuli to an engagement.

Apple’s website works as well on Tablet and Mobile, as it does online

Coming out of all of this will be a fundamental shift in marketing budgets and team structures. In just 3 years, 30% of your website visitors will be using a non-PC screen. Social media will represent 25% of your marketing budget driving brand advocacy and participation, and 50% will be on engagement and journeys, and the rest on a supporting framework of traditional media to build broader brand awareness.


Transparency, Broken Risk and the Loss of Physicality

Recently I’ve been discussing with bankers, economists, strategists and futurists the future of the banking industry. At a time when we’ve got the likes of the “Occupation of Wall St” (#OWS) through to discussions in various camps about the very survival of banking as we know it, a question you might ask is how did we get here so quickly? 10 years ago, discussing the collapse of the modern day banking system and widespread loss of trust in bankers, might have been ludicrous, unthinkable – but today it is happening.

The New Normal is inherently unstable
As bankers most of us would have preferred if things had just stayed the same as they were, or at least returned to the ‘good ole days’ once the dust from the global financial crisis had settled. Instead we’re faced with talk of a “New Normal”, of increased volatility and of sustained uncertainty. There’s now a growing concern that a Greek default will trigger a crisis in the Eurozone, which in turn will bring on a new ‘great depression’. It is not lost on the public at large that this is a financial crisis we probably didn’t need to have. It is a financial crisis that was bought on by the ultimate in speculative investment behavior, the creation of financial instruments designed to create wealth and trading momentum from underlying, sub-prime debt that really should never have been readjusted as collateralized ‘AAA’ rated securities. So here we are today with so called blue-chip or developed economies which have higher volatility and risk, than so-called emerging markets. Since when did China and Brazil become better bets than the US as investments?

The perfect storm for a financial system in crisis is not just the failure of the banking system to self-regulate, or the default of sovereign nations in respect to servicing their national debt. The perfect storm is driven by three primary mechanisms that aren’t normally discussed as macro-economic factors, but are critical as part of a discussion around reforming the banking industry. They are:

1. Increased Transparency and Visibility
2. The Reassessment of the role of Risk and Regulation, and
3. The Loss of Physicality

Adjusting to a Transparent World
The response to bailouts, banker bonuses, new rates and fees structures, and to the financial crisis itself is indicative of the fact that bankers can no longer just assume that the public at large will trust that banks know what they are doing. How has the industry at large responded to this increased transparency? At first with incredulity, then with a defense of the indefensible, and finally with begrudging acceptance.

There are still many banks today, for example, who not only prohibit the use of social media in the bank workplace, but refuse to engage with end consumers in any really useful way through social media. In a world where dictators can be overturned, where public opinion is expressed in mentions, tweets, likes and fan pages, and where consumers can be as loud and effective as your most expensive marketing initiative – how do you adjust?

Understanding that you now answer to the public and you need to defend your positions with openness, logic and fair value, Brian Moynihan’s defense of BofA’s recent fee hikes shows a lack of nuance in this new, socially transparent world:

“I have an inherent duty as a CEO of a publicly owned company to get a return for my shareholders,” Moynihan said in an interview with CNBC’s Larry Kudlow at the Washington Ideas Forum… Customers and shareholders will “understand what we’re doing,”… “Understand we have a right to make a profit.”
Brian Moynihan, CEO – Bank of America

As a bank you do have the right to make a profit, but customers now understand more acutely than at anytime in history that they have rights too. It’s not that customers don’t want to pay for banking, it’s not that they are unreasonable; it’s that they now demand value and they are assessing that value, and exposing your shortcomings when you don’t meet up to their expectations.

In this way, what we need to do as an industry is better understand our value in the system. Right now we have trouble articulating that because we’ve become too historically focused on ‘banking’ as the system, rather than banking as a financial service to those that have the right to pay and choose. The balance has tipped in favor of the voice of the consumer.

There are bigger Risks than Risk
I was in a conference in Oslo earlier in the year and talking about the need for retail banks to adjust to serving their customers better, no matter when or where they needed banking, and a banker in the audience defended the need for a strict, traditional approach to physical KYC (Know-Your-Customer) because banking is first and foremost about ‘managing risk’ – at least that’s what he said. With our almost myopic focus as an industry on risk management and risk mitigation, we’ve perhaps missed the biggest risk of all – the fact that we are putting so much of the risk workload back onto the customer and the front-end of the business, that we’re starting to become a problem.

I’ve talked at length previously about the huge amount of time the front-end staff and customers spend in an attempt to reduce the potential legal or regulatory enforcement risk. When I, as a customer, am spending 50%, 60% or perhaps 90% longer doing a simple task like opening an account or applying for a loan than I did 20 years ago – do I see that as progress, or do I feel it a burden? Do I see such moves as a reduction of risk, or do I merely see it as an increase in complexity? In such a risk adverse environment, the bank is no longer serving the customer, the customer is serving the bank – and the customer is increasingly getting intimidated by the thought of having to navigate this complexity before he can get to the actual product or service he wants.

If you look at the biggest consumer shifts in the last 15-20 years, the biggest shifts have been driven around change in process or distribution that makes life simpler and easier. Here’s a few examples:

  • Mobile phone versus Landline
  • Google Search versus Catalog
  • Online Trading/Travel versus Broker/Agent
  • Multi-touch screen versus stylus/keyboard
  • iPad/Tablet versus PC
  • Kindle/eBook versus Paperbook
  • Online News/Streams versus Newspaper
  • Email/SMS/Facebook versus Mail/Telephone

The threat here is complexity, and invariably as we try to manage risk, we’re actually making customer facing processes more complex. This is bucking the trend of almost every other core customer interaction we’re seeing today.

The Loss of Physicality
I recently posted on American Banker | BankThink about my views around branches, checks/cheques and all things physical in banking. I suggest you read that separately, but a key consideration or thought in that article is as follows:

“The bank is no longer a place you go. Banking has becoming something you do. It is now contextual, and measured in terms of utility – how easily someone can use bank products or services to accomplish a task like shopping, traveling or buying a car or a home. The more a bank insists on physicality, the more it risks becoming irrelevant to customers who no longer cherish the traditional processes and artifacts. In just four years, that will be the vast majority of your customer base – not a marginal demographic, as some would prefer to believe.”

Conclusions
In this environment, retail banking is ripe for disruption. Why? Because instead of understanding the shifts around us, we’re digging in – levying fees, increasing complexity, and arguing that customers are just going to have to suck it up. After all, where else are they going to go?

Increasingly customers have a choice. Whether it is pre-paid debit cards, mobile wallets, PayPal, or other challenges to day to day financial interactions, the concept that as a regulated industry we’re protected from having to make the hard decisions and actually reform the way we work, is foolhardy.

We need to start working very differently…


Steve Jobs 1955 – 2011

Steve Jobs, Apple co-founder and former CEO, has died at the age of 56.

Apple has posted this statement on its website:

Apple has lost a visionary and creative genius, and the world has lost an amazing human being. Those of us who have been fortunate enough to know and work with Steve have lost a dear friend and an inspiring mentor. Steve leaves behind a company that only he could have built, and his spirit will forever be the foundation of Apple.

If you would like to share your thoughts, memories, and condolences, please email


The Reboot of Banking – Now the work starts

As some of you may have heard, our team formally launched the Movenbank project at SIBOS yesterday. It’s an auspicious start, for a very ambitious project.

The buzz at SIBOS was stellar, with some major support coming from the Twiteratti, from the “InnoTRIBE” and the bloggers in our unique community. Having said that, I’m under no illusion that this was only the start and we’ve got some heavy lifting over the next few months before we launch our consumer service. I thought in the spirit of Innotribe’s theme this year I would talk briefly about what the launch means, and what we’re going to do. But more than that, I wanted to share with you the specific challenges we’ve had to fight to overcome and why I believe we very aptly classify this as a reboot of banking. I don’t want this to be an advertorial for Movenbank – I’d like to expand on what was discussed at SIBOS, and I think sharing our thinking and challenges is instructional if you really want to change the way your institution engages customers.

CRED™ and the Movenbank Ecosystem

We believe that generally the way banks work with customers is totally broken/screwed. How many customers want a more transparent relationship with their bank (and I don’t mean just fees and interest rates?) How many have had a request for credit turned down and scratched their head to understand why? How many wonder what those mystery fees are on their statement, or why they were even charged in the first place? How many have wanted to increase their credit limit on their card or get a loan, but simply didn’t know how? These are questions the average bank consumer asks all the time – let alone questions about complex products, or the dizzying array  of choices around asset class, rate, features, etc. The industry talks about ‘educating customers’ so that customers understand products. But we believe if you have to educate customers before they understand your product, you’ve already lost the opportunity.

In trying to find a way to better articulate the day-to-day relationship with customers we realized that lack of trust, the systemic resistance to transparency that has become apparent as a result of social media, etc, the tendency to leverage information scarcity as a revenue/margin tool, and the lack of flexibility in current risk assessment models – all needed to change if we were really going to do something new. Fortunately, the solution manifested itself in the form of CRED™.

In creating a behavioral, social, viral, gamified engagement system, what we were really trying to do was change the way our bank communicates with customers about their relationship, and the way we assess their value to us as an institution. It had to be something visible and easy to understand for consumers, but it had to have enough depth that it could not only accurately assess risk, but also enable us to satisfy the requirements of regulators. Sounds complex right?

Well it turns out that if we ask questions of customers gradually, allow them to transact, and tell us how they spend and save on a daily basis, we can build up not only a complete KYC/CIP profile, but we can also start to help customers manage behavior that is risky. The problem with current credit scoring models is that they only record a failure after it’s happened, but we realized we should be able to anticipate that failure by watching the way customers behave. Rather than being invasive, most of this was available based on the current aggregated data for a ‘banked’ customer. If the customer was unbanked, we were going to have to build it over time.

The final element is really the gamification. What I don’t want to do is give the impression that we’re making banking a ‘game’. We’re using the principles of gamification for engagement. We will have some of the standard bells and whistles like badges, rewards and incentives, but the real secret to understanding CRED gamification is understanding how we will deliver banking products and services. One simple trick – if you want someone to keep a positive balance in their savings account – then allowing them to see that balance or reminding them that a specific transaction or event will take them into negative territory, makes the spend a conscious decision. Is it gamification? It is when you ‘game’ the messaging, and make it frictionless or even fun. We’re playing with that messaging and engagement layer to influence your financial health positively. So maybe we should more accurately call CRED Engagementfication or Contextualization, rather than pure gamification. We’re all about positive persuasion, based on very clear and ethical permission sets.

Getting over the ‘hurdles’ for the new thing…

One of the real questions was should we or shouldn’t we start with our own license and charter, or do we go the BankSimple route and work with partner banks. In the end this decision was really taken out of our hands because there were no guarantees on either the outcome of the license/charter application process or the timing of such. Purely on a commercial basis, if we wanted to go to market, we couldn’t wait on the regulators to make the call. That’s not to say we might not acquire a bank in the future or build our own for purposes of scale.

So what about KYC (Know Your Customers)? It turns out that KYC requirements in most jurisdictions are not that exhaustive – it basically boils down to name, date of birth, physical address, unique identification (Passport, Social Security Number, TIN, etc) and verification of that identity. The rest of the ongoing KYC stuff is typically around transactional behavior (e.g. AML suspicious transaction reporting). The fact is, the workload of this stuff is not erroneous, nor does it require an absolute physical presence (at least the way we read the regs). In fact, we will have much more data on the behavioral side and on the customer’s profile than an average bank. For example, which bank do you know that requires you to have a Twitter or Facebook account and a mobile phone number before you can sign up? That’s much more useful than insisting on utility bills before you open an account in our opinion.

Lastly, on the product side, CRED™ will simplify much of this space as well. In most cases, customers will be engaging with Movenbank for a facility, whether it be a day to day transactional account, a savings ‘bucket’ for a specific goal, or a line of credit for those times you need a bit of extra cash. The utility of banking means that we believe as long as the rates are competitive, you don’t need to describe or understand the features of that product – you just want to use the ‘utility’ of the product. So CRED will be the interface to this, and we’ll turn on and off the utility of those products or services as required. Given we’ll already have all of the KYC up front with CRED as the engine of the relationship, you won’t need any application form, it will just be turning the facility on or off.

What’s next?

The Alpha Release of Movenbank’s site is scheduled for October the 1st, where customers will get their first glimpse of the CRED ecosystem through a financial personality profile. Then we’ll be ramping up for a staged commercial release next year – with broad availability schedule for the summer of 2012 (summer in the Northern Hemisphere that is).

CRED will launch initially with a financial personality profiling tool

It’s an exciting time. We’d love your feedback and love to have you along for the ride.

Rebooting banking will require your participation as well. Thanks for your support and encouragement.


When a Telco becomes a better bank…

The announcement that the Canadian carrier Rogers Telecom has applied for a banking license should hardly come as a shock to the retail banking fraternity. There is already a plethera of mobile carriers fully engaged in mobile payments right now, from Safaricom in Kenya, Orange (with Barclays) in the UK, the ISIS collaboration in the US, LG Telecom in South Korea, and the list goes on. Everywhere you look right now, there are carriers trying to muscle in on the mobile wallet and payments space.

Should Banks be Worried?

They should be terrified.

The fact is that it makes perfect sense for mobile operators to start thinking about offering banking products and services as we dispense with plastic and start using our mobile phones as payment devices. Increasingly, banks are being detached from the end consumer by a technology layer. Let me prove it.

PayPal reinvented the customer experience layer around payments, and in doing so set the benchmark by which Peer-to-Peer payments are made. Sure there are banks at the back-end of PayPal, but today I can take out my phone or get online and send you money and all I need to know is your email address or your mobile phone number. This is compared with the average wire transfer which requires account number, account name, bank name, bank address, SWIFT Code/ABA Routing Number or IBAN, etc, etc. Now we’re all wondering why it’s simpler, and in many cases cheaper, to use PayPal than a wire transfer through our traditional bank. Why go back to complexity and friction?

Today, if a bank wants to allow their customers access to Mobile Banking they have to go through a layer of technology called an App Store (or Marketplace). Sure, there is HTML5 and mini-browser mobile sites, but the fact is that if you want best-in-class interaction and engagement, you need to go App. So today, a bank must ask Google, Apple or RIM for permission to have clients access their bank via a smartphone.

Mobile Carriers are a significant threat to day-to-day banking

Are Telcos a Threat to the High Street Bank?

Well, yes and no.

If you look at broader offerings of financial service products, then mobile operators really don’t want to play in that arena. What most of the mobile operators are looking to do is play in the payments space, taking control of the wallet on your phone or offering pre-paid debit card type services.

In 2008 about 17% of the US mobile subscriber base were on prepaid deals, but since the GFC (Global Financial Crisis) approximately 65% of net new subscribers are prepaid users. In emerging markets like India and China 90%+ of the subscriber base is prepaid, and the same counts for sub-Saharan Africa, and broadly across Eastern Europe and Asia. So what does this have to do with banking?

Prepaid subscribers for mobile phones generally speaking are more likely to be at the lower end of the scale for retail banking (less profitable, underbanked) or even in the unbanked segments. These are customers who don’t have extensive multi-bank relationships, and who increasingly are moving to products like prepaid debit cards to facilitate their day-to-day banking needs.

So guess what happens when you combine a prepaid debit card with a prepaid mobile phone? It’s a marriage made in heaven! What’s the difference between making a telephone call, an ATM withdrawal or a debit card transaction at a merchant – they are all just transactions from a value store.

It’s likely that as Telcos figure this ‘secret’ out that they will be aggressively going after that marginal layer of customers that are underbanked, and promising utility that a bank can’t provide in the payments space. The combination of prepaid phone deal with a prepaid debit card will likely result in the loss of around 10% of the retail banking consumer market in developed economies in the next 5 years in my opinion, as they migrate to this type of modality.

So What? We can Afford to Lose a Few Marginal Customers!

This will be the justification for lack of action from many retail banks; that the loss of these less profitable customers is not a bad thing. There’s two problems with that logic.

Firstly, this shift will create momentum behind changing payments behavior that will fragment day-to-day banking for many customers. Increasingly even your best, most profitable customers will be abandoning the old ways of payments to go for the utility of a combined mobile phone and payment device. Once I am managing your day-to-day spending activity, I can start to influence your decisions, spending and choices for more complex financial products too.

Secondly, the fact is that even these ‘marginal customers will likely be extremely profitable for Telcos, because to them it is just new revenue, and they don’t have all the expensive infrastructure that banks have around the very traditional (some would say antiquated) retail banking system.

The implications for banks is that they lose touch day-to-day with customers, and the day-to-day retail front-end of banking becomes owned by telcos, App stores, social networks and marketing organizations. The bank becomes the back-end manager of risk and the product manufacturer, with the lowest margin of the whole value chain.


Will the US be the last to go cashless?

Although it is a long-time off yet, we can now envisage a time when most of the developed world, and indeed most of the developing world will no longer deal in hard currency. There are a number of drivers for this:

1. Impact of mobile payments
2. Tighter money laundering requirements, and
3. Cost of physical handling versus electronic transactions

Since the mid-20th century many have heralded the impending cashless society, but it may be that the emergence of mobile payments is the final tipping point in that outcome. Indeed, empirical evidence is already available that cash is in serious, if not terminal decline.

Strong incentives

For years regulators and governments have worked to track the movement of physical currency across border, and in the case of terrorist financing and criminal activities. The Financial Action Task Force developed 40 core recommendations in 1990 (revised in 1996) designed to reduce the risk of money laundering, but the greater part of the effort was focused on the movement of hard currency and it’s role in criminal undertakings. The reason for this is that it is harder to track currency, and if it can move freely around the system, the criminals, terrorists and “evil doers” can support their activities without restraint.

The strongest case for the removal of cash is around criminal activities. David Warwick posted an excellent review of the issues around cash and it’s active involvement in crime in a recent post entitled “The Case Against Cash”. In it he cites the following facts:

“Now consider that low-level drug offenses comprise 80% of the rise in the federal prison population since 1985 (though those numbers have begun to go down in more recent years)…The vast majority of those illegal transactions are cash-based. Greenbacks are also the currency of choice for Mexican drug cartels, which funnel between $19 billion and $29 billion in profits out of the United States annually, according to the U.S. government.”
David Warwick, CBS Interactive Business Network, Aug 2011

 

The biggest costs and risks are in cash

In recent times in places like the Netherlands, the cashless society has already started to become a reality. In 2010, the Amsterdam City Government moved to create ‘cashless’ zones in the De Pijp and Nieuw-West (New West) districts as a result of rising crime rates. You can now only use Chip and Pin to pay in those locations. This has been successful enough that it is now being rolled out across other districts in Amsterdam.

In Ireland, Belgium, Netherlands and other locations, banks are increasingly going cashless to reduce costs and crime. In recent years banks like SNS Bank in Utrecht and  National Irish Bank, were two such European banks to commence the move to Cashless. Both cited the rising costs and risks of dealing with physical cash, and low volume of real ‘cash transactions’ in-branch, as a metric for justifying the move.

Emerging economies may be first

In the Philippines, Kenya, Somaliland, Nigeria, Senegal, India and other such locations, the success of mobile payments and remittances is starting to see a dramatic shift in the day-to-day operation of the economy. In Somaliland where there are no ATMS, and almost no banking infrastructure, mobile payments enabled by mobile operators, the hawalad and money changers, might mean this province could become one of the first cashless societies.

The key to moving away from cash, is reducing the reliance on cash day-to-day. RBA Governor Malcom Edy noted that cash use in Australia had declined from 40% down to 30% of traditional ‘retail’ payments. In the UK, cash usage is also in decline, with the UK Payments Council estimating that it will represent just 0.8% of retail payments by 2018 (this is down from 90% in 1999). In both cases, the use of Debit Cards has been cited as the contributing factor.

In Rural India, Sub-Saharan Africa and the Philippines mobile payments are booming

It’s all about behavioral shift in payments

The shift towards cashless requires reducing momentum in the ‘cash system’ by shifting to alternative modes of payment. The Debit Card has been an obvious ‘cash-killer’ in places like the UK and Australia, whereas mobile payments have had a much more rapid and profound effect on emerging economies. So with Peer-to-Peer (P2P) mobile and internet-based payments rapidly accelerating, and the move to NFC payments – the likelihood of ‘saving’ cash from terminal decline looks less and less likely. Check out PayPal’s P2P solution using NFC enabled Android phones for example.

In this regard, the EU with it’s strong support for debit cards, chip and PIN and increasing mobile enablement, and the emerging economies of Africa and Asia with both low friction against cash and the pressing need for financial inclusion, probably mean that the US, who is so strongly and emotively married to the ‘greenback’ and stuck with outmoded mag-stripe will likely be among the last to go largely cashless sometime in the next decade.

The momentum for these changes are building and it is a longer-term trend that will change the way we view banks and money in the very near future. The more friction you have, the more consumers will find workarounds. At the end of the day, a mobile or P2P payment will have far less friction than a cash payment.


What Steve Jobs did for Banking…

As the news of Steve Jobs’ resignation rocks the world today, it’s almost like we’re reading his obituary rather than the news that a Fortune 50 CEO has moved on. The impact of Steve’s resignation will be felt hard on Apple’s share price no doubt, and even potentially hit the very fragile US market at a time of uncertainty. Although Apple’s leader has had a question mark over his health for some time, the eventuality of the departure of such an iconic leader was always going to hurt.

When we look back at the amazing career of Jobs, the creation of Apple, his messianic return to Apple in 1997, the 200 patents filed under his name (although he has no formal engineering qualifications) and the meteoric rise of Apple Stock – from $7 a share in 2003 to around $400 today – we see the evidence of something amazing. But how has Steve Jobs influenced financial services, and how will his legacy continue to influence the sector?

The Graphical User Interface through to Multi-Touch

Although largely attributed to the team at Zerox PARC (Palo Alto Research Center), Apple was the first company to commercialize the Graphical User Interface. The GUI led to the modern computing interface, the creation of the mouse, and the concepts of human computer interaction and usability that are so widespread today. These are at the very core of our understanding of the way individuals interact with devices today.

For almost 10 years (1988-1997), Microsoft and Apple were locked in a legal battle over the apparent IP infringement of “Windows” in respect to the LISA and Apple Macintosh GUIs. Regardless of the eventual outcomes of this battle (which ended in a private settlment between MSFT and APPL in 97) the fact is Jobs’ team (that included much of the PARC team) were credited with the first mass market GUI implementation. Since then the GUI has been a basic element of our computing. The VT-220 green-screens of old have long ago disappeared, thankfully!

However, Apple totally upped the ante in 2007 with the introduction of multi-touch. Combined with Nintendo Wii launch in 2006, multi-touch saw the emergence of a range of direct input innovations. Microsoft followed soon after with Kinect, incorporating gesture based control. Multi-touch was the first incorporation of human control that was direct input, as opposed to a mouse and a keyboard. Even the Wii was an evolution of the input device – multi-touch eliminated an input device all together. This development has forever changed our expectations of device interaction.

Steve Jobs – Branch Killer, Innovator and Visionary (Photo Credit: Apple)

Of course, as banks we’re already massive deploying iPhone, iPad and Android Apps for mobile banking, but we’re also incorporating other direct input methods such as gesture recognition and biometrics into the experience. Recently bank branches have started deploying touch screens, media walls, Microsoft surface tables and even facial recognition in signage displays. Itau bank in Brazil has developed an ATM that uses gestures and 3D to control interactions. But the biggest change was not around input, but a shift in the value of the bank in our day to day life.

Detaching Banking from the Bank

This is not the sole legacy of Steve Jobs and the team at Apple, but when we look back on banking in 10-20 years time when branches have disappeared, we will attribute the destruction of the traditional value chain of banking to the death of the ‘store’. Not all stores are destroyed, of course, but where you have goods or services that can be easily digitized or where distribution does not absolutely require physicality, then the value chain is disrupted. The two big upsets in this evolution of the store were really Amazon’s destruction of the book store, and iTunes destruction of video and music stores.

iTunes was the more significant disruptor for banking, because the “App” has disrupted the retail financial services distribution platform by changing ownership of the customer experience. Today banks who want customers to have access to their banking through a mobile “App”, no longer have direct access to customers. Customers download the ‘bank’ from Apple or from Google, and banks need to meet the criteria of the ‘store’ before customers can get access to that functionality.

In the future the destruction of the physicality of banking from branches, cheques, cards and cash will all be attributed to the emergence of the iPhone. The smartphone with Apps, supported by an App store in the initial instance was the trigger for a whole evolution of interaction on-the-move. Then the mobile wallet and distributed, pervasive, engaged banking through a device that enables payments and connects customers with their bank everyday, will eliminate the need for “the bank”, but not banking products and services.

Gone, but not forgotten

When historians look back at the massive shift in banking and the rapid decline in branch activity, the death of cheques, plastic and cash – the inflection point will be the creation of the App Phone. This is perhaps Steve Jobs’ greatest legacy for banking today.

He has changed the way our customers behave, he’s changed the way we think, and the way we demand service. Thanks to Steve Jobs’ vision – banking of the future will be about banking embedded everyday into our life, a true utility, and no longer a place you go.

In the end when the dust settles, there will still be banks at the backend owning the wires, payments networks and carrying the risk, but they won’t own the customer. The customer will hardly notice banking embedded in their daily life as they go shopping with their phone, as they buy a new car or home, or as they travel overseas or send their kids off to college. It will just be a part of our everyday life, and my kids won’t even remember the days when you used to have to go to a building before you could do this stuff.


Thank you to our sponsors:

© 2019 Breaking Banks