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…


It's hard to change the world, but it is still changing…

My pals at BankSimple soft launched their debit cards internally for their staff this week, which is big news because it signifies the acceleration of the big shift in the BANK 2.0 landscape. Interestingly, though, this launch wasn’t easy, as the team at BankSimple articulated on their blog post of today.

The last many months have taught us greater patience. It is difficult to change an industry. But we’re leaning into it and can’t wait to show you what we’re building. Thank you for your patience.
Bank Simple Blog Post – May 20th, 2011

The BankSimple launch is significant for a number of reasons. First of all, when was the last time you heard of a new bank having 50,000 customers signed up or registered before the bank launched?? Secondly, the fact that BankSimple doesn’t have a banking license of their own, is no hindrance in offering better banking service today. Lastly, if you are going to change an industry, be prepared for some resistance.

Viral Banking – who’d have thunk?

Banks are notoriously hopeless when it comes to social media. However, Apple, Google, Mint, BankSimple, Square and others who are increasingly stepping on the toes of traditional banking players, are extremely adept at garnering customer support for their initiatives through viral marketing, social media and digital advocacy.

It is incredible that in an age where LinkedIn is worth $9Bn (40 times revenue), there are still some major bank players like RBS and HSBC that don’t have a Twitter account. I know the transition from a controlled media and brand messaging environment to a conversation sometimes dominated by customers, is a difficult leap, but it doesn’t mean you can’t live in this new social world.

I know there will be cynics out there that would say that RBS and HSBC probably hasn’t actually lost any revenue from not being on Twitter – personally I wouldn’t be sure about that. One thing I am sure of though, is that I can guarantee that they haven’t signed up 50,000 new customers as a result of digital presence on social media like BankSimple has.

This is the new way of acquisition. Be a part of the conversation, garner customer advocacy, simplify the engagement and enable relationships digitally. If you aren’t living in the viral, social, conversation space – be prepared to be marginalized as a service provider in the retail banking landscape.

The separation of the bank and the customer

I’ve previously talked a great deal about the customer experience gap and how banks are moving further and further apart from their customers due to lack of behavioral sensitivity and poor user experience, but this is more. BankSimple is working with a raft of back-end providers that hold a banking license and can offer an FDIC guarantee on the deposit, but that doesn’t mean that the holder of the deposit or the issuer of the credit product, actually owns the customer.

For years we’ve seen this in other industries where manufacturing of products and services is separate from the distribution network. The distribution network of the retail banking sector is under enormous pressure today. The BankSimple approach is the first of a massive shift away from traditional distribution channels where owning a branch network no longer means squat. Physical distribution network didn’t save Borders from collapse, nor did it save Blockbuster, Encyclopedia Brittanica, MGM or countless music stores.

In this shift away from physical to digital distribution, it is almost always new players that start to dominate. In the case of books – Amazon. In the case of music and video – Apple.

In banking, it is too distributed and widespread, along with too heavily regulated, for one single global player to dominate the new banking interface. But one thing is for certain. We are about to see a whole new layer of retail banking interface or customer experience that doesn’t need a banking license. If you think banking is “special”, then just keep thinking that while you slump into irrelevance.

The new bank is the customer experience bank.

Resistance is futile

The chaps at BankSimple have found out that trying to change the paradigm of retail banking takes cojones. It also takes patience.

There are a whole raft of embedded bankers who don’t want to see the world change. I liken this to the MPAA’s response to the whole bittorrent landscape, or the RIAA’s response to Napster. When the shift started to happen the traditional industry first denied it would ever happen, when it did start to happen they fought it with everything they had, and in the end they were screwed anyway.

The same thing will happen with banking. No matter how secure you think your relationship with the customer is today as a bank, the fact is if you can’t enable me to bank in a better way, then you are irrelevant. Someone else can put a new layer of customer experience over the top of your banking license and do it better, faster, cheaper and sexier than the traditional players.

At the end of the day physical cash, cheques, plastic cards, and branches are all elements of the banking system that are ripe for digitization. The longer you keep fooling yourself that this transition is going to take years, and the banking sector has plenty of time to adapt – the easier it will be for BankSimple and others to eat your lunch.


The Best–Practice Engagement Bank

Recently when I posted on reforming customer journeys in the banking space I got some push-back for using Apple as an example of best practice. Surely there are banks I could have used as an example of best practice??? Well… not really. There’s no bank, and believe me I’m looking everyday, that has the whole multi-channel customer experience locked down across the board. So I thought if we could Frankenstein a bank together from banks that are there and are getting certain aspects of the engagement right, it might actually be possible to construct a sort of best-practice bank. Even then, the reality is that there are gaps in what is best-practice because by looking at other industries we find better examples of specific channels than in the banking space.

I realize this is arbitrary and there are probably some other great examples out there. If so, feel free to add those in the comments and if I agree with you I’ll make the appropriate amendments or additions and attribute them to your Twitter ID. Here we go…

Best Branch Experience

What identifies a best-in-class branch experience? Well, the key here is not how sexy the branch looks but whether a branch redesign resulted in a net improvement in customer engagement and in resultant metrics – namely increase in acquisitions and in cross-sell or up-sell. Recently Citi relaunched their “Apple Store” concept branches in both Shanghai and New York, but there is no evidence that plastering tech around your square footage is an immediate guarantee of success. Creating retail spaces that are hi-tech meccas works for Apple because they sell tech, not banking products and services. So what is the goal of the banking space?

Currently there are two goals for branches, the first is to effectively serve transaction or task-focused customers as rapidly and cost-effectively as possible, and the second is to engage the customer around their needs in a friendly and revenue-conducive manner. In respect to the first, it’s my belief that transactions in-branch are fast becoming problematic for most retail banks and the trend is toward strong sales and service over costly transaction handling. This is part of the reason for SNS in Utrect, Netherlands deciding in 2009 to remove cash from their branches, and why others are focusing on strong service centres.

Metro Bank in the UK unquestionably has a very high quality ‘store’ experience (they don’t call their retail points of presence branches), as evidenced by their Net Promoter Score which is higher than any other retail bank in the UK.

We use Net Promoter and currently we have a Net Promoter score of 87% which I believe is among the highest anywhere in the UK — and eight out of 10 of our new customers come as recommendations from existing customers — 97% of our customers rate our service as being exceptional. Anthony Thompson, Chairman and co-founder Metro Bank

Deutsche Bank with their Q110 branch in Berlin and Jyske Bank in Denmark, have taken the retail concept to its ultimate with advisors strolling the store and products bundled in packaging you take off the shelf. The point is that the best branches remove the barriers to engagement with customers, and are not transaction points, but conversation hubs. Some other notable designs are North Shore Credit Union in Vancouver and Che Banca in Italy.

The key here is that the retail space is opened up, barriers to conversations are removed, and a warm space is more inviting, more engaging. Transactions which are a cost to the bank, and are redundant for most customers, are relegated to automated cash and check deposit machines or to digital channels.

Best Online Banking Experience

This is a little tough. Firstly, I don’t believe that public websites and personal internet banking sites should be two separate entities, but the fact is that is the reality for most banks today is that their basic online banking experience hasn’t significantly changed in the last 10 years since the dot com. Awards given by EuroMoney, FT and others for the ‘Best Internet Bank’ or similar, are frankly laughable. Compared with the best online experience in other industries, banks are years behind.

Banks have to start thinking about the online channel as a dialog, as an engagement platform – not a transactional or functional platform. The most basic logic dictates that your secure Internet banking portal should be as much about engagement, service and sales, as it is about transactions. However, the level of complexity of selling and engagement behind the login as an industry is appalling.

So who’s the best? At the moment there’s only one bank I would put even close to living up to the promise of User Experience on this channel, which is Fidor in Germany, but even Fidor doesn’t have the sales experience and recommendation engine capability. Mint, Geezeo, Meniga and others are taking on the PFM battle, to transform the advisory space behind the login. Geezeo has recently launched a referral engine that will enable banks and credit unions to engage customers with smart engagement strategies within the secure internet banking space, but also extending this out to platforms like Facebook and Twitter.

In terms of banks…

It’s very quiet. There’s lots of talk about reinvigorating this space, but the only action on the horizon is our friends at BankSimple.

BankSimple doesn’t look like a traditional Internet Bank, because they understand context.

If you want best practice in online banking, there is not one bank that has this sorted. There is best practice in functionality, there’s some best practice in transactional platforms, bill payment and the like – but there is no bank that provides a model that represents best practice of where banking should be online today from an engagement perspective. Not one.

Mobile and ATM on Page 2…


Curse of the Innovator

Recently we’ve been discussing at many organizations what it takes to get innovation done in large businesses with embedded behavior and practices. One side of the coin is obviously the impact of Disruptive Technology, but the other is purely the issue of Innovation Management or creating an organization that embraces or assists innovation.

In a recent EPCA workshop I was conducting in Amsterdam, John Chaplin (Ixaris) related a session he had with a bunch of senior banking executives tackling the problem of creating innovation within large organizations. The bankers were asked what the issues with ‘innovators’ were. More often than not it was sighted that strong innovators clashed with the organization culture and so eventually they were fired because they were too good at their job.

In an organization where you can’t change the culture overnight because it is too embedded, it appears that your only option as an innovator is to soften your approach so it is acceptable, or push to the point where you have to walk away because the organization has got to its limit in respect to absorbing ‘innovations’. The problem is, that to survive the types of disruptive innovation we’re seeing, the organization has to adapt. So it really means that you need innovators, but they need to be powerful enough in the org chart that they can force the organization to steer a new course. If not, you get a Blockbuster or Borders moment. Organizations that were faced with disruption and couldn’t change, despite probably having some very innovative thinkers around.

The concern I have is that increasingly I’m seeing some of the most innovative people I know leave their organizations because their desire to implement change is being hit with the brick wall of inertia. This is a serious problem.

The Innovator’s Organization

There are two broad approaches to traditional organizations faced with disruptive innovations that is successful. Obviously we aren’t talking the “bury your head in the sand” approach.

Google uses the 20% time initiative, GE uses “time to think” to assist leaders in their change efforts, and others talk about the VC Approach. For those of you that follow my blog you’ll know I talked about Banks that are “Too big to Innovate” recently where I discussed some of these various approaches.

The two broad approaches, however, are to either try to build innovation into the organization DNA, or to circumvent the organization when innovation is required. There are problems with both approaches.

Changing the organization culture or DNA to become innovative is really hard. The larger the organization, the harder such innovation is because you first have to change the organization structure, the metrics, personnel, and attitudes to change before you can get constructive stuff done. There are some organizations that have achieved this, but usually through a very painful process where many executives who preferred the old world traditional approach have to be exorcised before change can take place.

The second approach creates a maverick structure outside of the broader organization chart, but allows the freedom to go get stuff done, that the broader organization would not be capable of executing on. This can produce some really innovative approaches. The problem with this is that absent the traditional organization structure, sometimes these initiatives take on a life of their own and spin out of control. Egg is a good example in the UK. Egg was very successful at rapidly growing customer support and innovating the customer experience, but they took too many risks on the lending side and were left exposed. This doesn’t mean Egg was a total failure – there are still many banks today that could learn from their customer experience approach. When these initiatives are successful, sometimes they outshine the existing organization and so can never be fully integrated back into the mainstream structure because they show up the weaknesses of the parent organization.

Sometimes Innovation success presents real challenges

Success can be a curse

In some ways then, the successful innovation as a spin off or project becomes a pariah, an illustration of why the larger organization is out of touch. Then those embedded in the current organization work very hard to justify why it would never work in the larger scheme of things. Why? Because if they didn’t take that approach the obvious question would be – well, why haven’t you done this before?

So I figure the only way is to build innovation teams that survive successful innovations is to seed these teams with members of the real organization, that split their time between both the innovation team and their real job. That way their enthusiasm spreads throughout the organization as they see real change being enacted.

The second essential component is to have someone at the top that is smart enough and powerful enough to call an innovation exactly what it is – positive change for the business at large. This individual then can use this to justify further experimentation and to force the organization at large to adopt the positive changes that the innovation has created. This individual can also make the call when the innovations engine of the organization is getting too far off track and drag it back into reality.

Get a sponsor at the top that can use the success to motivate real change, but get broad participation by seeding teams with skills from within the organization. Experiment often, and rapidly to see what innovations have the best chance of success at changing the broader customer experience and providing real future revenue opportunities in a ever more disruptive landscape.


Private Banking 2.0

Since the emergence of online banking there has been a fundamental assertion from high-net-worth bankers that their clients aren’t digitally focused, they don’t use social media or mobile banking, and that they prefer to pick up the phone and engage their banker because the nature of their interactions is defined by their wealth – they want the highest-level of service that only comes from engagement through a personal banker.

Is this business immune to disruption, despite the rest of the retail bank being in an extremely disruptive state? It’s apparent that Private Banks are now seeing customers move more frequently to multi-bank relationships because the basic digital hygiene factors within the Private Bank are not taken care of. For a Private Bank to claim that they are the best of the best, but to be amongst the worst digitally is contradictory.  So the depth of the relationship and scale of AuM (Assets under Management) are suffering because of lack of web, mobile and social capability, and Private Bankers are seeing a fragmentation of service offerings as a result of service perceptions.

If we look at High-Net-Worth-Individuals (HNWI), the facts are that they are extremely service conscious and generally loath inefficiencies. Entrepreneurs and successful business people in the HNWI category were the first to get Blackberry’s, the first to get wireless broadband modems so they could work on their laptop in the limo from the airport to the office or sitting in the Maybach running around town, amongst the first to get the cool new iPad or the latest gadget. So right now, clients of private banks are asking – why can I login and do this day-to-day stuff through HSBC, Barclays or BofA, but I can’t through my Private Bank?

So where does technology fit, and can it provide real value? Is there a way that technology can deepen relationships with clients, or does it mean that relationships are less sticky because they are doing more interactions with the brand electronically?

The digital relationship

Recently a well known ex F1 driver and commentator was spotted on Twitter asking his Private Bank, Coutts of London, whether they had a local branch in Miami. The Coutts team respond within just a few minutes of seeing that enquiry come past the Twitter account and letting the F1 driver know that his Banker would be on the phone to him in a jiffy. Such a response is not the norm.

When presented with this sort of scenario, many Private Bankers scratch their heads and ask why a distinguished client like an ex-F1 champion would use Twitter to talk to his Private Banker instead of a simple phone call? That’s not the point – you can choose to approach every single client and ask them why on earth they would want to use Twitter, or you can simply understand that an emerging channel like Twitter needs support.

As the next generation of Private Banking clients start to take over from their parents, the last thing you want is to be identified as that stodgy, old, out-of-date bank that my father used.

Stereotypes that Private Banking clients don’t do Digital are just wrong…

Maximizing the client interaction

Perhaps the biggest revolution is in the primary face-to-face asset allocation meeting with the client. Over time we have gradually increased complexity as a result of KYC and risk, for what used to be a simple chat between a client and his banker. Now we load up our client with forms, risk profile questionnaires, with brochures, technical data, etc. that doesn’t actually enhance the relationship – it just complicates it.

Soon we’ll be asking the client to do the risk profiling stuff at home online and we’ll verify this with the client face-to-face. We won’t ask the client to fill out the same compliance information on a paper form that we’ve already asked for 20 times before, because we’ll execute electronically using the data we already have stored.

When we sit with them in a planning session, we’ll use tablet based tools that allows us to show our clients what-if scenarios and adjusted asset allocations that work better for them, then we’ll give them a selection of product decisions which they can learn more about at home online or execute electronically from behind the login. Why?

The real revolution here is in simplicity of the interaction. By maximizing time with our client for discussing their needs, and shifting other activities to supporting channels, we improve service levels. Even the humble monthly statement will be digitized with interactive components explaining market movements, the client’s net position and short-term investment opportunities.

Social Scoring

In respect to client acquisition, the world of transparency through social media will increasingly start to impact banks in the coming 2-3 years. Brands and private bankers will be anonymously scored online as to their effectiveness. Just like dating services, social networks will be able to match bank’s relationship managers with clients based on their expertise, location, and their ranking amongst peers.

When we search for Private Banks on Google or YouTube, what results will we see? We won’t any longer see the most popular brands, but the most respected brands amongst our peer group based on your social score. Unless you have a strong connection digitally with your clients, your social score is going to hurt you on the acquisition side of the business. After all, Private Banking is first and foremost about trust in your advisor – if my friends don’t trust and recommend you, how can I trust you?

Conclusion

Once thought immune to the changes in multi-channel engagement, it turns out that perhaps the most important clients in the retail banking marketplace need to be highly connected, to provide the required service levels. For most private banks, this is an epiphany and hence, we’re seeing aggressive investment in this space today.

If you want to be the trusted advisor – it is clear you need to be connected and recommended. Engagement is no longer limited to a phone or face-to-face, the private banker must extend his reach to clients at every opportunity. A deeper relationship, depends on context and connection – not just a brand and asset management capability.


6 Things you Never Want to Hear Your Banker say…

Banking is changing forever. Organizations like Britannica, Blockbuster, Borders, and even Bank of America (hint: don’t start a business with ‘B’) all suffer from the same collective challenge. When your business is built around a specific distribution model, how can you adapt when that distribution model is no longer relevant?

The inertia behind existing processes and distribution systems is an almost impossible force to break. It takes real planning a foresight to be able to reform your business around these massively disruptive mechanisms, and in most cases it sees a complete sea change in respect to the dominant players. Who would have thought that one of the largest sellers of books in the world in 2011 would be Apple? This is not due to publishing or distribution capability, but a change in how books are read. It’s all about behavior.

In this context, when you hear stupid statements being made by bankers, it is because they are too embedded, too focused on the detail, and aren’t stepping back looking at the bigger picture of the behavioral shift.

Things bankers say that concern me…

# 1 – Branches are here to stay…

This is not actually the point. By arguing that branches are here to stay, you are essentially either trying to defend your existing business model, or you are discounting the value of other channels like mobile, the web and ATM.

Customers are simply looking for the most efficient way to do their banking, and they’re fiercely channel agnostic. When we evaluate potential branch locations, the primary consideration is convenience – if that location will generate the required traffic and custom to be profitable. At an average investment of US$1m plus, there is a fine art to ensuring a branch is able to generate real return. The only problem is, the branch is not the most convenient channel today. So when your primary metric for your physical network can’t be supported when measured against digital channels, you’ve got a problem. You need to start thinking differently. The branch is just one channel, not THE channel.

#2 – Checks (Cheques) will be here for a long time to come yet…

Really? Why? The data shows that in every developed economy where checks exist that they’re in rapid, permanent decline. It is just a matter of time. Some argue that we still might have 10-15 years before checks disappear in the US. The problem is, if this really is the case, then the US is even more screwed than we previously believed because not only are they behind the rest of the world in respect to payments, but they are resisting changes that promise efficiency gains, reduced costs and greater customer satisifaction.

In the UK this is how the Payments Council announced the closure of central cheque clearing in the UK.

“The Payments Council Board has agreed to set a target date of 31st October 2018 to close the central cheque clearing.  Cheque use is in long-term, terminal decline. The Payments Council was faced with the choice of either managing the decline to ensure that personal and business cheque users have alternatives easily available to them; or to stand back and let the decline take its course.”
UK Payments Council, Dec 2009

If you are in banking, rather than arguing checks are here to stay, you should be looking at alternatives and making the transition as orderly as possible, not being faced with a critical issue in the near-term. For example, why are we still issuing checking accounts when we start a new customer?

# 3 – NFC won’t get adopted for decades because the POS infrastructure isn’t there yet…

Apart from eliminating plastic, NFC has a bunch of other potential implications. Firstly, we’ll be able to integrate the retail experience a great deal more. For example, a customer will be able to use their phone to scan a product and get a real-time price, or see if there are competing offers from other retailers where he’s shopped before, and if his bank is prepared to offer a special low interest purchase plan or financing.

Individuals will be able to do seamless phone-to-phone transfers by just touching their phones together. This form of P2P will dramatically reduce the use of checks and cash just because it is so simple. Try selling me a checking account or a physical debit card when I can simply punch in how much I need to pay you into my phone and we touch phones. The behavior is the driver, and you won’t need POS infrastructure to do a bunch of this type of sexy NFC stuff.

What behavior will do though is raise expectations on the payment side very rapidly…

# 4 – I don’t get social media, where’s the ROI?

Wrong question. You might not get it, but billions of people are still using social media. The question is how should you be using it?

The issue with social media right now is not the ROI, but the hit you will likely take as a result of not being a part of the conversation. Right now today many of your customers are on social media talking about your brand, defining your brand image in a new way, and if you’re asking about ROI it means either you are looking at social media as purely a marketing channel or you can’t work out how to control the social media ecosystem. Both which show a core misunderstanding of the multi-modal nature of communications in the SM space.

The biggest risk to a FI today is reputational risk because you are not fully engaged with your customers in the social media space. Do you have a head of social media? You should do – and he needs to be a very senior resource.

#5 – Our customers don’t use mobile banking

I’m going to just say the obvious here. That’s probably because you don’t provide an App…

By 2015, the single most interacted channel for retail banking will be the mobile channel. Does your P&L reflect that reality? If you think you should wait until then to invest, then you’re in more trouble than we thought. I can use my phone as a boarding pass, but I can’t get my account balance or make payments because you don’t support it. My expectations of my phone in respect to utility is massive.

#6 – We have lots of time to get this right…don’t worry

If you aren’t worried, then don’t worry…you won’t have much to worry about in the very near future 🙂


SXSWi: Banking on Innovation

South-by-Southwest’s Interactive sessions in Austin, TX are a major creative and customer-focused experience. The amount of networking that is taking place, the amount of active innovation and discussion on taking it to the next level is awesome and mind blowing. There’s only one thing…

If there was a game on at SXSW to find 20 bankers (not geeks who work at banks) – It is highly doubtful that anyone could win that one.

There’s innovation discussions occurring around mobile, gaming, social media, user experience, geo location, but it appears SXSW only has 4 sessions that are connected with banking, which is indicative of the level of engagement. There are payments and retail engagement discussions, there are gaming and social discussions, there are startup and venture discussions, health and work discussions, but not so many on banking.

In our session today where we attempted to discuss innovation in the banking arena, we had spirited discussion around who are the innovators, but the reality is we didn’t get into really sexy innovations. We didn’t get into how mobile payments would change the world, the emergence of new digital currencies, virtual banking models that cross borders, distributed and pervasive banking content embedded into the retail experience, Infographics style PFMs transforming customer engagement, new banking models leveraging off the likes of P2P, social or community enablement, reinventing the credit score or improving financial inclusion through cheaper smartphone platforms. The reason we didn’t get into any of the really sexy stuff is that the problems of innovating the banking sector are much more fundamental today.

Some of the Twitter feedback based on the #BankInnovation hashtag from the session “Banks: Innovate or Die!” indicated frustration at not diving into more deeper matters of innovation.

One blog response from Oscar Llarena (aka @softwaremono) asked the question “Does Customer Service = Innovation?“. In many ways, this very question and the amount of time that was spent talking about customer behavior and the ability of banks to match customer expectations is very telling when it comes to what innovation is needed in the banking arena.

Organizational Inertia
One of the key issues and the reason expectations are low in the financial services space is that most banks don’t even classify these things as innovation. When you ask a die-hard banker about innovation you are more likely to hear about Collateralized Debt Obligations, Derivatives, Barbwire Hedge Contracts or Swaptions than technology integration or customer experience improvement. This is because fundamentally banking has really never had to rapidly innovate the basic model of engagement of customers; branches, cheques (checks), credit cards and other such mechanisms are innovations that occurred over the space of decades or centuries.

The other issue is that risk aversion, philosophical marriage to traditional distribution models and embedded metrics around products sold through branches, mean that organizationally the bank has to first start thinking about changing the way the performance of the business is measured, and structured, before serious innovation can take place. This will take time.

In the meantime the easiest way to create innovation (that goes against the grain of long-embedded business practices and performance structures) is to simply circumvent the traditional bank organization. It could be argued this is why UBank, Jibun Bank, First Direct and ING Direct have been so successful at doing banking better – because they didn’t have to solve the organizational problem first. However, when we see more fundamental business model innovations like P2P lending and new payments systems like M-PESA, these have circumvented banks all together.

Banks will eventually get their act into gear and either replicate alot of this stuff, or acquire it to get the innovations, but such an approach would be like Blockbuster putting up a website that looks like NetFlix. Unless you fundamentally redress the organizational reliance on a very traditional business model and structure, then it’s never quite going to work.

Why innovation has to start with the customer…
In retail banking or financial services, one of the reasons we get so hung up on just some simple elements around customer service, the user interface between the bank and the customer, transparency and the way a bank assesses the risk of an individual consumer is simply that these are the areas that are now so glaringly obvious that they need a more rapid solution. Why? Because they are the very areas where the gap between customer behavior and expectations is growing rapidly with the delivery capability of the average retail bank. Before you can really start with breakout innovation you need to be able to meet customer needs.

Can you do that if you are trying to convince customers to buy irrelevant products because they are higher margin, or if you are trying to force customers into a branch because you’ve got a substantial investment in real estate? No.

So is customer service innovative? Transforming the customer experience and engaging customers in new ways, is a massive leap forward in banking – it may not be sexy innovation, but it is transformational for a sector who thinks they make profits despite their customers.

Why SXSW still matters for banks
In this environment, there are massive opportunities for entrepreneurs and innovators to create bridges between the customer and the institution. This will be through start-ups, new apps or UIs, new user experience models, gaming, and all the sexy stuff that SXSW at large is discussing. But it likely won’t be through traditional banks (sorry @annaobrien). Why?

Probably because you will never see a traditional banker at SXSW because they don’t get the imperative for customer innovation. They send along the geeks, who they expect to build the apps and to maintain the social media presence, but those resources won’t be sitting in the boardrooms talking about new organizational structures, different performance metrics and how to transform the business wholesale.

In the end, the success of start-ups and innovators like SmartyPig, LendingClub, BankSimple and MovenBank will be initiatives that banks feel compelled to follow because customers feel affinity with these new brands. But don’t expect them to rush into it…

In the end customers will win and I guess that is all that matters.

Retail Banking Innovation Infographic

Is product innovation enough?


VIDEO: Opportunities in the Underbanked Space

With somewhere between 40-70m underbanked in the United States alone, there are significant opportunities to re-think where these individuals fit in the banking landscape.

Since the introduction of the Durbin amendment the likelihood of more of this segment entering the mainstream banking sphere is further reduced. How will mobile payments and pre-paid debit cards effect this growing segment?

Video Briefing – Opportunities in the Underbanked Space


Mobile Credit Card payments – there’s an App for that…

There’s a great deal of debate in the Financial Services community at the moment about the potential impact of NFC or Near-Field Communication technology within mobile phones and how it will effect the payments landscape. The financial services players are generally scratching their heads and although they admit that NFC phones like the iPhone 5, the Nexus S and others are interesting – they don’t see the need for rapid response. After all, the lack of POS (point-of-sale) infrastructure that supports NFC is in itself a reason why a sense of urgency is not necessary. There’s plenty of time to worry about that later. Right?

Wrong!

There’s an App for that…

In July of 2007 Apple launched the iPhone (what we call the iPhone 2G generally today). Since that time I’ve owned each successive generation of iPhone and I now also have an iPad. So what’s the big deal?

The most impressive thing about the iPhone is not necessarily multi-touch, retina display, ease of use, or core functionality, but is unquestionably the iTunes platform that brought us “Apps”. Prior to the launch of the iPhone, we’d never even heard of Apps, and yet today, just 4 years later, here are the stats on Apps:

  • 350,000 Apps for Apple and close to 200,000 for Android
  • 10Billion downloads for Apple, 2.5Billion for Android Marketplace
  • 15.1Bn in Apps Revenue expected for 2011
  • Daily downloads 22million per day – Apple
  • New app submissions/day – 587 (100 games/488 non-games)
  • No of Active publishers/developers – 72,000 on the US store
  • 160m iTunes account holders (that’s 160m credit cards on file)

So from it’s humble start iTunes was always more than just a place to come and download music or TV episodes, it became the core delivery platform for a whole new category of software and user experiences. At 10:26 AM GMT on Saturday, January 22, 2011, the 10 billionth app was downloaded from Apple App Store.

10 Billion Apps in 5 years is pretty impressive

Now, before iTunes, the iPhone and “Apps” there had still been software – both for PC screens and for phones. Prior to the so-called ‘JesusPhone’, there were Java “Apps”, games and so-forth you could buy and download for your phone, but these certainly didn’t become ubiquitous, primarily because the usability wasn’t good enough and there wasn’t a marketplace that distributed these Apps.

So here we are, just a few years later and there’s probably not a single person in the US, UK, Australia, Germany or France who doesn’t know what an “App” is. Worldwide mobile application store revenue is projected to triple to more than $15.1 billion this year and reach $58 billion in three years, according to Gartner Inc. That revenue was $0 in 2007.

And yet, there are bankers out there that still persist in the belief that mobile payments via your iPhone will take years to ‘take off’. In a debate on this via Twitter over the weekend one of the typical quotes was “I can see it, just not for some time…”

Why the App is a great paradigm for NFC

The dominant position from the card issuers and traditional too-big-to-fail banks is that there is already an existing point-of-sale infrastructure in place in the USA, for example, that will take years to replace with NFC or contactless capable terminals. This naturally limits the adoption of contactless payments technology because even though someone has a contactless credit card or a phone enabled with contactless technology, it still doesn’t mean that they can pay – if a merchant can’t accept their payment then it is essentially dead before it starts.

In our Twitter debate over the weekend Rich Clow (@richclow) from Citi came up with a strong analogy likening the existing POS infrastructure to the ‘rail network’ that opened up the frontier of the US in the 1800’s. Without the ‘rails’, without contactless point-of-sale terminals, how exactly will customers make payments using their NFC phones? What’s the good of having a locomotive unless you have rails you can put it on? It’s an excellent point.

Is the lack of 'rails'/POS infrastructure going to limit NFC payments adoption?

Except … prior to 2007 there were no rails for Apps. The App didn’t effectively exist, but that didn’t stop Apple from creating the rails and the locomotive as part of the iPhone ecosystem at the time of their launch. Right now today Apple and Google are working on alternative payment schemes that will circumvent the traditional visa/mastercard POS systems and networks to enable both P2P payments and commercial transactions with merchants and retailers via phones. There may be some hook into the traditional payment networks behind the scenes, but all you’ll need to pay is an NFC phone and wireless network access.

How quickly will payments from one phone to another become ubiquitous? Answer: How long did it take Apps to become ubiquitous?

Put it this way – those out there that think this will take another 3 to 5 years to honestly compete with plastic mag stripe or chip and pin POS terminals, need to change their terms of reference. Apple and Google won’t wait for the rails. They’re going to jump straight to supersonic transport and the banks will still be waiting around for the train to stop at their station. Meanwhile, we’ll be choosing new payment networks as the paradigm for the next generation of commerce interactions.

Goodbye checks, goodbye plastic! If you’re a banker or card issuer, the sonic boom is coming your way…


The digital relationship revolution

Everyday we’re making choices in the digital and physical worlds between one brand and another. Sometimes we choose a brand because they provide us with great service, but sometimes it’s simply because they provide adequate service and there isn’t really a better option. Mostly the choice of the interaction isn’t about great service at all; it’s about convenience. Generally speaking it’s not because of their products or their so-called services. It might be the way in which they connect me to certain products or services, but it isn’t generally what they produce.

Some days I’m incredulous at how some organizations manage to survive based on their apparent single-minded dedication to frustrating an efficient and productive service relationship. Other days, I’m amazed at myself for the ease with which I accept such maltreatment and why I don’t have the energy to turn around and leave. Often, it is because I don’t have a choice, there simply isn’t a better alternative. Sometimes it is because, defeated, I accept that my exiting investment in the relationship is sufficient a reason for why I should stay, knowing that I’m not going to generally fair much better elsewhere or I would need to incur costs to make a change.

Why most service businesses suck

Most service organizations might start off with good intentions, but over time they build processes that are designed to standardize or make the delivery of their services more efficient and cost effective. Somewhere in the process of defining the most efficient instance of a process, many organizations appear to forget why it is that they have a business in the first place, namely – the customers they serve.

The act of simply documenting a business process, scripting a flowchart or coding business objects, could in itself, be the very thing that destroys an organization’s ability to react to the needs of its customers. Granted, there must be order… but when the creation of order dehumanizes the participants, or kills off the ability to offer exceptional service, then in the end, the process itself is simply killing the opportunity. Over time, that process is burdened by more ‘rules’ or policies that not only disrupt service capability, but also reduce the cost effectiveness of the process too.

Sounds dramatic? Maybe I’ve been watching too many chick flicks lately. Maybe my inner self is crying out for something better. So here’s the thing…

Doesn’t the digital space itself do the very thing that I’m suggesting? Doesn’t an electronic interaction break the service opportunity into components of a database, an expert system, a user interface, a channel deployment, or a touch-point? So how is it that I, a glorious technophile and champion of all things digital, is suggesting that service requires humanization, heart and flexibility?

The digital connection

Well…it might just be feasible that what social media is really doing today is more than socializing the web. It might be possible that this drive towards great usability, human interaction design, multi-touch, augmented reality, geo-location and connectedness is actually creating a digital service platform that could revolutionize the ability of an organization to look after me as a customer.

Social media is about connections. I’m connected with my friends, my family, my business associates, my old school buddies, but I’m also potentially connected with those organizations I interact with day to day.

I’m using my “App” phone and my tablet to do my banking, check in on my flights, send messages to friends, play games (I call this downtime), watch a movie or read a book. My relationships in this space can be deep, emotional and powerful, such as when I see a picture of my kids on Facebook while I’m far away on a business trip. They can elicit a smile, such as when I see a funny status update, or even when I have a great, and really simple engagement with a service provider; like downloading a book on Kindle, starting to read it on my iPhone and the finding my place again later when I turn on my Galaxy Tab or iPad.

Building better relationships

The concept that you can’t build relationships in the digital space, that face-to-face or human interactions can consistently provide better service experiences, is simply an excuse not to expand your view of connections.

The digital landscape doesn’t destroy relationships, it doesn’t always replace physical either, but the multi-channel space can definitely enhance relationships between a brand and a customer.

Computers don't destroy relationships...people do

When I anticipate your needs before you do and I present you with a simple, targeted and compelling journey – that is great service. When I show you can trust me because I don’t inundate you with irrelevant marketing campaign messages to your phone or inbox, but when I have something to tell you it really hits the mark – that is building a relationship. When I don’t treat you like an idiot by trying to convince you will have a smile from ear to ear if you simply change banks, airlines, brand of shampoo or which mobile carrier you are using – I’m showing you I can be honest, rather than believing you are naïve.

The art of interactive relationships is about building great journeys in a world of transparency, a world of increasing demand for service and simplicity, and where you don’t get points for branding, you get points for the ability to connect and deliver.

We can talk about PFM, personalization, direct marketing, behavioral economics, usability, interaction design, and other such buzz words incessantly, but ask yourself this…

Are your customer facing processes defining your organization’s ability to have a relationship with the customer, or are your thinking of new ways to enable relationships with customers every day?

Don’t tell me I have to do it your way because that is your process. Don’t tell me you haven’t deployed an iPhone App or you aren’t on Social Media yet because you don’t know where the ROI is.

Meet me in the middle. Try to understand me, and try to deliver what I need, when and how I need it. If you do that honestly and transparently, I will trust you with my commerce.

If you don’t – your just another brand using just another channel to try to get my spend. That’s not a great start to a relationship.

Finally, I’d like to thank my sponsors for this blog – the US Bureau of Citizen and Immigration (sic) “Services”, TSA, HSBC, Qantas, American, British Airways and United Airlines, countless hotel chains, and customs officials of many countries for their inspiration…


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