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I had a revelation when being shown a presentation from one of the Personal Financial Management (PFM) solutions firms yesterday.
It was when we were talking about how consumers use PFM for peer comparison purposes. If you’re unfamiliar with such stuff, it’s the ability to see how you stack up against similar people to yourself, in terms of how you spend, save and live with money.
You might ask: what do people of my age typically spend their money on? and find that most of them are drinking vodka or something like that.
But you can do more complex analysis through PFM solutions, such as asking: someone earning my income, living in my area of London, with two kids and a dog, what sort of retirement planning profile do they have on average, and how does my investment in pensions compare?
Now you get the idea.
You can get into some really complex stuff.
And it’s all simply at a point and click.
This sort of user profiling sounds useful for the customer, but the revelation for me is that it even more powerful for the bank.
This is because your customers are sorting out all their transactions, signing up for budgeting and alerts and building their own demographic parameters but, as they do this, the bank can build really powerful marketing campaigns using the same date.
Send a campaign to all people earning this level of income in this area of London who have asked about pensions, a pension’s promotion offer next time they log on.
If you have any 25-34 year olds who have clicked on short term loans, give them an ad for a five-year term loan at 1% below usual rates next time they are online.
Identify all people with two kids in this income bracket and offer them a child protection bond …
You get the idea.
In fact, what’s really classy about this is that the bank doesn’t even have to drill big data to get this sort of campaign to work – the customer does all the work.
All the bank needs to do is to be intelligent enough to leverage the customer’s efforts.
I haven’t written much about social media lately. The reason is that it’s now mainstream and dull. When you're scanning future views, you’re not as bothered about Facebook and Twitter when everyone’s familiar with and using such services.
Facebook's pervasiveness is well illustrated by the Facebook IPO announcement, which gave a raft of good stats about how the service has matured as it enters its eighth year of existence:
Facebook has a total of 845 million monthly users and 483 million daily users.
Of its monthly users, half have used Facebook on their mobile.
The company has 3,200 employees.
Facebook is an advertising company. Of its total revenues of $3.7bn in 2011, 85% came from advertising. And that is down from 98% and 95% in the previous two years.
The company makes $1bn in pure profit.
Zynga, the games maker behind CityVille and FarmVille, single-handedly accounts for 12% of its revenues.
The majority of its money comes from the US, but the majority of the users are outside the country, and the majority of its non-US revenues comes from western Europe, Canada, and Australia.
The company generates 2.7 billion "likes" and 250 million uploaded photos everyday.
Eight years.
$100 billion IPO.
Not bad, Mr. Zuckerberg.
But what Zuckerberg has really done is more important.
It shows in Facebook’s mission statement: “Facebook was built to accomplish a social mission - to make the world more open and connected”.
Job done and, in so doing, it has unleashed the Power of One.
We saw the Power of One rise when MySpace launched the musical careers of folks like Lily Allen, Kate Nash, Sean Kingston and more.
The social network allowed artistes to attract interest without having to find major music moguls or clubs to perform.
The Power of One began in a world where the social aspects of the global network allow anyone to vote on anything, and make it mainstream if enough voters gather.
This is being proven again and again.
Recently, we have seen the Power of One through Tumblr.
In this month’s Wired Magazine, the front page article is all about David Karp who has created a $500 million empire through the blogging platform.
And the opening is all about a young chap called Chris Brown who created a photoblog “We are the 99%” on Tumblr.
The story speaks for itself:
On the evening of August 23, 2011, Chris, a New Yorker who wishes his surname to be withheld, created a Tumblr account. His aim was to raise awareness of the Occupy Wall Street march planned for September 17. The idea was simple: he asked users to submit a photograph of themselves holding a sign explaining their economic circumstances. He called the page We Are The 99 Per Cent, and promptly forgot about it.
Four days later, Chris returned to his flat, after spending time preparing meals for protesters, and checked the We Are The 99 Per Cent tumblelog. When he had left, there had been two photos in the inbox. "I thought, I'll have five or six more submissions," says Chris, now 29. "The inbox was overflowing. I spent that night reading through the submissions. By the time I was done, I had barely dented this thing."
One photo was from Priscilla Grim, a 36-year-old activist working on strategic communications for the Occupy Wall Street movement who has been "protesting one way or another for about 20 years". Grim noticed that, two weeks after submitting her image, the blog hadn't been updated, so she emailed Chris and offered to help to edit the blog: "It struck me that this was the perfect organising tool of today," she says. Together, they started posting the submissions. Some were short: "I served in the US Army. Served 16 months in Iraq. Now I deliver pizza. I am the 99%." Others were longer, from the jobless woman prevented from donating a kidney to her friend because she didn't have health insurance, to the 19-year-old single mother who said she went without food for days to buy formula milk for her four-month-old son. But they all kept the same format, with signs often obscuring the creators' faces. "We posted 100 photos before it went big," says Grim. The New York Times covered the blog. "After that, it went all over the place."
The blog became a meme and the meme went viral. As Wired went to press, 3,000 photos had been posted; the tumblelog receives more than 100 submissions a day. Protestors adopted "We Are The 99 Per Cent" as a slogan, writing it on signs and banners. "We're standing there with thousands of people screaming [the phrase]," Grim says.
Occupy Wall Street and many other social movements would just not exist in the same way without Facebook, Twitter, YouTube and the Power of One.
The real revolution of these networks is that they allow critical mass of new movements to be linked globally within days, as demonstrated by the We are the 99% story.
In banking, we see these changes occurring rapidly too.
Just look at Molly Katchpole, the young lady who posted a petition on change.org to get Bank of America to reverse policy and waive the $5 per month fees they were going to impose if people used their debit cards.
The fee was to recoup losses due to the implementation of the Durbin Agreement, part of the Dodd-Frank regulatory changes in the USA. This agreement wiped out profits from interchange on debit card transactions and many US banks decided to add a fee therefore, in order to recoup losses (note: Bank of America were not the only bank to do this, just the first to get the headlines).
The move proved so unpopular that Molly’s petition rapidly gained traction, was promoted by change.org and then was picked up by major national media like the New York Times.
When the online petition reached 300,000 votes, Bank of America reversed policy.
It resulted in the program being voted the biggest PR gaffe of 2011 by most marketing magazines and CEO Brian Moynihan admitting that it resulted in a surge of account closures.
Note the speed of this change however, in that Katchpole posted the petition with 100 signatures on 1st October …
It’s a bit like Zynga getting 100 million users of the CityVille game in just ONE MONTH, and is still the most popular game on the internet today with over 10 million daily players.
The Power of One is all illustrated by speed, global connectivity, leverage of the individual voice and the nature of the network.
There are many other examples of how the Power of One is impacting banks – such as the Wikileaks and Anonymous impact on PayPal, Visa and MasterCard via Twitter, and the UK Students who made HSBC reverse policy on fees after a Facebook protest - and they show that banks should be afraid of the Voice of the Customer today.
After all, the connectivity of the Power of One fuelled the Arab Spring through Facebook and Twitter.
Who would have thought that Gadaffi, Mubarak and others would have been deposed due to the fire of Mohammed Bouazizi, a Tunisian market stall holder and his note left on Facebook?
Be at least a little bit afraid.
Josef Ackermann, CEO of Deutsche Bank and head of the Institute of International Finance which represents the world's banks: “we have a social responsibility, because if this inequality increases in income distribution or wealth distribution we may have a social time bomb ticking and no-one wants to have that.”
I’ve written a few bits about Bitcoin but it still confuses folks, as was clear from the debate we had about it at the Financial Services Club the other night.
Donald Norman, co-founder of the Bitcoin Consultancy, presented the latest state of play in the currency ...
... and it led to one of the liveliest Q&A sessions we’ve had at the Financial Services Club for some time.
Let’s start with the basics of Bitcoin.
Bitcoin is a fully encrypted, digital currency which, when you have some, can be used globally as easily as cash. It has no central issuing authority and, if you trust it and can use it, means that you can trade anywhere, anytime with anyone, with no interference.
Described as the WikiLeaks of money by some, and as the most subversive development on the internet by others, it’s an interesting space to be involved in and to watch.
Bitcoin must be doing something to catch attention just by the amount of media coverage it gets.
For example, the fact that the tor-based drugs market Silk Road accepts Bitcoins has created plenty of media coverage, but most of this coverage is ignorant, incorrect and misguided.
This article was decent, in that it contained honest, factual information about Bitcoin and the Bitcoin network. However, I think its journalistic value and integrity is questionable when continuous links between Bitcoin, and the illicit anonymous marketplace, Silk Road, continue to exist and draw media attention.
The point of swalter718’s comment is that Bitcoin does not fuel crime, just as the internet does not fuel crime.
Crime exists wherever there is commerce and crime will exist in a cash form and in any form online that enables crime to be transacted.
But just because the internet enables links to drugs, gambling and pornography, doesn’t mean that you need to ban the internet.
In the same way, if Bitcoin allows criminals to trade in drugs, gambling and pornography, it doesn’t mean that you need to ban Bitcoin.
And you can’t anyway as, like Wikileaks, Bitcoin is a decentralised P2P service that exists globally through any Bitcoin user’s PC.
Tough.
Live with it.
So what exactly is Bitcoin?
Technically, it’s just an open-source payment tool.
Like BitTorrent - a peer-to-peer file sharing protocol – Bitcoin allows the peer-to-peer sharing of value securely globally.
Here’s a 100 second video primer if you want to understand the concept fully:
Simple.
The problem is that folks don’t like open source P2P services like BitTorrent and Wikileaks as it undermines traditional forms of commerce.
This is why services like Pirate Bay and Megaupload get shutdown, although it’s pretty much impossible to close down fully P2P services like Wikileaks or Freenet.
I could write more, and have already, but the point of writing this blog entry is not for me to debate the pro’s and con’s of Bitcoin but to cover our last Financial Services Club meeting on the subject.
As mentioned, Donald Norman who co-founded the Bitcoin Consultancy, presented the ideas behind Bitcoin for forty minutes. We then engaged in a further forty minute Q&A.
Here’s the recording of the evening, if you have time and interest to want to hear it.
Donald starts his presentation at 5 minutes 45 seconds into the video after an introduction of the Financial Services Club from yours truly (including laptop fail and move of microphone, hence first thirty seconds of Donald's speech has a few sound issues), and the Q&A starts at 37 minutes 45 seconds.
PwC conducted research with almost 3,000 banking customers from a range of segments across markets to discover their expectations of banking in the digital age.
They selected both emerging and developing markets including China, India, Mexico and the UAE, as well as developed markets like the UK, Canada, France and Poland.
The research revealed that there is a very high correlation between digital engagement and share of wallet for a customer, and that digitally active customers tended to have the largest product holdings.
They also found that if you are the primary financial relationship then this drives increased share of wallet leading to higher revenue generation.
That’s no shock is it?
What may be a shock are the results of the willingness of customers to pay for new and enhanced digital services.
Whilst banks argue about whether to expand, maintain or shrink their branch footprints, most customers – particularly those under the age of 50 – view mobile and internet channels as their primary bank relationship channel.
The survey then tested the willingness of customers to pay for that channel and found that the majority would be willing to pay from $3 to $15 a month for enhanced digital account services, such as notifications through social media, spending analysis tools, third-party offers and storing documents in a virtual vault.
At a time when banks are finding it difficult to sustain revenue and margin growth, the fact that customers appear prepared to pay for the perceived value of using digital services that offer new value to customers, is significant.
This is particularly important as consumers trust banks to keep their information secure when compared with other providers, and hence are more willing to pay a premium for banks to keep information secure over other industry providers, such as mobile carriers.
All in all, an interesting survey and worth a glance, particularly for those of us who believe banks have an opportunity to gain increased client wallet share by innovating digital channels.
What’s hot in tech in 2012 is a continuation of what’s hot in tech in 2011: cloud, smartphones, tablet PCs, contactless mobile and more.
Rather than just repeating all that again, let’s be more specific:
Contactless mobile will reach a tipping point in retail payments
Social media will become a core communications tool
PFM, combined with social media, is going to enjoy a boom year
Tablet PCs with financial apps will be pervasive and ubiquitous
Risk management will be a key area of software development
FPGAs and GUIs will be deployed across investment markets
“Data as an asset” will be the most common phrase used
The last item is the most important one, and the preceding items show why.
Contactless mobile will reach a tipping point in retail payments
I covered this yesterday and could repeat it again, but suggest you checkout yesterday’s entry if this is of interest to you (it is repeated at the end of this blog entry if you don’t want to click through).
Social media will become a core communications tool
There were a number of major PR gaffes during 2011, where banks were caught short over social media usage.
The biggest one was from Bank of America, who tried to introduce a charge of $5 a month to use debit cards.
Customers didn’t like it and one – Molly Katchpole, a 22-year old nanny – forced the bank to change its position purely by using Change.org to create a petition that garnered over 300,000 signatures.
This was voted one of the greatest PR blunders of 2011, although there were several others, such as Chase donating $4.6 million to the NYPD the day before Occupy Wall Street started; and Citibank getting caught beating customers to death in their branches in Indonesia.
These were some of the more shocking stories of 2011, and the only reason I know about them is via Twitter and Facebook, blogs and YouTube.
Social media has reached the level of naming and shaming firms in real-time.
It’s had this power for years, but now the customer knows how to leverage such technologies to achieve real change.
That’s what the year of the Protester has been all about – a world where a whisper can be heard as a wail, with word of mouse racketing up the roar.
Customers – both retail and commercial – now want banks to be honest and, if they screw up, to admit it fast and retract their mistake.
Banks will therefore work hard to use social media to create conversations and communication that is customer centric and transparent in 2012.
If they don’t, they risk alienating and losing business across the board.
PFM, combined with social media, is going to enjoy a boom year
PFM, or Personal Financial Management, has been discussed for a while in innovation meetings, but will enjoy its most successful year of implementation in 2012 as banks get the message.
I got the message when I visited Iceland last summer, but it has been an area that has been creeping up on us all.
This is because most bank internet access is old hat – just an online version of the old mainframe transaction systems.
PFM provides a far richer customer experience, moving the bank’s online services from being just a record of transactions to one that shows the customer’s lifestyle, with proactive budgeting and alerts, is a no-brainer.
Combine this with improving the use of social tools as a communications mechanism – linking PFM into Facebook, Twitter, YouTube and Banking Blogs – and we will see banks make significant moves in these areas this year (if they haven’t done so already).
Tablet PCs with financial apps will be pervasive and ubiquitous
Almost two years ago, I said that iPads will take over treasury ops. Everyone looked at me as though I was from another planet.
A year later, many banks have launched treasury based iPad apps for their clients.
For example, in November 2011 BNY Mellon launched the TreasuryEdge app designed to provide “timely information on the client's cash accounts, with information related to decision-making on cash flows, balance and investment levels; an activity feature that allows clients to report and take action on various payment activities; transaction tools that allow clients to create, verify or release intra-company transactions; and reporting tools that allow for the generation and delivery of basic TreasuryEdge reports to the mobile device”.
J.P. Morgan launched their cash management ACCESS mobile app around the same time.
“J.P. Morgan ACCESS Mobile features include the ability to view multicurrency cash balances, transaction details and alerts for J.P. Morgan ACCESS and third-party bank accounts in the United States, Mexico, Canada, Latin America, Europe, Africa and many Middle East locations; a one-of-a-kind Quick Decision feature. Clients can add anticipated transactions and set target balances – at the account level – for an instant projected cash position; customizable business critical alerts (for example, alerts notify clients when balances fall below a preferred level, or when a credit posts to the account, with links to supporting detail).”
As can be seen, apps and iPads have come a long way.
When these things are no longer toys for consumers but tools for business, it becomes seriously pervasive and ubiquitous.
That’s why, building on the simplicity of PFM for consumers and Treasury apps for corporate, the Tablet PC will be everywhere, mainly because Tablet PCs simplify everything.
You don’t have to think with an app – just touch and go.
Combine the simplicity of apps, tablet and smartphone with the ubiquity of contactless mobile communication 24*7, and you can see the bank of the future has arrived in 2012.
There are a few other key things occurring too though.
Risk management will be a key area of software development
During summer 2011, our annual European payments survey found that risk management is an area that is very underserved by technology and software solutions.
First, we asked whether the banks would know their future financial exposures in the case of another liquidity event.
73% are able to do this but only 39% of banks were able to do this with technology – 34% were using administrative processes to find their positions – and only 17% could do this in real-time.
More importantly, we asked whether a bank would know their unsettled transactions if a clearing and settlement disruption occurred. 91% would be able to do this but, of these, only 29% could do it in real-time.
Do banks know their exposures to specific individual counterparties intraday? Two out of five banks can do this through automation, but only one in five in real time.
And do banks know which assets are in play in a “liquidity event”, such as a Lehmans crash?
Only a third of banks (37%) could do this with technology.
That’s an area ripe for automation and support, and so risk management will be a key area of technology focus in 2012.
Interestingly, American Banker sees nine key trends in risk management developments:
Adoption of enterprisewide risk management software among smaller banks;
Adjustment of credit risk models for Procyclicality;
Looking beyond the credit bureau report to assess consumer creditworthiness;
The use of new methods of calculating product pricing based on risk;
Risk model validation;
Creation of keep-it-simple dashboards for bank board members;
Real-time and intraday risk monitoring, alerts and reports;
The bringing together of different risk systems, such as commercial loan risk and trading risk or fraud and anti-money-laundering; and
Bigger risk data sets leading to the use of performance- enhancing technologies such as in-memory computing.
FPGAs and GUIs will be deployed across investment markets
Towards the end of 2011, I gained some insights into the use of new hardware processing capabilities in the investment banking community, specifically the use of FPGAs – Field Programmable Gate Arrays – for Graphical User Interfaces (GUIs) to model risk and provide real-time analytics.
This is a big area of focus in the capital markets community, particularly as risk modelling is becoming so complex.
For example, Monte Carlo simulations involve fifty year or more scenarios with roll back, querying, resets and roll forward all built into the modelling.
That’s complex and involves massive amounts of data analytics, taking petabytes of data and churning through it in real-time using complex formulae.
Using FPGAs, banks are finding performance levels 30 times better than doing this through a CPU and 175 times better in efficiency terms.
That’s why this is a big deal in 2012 for the low latency, high frequency trading community.
“Data as an asset” will be the most common phrase used
And all of this comes full circle in the end, and back to data.
Banks are data businesses.
Everything they do is bits and bytes, networked in real-time.
Exabytes of data are churned every day, and data is a key raw material for a bank.
Again, it’s stuff I talk about all the time, but this year banks will really start to get into data as an asset if, for no other reason, the risks of data.
Data risk is illustrated for me by three articles that hit my desk as I came back to work this week.
First, a report by Forrester into the potential for personal identities to be compromised or leveraged as individual get to manage their digital footprints better.
He’s wrong, as every Bitcoin transaction is traceable throughout its lifetime usage. The shadow economy works on anonymous transfers and transactions, not auditable ones, but it’s an interesting idea.
The real point is that Bitcoin is interesting as an encrypted digital currency. It’s not like PayPal or Facebook Credits, as it has no centralised control authority, but all of these demonstrate that the new form of value is in data.
Data management, data security, data audit trails and data exchange as a form of value transfer is what 2012 is all about.
Finally, the Economist had a fascinating article on The War on Terabytes. Here’s the essence of the article:
America’s defence secretary, has suggested that a cyberattack on financial markets, the power grid and government systems could be “the next Pearl Harbour”. In a move that received surprisingly little attention, Barack Obama signed an unprecedented executive order in July declaring the infiltration of financial and commercial markets by transnational criminal groups to be a national emergency.
The article moves on to discuss Lehmans crash as a game of data.
A paper prepared for law-enforcement officials by a group of anonymous moneymen … analyses trading data from American exchanges. It shows that a handful of small and midsized regional brokers saw their market share in equities trading skyrocket in 2008 to the point where some were, for a while, doing more business than giants such as Goldman Sachs and JPMorgan Chase …
The bulk of the trading appears to have been “sponsored access” agreements, under which established brokers can in effect rent their identities to other traders so that the latter do not have to jump through the usual regulatory hoops … these trades were heavily concentrated in big, troubled stocks such as Citigroup and Wachovia, the survival of which was seen as critical to the stability of the financial system. They were mostly short-selling, the paper concludes, and a good deal of the shorting may have been of the illegal “naked” kind, where the short-seller does not bother to locate and borrow the shares first.
Supporting this conclusion is a huge spike in trades that failed to settle at the time—in Lehman’s case, the number shot from tens of thousands to tens of millions.
Nervous?
Sponsored access is not the only way that a determined assailant could create havoc. The “flash crash” of May 6th 2010, in which American equities spectacularly nosedived, showed the damage that can be done by high-speed algorithmic trading. It is much easier to drag markets down when they are already reeling, by the use of such things as short-selling, options and swaps, points out James Rickards of Tangent Capital, an expert on financial threats. This is what the military would call a “force multiplier”.
Worried?
You should be.
According to experts, flash crashes are commonplace and we’ve done well to avoid another massive one … but it’s likely to come.
I could talk about data issues and opportunities for ages, but the bottom-line is:
Banks are technology firms who provide financial management solutions.
Banks can take opportunity by combining the simplicity of apps, tablet PCs and smartphones, with the ubiquity of contactless mobile communication 24*7.
Banks biggest threats come from risk created by the mismanagement of data, and data is therefore the banks greatest asset and weakness.
In 2012, this is going to be the year banks focus radically on locking up these opportunities and risks, through investing wisely in technochange.
Make your own mind up about my predictions. Here's what I said would be the big ticket items for bank technologies looking out to 2011 a year ago:
More social media developments as firms like Foursquare, Groupon and Quora add functionalities not seen before;
More bank mobile apps, with clever structures and device-specific security;
The creation of new retail payments structures, as Apple and Google get into mobile payment wallets and PayPal and Facebook push credits to the extreme;
The maturing usage of internet and mobile television, along with video communications for dialogue on the move;
Cloud computing becoming acceptable as a service for financial applications;
Major investments in creating agile infrastructures and platforms to respond to regulatory requirements.
Finally, if you can't be bothered clicking through, here's a repeat of the contactless payments piece from yesterday as promised:
Contactless mobile will reach a tipping point in retail payments
Speaking of new business models, the one that most retailing banks will move towards is contactless mobile and contactless tablets.
The experience is highlighted well by various firms, but my favourite contactless illustration is from Discover Card and Square:
The reason why I use this one is that everyone assumes contactless = NFC chips. It doesn’t have to be. Contactless in my world, is any payment that is simple, automatic and wireless.
That’s what the Discover video shows.
However, NFC is a key part of most contactless plans, so it is also a key part of the process of evolution.
Contactless chips have been around for ages but, on their own, are relatively useless. We then put chips in cards, but these again are not great.
But put a contactless chip into a mobile and then we’re rocking.
That’s again illustrated well be Google.
The tap-and-go experience is good one, and one that provides major convenience for the customer – whether the customer is a corporate who wants to drive higher sales through their checkout points, or the consumer who wants speed, ease, convenience and value.
It can focus upon not just turning phones into higher volume purchasing points, but into point of sale points too, and all geolocated as contextualised point of focus.
That’s why Movenbank is launching in 2012, as the first cardless and cashless bank.
So, if the major conversation of 2010-11 was mobile, the focus in 2012-13 will be contactless mobile.
2012 set to be the tipping point for mainstream contactless adoption
77% of contactless owners across all three markets agreed or strongly agreed that contactless technology would ultimately become more commonplace than cash as a payment method (UK: 73%, Poland: 79%, Turkey: 79%)
87% also agreed that contactless will be instrumental in bringing mobile contactless payments to market in the near future (UK: 84%, Poland: 89%, Turkey: 89%)
And, just in case you want any further detail, checkout this infographic from NFC rumors:
I blog a lot about the disruptions of new technologies on bank structures, but only in the last few weeks had the chance to reflect upon what this means overall to a bank’s strategy.
A bank is a digital business, as mentioned so often before.
As a digital business, all banking can be broken down into pure bits and bytes but, more than that, a bank can be seen as three digital businesses in one.
It is a manufacturer of products; a processor of transactions; and a retailer of services.
In this context, the digitisation of banking becomes more interesting at a strategic level.
First, the products have been deconstructed.
Every bank product can be deconstituted into its lowest common denominator of components, and then reconstituted into new forms of use and structure.
This component based bank demands that every bank capability is put into a basic widget form, or object form if you prefer, and then offered to customers to put together as they see fit.
In other words, there are no integrated product sets any more, but just banking as apps that customers put together to suit their needs.
Bank products are just a bunch of apps, manufactured in such a way that customers can put them together to suit their lifestyle.
Moving onto processing, we build upon the app-based product view and begin to consider processes as open source code.
The open sourcing of digital processes is rife and has disrupted and changed everything from how operating systems operate, vis-à-vis Linux, to how Google develops its omnipotent reach.
Learning from such open source processing PayPal launched X, a developer based service for PayPal processes as APIs, Application Program Interfaces.
APIs allow anyone to pick up and drop PayPal into their systems and, like banking products as apps, allow PayPal to be reintegrated by third parties into any code and operation desired.
The result is that PayPal’s relevance increased massively overnight and led to Citi following a similar approach, when they announced that their transaction services would be offered as APIs at SIBOS this year.
In other words, all banks processing is just open sourced coding, offered to anyone to plug and play with their offerings through APIs.
Finally, the customer relationship has also changed.
The customer relationships used to be human, one-to-one. Then it became remote, one-to-many. Now it is digitised, one-to-one.
This is where Big Data comes into its own, as we are now trying to manage remote relationships leveraged through mass personalisation.
Mass personalisation can only be achieved by offering contextual servicing to each and every customer at their point of relevance.
This means analysing petabytes of customer data to identify, on a privacy and permissions basis, what contextual service the customer may need as they live their lives.
If they are walking past a car showroom, do you promote cheap motor insurance or a car purchase scheme?
If they are leaving the casino, do you offer a loan or a referral to an addiction clinic?
If they are leaving the maternity clinic, do you offer child investment services or a referral to an abortion clinic?
Some of these may seem controversial, but we are already seeing contextual offers through finance coming into play in the form of Google Wallet.
And the aim of such contextual offers is to track your digital footprint, using Big Data analysis, to gain intuitive service offers relevant to your point of living.
For example, as Google track your searches for Plasma TVs, you get an offer for £200 off the TV you spent the longest time studying online as you walk past the electronics showroom today.
But the offer is only good for an hour, and only as you are in proximity of that electronics showroom.
This is the new augmented reality of customer intimacy through Big Data analysis, and bank retailing will be based upon the competitive differentiation of analysing mass data to deliver mass personalisation.
In summary, the digitisation of banking is now mainstream, and all bank capabilities will be packaged as digital structures where products will be apps, processes will be APIs and retailing will be contextual, delivered through mobile internet at the point of relevance.
Meantime, what happens to the physical structures of banking, as the digitisation of everything takes over, will be the biggest challenge of all.
Another conference focused upon financial innovation today, and all the talk is about mobile stuff, Google Wallets, mobile stuff, Banksimple, mobile stuff and Movenbank.
I’m regularly stressing today that we must::
stop talking about mobile; and
talk about the point-of-life.
First, stop talking about mobile stuff.
The fixation with mobile is because it’s finally come of age, as has Personal Financial Management (PFM).
Now it’s come of age, all the banks and providers of services to banks are leaping into these two buckets head first and swimming deep in the water.
Give it five years and they’ll be swimming in the next water.
And that water is not mobile and PFM, but connectivity and SFM.
Connectivity
Connectivity is the realisation that it’s not mobile we should be focused upon, but the chip in the mobile that enables it to connect to the network. That chip is going to be in so many other devices in five years, that the consumer’s mobile wallet will no longer be relevant. What will be relevant is how the chip connects to other chips to transact.
The consumer’s chip may be in their mobile telephone, but may just as easily be in their wristwatch, earring or clothing. The consumer will choose how they wear their chip. It might even be embedded in a tooth.
The chip may enable telephone calls and communications, access to wireless electronic services and more, but will also be a fundamental transactor of commerce.
It will transact with chips in merchant stores; chips through QR and NFC; chips in walls, pavements and doors; chips in cars, caravans and casinos; chips in anything and everything in fact.
Some reckon there will be ten billion mobile connected devices in 2020.
I reckon there will be more than one hundred billion wirelessly connected devices in 2020.
And with everything as a connected transaction engine, banks will be looking to leverage wireless connectivity at the point-of-life of their customers rather than thinking about mobile as a channel or device.
This leads to the second fundamental around the point-of-life and SFM.
SFM is Social Financial Management
PFM is already out-of-date.
PFM talks about personal, as though it’s private, and yet everything has shifted to social, as in sharing.
Sharing financial information is not what consumers want, but they do want banks to be part of their lives rather than the bane of their lives.
What this really means is that banks must proactively leverage far more about their customer’s data to intimately understand their lifestyle preferences and shopping habits to become more relevant.
It means taking Big Data and mining it deeply to gain Big Ideas about customer needs and then proactively reaching out to the customer to gain Big Relationships.
Examples are already out there, such as the new video for Google Wallet that demonstrates coupon offers and spending integrated with payments and transactions.
What this is really showing is that Google will be analysing the data from the digital footprints of each individual to provide relevant offers at their point-of-life:
using geolocation allows you to locate where the individual is physically present;
using that location allows you to automate contextual offers proactively to the individual;
using data allows you to make sure the offers are both relevant and not in breach of permissions and privacy; and
using the combination of banking, retailing, searches and devices allows the operator to integrate spending and saving with shopping and living.
And that’s the point-of-life (not the meaning of life, another story).
It’s the point of where I’m living at that moment in time and being relevant to that point-of-life.
That’s what SFM will be all about, and that’s what banks will be focused upon in the next wave of implementing stuff.
Being relevant at the point-of-life through wireless contextual connected devices, rather than mobile and PFM.
Postnote
In August 2011, EFMA published a report after surveying 150 European banks with McKinsey on mobile banking.
Their findings are that banks believe mobile will fundamentally change retail banking within five years, and yet the majority have under ten employees working on mobile and have yet to make any change in their operations to exploit this capability. Although most have mobile web and apps under way, they have made no significant commitment to this service.
I mentioned I was in Iceland last week, and was interested to find out what the banks were thinking.
We only ever hear of Iceland’s woes and troubles, and so the ability to see first-hand what was happening to the banks was one that could not be ignored.
According to Wikipedia, there are only a few commercial banks left in Iceland: Arion Bank, Byr, MP Bank, NBI and Íslandsbanki, although their information is slightly wrong as they list Landsbanki as defunct whereas the bank is still running well, admittedly 81% owned by the government.
In fact, it’s very easy to get things wrong, as highlighted by Deena Stryker’s article to which I referred last week.
I also got my own sums muddled, as I thought Landsbanki was privately held still, but it’s not. It’s majority owned by the Icelandic government, unlike Íslandsbanki and Arion Bank who are 5% and 13% government owned respectively.
In other words, the Icelandic banking system is not dissimilar ot the UK or Ireland or others in the EU, where governments have had to subsidise their banks to avoid complete collapse.
Similarly, as outlined in the document that refuted Stryker’s article, Iceland is not bankrupt or dead. It is still severely challenged, but then aren’t we all?
So, to be accurate, Iceland’s external debt – as in the country, represented through the Central Bank – was equal to 57% of the GDP of Iceland in 2003 rising to 104% in 2009, according to World Bank statistics.
Iceland’s banks’ debts were much higher however, reaching nine times the level of Iceland’s GDP in 2007. The result was that, at the end of the second quarter of 2008, Iceland's external debt was 9.553 trillion Icelandic krónur (€50 billion), with over 80% held by the banking sector. This value compares with Iceland's 2007 Gross Domestic Product of 1.293 trillion krónur (€8.5 billion).
So Iceland’s banks were the issue, rather than the country of Iceland.
In fact, Iceland the country is still doing relatively ok it seems, compared to the PIIGS, although it is having to sell off some of its crown jewels to stay afloat.
What intrigued me during the visit were the banks themselves.
If you’re not aware of what happened in the crisis, you can find out over on Wikipedia, from which this brief summary is based:
On 29 September 2008, a plan was announced for the bank Glitnir to be nationalised by the Icelandic government with the purchase of a 75% stake for €600 million. The government stated that it did not intend to hold ownership of the bank for a long period, and that the bank was expected to carry on operating as normal. According to the government, the bank "would have ceased to exist" within a few weeks if there had not been intervention. The nationalization of Glitnir never went through, as it was placed in receivership by the Icelandic Financial Supervisory Authority (FME) before the initial plan of the Icelandic government to purchase a 75% stake had been approved by shareholders.
On 6 October, a number of private interbank credit facilities to Icelandic banks were shut down. Prime Minister Geir Haarde announced a package of new regulatory measures including the power of the FME to take over the running of Icelandic banks without actually nationalising them, and preferential treatment for depositors in the event that a bank had to be liquidated.
The FME placed Landsbanki in receivership early on 7 October. A press release from the FME stated that all of Landsbanki's domestic branches, call centres, ATMs and internet operations will be open for business as usual, and that all "domestic deposits" were fully guaranteed. The same day, the FME placed also Glitnir into receivership.
That afternoon, there was a telephone conversation between Icelandic Finance Minister Árni Mathiesen and UK Chancellor of the Exchequer Alistair Darling. This resulted in Alistair Darling taking steps to freeze the assets of Landsbanki in the UK with the Landsbanki Freezing Order 2008 passed at 10 a.m. on 8 October 2008 and in force ten minutes later. Under the order the UK Treasury froze the assets of Landsbanki, and introduced provisions to prevent the sale or movement of Landsbanki assets within the UK, even if held by the Central Bank of Iceland or the Government of Iceland. The freezing order took advantage of provisions in sections 4 and 14 and Schedule 3 of the Anti-terrorism, Crime and Security Act 2001.
Geir Haarde said at a press conference on the following day that the Icelandic government was outraged that the UK government applied provisions of anti-terrorism legislation in a move they dubbed an "unfriendly act". It is reported that more than £4 billion in Icelandic assets in the UK were frozen with the Financial Services Authority (FSA) delaring the UK subsidiary of Kaupthing Bank in default on its obligations and placed the bank in administration, selling its Internet bank to ING Direct.
On 9 October, Kaupthing was placed into receivership by the FME, following the resignation of the entire board of directors.
As can be seen, these were terrible times and the banks that were in play were no more.
The new banks of Arion Bank, Íslandsbanki and Landsbanki are therefore very different to the banks that disappeared in the storm of the crisis.
Reformed, revitalised and re-energised, the banks are now focused upon the citizens of Iceland and doing a good job for them.
Or so it seems.
For example, here’s a slide from the Íslandsbanki presentation I received that resonates with the discussions I had with the other banks there:
What this slide shows it that Iceland’s retail banking system has historically been at the very forefront of all technological developments in Europe.
As with most Scandinavian countries, Iceland is virtually cashless – about 96% of all payments transactions are electronic – and everything is online. Over the past few years, 30% of Iceland’s bank branches have shut down, and a further 30% is expected in the next few years.
Mobile is a key focal point today as is Personal Financial Management (PFM) software – Meniga is an innovative Icelandic PFM provider that Íslandsbanki use.
In fact, the most interesting aspect of this slide is that it shows the herd mentality of banks.
The Icelandic banks were all focused upon outdoing each other in the 1990s in the race to deploy innovative technologies for self-service.
They led the world in internet and mobile banking, and created a hotbed of innovation.
Then easy access to securitised lending markets opened up, and they took full advantage of the loans business.
As a result, Icelandic banks gained large-scale operations in UK, Netherlands, Norway and other overseas markets, and their clients did the same with everything from West Ham Football Club to the House of Fraser being prime targets for Icelandic investments.
Not bad for a country about the size of Coventry (UK’s 11th largest city).
Since the crisis hit, and the banks were allowed to be ‘let go’, the country is reforming in a post-crisis world with a new banking order.
One that has returned to its roots of innovation around customer-centricity.
That’s why the rollout of PFM as a platform is a key for the Icelandic banks, and not just Íslandsbanki but also Landsbanki and Arion Bank are rolling out similar platfroms as core.
This may be the reason why: excellent user engagement.
These metrics were shared with me, based upon 18 months of PFM usage amongst Íslandsbanki's customer base:
Over 25% of online users signed up for stand-alone PFM within 6 months
Over 75% of new PFM users use PFM again within two weeks
Over 25% of new PFM users use PFM five times or more in the first month, and spend more than double the time in PFM compared to online bank (the average time onsite is 12 minutes, with 35 pageviews per PFM session)
More than half of all PFM users are still active a year after signing-up
And their customers love it, partly because it brings in a form of gaming in finance, where you can compare your activity with everyone else's. Here's one of their ads for example:
And, in a recent customer survey, Íslandsbanki found that:
Over 80% of users are “pleased” or “highly pleased” with PFM
9 out of 10 users say they’d recommend PFM to others
66% say PFM has helped them see how they can improve financially
41% say they have improved financial behavior after starting to use PFM
According to Íslandsbanki:
Active PFM users have increased the total number of Íslandsbanki accounts (current, savings, credit card) by 19,4% on average after using PFM for 1 year. Other groups show no or slight increase only.
Active PFM users have increased Íslandsbanki transaction volume by 4,5% on average after using PFM for 1 year. Other groups show no increase.
Affluent customers are significantly more likely to use and be pleased with PFM than other groups
There is also evidence of significantly improved retention of PFM users with 71% of users saying that Íslandsbanki‘s PFM offering increases their loyalty
There’s many other stats I could place here, but perhaps the most telling comment is when the bank tells me that PFM is now replacing their online bank.
In other words, PFM is their online bank.
I suggested that PFM is their bank.
They smiled.
This tells me another thing.
If Iceland and Scandinavian banks set the trends for retail banks across Europe, maybe all banks will just be PFMs by the end of the decade.
There’s been quite a lot of coverage recently of the British Bankers Association’s (BBA) report about bank branch closures in the UK.
Based upon the stats, UK banks are closing three branches a week. That still leaves over 9,000 branches out there, but they are shrinking.
The reasons are many – cost efficiency, movement away from remote locations, operational overheads, etc – but the clear trend is away from branch and towards automation.
That being said, there are still branches out there and, as folks who read this blog regularly will know, a debate about their value always ends up saying that banks will need branches, just not so many.
The big names – Santander, Barclays, HBOS, Northern Rock, Royal Bank of Scotland and NatWest – had 9,496 high-street outlets between them in 2009 but 187 closed last year, cutting the total to 9,309.
HSBC closed the most, with 58 of its 1,369 branches disappearing last year; the trend has continued this year bringing this down by a further 79 to 1,290 branches today.
Part of the reason for this is that there are 44 million internet banking users registered in the UK, according to the BBA’s stats. As more and more people are engaged in self-serving online, less and less use branches and hence they are not needed.
That does not quite stack up with the Office for National Statistics (ONS) figures however, which show that around one in four households still does not have internet access:
"In 2010, 30.1 million adults in the UK (60 per cent) accessed the Internet every day or almost every day. This is nearly double the estimate in 2006 of 16.5 million. The number of adults who had never accessed the Internet in 2010 decreased to 9.2 million, from 10.2 million in 2009. There were 38.3 million adults who were Internet users."
Even worse are the demographics, which imply it’s the young and wealthy that the banks now reach whilst ignoring the old and infirm.
For example, among the over-65s, just one in three use internet banking compared with two thirds of those aged 25 to 44.
This stacks up with my recent analysis of the ING Direct acquisition by Capital One, which shows that ING Direct’s demographics are skewed heavily to the young and wealthy, whilst traditional banks are directed more towards financial inclusion and the elderly.
What this means long-term is that some banks will want the old and wealthy, the young and the poor; whilst other banks will want the young and wealthy, the old and the digital.
These aren’t simple demographics however.
Banks will appeal to different audiences based upon their channel mix, service offer, customer engagement in person and remote. Some will be heavily branch oriented whilst others remotely focused, but they will each find a niche.
The only change will be that there will be far more niche players, rather than the homogeneous branch based grouping we have today.
All of these blog entries are really about BIG DATA.
Big Data is talked about a lot these days, and can be found all over the press. Here’s a recent discussion from Computer Weekly:
Along with the increasing ubiquity of technology comes the increase in the amount of electronic data. Just a few years ago, corporate databases tended to be measured in the range of tens to hundreds of gigabytes. Now, multi-terabyte (TB) or even petabyte (PB) databases are quite normal. The World Data Center for Climate (WDDC) stores over 6PB of data overall (although all but around 220TB of this is held in archive on tape) and the National Energy Research Scientific Computing Center (NERSC) has over 2.8PB of available data around atomic energy research, physics projects and so on.
In the first version of Karl’s presentation, he picked up a few facts about Big Data:
There are over 2.7 billion searches performed on Google each month.
The number of text messages sent and received every day exceeds the population of the planet.
There are about 540,000 words in the English language . . .
About 5 times as many as during Shakespeare’s time.
More than 3,000 new books are published . . . daily.
It’s estimated that a week’s worth of New York Times contains more information than a person was likely to come across in a lifetime in the 18th century.
It’s estimated that 40 exabytes (that’s 4.0 x 1019) of unique new information will be generated worldwide this year.
That’s estimated to be more than in the previous 5,000 years.
The amount of new technical information is doubling every 2 years.
It’s predicted to double every 72 hours by 2010.
A later version from February 2010 is in video form ...
... and makes the point that there are over 31 billion searches performed on Google each month, compared to 2.7 billion just four years earlier.
Now we have twitter, with over one billion searches every DAY on their website alone … something that didn’t even figure in the 2010 Shift Happens video.
In 2010, Google revealed that it has more than a billion searches a day and averages a billion searchers a week. Today, it also has a billion unique visitors per month.
Microsoft’s Bing search engine gets 905 million unique visitors and Facebook 714 million
Facebook logged 250 billion minutes of usage worldwide in May 2011, up 66 percent from May 2010.
Facebook’s average US visitor engagement has grown from 4.6 hours to 6.3 hours per month
These latter stats on user engagement is the reason why, in the a recent version of Shift Happens (pdf download), we find a lot about social media, mobile and stuff:
There are 7 billion people on the planet, and five billion have mobile phones
Today, more people have access to a mobile phone than a clean toilet
There are 2 billion people on the internet and 750 million on Facebook
92% of Americans have an online presence by the time they are two years old …
And the Big Data piece arises again:
The amount of digital information worldwide will increase 44x between now and 2020
247 billion emails are sent every day
6.1 trillion text messages were sent last year
The average teenager sends 3,339 text messages per month
Now I blog these sorts of stats regularly, but it struck me that this drowning in data conundrum is something we are not tackling well.
For example, fifteen years ago, we talked about 1:1 marketing, data mining, propensity modelling and more using data warehousing systems that would trawl through a terabyte of data in days.
Now, we need to trawl through exabytes of data in seconds. Soon, we’ll need to analyse yottabytes in nanoseconds.
Impossible?
No.
As data challenges grow, solutions will emerge ... but solutions are always trailing, are too slow to arrive and we have got to get better as, back in 1996, we also talked about a vision of informediaries.
The concept of the infomediary believed that individuals control their data destiny, and would share such data in return for value received back.
That’s data as a currency.
But data is not a currency today.
Data is an abused asset.
Technology firms such as Apple, Facebook, Google and Amazon use data liberally and yes, offer some value in terms of making us buy more or receive more adverts based upon our digital footprints.
Meanwhile, banks have all this data and offer little in terms of information leverage at the point of transaction … something that will change as data analytics becomes the competitive differentiation.
As mentioned, when data is a currency, it is not the data that is important but the knowledge it offers that can be extracted by the data miners.
Just as salt was a currency, it was not the salt that was important but the quality of the salt extracted by the salt miners from different seas and rocks.
Data is a currency … we just haven’t realised yet how much value this currency offers.
I also mentioned last Friday that the original reason I wrote this was because of two statements in a Wired Magazine cover on Wonga from May.
The first said that “within a year, Wonga had issued 100,000 loans, worth £20 million, earning about £15 million by charging interest at an eyewatering headline rate.”
The second was a letter from Steve Perry in Wired in June that said: “When I could no longer repay a Wonga loan, it took 50 days of ringing and emailing to get through – an £800 loan became a £1,700 repayment.”
Both lines made me angry, and hence led to this debate.
So, just to set the record clear, let’s look at Wonga in depth.
First, what is the Wonga business model?
Their business runs on super flexible, short-term loans, delivered via the internet in minutes.
The offer is made using a simple calculation system on their homepage that lets you put in how much you want to borrow – up to £400 (or £1,000 for repeat customers) – for how long – up to 30 days maximum.
The interest is made clear to you as you enter this information. For example, £300 over 7 days racks up £26.59p in interest and fees whilst, over 30 days, this would be £95.89p. Bear in mind that £5.50 of these amounts are the transmission fees to move the money to your bank account in real-time, and the rest is the actual interest rate.
In other words, the real interest rate is around 360% APR or 1% per day average.
Although the APR on the homepage states that it is 4214%, this is purely a number required by law to show how much the loan costs over a year. As a result, the interest rate is compounded to represent how the Wonga loan period would look if spread across a year, even though the company does not offer annualised loans. So the fee and interest is compounded and added as a mathematical view of APR, rather than real view.
360% interest rates per annum may seem high, but it’s not competing with those long-term loans. Wonga doesn’t offer long-term loans although, if they did, it would be at 360% interest rates, which they admit themselves: “Even if we were to launch a year-long loan at the same interest rate we charge now, the APR would be much lower than the current figure, more like 360%, because there would be no artificial compounding involved.”
But Wonga doesn’t offer annual loans. Their maximum lending period is 30 days and, in that context, Wonga’s rates are a fraction of those charged by high street banks for unsecured overdrafts and credit cards, which are the markets they are most interested in taking business from.
So Wonga specialise in short-term loans to give you coverage for a few days when you most need it.
Their team shared some interesting stories with me in this context and it’s generally for people who don’t want a bank loan – as such loans tie you up for a long period of time with amounts that are reasonably fixed – or can’t get one due to poor credit history or a recent change of job or address, or need cash fast and it would take too long in the bank.
A few examples included a customer whose dog needed emergency treatment and they needed cash in minutes, and a guy who had lost his job and needed to buy a car to become a minicab driver but couldn’t buy the car through the bank as he was jobless. The latter is a Catch 22 – how can I start work if you don’t give me the loan?
The loans are incredibly short – typically a few days – and are high interest due to the costs of acquisition and processing.
Although the company does not publish public records – they are a private firm with £90 million of venture capital backing [Wonga Company Number is 06374235] – they point to similar firms in the USA such as Cash America and Advance America, who have to provide transparent reporting of returns under SEC filings.
What this shows is that Cash America makes less than 10% net income on revenues of over $1 billion …
… whilst Advance America made a net income of $35.8 million on revenues of more than $600 million
This is because the business costs are high with cost of customer acquisition being the highest, followed by default rates which are also significant. Wonga say they have theirs under control by using sophisticated technologies to avoid high risk customers, but one US study found that as much as a quarter of a payday firm’s revenues can be attributed to defaults.
This does not even include marketing and processing costs, with the cost of data being a major overhead in the process too.
For example, Wonga use Experian and other credit agencies to real-time check customers during their online acquisition processing. That’s all at a cost and many other payday firms don’t use such sources for this reason. A typical payday firm would just ask to see your last salary and bank statements and would then approve. This is why their default rates are high and Wonga’s are lower.
But it makes the point that this is high risk, high volume, low margin business that is hard to make money unless you’re good.
It is also why Wonga claim they do not target vulnerable customers.
Why would you?
Vulnerable customers are more likely to default and less likely to pay back, so that’s not the market they want. Wonga make the specific point that, being a private firm backed by venture capital, it’s their money they are putting at stake, so they only want to target the right customers?
Who are the right customers?
Wonga want customers who sit between core bank lending markets and the unbankable markets.
These are often customers who have never used a payday loan firm – 75% of the customers have never used an online payday loan before – and they are often bank customers – every customer has a bank account and access to full banking services. This means that they also have access to traditional credit products, such as loans and credit cards, but often don’t trust themselves with such products. They would rather pay high interest on a short-term loan they can manage than lower interest on a long-term loan. This is because the short-term loan is easy and manageable, rather than escalating and invisible credit on a card or fixed for years on a bank loan.
Here’s a few more facts:
59% of Wonga’s customer are male, whilst 41% are female
They are average wage earners (£22,000 per year) and aged typically between 21 and 40 years
Most are tech savvy and are regular broadband and mobile users
The average first-time loan is for £160 and the average loan across the customer base is £230
As long as you demonstrate you are a responsible borrower, you can increase your maximum loan to up to £1,000 over time
Wonga serviced their first customer in October 2007, and is now estimated to be making more than 100,000 loans per annum
3 years after launch Wonga.com had made in excess of 1.5 million loans to customers
These customer demographics prove that the customers aren’t necessarily the vulnerable and needy, but the sophisticated and informed.
They use the internet and mobile connectivity and like the flexibility of a short loan that avoids bank overdraft fees.
From a risk perspective, Wonga ensure the select the right customers, not the vulnerable ones, through their technology analytics and algorithms again, and means that most Wonga customers are actually not the normal payday loans customers.
In fact, as mentioned, the technology is something that impresses.
Not only does it credit check and money transfer in real-time, but it goes further by completing the whole process in under fifteen minutes typically.
That’s why Wonga actually describe themselves as a technology firms that offers financial services, which gives you a clue to their positioning right from the start.
They are also very transparent. Everything is clear up-front. For example, they calculate the total amount repayable upfront, showing the figures clearly and including all interest and fees. You might say that’s better than a bank?
There’s also a good guide to ‘responsible lending’ that’s accessible from their home page .
They also make it clear that “the only way costs can increase is if you fail to honour the agreement.”
So what happens if you fail to honour the agreement, like Steve Perry did? What’s your maximum liability?
Well, it appears Wonga are also semi-flexible on this point too. If they get a customer who is in trouble, they don’t just keep hammering them with fees and charges, but will apply penalties to a maximum of 360% interest.
At that point, it stops until some form of agreement or compromise can be made. For example, in Steve Perry’s case, Wonga waived the outstanding balance with Wonga’s head of communications, John Moorwood, saying to me:
“We lend our own money and we’re completely incentivised to make selective decisions and help people who can afford the service and are likely to repay a loan quickly. A typical loan is around a fortnight and a quarter of our customers repay early every month, which they can do without any catches.
“We decline the majority of first-time applicants and we also decline some returning customers, or limit their access to credit, based on the same checks and prior use of the service. Again, we have nothing to gain from helping someone who can’t afford the loan or is in serious financial difficulties. We don’t claim to be perfect, but we believe we are doing everything we can to make the best decisions possible, which has seen us win a number of respected risk-based awards judged by industry experts.
“The fact we’re achieving this aim of making the best possible decisions is supported by the very low rate of arrears and positive feedback from most customers, whom we survey and speak to regularly.”
Most of the complaints are down to people who failed to payback on time, didn’t read the rules or ignored them, have been declined as a repeat customer due to their credit getting worse and related issues. The worst one is that Wonga charges rollover fees if funds are not in the customer's account on the morning of the due date, even though funds may be in the account later in the day.
Even so, none of these complaints appear to be about Wonga not doing what it says on the tin: we will lend you a short term loan at high interest rates and not charge you excessive fees unless you don’t pay back on time.
If you want more on this part of the operation, read the Payday Loan Master write up on the Wonga Scamfrom June 2011.
My conclusion on Wonga is that they are hard on customers who don’t play by the rules, but they make the rules clear upfront and it’s down to you to absorb or ignore them.
It's all about transparency.
In fact, Wonga regularly survey their customers on what they think and, in the last survey performed by Populus in January 2011 of 15,200 people, Wonga’s customers thought:
Wonga is better than a bank overdraft, bank loan, credit card or other payday loan
77% thought Wonga’s service easy to use, compared to 7% with the banks
When asked: “how well or poorly is information communicated when you use Wonga’s service?”, 66% think ‘very well’ and 30% ‘well’ – only 1% rated communications poor
The Financial Ombudsman Service received 30 complaints in 2010 about Wonga, equivalent to 0.003% of their customer base of a million customers; by comparison, Barclays bank had 276,000 complaints which, with around 14 million customers, equated to 2% of their customer base
If you want to read more about Wonga, here are their documents:
Finally, I asked Wonga their views on interest rate caps, loan caps, and more qualification of the borrower and their other financial exposures, particularly for repeat customers.
They actually agreed with these recommendations, saying that more payday loan firms should be responsible lenders to ensure they don’t get a bad reputation. For example, they use Experian and credit scoring to ensure they avoid vulnerable and poor credit based customers. If every payday loan firm did, then they would all qualify borrowers better. The fact that most don’t, due to the costs of data access, makes this a vulnerability.
Wonga don’t agree with interest rate caps, as they think competitive market forces rule. As a result, they promote transparency of overall costs as being the way to go, as per their homepage, rather than regulatory limits on lending.
This is in line with a recent analysis by PriceWaterhouseCoopers of consumer credit – “UK consumer credit in the eye of the storm” – which states on page 19 that: “in the case of payday lending, an APR is fundamentally misleading. Annualising the interest cost of a product that is only offered as a short-term facility confuses the purpose of the loan and misrepresents the true cost. It’s similar to suggesting that the typically annual cost of a rental car might be close to £15,000, rather than a daily rate of £40. The total charge for credit may be a more beneficial measure for the consumer in this instance.”
The report goes on (page 16) to say that “while rate caps could reduce the cost of borrowing for some, there are a number of potential arguments against rate caps that should be considered:
Reduce access to credit;
Migration of interest rates towards the rate cap;
Reduced competition and diversity of products;
Introduction of, or increase in, ancillary fees and charges; and
Growth in the unregulated market.”
The Office of Fair Trading came to a similar conclusion a year before:
“The OFT has also considered the case for price controls for pawnbroking, payday loans, home credit and rent-to-buy credit and concluded that they will not address the problems identified in the high-cost credit sector, which stem from both limited supply options and consumers' lack of ability to drive competition. The OFT is concerned that such controls may further reduce supply and considers there to be practical problems with their implementation and effectiveness. These problems include the potential for suppliers to recover income lost through price controls by introducing or increasing charges for late payment and default.”
Finally, going back to Wonga, they recognise that payday firms can rip-off customers and cite examples in the USA where some firms would actively try to rollover customers at least four times to ensure they recoup their customer acquisition costs. Wonga claim they do not do this but, as demonstrated by the Payday Loan Master, the most serious disputes between short-term lenders and their customers are when firms add fees claiming that funds were not in the customer’s account on the due date when the customer claims there were funds.
In this instance, Wonga has a zero tolerance approach to late payments and this is why they do have issues with customers who fail to meet the criteria of making sure they payback on payday.
In summary, I’m sure I’ll come back to this discussion again at some point, but Wonga fill a gap in the market for those who need short-term cash, want to avoid banks for various reasons and understand how the system works. They have very high customer satisfaction and recommendation levels, depend upon repeat customers, and have no interest in poor credit vulnerable customers as they will not pay back.
The net:net is that Wonga does not see themselves as bad company. However, they live with bad company in a too lightly regulated part of the financial markets. Regulation is required therefore, and we both agree that regulation needs to be clear, fair and to ensure that customers are effectively protected.
All in all, a good dialogue and much greater clarity about this market, its challenges and issues.
Further to my write-up about Wonga the other day, I have been contacted by author and campaigner Steve Perry, who has been on the wrong side of the payday loans industry.
Now don’t get me wrong.
I am NOT against payday loans firms or their operations (I actually admire Wonga's technology ops).
I AM against the uncapped interest these firms charge on their vulnerable customers.
However, this also needs to be qualified in terms of who are 'vulnerable customers' and who actually charges 'rip-off' rates and how.
For example, Wonga have also contacted me to put their side of the story and made clear that they do not target 'vulnerable' people with 'rip-off' rates.
Read Monday's blog to see what their take on the world is, particularly as my original piece was kicked off by the Wired magazine coverage of Wonga.
In that coverage were two issues.
First, the line in the article that stated: “within a year, Wonga had issued 100,000 loans, worth £20 million, earning about £15 million by charging interest at an eyewatering headline rate.”
I had a fundamental issue with a firm making those sort of rates of profits on loans, but Wonga tell me their margins are nowhere near these levels and, having met with them, I will take that as fact.
Second, the star letter that followed in Wired the following month saying: “When I could no longer repay a Wonga loan, it took 50 days of ringing and emailing to get through – an £800 loan became a £1,700 repayment.” Steve Perry
As mentioned, Steve contacted me following the blog entry and I discovered that he is a person who got into serious trouble using payday loans. Wonga tell me they are not a payday firm, which again I will explain on Monday.
But let's look at Steve's story.
Steve borrowed £15,000 in a year from payday loan firms. This led him to be in serious schtuk, and having to pay back £22,000. In other words, even though he tried hard to manage it, he was being charged extortionate interest rates and, having nowhere else to turn, spiralled into debt by borrowing off one payday firm to pay back another,.
In one instance, he borrowed £1,390.00 from PayDay UK between June 2009 and February 2010; he paid back £2,852.50 over 15 months.
Due to losing his job and trying to manage his commitments to payback PayDay UK, Steve unfortunately then borrowed from another payday firm to pay back the first payday firm.
In July 2009, he borrowed £160 from Payday Express. By the end of his borrowing with them – October 2010 – he had taken a total of £1,225.00 in payday loans and had to pay back £1,975.00. This is over 15 months.
Again, the uncapped interest on payday firm operations is illustrated well as, so far, Steve has borrowed £2,615.00 over 15 months which, with a bank, would incur interest payments of around £650 max but, through payday firms, incurred interest of £2,212.50.
It’s the difference between average APRs of around 19% versus 90%.
One of the points Steve raises is that the payday firms do not take into account your other financial commitments, whereas banks do. If you have borrowed to the hilt, a bank will take this into account and refuse you a loan. Payday loan firms do not ask about your commitments and this means that you can borrow off all of the payday firms to pay back each one. In so doing, you just become more and more of a victim, and that’s what happened to Steve.
He ended up borrowing off other firms to keep up and make the payments to the first.
So then came Lending Stream.
Steve borrowed £200 off Lending Stream in June 2010 and, by November 2010, owed them £1301.10 on borrowings of £640.00.
The interest was more than double the borrowings in just under five months.
He borrowed from several other firms and found each had nuances by which they made more or less money.
Over a period of 21 months, Steve ended up borrowing from 12 payday loan companies, who made and approved 64 individual loans to him with no knowledge or interest in each other’s activities or his other financial commitments. The result was that he had to repay £21,707.49 on loans of £14,886.00.
Now Steve admits he was a mess … but he became a much worse mess due to the unregulated state of the UK’s payday loans markets.
As Steve says: “It has been apparent throughout, a fact in which I have never denied, that I am the chief architect of my own demise. Whilst I felt I had no other avenues to take, the harsh reality is that I chose on each of those occasions to take payday loans and sign agreements stating immediate repayment on the set payment dates. However, responsibility of borrowing of this magnitude, on this scale cannot possibly lie totally at the feet of the desperate borrower. A fact that cannot be ignored is that on 64 separate occasions, over the period of just 21 months, a total of 12 different payday loan companies were more than happy to instantly approve loan payments to me, with no questions asked.”
So what should be done about this?
For me, the #1 issue is uncapped interest rates.
Most countries impose limits on the interest payday loan firms can charge.
37 American states allow payday lending, whilst 13 have made it illegal;
In those American states where it is legal, there are hard interest rate caps;
In Canada, any rate of interest charged above 60% per annum is considered a criminal act, according to the Criminal Code of Canada; and
The Australian states of New South Wales and Queensland have a 48% APR maximum loan rate, including fees and brokerage.
In the UK, 1.2 million people took out 4.1 million loans in 2009, four times the level of 2006,with total lending of £1.2 billion. The average loan size is around £300, and two-thirds of borrowers have annual incomes below £25,000.
And there are no restrictions on the interest rates payday loan companies charge.
Steve makes many more recommendations which you can read in his 70-page overview of the UK industry (provided on request).
These include:
More qualification of the borrower and their other financial exposures, particularly for repeat customers;
Capping of the amounts that an individual can borrow, not just from a single lender but from across the industry; and
Better structuring of rollover of interest and transparency so that the vagaries between lenders is clearer.
The net:net is that as Vince Cable talks about the banks' “rip-off culture”, maybe he ought to look here a little too?
Meanwhile, I won't damn the industry completely as Wonga have proof that sets them apart from the payday pack. That proof shows that they are not one of the bad guys, which I'm pleased to hear as I've watched them from their first days of operation and was surprised to hear they were making eye-watering margins.
They're not.
I will explain more about Wonga's operations on Monday.
Nevertheless, the core debate here is whether these markets are working well and whether customers are being protected from potentially damaging practices by some of these firms.
My view is that they are not in the UK.
This means that these markets need regulating and regulating fast.
As mentioned, am in Abu Dhabi this week and will write more about the conference content during the course of the week but, today, am struggling a little bit as my blog is banned here.
It’s the first country I’ve been to in my travels – and I’ve travelled lots – where I cannot actually see my blog’s website.
All I get is this screen …
… at first, I thought it was the wifi internet connections but, having tried three or four PC’s on different wifi networks, realised it must be the website.
So I reported the website down to my tech support, but the UK has a national bank holiday on Monday.
Then I realise I get the same screen when I try to access a few other websites and start getting suspicious. At this point, like most, I begin Googling and find that the UAE are masters at trying to control the internet.
This is to try to block gambling and pornography websites and I guess anything classified as ‘a blog’ that could be subversive, even when it’s a business blog.
So it’s a bit strange standing up to give my keynote and telling the audience: “everyone can find out more background at my blog, the Finanser, except for those of you from here”.
It would also have been more useful if the blog website was on the official banned list, as those links result in an official instruction …
… rather than just hanging as though my wifi has gone down.
And it’s strange how many websites are banned here. For example, Skype is not allowed because the local telco doesn’t want to lose its’ fee income. How strange as other websites such as youtube, which many report is banned on the net, is not.
In fact, there are many websites that are allowed to be accessed here, even though the webbies say they are outlawed.
For example, Facebook and Twitter are fine; Tumblr’s OK (and that’s a blogging website); and, as you can see, I can still blog but that’s because I use Typepad for blog content creation and that’s allowed. It’s just the Finanser, classified as ‘a blog’ that’s banned.
So I can write subversion and share news, but just can’t read it.
This is a very strange and conflicted policy in this country of open borders with tight controls.
And even with all these tight internet controls, I could read my blog’s website and use Skype if I wanted to, as you only have to Google to find sponsored ads that will hide your IP address from the spying authorities and give you access to all.
In other words, for all the efforts to control the internet the UAE authorities, and most others, have no control.
This is the same challenge that the US authorities had with Wikileaks, who kept moving their IP addresses, servers and mirrored systems around the world. It’s the same issue the UK authorities have with superinjunctions.
And all of this has smouldered together to lead to the e-G8 summit where world leaders from the largest nations discussed how to handle regulation of the internet.
If you’re into world leaders and their views, here’s the opening keynote from the summit …
And if you click here, you can watch the other plenary sessions too.
For now, I’m writing this blog entry in my vacuum of UAE, and thinking that this is a Wild West when the government has banned access on the one hand, but I can just skirt around such bans for $14.95 a month.
Don't get me wrong though.
Government’s will eventually come up with a policy for this Wild West.
A little bit like old media evolution to new media, old government is becoming new government and it will eventually find ways to deliver global agreements and compromises on what is and what is not allowed.
There will be those who disagree and it will leave cracks in the armour of the internet policies, but only the true seekers of such information will try to find it.
And that leads to a final point, almost unrelated.
I stumbled upon some fascinating research yesterday, here in the UAE.
A new book has just been released, analysing all of the pornography on the internet and how it is found and used.
What has that got to do with government controls?
Well, it relates to my last point: those who really want it will find it.
This is a point made by researchers Ogi Ogas and Sai Gaddam: “truly violent pornography is extremely rare. It truly is rare and the kind of people who watch it are a clearly identifiable group.”
This is all about our behavioural changes, as society transitions from old world to new world and from disconnected to all connected.
It is the point I’m making every day as I go around conferences discussing the mobile internet and how it is transforming banking, a point I’ll return to as I’ve purposefully avoided mentioned banks in this blog entry.
This blog entry is to tell government regulators that their aim should not be to ban access to information erroneously, as the UAE’s policy illustrates, but to monitor internet usage to seek those who are the kind of people they are trying to stop, most of whom are clearly identifiable groups.
Whether we support or resist how a government targets which groups is a completely separate matter, but just banning the internet for the internet’s sake will just cause civil unrest.
I’ve written about the end of privacy before, but now the big news in the UK is that privacy is a joke.
There is no such thing.
For example, we had a court of law here that could implement superinjunctions to stop the media leaking information about people’s private lives.
Major stars of media, sport and business had taken out these superinjunctions, or “gagging orders” as they are known colloquially, to stop details of their inflammatory matters getting into the press.
Unfortunately, these gagging orders are a joke as, just by placing them, the knowledge of their exploits become known to many people.
This is why so much is leaked, such as the details of the private matter of Sir Fred Goodwin having a fling with a senior colleague after the Royal Bank of Scotland’s collapse.
Then we went one step further and had some loose cannon release details of all the major superinjunctions in the UK.
The orders are court orders that are meant to mean no mention of any names can be made by any media.
The trouble is that it’s old media that conforms to the law, not new media.
For example, the old media can now report details of Sir Fred’s affair because the information was shared in our Parliament. This is a Parliamentary Privilege that allows some breach of court orders if a member of government believes it to be in the public interest.
As a result, John Hemming and Lord Oakeshott discussed details of some of these superinjunctions and suddenly Sir Fred’s affair could be reported by old media.
And boy, did they have a heyday, with the Sun's front page on Friday wrapping it up the best …
And more inside ...
Unfortunately, as British media's most loathed businessman, Sir Fred should expect the media knife to lodge in his back at every opportunity.
Even so, old media is still unable to report the information about who he had the affair with, even though new media has made it clear who the lady in question is.
More worryingly for Fred is also the fact that the FSA are now going to rake over those coals.
All in all, it is clear that new media has completely decimated privacy, as demonstrated by the lack of power of the courts.
For example, one of the leaked names is a certain Manchester United football player who is implicated in an alleged seven month affair with a former Big Brother contestant.
As soon as the player went for a writ against twitter, then things got even more interesting.
The player’s lawyers lodged papers in the UK High Court ordering twitter to disclose who the leaker on their website is. The order is not against twitter as a company itself, but "to obtain limited information concerning the unlawful use of twitter by a small number of individuals who may have breached a court order".
The thing is that twitter is based in the USA, and does not necessarily have to comply.
Equally, by lodging such a motion, the footballer in question has become the target of almost every twitter user.
Again, in this privacy debate, the Sun's front pages put it best ...
... and yes, this week really did mark the end of privacy.
But not without a fight.
For example, just by serving a writ against twitter, the footballer in question became the target of every internet search for the past 72 hours ...
... and then his lawyers made it worse by taking action against a journalist who named the footballer in a tweet. The journalist is now also the target of the writ.
In an even more ludicrous state of affais, due to the nature of the superinjuction, the journalist cannot be named.
It's a very Harry Potter style moment when the man who named the man who cannot be named cannot be named ... unless you're in new media world.
Banks miss a trick in not advising customers how to network socially with safety, so here’s my top do’s and don’ts for social networking. It’s not exhaustive, but just those that are top of mind and banks would do well to send such advice to their customers in writing, online and always when they logon to their bank accounts (in an engaging user experience way – not just by cut and pasting the words below).
Do
clear any sensitive information from all of the electronic devices that you use, especially your mobile
use all the tools you can to be safe online such as free antivirus software like AVGfree, and plugins to browsers such as NoScript
share your life and lifestream, but restrict this to only those who deserve to know you and who you really know
keep everything private and think that anything you’re posting to a website could be seen by your parents, partner or boss
watch what your children are doing online and that they are not giving away information about themselves or the family that could be sensitive or dangerous – examples would include “going on holiday for two weeks” and connecting with adults they don’t know
consider that everyone online is the equivalent of everyone you meet offline, as would you really trust “Bitcha Armoff”, the gorgeous and mysterious person who just poked you, in real life?
think about opening two accounts on all social sites: one where you link to work colleagues and another where you link with friends and family – that way you can manage the work/life balance and keep personal separate to professional
make sure that your privacy settings in both sites are set correctly and remember that by joining groups no matter how innocuous can result in many strangers seeing your profile, status updates and lifestream
Don’t
use passwords and usernames similar to your bank logon details anywhere other than with the bank
store your password and username on devices such as your mobile, netbook or laptop, or keep such information anywhere near them
click on any links from people you don’t know or to something that sounds exciting but could be fishy, such as a Facebook link to see “Justin Bieber Gets Boner” can often link to a download of malware
accept an invitation to link with just anyone – it may make you feel more popular, but any of those so-called ‘friends’ may be gangsters and murderers
use location co-ordinates in your status updates as that’s asking someone to rob your house when you’re out
mix work and play on your profile or social network
put your birthday, telephone number, email address and particularly your work situation on any social networking site, as that’s a real giveaway
link with mum and dad or most family members in any network with potential non-family or work members, as parents particularly post crap on your updates and might give away your mother’s maiden name or similar information
talk about what you’re doing in the future except with those you trust, as this gives a perfect opportunity to ‘groom’ you for crime, e.g. “going to be at the Dog & Duck for Joe’s stag do is a real invitation”
Why do I say the above?
Because the number of times I’ve targeted people to coerce them into doing something they don’t want to do by knowing where to find them and when; who their friends, family and work colleagues are; what their tastes in music, books, films and sushi are; and more … oh, did I just say that?
On a more serious note, Facebook is being blamed for one in five divorces in the USA, and employers and potential employers are using these sites to see how fit for work you are. If your partners and employers are checking up on you, do your really believe that criminals aren’t?
I would urge every bank to post some sort of advice on their website, mobile and internet service, as it seriously worries me that customers aren’t getting this education and are probably giving away their identities as we speak.
I would also, as a bank, underscore that if a customer is found NOT to have followed these policies and procedures then they may not be covered for fraudulent account access and identity theft.
That way, the bank has protected itself, helped the customer and moved our new Bank 2.0 world a step forward.
Whilst banks ignore such perils, their customers are at risk.
Ever since I got my iPhone, I’ve been hopelessly devoted to Angry Birds, along with about 75 million other people.
75 million!
That’s 75 million playing a game on their smartphone.
That’s more than the whole population of Britain all playing Angry Birds.
Wow!
How did that happen and what’s it got to do with banking?
Well, the story is covered in depth by Wired Magazine this month, and it’s fascinating stuff.
The whole history of Rovio, which means “bonfire” in Finnish, is fascinating.
Rovio is the Finnish company that created Angry Birds and redefined the gaming industry.
And it’s relevance to banking is that every day 200 million minutes – or 16 years per hour – is spent playing the mobile game. It is the number one best seller on iTunes in 68 countries, as well as the best-selling paid app of all time.
In total the brand has taken over $70 million in revenues for a game that cost just $150,000 to develop.
And it starts at a cost of just 59 pence ($0.90) to download.
That’s the relevance to banking.
Money.
Little bits of money that, combined, make millions and billions of dollars.
There are millions of sub-$1 downloads taking place worldwide every second now.
So that old idea of paying $0.50 to read a page of a newspaper was the fallacy of a decade ago when we talked about micropayments.
That's Rupert Murdoch's dream, but it's a lame one if you ask me.
Paying $0.50 for a game that entertains for weeks ... that's real value.
And the stats column along the bottom of the Wired article gives me the ammunition I’m looking for as to why gaming and apps are a key area for future revenues sources:
For the initial outlay of $150,000 to develop Angry Birds, Rovio has seen 40 million downloads on the iPhone, iPod Touch and Android;
The average iPhone user spends $4.37 per month in the App Store (Gigacom);
$2.11 billion will be traded in virtual goods this year in the USA alone (Inside Virtual Goods);
There will be 970 million app users (Research2Guidance) and 1.82 billion smartphones worldwide by 2013 (Gartner);
Mobile gaming will be worth about $4.5 billion in 2013 (Electronic Arts), whilst the app economy is estimated to be worth about $30 billion by 2015 (Juniper Research);
59% of smartphone owners have downloaded at least one app in the last month (Nielsen);
26% of apps downloaded in 2010 on all operating systems were played just once (Localytics); and
Apple takes 30% of all app revenues and downloads from iTunes.
The article talks extensively about the Rovio business model, how they started, their errors and opportunities, lessons and learning’s.
It talks about Angry Birds being more than a game now, with soft toys and YouTube and other reach.
It talks about the fact that Angry Birds popped up in an ad for Rio, a new movie, during the Superbowl this year.
That's serious stuff, as each advert during the Superbowl costs $3 million for 30 seconds.
So finally, if you’re thinking this is irrelevant, take note of this quote from Rovio’s CEO Mikael Hed:
“We’re building an integrated entertainment franchise where merchandising, games, movies, TV, cartoons and comics all come together. Like Disney 2.0.”
That's why I'm banking on Angry Birds ... or rather, I'm banking on apps to be exact.
I was following the Distributed Denial of Service (DDoS) attacks on Visa, MasterCard and PayPal closely during the supporters campaign to target those financial firms who had cut any ties with Wikileaks.
The group amalgamated under a twitter hashtag #operationpayback, and posted a variety of notes about who to target when and how, with clear instructions as to how to download and use the javascript that would operate the DDoS against the target website.
They also issued other instructions, and one particular notice caught my eye.
Written by a Dutch citizen, based upon the English grammar, the notice reads as follows:
It’s the first time a big-deal Cyberwar is going on, and for that, the whole community should be proud of those efforts. We also know we're just warming up, DDoS is nothing comlex at all.
The point is: why stopping here?
We know we live in a system rotten to the core, and no country is exception ...
I’m not saying Capitalism versus Communism.
Every form of Government is basically corrupt, doesn’t matter the system, for all of those depend on money to work.
The sh*t we live in, corruption, lack of transparency, greed are just by-products of an outdated system.
Even if our mission is successful, all of this will come back if we don’t go for the root causes.
Let’s face it people, there’s not fix for this system. We need serious update, redesign it from the ground up.
And that’s the root problem: the monetary/financial system.
It goes on to point to an interesting 30-minute programme about “How Money is Created”.
The programme is on YouTube in three parts.
Part One
Part Two
Part Three
A call to revolution?
Or just a call in the wild?
Probably the latter, as the note finishes by saying: “so, the first Christmas in long years without Consumerism would be a fresh start. Internet Heroes? Let’s prove it.”
Don’t think so: “comScore's latest ecommerce figures show that around $5.5 billion (£3.5 billion) was spent between December 11th and 17th, an increase of 14 per cent on the same period last year.”
I was quite intrigued to hear a speech by Ben Ramsden, Founder and CEO of Pants to Poverty.
Ben's talk was all about social business which, when combined with social finance, creates a completely different and new form of commerce that, if the next generation has any say, will compete with and potentially merge with traditional finance and business over time.
Ben began his talk by saying how he used to be motivated by money, like most of us.
His career launched into a trajectory in telco’s before the dotcom implosion, at which point he decided to try something different and travelled out to Guyana to see how other people lived.
It changed his life, and he ended up getting heavily involved with Amnesty International and, through that work, the “Make Poverty History” Youth Movement of 2005.
This was the event, wrapped up with Live8 and lots of other NGO (Non-Governmental Organisations) pressure groups changed the world, or was meant to, by getting the G8 to sign up for relief for African nations from debt.
Only five years ago, but a very different world.
At this time, Pants to Poverty was launched and sold 11,000 pairs of pants in just five months.
After a while, Ben realised this could be a business and created it as a social business.
What is a ‘social business’?
There are lots of definitions of social business, with many mistaking such businesses as charities. They’re not. They are businesses, but they are there to deliver against social and environmental needs, as well as financial ones.
The core of such businesses therefore is that they redefine the profit and shareholder view of the world.
Profits are based upon contributions to the environment and society, as well as the bottom-line, and shareholders are all of the stakeholders, not just the investors. So the farmers, shippers, staff, customers, investors and community all get a share of profit here, not just the business investor.
It may sound airey-fairey, but it works in practice as Pants to Poverty sources cotton from fair-trade farmers, turns it into pants at ethical factories in the developing world, and sells them in ways that raise awareness as well as making money.
And Pants to Poverty is very good at creating awareness. For example, the business holds the Guinness world record for the most people gathered in pants in public ...
... as well as the biggest pair of pants ever created!
The point that Ben made is that this had started as a social movement – to Make Poverty History – and had moved to being a social business – Pants to Poverty.
By being a social business, every stakeholder in the supply chain has a stake. The cotton producers get pesticides; the factories have inspectors to avoid any labour misuse such as child labour; and the distributors get rewards in both cash and kind.
For example, Pants to Poverty is going through a round of funding right now, to try and get £250,000 in order to build the brand and capabilities of the firm.
In order to raise the £250,000, the company has issued 100 convertible bonds valued at £2,500 each. The bonds last ten years and are designed to sell to friends and family, and anyone else who might buy them.
And interestingly enough, Pants to Poverty is finding a lot of High Net Worth Individuals are interested in taking the bonds.
Why?
Well, apart from the philanthropic virtues and the fact they are helping the world, there’s actually a really interesting triple bottom-line financial product on offer here.
What is the product?
For your £2,500 per bond investment, you get 8.65% annual interest.
The interest however, is paid in three ways via quarterly instalments consisting of:
12 pairs of Fairtrade and Organic underwear (inclusive of delivery)
£21.63 paid in cash to offset tax at source
£50 donation to the Pi Foundation, a charity set up by Pants to Poverty to help develop sustainable business models in the fashion industry
In other words, you actually only a small amount of real interest, the £21.63 cash, but add in the other components and it’s worth a lot more.
Some in small ways and some in big ways, like Bob Geldof, and though the majority of us capitalist banking community might think they’re all a bunch of tree-hugging hippies, there’s something that struck me as Ben talked.
You see we have this old world, let’s call it the Establishment, and the new world, let’s call it the People.
The Establishment affirms the views of old, and believes that management of the People is through control mechanisms of which a key part is the traditional media.
The People represent the views of the next generations, and believe that anything can be achieved through crowdsourced change.
The Establishment has trashed the planet whilst the People want to change the planet.
And there’s the rub.
There is a real friction between Old World and New World.
This is what has occurred to me more and more as I think about Wikileaks, the rise of social networks and media, the ability for P2P to crowdsource globally and to think differently.
I thought it worth illustrating, and so created a few slides to illustrate the point ...
If the key drivers of change accumulate to force old bubbles to burst, then the new outcomes will be different.
And the key drivers of change are accumulating today to force the old bubbles to burst:
Political: the belief in our political leadership has been undermined by the Iraq War, expense and other scandals, with Wikileaks leading the charge to expose corruption and weakness;
Economic: there is a loss of trust in the capitalist system, with leaders of the world striving to find new ways to rebuild whilst global socials build new financial models;
Society: as the ageing population become a burden on the young, Gen Y will be the next generation of leaders who will have to manage the books to support the boomers and Gen X retirees whilst nurturing the Millennials; and
Technology: is transforming the world by linking everyone P2P globally.
Not sure where all of the above leads, except that it is becoming more and more obvious, and some form of hybrid model will need to be created.
Otherwise, when two tribes go to war, a point is all you score.
The rumblings of the wikileaks revolution continue, as reports of Visa, MasterCard and PayPal have outages around the world are hitting the wire all day today.
Rather than writing long entries here on the blog, I'll summarise all of this when the events that are transpiring reach a conclusion.
For those who haven't caught the whole story, here's a good summary of the events so far:
And the other thing I will add is that twitter has proved very interesting indeed so far today:
Some of us were surprised by the actions of American firms such as MasterCard, Visa, PayPal and Amazon, in trying to close down wikileaks due to their leakage of cables from American embassies.
Bearing in mind that over two million American workers have access to the database that held these cables, they weren’t exactly that secret.
Equally, the leakage is embarrassing, but nothing really that shocking.
So Sarkozy is thin-skinned and Berlusconi likes wild party nights ... as if we didn’t know that already.
The reaction however to Julian Assange in particular, in bringing up what appears to be trumped up rape charges – they were originally thrown out by the Swedish courts – and some politicians saying he should be executed, has been extreme.
This from the country that celebrates press freedom day this week.
And this from the country where the government, like they did with SWIFT after 9/11, are quite happy to place pressure on banks and payments providers to shut down operations of which they disapprove.
That is the real reason that MasterCard, Visa and PayPal stopped payments to wikileaks.
So, here’s the real shock.
Supporters of wikileaks from 4Chan targeted MasterCard and brought their web services to a halt today.
Here are just two screenshots and, after fifteen minutes, the UK MasterCard website is still trying to load in my browser and failing.
The attack is a Distributed Denial of Service (DDoS) bomb based upon a LOIC: Low Orbit Ion Cannon, a C# application. LOICs attack the target by bandwidth reaping - sending TCP, UDP, or HTTP requests to the site until the site goes down.
According to Operation Payback, there are 1084 LOICs active right now, and all targeted at MasterCard.com.
This has also hit 3D Secure and their broadband payments services, although MasterCard deny this.
So here’s the real issue: if wikileaks have such strong support, and hackers target Amazon, MasterCard, Visa and PayPal and bring down all of their web-based services ... should we cancel Christmas this year?
It is all part of Operation Payback: "an anonymous, decentralized movement which fights against censorship and copywrong", with Twitter the next target for trying to hide the conversation.
There are some fascinating details on their website also, along with a few interesting quotes:
"The first serious infowar is now engaged. The field of battle is WikiLeaks. You are the troops." - John Perry Barlow, co-founder of the Electronic Frontier Foundation.
"In a free society, we are supposed to know the truth. In a society where truth becomes treason, we are in big trouble." - Ron Paul
"During times of universal deceit, telling the truth becomes a revolutionary act." - George Orwell (My Few Wise Words of Wisdom' (2000) by Charles Walker)
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