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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.”
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 discovered a fascinating report from Mobey Forum this morning.
It was released this week, and says that “providing consumers with the convenience and functionality of mobile wallet technology will not be sufficient to drive mass-market adoption”.
Mobey Forum – which describes itself as “the global bank-led industry association defining a prosperous mobile financial services ecosystem” (try saying that one at a drinks party and enjoy drinking on your own) – make it clear that simply taking a traditional wallet and sticking it into a mobile app is a waste of space.
They assert that, instead, the mobile wallet needs to leverage value through loyalty schemes, coupons and offers to be more relevant to the consumer than their old wallet.
In fact, the paper claims that of the three factors that motivate mobile wallets – convenience, security and value – it is the last one that is the most important, even though it is the last well defined.
They also note the confusion created by terminology, with most of using phrases like mobile money, virtual or digitised or electronic or mobile “wallets” or “purses”, and make a clear definition of what is a mobile wallet.
“A mobile wallet is functionality on a mobile device that can securely interact with digitised valuables. Mobile wallet may reside on a phone or on a remote network / secure servers. It may be only accessed via a mobile device, and also managed and used with it. Most importantly, it is controlled by the user of the wallet.”
They also make clear that “a mobile wallet without payments means is not a working wallet”.
They then make a call to ensure that mobile wallets are offered as open platforms where the user is in control, rather than anything system limited by the provider. An interesting concept, and one that will be intriguing to see how it plays out, e.g. will Citi, BNP, Deutsche, HSBC et al be happy to co-reside in an open platform ecosystem?
Finally, they have a lovely little chart in there that shows the mobile wallet ecosystem and attributes (doubleclick chart for bigger verson):
Here’s the full paper for a download if you’re interested, and this is the first in a series of papers from Mobey Forum to “provide the industry with a new level of thinking on what is required of stakeholders to facilitate widespread market adoption of the mobile wallet”.
The other papers will look at the control points, industry stakeholders, security and value propositions for mobile wallets, all of which will be found at www.mobeyforum.org.
Meanwhile, I’ve been receiving a few more nudges of mobile videos of financial apps, so here’s a few of my favourites.
This is the best lifestyle version I’ve seen lately, from my mates at Banco Sabadell, Spain:
This one, from OCBC in Singapore, allows you to scan your bills to pay them with a swipe (checkout one minute into the video):
But my favourite is this one ‘cos it’s incredibly cheesy:
Originally NAB came up with a brilliant campaign to differentiate themselves from the other mainstream banks in Australia with a campaign called “The Breakup”.
I really liked it, but they haven’t really followed it through as their next campaign was good, but completely unrelated to The Breakup.
This one was all about trying to get a viral campaign going thorugh using honesty as a theme.
Having said that, their Breakup website does reinforce the theme and message.
So I’ll be interested to see what their latest campaign’s impact is, when it premiers on Monday.
It’s theme is Being Lockedin, and targets mortgages specifically where, once taken, they’re very hard to break out of.
This is illustrated by the first of two ads, where first time buyers are shown what it’s like to be locked in ...
… literally.
It seems a bit nasty and miserable, but nowhere near as nasty as the creepy sensation you get as watch the other ad, called The Job Interview.
I get the message with these two ads, but wonder whether folks might find them a bit too creepy to want to see a bank that literally locks them in, even though they’re trying to send the opposite message.
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.
I was trying to work out what would be a luxury or aspirational brand in banking.
There are plenty of banks out there, and plenty of bank brands, but are any of those brands truly aspirational?
For cars, it’s easy: Ferrari and Aston Martin, or BMW and Mercedes dependent upon your aspiration.
For watches, it’s easy: Rolex, Patek Philippe and Cartier, or TAG Heuer and Rado dependent upon your aspiration.
But for banks: are there any you truly aspire to be a customer of?
I can’t think of one.
Maybe a private bank like UBS, but their shine has been sullied of late.
Maybe Coutts ... but that's just a part of Royal Bank of Scotland.
Maybe HSBC, but it’s not a major aspirational brand but more of a functional brand, like McDonalds.
In fact, maybe all banks are more like McDonalds and Coca-Cola than Ferrari and Rolex … just functional, everywhere, everyday services, rather than prestige, aspirational and upmarket.
Which brings me to the only one I can think of – although I am ready to be corrected – which is the AMEX Centurion card, otherwise known as the “Black Card”.
The card is only available by invitation and costs around $2,500 a year.
Nevertheless, a card from AMEX is a model, not a brand.
AMEX isn’t my aspirational brand, but their card is.
So there is no aspirational financial brand out there.
Or am I wrong?
Don’t think so, as this theme is born out when looking at the top brands worldwide.
2010 Rank 2009 Rank Company Brand Value ($m) Change
24 22 American Express 13,944 -7%
29 37 JPMorgan 12,314 29%
32 32 HSBC 11,561 10%
37 38 Goldman Sachs 9,372 1%
40 36 Citi 8,887 -13%
52 57 Morgan Stanley 6,911 8%
68 NEW Santander 4,846 N/A
74 NEW Barclays 4,218 N/A
80 NEW Credit Suisse 4,010 N/A
82 94 Visa 3,998 26%
86 72 UBS 3,812 -13%
American Express
While American Express’s brand value is still far from what it was in 2008, it has weathered the financial crisis fairly well. Now more than ever, a credit card that requires you to pay it off monthly and is prudent about who it offers credit to, looks like a safe investment. Moreover, no other credit card company successfully charges and justifies an annual fee like Amex, and with new credit card regulation impending, its revenue model is much less at risk than competitors'. As Warren Buffett recently said in an interview with CNBC, “American Express is going to be around forever.” However, this hasn’t kept the brand immune from its own share of embarrassments. For example, in April, Amex signaled to the world that it was in trouble when it offered a small number of cardholders with ongoing debt issues US $300 each to pay off their account balances and close accounts – a move that was made to reduce the risk of defaults.
JPMorgan
J.P. Morgan is one of the few financial services brands that emerged from the economic crisis with its brand intact. While it has recently made impressive economic gains, like most brands in its space the firm still suffers from negative public perception, as evident from sites like JPMorgan666.blogspot.com. However, in comparison to Goldman Sachs, J.P. Morgan faces fewer challenges when regaining customer trust. Additionally, the firm continues to be viewed positively for its internal efforts. For example, it was just voted the number one ideal employer in financial services for undergraduates by BusinessWeek, and it was ranked at the top of Bloomberg Markets’ ranking of investment banks in April. This year, J.P. Morgan’s effort to go mobile with its launch of MorganDirect on iPhone, as well as its investments in corporate citizenship practices like a student-led project in Rwanda, were notable.
HSBC
Despite the damage inflicted by the financial crisis on all financial services brands, HSBC remains the most differentiated in the marketplace and, like J.P. Morgan, emerged with its brand intact. Yet while it still aims to be the leader in its sector, customers are watching it closely due to its involvement in the subprime mortgage scandal, and even more recently, the data theft of its customers’ personal account information. Despite being well known due to a heavy media presence, HSBC’s lack of retail presence in non-core markets has consistently hurt the brand. It actively seeks expansion opportunities, particularly as brands like Santander extend their reach. This year, HSBC has continued to explore opportunities in emerging markets, though the economic results in Asia were less rosy than anticipated.
Goldman Sachs
For decades, Goldman Sachs was the firm that Wall Street envied. It bred some of the smartest investment bankers and proprietary traders and housed large private equity and hedge funds. Today, however, its aggressive, titanic leadership image has become a detriment. While the bank may appear to have been humbled with the rest of Wall Street in 2008, after a government bailout, strong earnings and high bonuses have led to a great deal of debate around whether Goldman Sachs is working in the best interest of its clients or itself. Despite a recent settlement with the SEC regarding mortgage securities fraud, reports of the company’s currency swap deal that may have led to Greece’s collapse only fuelled the fire. Goldman currently faces a dichotomy: On the one hand, its economic results appear to be more stable than its competitors (although it faces a weaker quarter). On the other, it faces an angry public who will only continue to lash out until Goldman Sachs begins to demonstrate that it is making sincere efforts to better align its ethics with its brand.
Citi
Citi was one of the brands most impacted by the economic crisis and there is continued uncertainty around the long-term direction of the bank. As a result, it is working at reinventing itself by admitting its errors, owning up to problems, collecting customer feedback on a blog dedicated to improving the brand (the new Citi blog) and vowing to change and recover. But Citi doesn’t appear to be out of the woods quite yet; it recently announced that it lost around US $1.6 billion in the fourth quarter of 2009, mainly from trying to pay back the federal government, and it has a total loss of US $7.6 billion for the year. Its attempts to be honest and restructure are a good start, but the brand needs to go a long way to regain trust.
Morgan Stanley
Morgan Stanley was severely damaged by the financial crisis, but the firm seems to have made the appropriate changes in its strategy and management and appears to be on the right path to rebuilding its reputation as one of the world’s largest and most respected financial services companies. This year, it aggressively completed a merger with Smith Barney, to become the largest brokerage force in the world. While this was a big move, Morgan Stanley has remained focused primarily on internal operations – from corporate citizenship to pursuing its signature expansion and innovation. Meanwhile, it has yet to clarify the merger’s impact externally. A focus on unifying the company as well as a stronger attempt to differentiate itself through interpersonal relationship with clients and financial advisors will be crucial in the years to come.
Santander
The stable, well-managed Spanish bank Santander, which saw little impact from the financial crisis due to its conservative banking style, is a new entrant on this year’s rankings, due to an increased international presence. Since 2008, it has focused on bolstering its presence through acquisitions including Alliance & Leicester in the U.K, Sovereign in North America and SEB in Germany. While the acquisitions put Santander in an enviable position, its ambitious and quick expansion does come with risks: for example, inconsistencies in its visual, verbal identity and experience. However, moves to quickly and seamlessly rebrand its newly acquired U.K. brands as Santander show that the brand is aware of the problem. As the largest financial franchise in the Latin American region, it continues to hold a position of leadership in the key fast-developing markets of Brazil, Mexico, Chile and Argentina, which bodes well for its future.
Barclays
Barclays’s aggressive positioning during the downturn, U.S. expansion and a concerted effort to design and implement a global, group brand architecture strategy have boosted the brand and made it a significant international player. This year Barclays focused on a number of brandbuilding endeavors, including a new and improved design for its website, which was well received, particularly for Barclays’s effort to provide tangible ways for clients to increase control over their finances. Its iPhone game, one of the most popular free, branded games in the history of the iTunes App Store, was another breakthrough as well. Barclays was also commended for its sustainability efforts: Barclays Spaces for Sports was named Corporate Social Responsibility Initiative of the Year at the Peace and Sport Awards in Monaco. Growth looks particularly good in developing countries, where Barclaycard is making headway into the world of payments as credit becomes more popular. Still, Barclays’s efforts to become a top global bank have come with risks – most notably in the increased spend it has put into its investment banking business. It may or may not pay off, depending on when the capital markets recover.
Credit Suisse
New entrant Credit Suisse is among the winners to emerge from the financial crisis. It cut risk early and did not have to take any government money. As a result, the firm was able to embrace a client-focused strategy that has earned Credit Suisse accolades from its clients and the press. In both investment banking and private banking, it has been able to capitalize on the difficulties of its competitors and deliver the highest returns on capital in the industry. The focus on keeping a low profile, stability and consistency has suited the firm well. The key question going forward is whether Credit Suisse can maintain its course and continue to leverage its strengths as competitors regain momentum.
Visa
This year Visa continues to prosper due to its unusual position. While most major banks risk foreclosure, Visa’s business model is based on its support of plastic cards and network-based services, so it doesn’t have the same risks as normal banks. Additionally, as we move toward a paperless and digital society, these cards seem more appealing. Visa’s commitment to security has also become a real differentiator as the risks of online shopping and the general temperature of our culture have made safety and trust more of a concern than in the past. This year, Visa showed foresight by addressing the public’s growing concerns regarding managing personal credit through financial literacy materials with the aim of educating consumers. It has also emphasized transparency on a new blog, which shows how Visa works with its partners to instill key financial skills and encourage responsible spending across the globe. Its presence at international event like the Olympics 2010 Winter Games as well as the FIFA World Cup also served it well this year, elevating its visibility.
UBS
UBS has been at the heart of the financial tsunami and emerges damaged from the economic crisis with its reputation far below levels several years ago. While UBS is planning to build on its long heritage, and the company is clear about its objective of regaining trust, there is no sense that internal efforts are impacting customers. This is particularly true in the U.S. and Europe, as all of the bank’s efforts are constantly being undermined by scandals like its damaging U.S. tax evasion case. Despite this, confidence in the bank continues to remain high in Asia, where UBS plans to expand operations.
You got it. The followers of the film on Twitter and Facebook set the story.
The opening scene is that Christina Perasso, our hero, has been kidnapped and is stuck in a room with just a laptop and an internet connection.
She will only find her way out … by letting you in.
Yes you.
All of you.
All of the 10,000 plus fans on Facebook and 1,200 plus followers on Twitter.
Obviously, some are enjoying it a lot.
Here’s a couple of comments on the above video clip.
Zxykary:I showed my grandma this and she thinks that it's an actual situation, she's trying like crazy to get the authorities... She called the police like twice...
Makotosolo:
Woman with husky voice? Check.
Blue jeans? Check.
White tank top? Check.
Generic panicky situation? Check.
We've got ourselves a thriller, ladies and gentlemen.
She’s posted a few more clips since, which you can follow if you want.
And on Facebook, she’s generally being discussed by and talking with her fans and followers, who are adding other dimensions to the story and helping with clues for her to follow …
The point is that you are not only immersed in a film, but fully interacting with the character and feeling like part of the story.
It has some faults such as holes in the plot, inconsistent writing and a lack of response to some interactions and ideas, but it’s a great concept of how to market online in the age of social media.
Follow the film throughout this week and see if Christina is saved … or otherwise.
Meanwhile, what this should tell us is that marketing today is no longer about a dumb page in a magazine or a flash 30 second clip on the TV.
Sure, we know that but what this films tells us is that it goes way beyond this today.
Five years into the social media revolution, marketing is now not just about user-generated content through competitions on YouTube, Twitter and Facebook.
It’s about total engagement, two way and true way.
Total immersion and total entertainment.
You may think that it’s not important, but in the age of 100% attention deficit disorder due to the text messaging whilst status updating whilst talking and eating, it’s pretty hard to get people to get your message.
This might just be the start of a long way towards achieving a new way of marketing that bank experiential marketers will soon be following.
It’s NAB, National Australia Bank, who recently pulled the pants down on their competitors by telling them they were all dodgy in a national advertising campaign framed around the theme: “it’s over between us ”.
The aim was to set NAB apart from the pack of banks, and it worked.
According to the Australian newspaper, the campaign has led to NAB seeing a 50% boost in credit card applications, a 20% increase in mortgage applications, a 35% increase in interest from customers of other banks in moving over to NAB, and a 1% increase in NAB's share of the mortgage business.
Pretty impressive stuff and how do you follow that?
With something not quite as buzzy, but still interesting.
Let’s test honesty.
On Sunday, the bank is launching a whole set of viral social stuff themed around: “An Honesty Experiment”, looking at how honest are Australians.
It comes with some cute videos and my favourite is the third in a series, where some tosser Bruce drops cash all over the pavement …
And all the Sheila’s and Bruce’s give it back to him!
It’s all on YouTube, Facebook and Twitter and is coupled with research that reckons the average Aussie tells less than three lies a week.
That’s a great message, and indicates that most Aussies are honest
Obviously, not the ones who play cricket, but that’s another story.
So then it got me thinking about honesty elsewhere, and I found an interesting survey from Synovate, who set out to test the honesty of 2,640 survey panellists in the US, Germany and Thailand, and found that US respondents are more likely to provide truthful answers than Germans and Thais.
We just bribe our police to give us info about the Queen, the Prime Minister and anyone else we need to know about.
On a less serious note, a recent survey of 15,000 Brits found that over two-thirds of people admit that they have steal stationery from work, copy CDs for friends, or kept quiet when undercharged in shops.
I just made a comment this week about Facebook Credits being bigger than Amazon by 2020.
This was on the back of my favourite stories about Zynga becoming the biggest PayPal merchant in under a year on the back of Facebook games, and how QQ and Second Life currencies have been examples of how virtual currencies can and will work.
But I suspect Facebook might screwup this opportunity as they stiff their community with the 30% fee base and mandatory usage of credits.
It seems like restrictive practices that a monopolistic firm would apply, and does not fit the nature of community-based practices.
So, as I haven’t blogged in detail about this, here’s a quick round robin on what’s hot in the virtual currency world of Facebook.
From Facebook’s overview: “Facebook Credits are a virtual currency you can use to buy virtual goods in all games on the Facebook platform. You can purchase Facebook Credits using your credit card, PayPal, a mobile phone and many other payment methods powered by PlaySpan.”
The basic idea is simple.
If you are playing games in Facebook, such as Zynga’s Farmville or Cityville, you can quickly and easily buy additional fun using the Credit system.
This interview with John Silverman, chief executive officer of Ifeelgoods Inc on Bloomberg on 1st July, puts it all in context:
The reason July 1st was a big day is that this was the day when Facebook made it mandatory to use Facebook Credits for any games or apps on Facebook.
Now this is where it gets interesting, as Facebook take a 30 percent cut from any payment made using Credits. That’s a whacking big slice of the action.
By way of background, the 30 percent cut was introduced in February 2010, nine months after the Credits system was launched in May 2009, with the idea that 70 percent of the payment stays with the developers of games whilst the 30 percent allows Facebook to develop the games ecosystem.
Zynga is the biggest gaming firm on Facebook, and therefore critical to the success of Facebook Credits.
Zynga are the fuel that created a sustainable gaming system on the social network.
This is illustrated by the documents Zynga just filed for their IPO, with many believing their business will reach a valuation of around $20 billion.
Not bad for a firm that deals in virtual nothings.
“From 2009 to 2010, Zynga’s revenue increased 392 percent. In 2010, Zynga made $27.9 million profit on revenue of $597.5 million. In the first quarter of 2011, the company had revenue of $235.4 million, a 133 percent increase from the previous year, putting it on track for well over $1 billion in sales this year.”
So you can see why Facebook needs Zynga and Zynga needs Facebook but, with Facebook stealing taking 30 percent of Zynga’s revenues, there would be some issues here surely.
And of course, there were until a deal was struck in May 2010, where Facebook and Zynga agreed a five year partnership for the use of Facebook Credits in Zynga games.
The deal would obviously be a sweet one, but what does it mean after 2015 for Zynga?
“In 2010 Facebook adopted a policy requiring applications on Facebook accept only its virtual currency, Facebook Credits, as payment from users. As a result of this change, which we completed in April 2011, Facebook receives a greater share of payments made by our players than it did when other payment options were allowed. Facebook may also change its fee structure, add fees associated with access to and use of the Facebook platform, change how the personal information of its users is made available to application developers on the Facebook platform or restrict how Facebook users can share information with friends on their platform. Beginning in early 2010, Facebook changed its policies for application developers regarding use of its communication channels. These changes limited the level of communication among users about applications on the Facebook platform. As a result, the number of our players on Facebook declined. Any such changes in the future could significantly alter how players experience our games or interact within our games, which may harm our business.”
In other words, Zynga’s business is TOTALLY reliant on Facebook.
It is why Zynga filed documents with the Security and Exchange Commission last Friday, saying that it generated “substantially all our revenue” from Facebook and that a breakdown in the relationship could “harm business and adversely affect the value of our Class A common stock”.
Maybe Facebook should buy Zynga or something, but this is not the point of this piece. The point of this piece is that Facebook is on course to generate $1 billion in revenue this year from social gaming.
If that is the case, the social gaming market on Facebook alone is worth at least $3 billion, as they’re taking a 30 percent cut.
This is an ecosystem that is only a couple of years old.
And sitting on Facebook is an Amazon-styled embryonic retailer called Payvment.
Described as ‘the mall of the future’ , it has 60,000 retailers in its social store, with about 400 new etailers added every day.
So here’s why I think Facebook Credits is big news.
If Facebook gets its act together for using Credits for Commerce, then they could be bigger than PayPal and Google.
This is because, by 2020, Facebook – or it could be Google Circles or something else – will be the internet.
People will go there first and stay there, visiting all of the destinations these ecosystems offer and trading with them in their currencies.
These social sites will house millions or even billions of people in a social ecosystem that embraces music, relationships, ideas, creativity, business … life basically.
And where there’s life, there’s commerce.
As a result, the dominant internet-hosted world of 2020 will encourage their credit system as the de facto standard.
Just like PayPal did for Web 1.0, Facebook or Google will try to become the de facto payment service for Web 2.0.
It may be in partnership with PayPal (Facebook) or a bank (Google), but all the user will see is their internet-hosted world.
The way Facebook could get into this space is by offering Credits as bonuses to retailers who transact through their service.
They may do this in partnership with someone like Payvment, and offer 1 Facebook Credit as a bonus for every $10 spent.
The credits can then be used by retailers to advertise on Facebook and so on and so forth.
In other words, it becomes a virtuous virtual circle.
Rather obvious really.
So the vision a bank should be considering, if they want to be relevant to this future life, is that if there’s a next generation world where everyone lives virtually, exchanging virtual goods and services with virtual credits, where is the relevance of the bank?
Right now, in the context of social worlds and virtual currencies, banks are irrelevant except as dumb pipes beneath.
After all, Zynga sits on Facebook Credits which sits on PayPal which sits on banks.
Everyone’s taking a cut to reinvent the system for the future world.
But what if the future world says “no”.
Tomorrow, Amazon just sits on Google Circles, and who needs anything else?
In the 1990s, I spent a long time studying bank trends and the future strategies banks and other would take.
The conclusion I came to is that there would be a general cross-industry bank trend, where non-banks would enter banking and, in order to get banking skills, would acquire banks.
The end-game would be that banks would acquire and merge with retailers, telco’s and other bank-like companies whilst bank-like companies, such as retailers and telco’s, would merge with banks.
Two decades later, that prediction hasn’t come true.
Banks are still banks and non-banks are still non-banks. For all the forays of non-banks into banking, banking still remains the core domain of banks.
Sure, there’s been some erosion of the periphery – savings, investments, loans, credit cards – but the core remains the banks primary domain: the deposit account.
This is because the core account is based upon the transaction.
The payment.
The piece that everyone says is commodity, but it’s actually the sticky bit that allows banks to go for the share of wallet around it.
Core transaction services are the stomping ground of banks and it’s the reason why they are so loathe to lose it.
But as the Payment Services Directive, Faster Payments and more encroach into the system, more and more non-banks are starting to attack that core bank capability.
Transactions are no longer a bank’s domain.
It’s why M-PESA has shaken the Kenyan banking system, as Safaricom takes over the core processing of payments across this country to become the nation’s number one bank.
And it’s the reason our friends at Banking Review write about some new research from Amdocs, which states that banks will end up in a head-to-head battle with mobile carriers.
The telecommunications industry is on a collision course with the banking sector ... that’s the finding of new research from customer experience systems provider Amdocs, which interviewed 120 telecommunications service providers across the Asia Pacific region ...
The survey found 95 per cent of all telecommunications operators have an active, defined strategy towards mobile payments, with billing on behalf of app stores and virtual goods, and prepaid top-ups the top three most popular markets being pursued.
If that statistic isn’t enough to scare bankers, there’s more. Over three quarters (84 per cent) of telcos surveyed are pursuing bill payment services, 79 per cent are investigating peer-to-peer money transfers, and 76 per cent are working to offer point of sale or wireless services to enable the purchase of products. And it’s all about the money, with new revenue streams the reason given by 83 per cent of those surveyed when asked the major benefit of pursuing mobile payments.
It's good scary stuff.
But I have to spread a little sprinkle of salt on this cauldron of change.
And my salt says that banks have been very good at stopping any non-bank stealing their turf over the past two decades. That's why we haven't seen a cross-industry merger and acquisition spree yet.
It still may happen and telecommunications firms and banks may merge and become one in the future but, for now, the idea of mobile carriers and other non-banks eating the banker’s lunch is nice in principle but, in practice, a head-to-head with the mobile carriers is unlikely.
After all, any non-bank that tries to get into a bank’s core domain of stickiness is going to be seen as a predator and, being especially adept at deflecting predatory activities, are banks just going to sit and let this happen or will they move the goalposts?
I suspect the latter and that’s what we’re seeing right now: the goalposts moving.
Banks are moving from basic transactional services – which the mobile carriers will attack – and into what I will call Transactions Plus.
Transactions plus, or Transactions+ if you prefer, is where banks demonstrate their worthiness by showing you that it’s not making a payments transaction that is important.
You can now make a payments transaction with anyone: a mobile carrier, Western Union, PayPal, Square … you name it.
What’s important is the ‘+’.
The + is everything that goes with the transaction: the cash dispenser, the online access, the contact centre focus, the budgeting system, the app …
This is how banks in the tweenies – the teenage years of the new millennia – will make their gains and differential.
They will focus upon the everything that goes around the transaction, rather than the transaction itself.
This is just as true in commercial banking, where corporate value-added services are the key, as it is in retail banking due to the basic transaction itself being commoditised.
The issue therefore is to realise that what was once the core stickiness for a bank service – the transaction – is no longer core.
This is the piece that has been yielded to the non-banks and is no longer a focal point for the bank.
And that is the point that Banking Review has picked up on, in that the core transaction processing of a payment is now an area where banks are head-to-head.
It is why banks need to focus upon the Transaction+.
For banks that understand this, they are creating stickiness elsewhere in the system.
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.
For years, marketing and market research firms have talked about demographics, using job, age and location as a way of targeting customers.
We talk about ACORN and MOSAIC, two classification systems for targeting consumers with offers.
MOSAIC is used by Experian to classify UK households, with the current version structuring the 61,838, 154 individuals in the UK into 15 main socio-economic groups and, within this, 67 different types. ACORN divides the population into five categories from Wealthy Achievers (25.1%) to Hard Pressed (22.4%). Within this, we have a heavy dose of age demographic categorisation too, with categories such as “Affluent Greys” – old folks with money – and “Burdened Singles” – young folks without money.
Such things are meant to determine what people will buy and use, their attitudes towards offers and firms, their education and sophistication, and so on and so forth.
From a marketing perspective, they are useful.
From a banks perspective, they are good indicators of wealth, affordability and income.
The trouble is that it leads us down the road of ignorance, because we often use such classifications to stereotype.
As a result, we think of people in these buckets of lifestyle, and you can never believe what you think.
Two examples.
When all of the new media has arisen of recent times, most of my time was spent either (a) explaining what it was, (b) talking about who uses it, and (c) educating why it is relevant to a bank.
During 2005 through 2008, I spent almost every day asking if anyone used Facebook or had heard of Twitter.
Now, of course, we all know what these things are although I still struggle to explain why it’s relevant to a bank as many people, even now, say to me: “oh, that’s for the young people isn’t it?”
No!
It’s not!
It’s not even for anyone who wants to socialise online.
It’s for anyone who wants to COMMUNICATE online.
It is why Facebook has far more users http://www.checkfacebook.com/ over the age of 25 than under, and Twitter even more so …
Most social media users are wealthy, educated, in employment and mature, so this is your target audience.
However, going back to our stereotypes and demographics, the belief that such media was for youth stems from our sterotype of new technology that is hip and cool being for those who adapt the fastest: youth.
It's not.
It's for those who enjoy the way technology improves their lives, which can be almost anyone.
Stop believing that tech is for youth.
You can never believe what you think.
Second example.
I spent some time with a bank a little while ago, who were proud of their new branch layout.
The branches had several conference room areas for private consultations.
In particular, they had designed two rooms for high net worth individual dialogue.
The Senator Room is a lavish, leather and oak room, styled as an old library with deep pile carpeting. It is for the affluent senior to talk about their investment portfolio and retirement needs.
The iPod Room is all plastic and cool bucket seats, styled like some sort of hip thing from Space 1999, it was targeted at the youth audience who would want to be hip and cool as they talked about their needs.
When the branch opened, the young folks naturally went to meet their bank advisors in the Senator Room, whilst the old folks wanted to talk in the iPod Room.
The reason?
Young people want their bankers to be serious, capable and to have gravitas; old folks want to regain their youth, and feel that they’re hip and cool by being in the youth area.
Stop believing that tech is for youth.
You can never believe what you think.
FYI, here are the 55 ACORN categories of consumer demographic:
Wealthy Achievers
Wealthy Executives
01 - Affluent mature professionals, large houses
02 - Affluent working families with mortgages
03 - Villages with wealthy commuters
04 - Well-off managers, larger houses
Affluent Greys
05 - Older affluent professionals
06 - Farming communities
07 - Old people, detached houses
08 - Mature couples, smaller detached houses
Flourishing Families
09 - Larger families, prosperous suburbs
10 - Well-off working families with mortgages
11 - Well-off managers, detached houses
12 - Large families & houses in rural areas
Urban Prosperity
Prosperous Professionals
13 - Well-off professionals, larger houses and converted flats
14 - Older Professionals in detached houses and apartments
Educated Urbanites
15 - Affluent urban professionals, flats
16 - Prosperous young professionals, flats
17 - Young educated workers, flats
18 - Multi-ethnic young, converted flats
19 - Suburban privately renting professionals
Aspiring Singles
20 - Student flats and cosmopolitan sharers
21 - Singles & sharers, multi-ethnic areas
22 - Low income singles, small rented flats
23 - Student Terraces
Comfortably Off
Starting Out
24 - Young couples, flats and terraces
25 - White collar singles/sharers, terraces
Secure Families
26 - Younger white-collar couples with mortgages
27 - Middle income, home owning areas
28 - Working families with mortgages
29 - Mature families in suburban semis
30 - Established home owning workers
31 - Home owning Asian family areas
Settled Suburbia
32 - Retired home owners
33 - Middle income, older couples
34 - Lower income people, semis
Prudent Pensioners
35 - Elderly singles, purpose built flats
36 - Older people, flats
Moderate Means
Asian Communities
37 - Crowded Asian terraces
38 - Low income Asian families
Post Industrial Families
39 - Skilled older family terraces
40 - Young family workers
Blue Collar Roots
41 - Skilled workers, semis and terraces
42 - Home owning, terraces
43 - Older rented terraces
Hard Pressed
Struggling Families
44 - Low income larger families, semis
45 - Older people, low income, small semis
46 - Low income, routine jobs, unemployment
47 - Low rise terraced estates of poorly-off workers
48 - Low incomes, high unemployment, single parents
49 - Large families, many children, poorly educated
You may have seen the T-Mobile UK ads, where a flashmob arrive at Liverpool Street Station or Trafalgar Square, London, and start a song or greet passengers at Heathrow airport ... brilliant.
It's feelgood stuff, brings a smile to your face and is just, well, 21st century cool.
So it's nice to see a bank nick the idea and run this in the USA.
Wells Fargo's flashmob in Times Square, New York this week ...
Nice one.
Oh, and if you missed the T-Mobile ones, here's my favourite ...
the fact that banks should move from being safekeepers of money to being safekeepers of data;
and so on and so forth.
So when I read Venessa Miemis's article on the Bank of Facebook today, part of her Future of Facebook Project, it inspired me to think of things a little differently and look at:
who are safekeepers of data today;
what are their attributes; and
what does it mean for banks?
The answer surprised me, as it explains why we should be worried about the likes of Google, Amazon, Apple, Facebook, Zynga and more entering the financial data space, because it's all about information warfare.
What is information warfare all about?
It is put best by this comment and quote from the Economist last year:
"'What we are seeing is the ability to have economies form around the data, and that to me is the big change at a societal and even macroeconomic level', says Craig Mundie, head of research and strategy at Microsoft. Data are becoming the new raw material of business: an economic input almost on a par with capital and labour."
It's all about viewing data as though it were capital or labour. A raw material for business.
Banks have long held the view that they are data managers.
For example, I regularly quote Walter Wriston, who was CEO and Chairman of Citibank from 1967 to 1984. Walter was famous for a visionary statement he made that: "Information about money has become almost as important as money itself."
He was/is so right.
If you're interested, there's an interesting Wired Magazine interview with Wriston in Wired Magazine in 1996 where lots of other visionary quotes ring out:
"Technology has overwhelmed public policy. People keep predicting this will lead to a crisis, but I don't think it will."
"Money that can move. It's the opposite of patient money. But money really has no volition of its own. It all depends on the people who own it and use it."
"The increased velocity of money gives you a difference in kind - not just degree. It's like a piece of lead: you put it on your desk, it's a paperweight; put it in a gun, it's a bullet. Same piece of lead. Big difference."
"This is the first time in the history of the world that every major country has a flat currency that is not based on gold or silver or some commodity. Today, the value of money is hooked to nothing other than the information that flows through it."
"Today, intellectual capital is at least as important as money capital and probably more so."
"We originally said that land was wealth. Then we thought it was industrial production. Now we realize it's intellectual capital. The market is showing us that intellectual capital is far more important than money. This is a major change in the way the world works."
Admittedly, this was during the height of the information revolution discussions of the 1990s, when Microsoft was rocking the world and mainframe moved to desktop.
But he formed this view - that the basis for wealth has evolved from land to labour to information - back in the 1970s, when technology first hit the banking system and moved us to an information economy.
Today, this vision is realised and businesses exist as information economies.
And they fight based upon information.
A good example is Google.
There are plenty of search engines around - Ask Jeeves, Lycos, Altavista, Bing, etc - but Google won this game early on by making algorithmic analysis of data more relevant and organised.
And they continue to do this today by making searches contextual and geographically localised.
And Google is not a monopoly. They have competition - Wolfram Alpha, an answer engine - and can only maintain their leadership by being just that: a leader in semantic answers.
Facebook is the same.
Facebook has had plenty of other players before them - Friendster, Friends Reunited, Bebo, MySpace, etc - and we forget very quickly these other players when one wins out.
However, Facebook is not a monopoly. They have competition - Diaspora - and only maintain their leadership through continual innovation and enhancement of their information management capabilities.
Apple is another example.
Apple were almost out of business when John Sculley ran the business.
Steve Jobs returned and it is through his leadership and vision of continuallyand elegantly innovating that they bounced back - oh yes, and recognising that the MP3 player would be the core of a lifestyle revolution.
The iPod has really been the making of Apple.
It gave them back their heart and meant that the legion of Mac users, who loved its simplicity and ease, could now be used as a music machine.
Then the vision of Apple was to introduce iTunes, and iTunes is the real engine as that's their information advantage.
The iPod can easily be substituted, as can the iPhone, but iTunes is a unique hold over information.
And that's where real information warfare begins.
Information warfare is all about continual evolution and leverage of data advantage over the potential and unrealised competition.
Which leads me to Amazon.
Amazon was all about books, we thought.
Sure, that's where it started, but it soon moved from books to music, films and more.
The company then got really smart and started to make data mining its core art form.
Data leverage by looking at dataprints - like fingerprints, the unique way in which each of us search, buy and consume - and then relating our dataprints to each other to find relationships.
By doing this, Amazon built its business on finding offers that you might buy, because people like you buy it and they know this thanks to our unique dataprints.
Soon, Amazon was more of a behemoth of data, moving into selling anything from white goods to televisions.
And it is easy to sell online, when you know how to leverage data relationships which is why even this was not enough.
Recognising its information leadership, Amazon opened Amazon Web Services (AWS) to become the largest cloud computing firm out there.
Amazon now adds server systems to AWS every day that would have been the equivalent of the complete server architecture required to run the total retail business two years ago.
That's information warfare - leveraging systems expertise to get more share of wallet, expansion of market, growth of proposition, and development of the offer into a range of services with no dependency on one.
If Amazon was still just an online bookshop, it would be dead.
Amazon is, instead, an information guerrilla and gorilla.
They win in the information as capital stakes.
Which brings me back to banking and the issue we face.
The reason we worry about Amazon, Google, Facebook, Apple and others is because they all know how to use information as capital.
They are all now pointing their information leadership at money.
Amazon attracts over 700 million visitors to its .com domain annually, and has around 65 million customers just on its US website each month
Apple has over 200 million active accountholders details on iTunes
Facebook's 600 million users like gaming - Zynga's Cityville reached 100 million users in just six weeks - and all gaming will find that it is mandatory to use Facebook credits from 1st July
I could go on, but here's the point: these guys know how to use information as ammunition.
* note that later in the interview he also says: "Who wants to do their banking at eight o'clock at night after a tough day in the office? The jury is out on that." Comments made about home banking which, in 1996, was not really available.
OK, so I said that banks would absolutely not be disintermediated last week, and it sparked some interesting debate and dialogue.
A few folks were incredulous that I could say this; others thought it made eminent sense; some noted that the movement of money could be disintermediated, but the holding of money could not; whilst others were up in arms over the fact that I could possibly believe any of it.
Well, for those who know me, it was written with a deep sense of irony and disbelief.
I absolutely believe that banks will be disintermediated and have believed it for a long time.
However, I also believe that some of the system will be protected and will never be destroyed or replaced.
This is the part that governments are regulating, protecting, licensing and calling too big to fail, or 2B2F.
The 2B2F area is the core of the monetary system, and needs to be protected.
If your social media account is compromised, it doesn’t matter too much that someone sends a status update saying: “I’m flat on my face in a flap” or worse from your account.
Sticks and stones will break my bones, but names cannot hurt me.
Losing money can hurt though, so it does matter if they steal all your worldly wealth.
This is the part that will never be disintermediated, and I guess that’s the part that Nancy Pierce of HSBC and Mark Buitenhek of ING were saying is core.
“We will absolutely not be disintermediated … who’s better to move the money than the banks?” Nancy Pierce, Head of Product Management for Payments and Cash Management Europe, HSBC
“Banks need to reinvent themselves as they will be disintermediated by other banks, because we are the only ones that are trusted for secure transaction processing.” Mark Buitenhek, Global Head of Payments and Cash Management, ING
But it’s open season for the rest of the financial system and yes, there are companies that claim they could replace VISA, MasterCard, SWIFT and other infrastructures.
In fact, as discussed on Monday, it’s warfare between the banks, card processors and PayPal.
The iDEAL system originating from the Netherlands gains more traction for banks across Europe as an alternative to PayPal; this is in the same moment as AMEX opens a P2P platform, as does VISA, as an alternative to PayPal; and this is in the same breath as PayPal stretches out towards physical store paypoints to compete with VISA, AMEX and MasterCard, as the online world merges with the offline.
A similar story can be seen in capital markets where the rise of Chi-X, from upstart electronic trading platform to the biggest trading system in Europe, took place in just two years (doubleclick image to see full size version):
A similar story can be seen with BATS in the USA, which is why BATS is buying Chi-X.
So disruption can occur.
In the latter case, it’s down to deregulation.
In the case of PayPal, it’s down to disruptive innovation and the dilemma of something that appears to be innocuous at first but soon becomes mainstream, e.g. with $4.2 billion revenues forecast for 2011, PayPal is now almost half the size of Citigroup’s Global Transaction Services business.
The real issue of disintermediation therefore, is not around the core of banking – the holding money area that is protected by banking licences – but around the boundaries of banking.
The thing is the boundaries is where all the profit lies.
The boundaries is everything from savings to investments, cards to loans, trade finance to treasury dashboards, insurances to wealth management, foreign exchanges to bond markets, pensions to mutual funds, swaps to futures, mortgages to marriages …
In fact, everything in a bank can be broken down into components of functionality and then traded in and out by new competitors.
Source: ACI Worldwide
This is the picture I’ve talked about for a while, where all of the processes and functions of a bank can become apps that users can download and integrate to build their own bank.
The Build-Your-Own-Bank (BYOB) is the new generation of banking.
It’s the generation where anyone from a banksimple to a Mint can step in and take out a piece of core banking.
That’s what disintermediation is really all about.
Taking out the parts of banking where there is not enough competition, and leaving the bits of banking that aren’t worth competing against … which is the part that is protected by licence because it’s too big to fail.
BYOB will absolutely be disintermediating, whilst 2B2F will never be disintermediated.
That’s the real bottom-line.
“Could we see a wholesale version of Zopa or PayPal? Yes, I think we can.” David Birch, Director, Consult Hyperion
“Disintermediation is well under way, and will happen very quickly.” Daniel Marovitz, Head of Product Management, Global Transaction Banking, Deutsche Bank
Mobile featured heavily throughout the International Payments Summit and it is clear that mobile is not only important; it is imperative.
This was made loud and clear by a comment from Daniel Marovitz of Deutsche Bank that it used to be that online and offline worlds were separate because, to make an online payment, you had to go to a computer and hit enter on a keyboard. Now that’s all changed as the mobile allows you to make online payments immediately 24*7 through a device in the pocket. That’s new and radical, as it means the online world is now integrated with the offline.
Through the course of such exchanges about mobile, several things became clear to me.
First, mobile is lumped in as one area, but is actually about a hundred different things;
Second, banks are finding mobile challenging because it has merged the online and offline worlds;
Third, banks see mobile opportunities based upon partnerships and joint ventures with mobile carriers, but this is wrong;
Fourth, the underbanked and unbanked are the initial targets to be serviced through the mobile carriers;
Fifth, apps are incredibly disruptive; and
Finally and most importantly, mobile is a real game-changer.
Let’s start with the fact that mobile is not one thing.
There is mobile internet and mobile texting; mobile apps and mobile devices; mobility and wireless; SMS and NFC; SIM and EMV …
There is mobile payments and mobile banking; mobile bill pay (checkout Danske Bank for this one) and mobile bill deposit; mobile balance checks and mobile cheque deposits (USAA et al); mobile account opening (Jibun Bank and eBank) and mobile telephone calls to contact centres (!) …
There is mobile identification and mobile biometrics (Voice Commerce); mobile secure tracking and mobile proximity marketing; mobile as a payments device and mobile as a point of sale; mobile for texting money and mobile for reading QR codes …
There is such a rich variety and diversity of what is meant by mobile now, that it is plainly annoying to talk about mobile as though it is a single thing in banking.
I would suggest that talking about mobile is like talking about banking.
“Oh, I want to talk about mobile” is the equivalent of saying, “Oh, I want to talk about banking.”
What sort of banking do you want to talk about?
Retail, investment, commercial?
Brokerage, wholesale, branch?
International, domestic, regional?
FX, derivatives, exotics?
Online, offline, direct?
Come on.
Get some context around mobile and start talking the specifics, not the generics.
Second, the merger of offline with online.
I’ve already mentioned this, and said it was a challenge.
It was already a challenge, when we talked about having customer contact 24*7.
When we moved into call centres and then the internet, it was a challenge as customers were suddenly making demands at 3:00 in the morning.
But we handled it.
Now customers are using mobile devices to use bank services 24*7 electronically.
And yes, we will handle it … but it’s slow.
Take the example of making a mobile payment,.
During the conference this week, David Birch of Consult Hyperion challenged any bank in the room to make a payment using a mobile directly from their bank account to any individual in the room.
No-one could.
Sure, you can use mobile to do bill pay, balance cheques, money transfers and more; but a simple exchange of £20 between me and you? Forget it.
The only way to do that is via PayPal!
So banks get mobile, but they’re getting it v e r y s l o w l y.
It reminded me of how Chip & PIN was born.
Chip & PIN was conceived in the year 2000, developed in the year 2003 and implemented in the year 2005.
Five years to get from an idea to the delivery of a new security system.
In that same timeframe, Facebook created over 600 million users and took over the planet.
When I asked the leadership for Chip & PIN why it took so long, he explained it has to be a cohesive and consensual process.
So ok, you move at the speed of the slowest.
When I asked him why they went for Chip & PIN rather than Mobile & PIN which, by 2005, would have made far more sense; he said it was because mobile was not advanced enough in 2000 to be used as a security device via SMS and OTP (One Time Passwords).
But it is now!!!!
So why banks still take five years to make a decision and implement it when it takes Zynga six weeks to release a social game and garner 100 million users is beyond me.
Third, banks think winning in mobile is through JVs and partnering but this is wrong.
Banks are not the best organisations at collaboration, except amongst themselves.
It is difficult to name a single successful bank and non-bank partnership, but easier to point to others that failed.
This is because bank business models are completely unique and different.
Banks deal in basis points – bps … who else deals in bps???
Banks are regulated for resilience, security and robustness, whilst mobile operators are regulated for agility, innovation and fees.
If a mobile call fails to connect it's irritiating but there's no problem; if a payment fails to get through, there's a problem.
That's why banks want to control everything which, in a partnership, is not a good thing.
The result is that for all their good intentions, banks find partnering tough.
I could point to 1,000 examples but the best is NTT DoCoMo.
NTT DoCoMo and their e-wallet Osaifu Keitai, is liberally pointed to everywhere as being the most advanced mobile service in the world.
Its financial usage as an ewallet, NFC device and more is second-to-none.
So when NTT DoCoMo wanted to get bank services on their mobile, what did they do?
They bought a credit card company.
Far easier than trying to partner with a bank that didn’t understand them or their business model.
The same can be said for several other carriers, such as easypaisa in Pakistan and, in the case of established mobile carriers like Vodafone’s Safaricom in Kenya who operate M-PESA, when a mobile carrier does partner with a bank it will be on their terms, not the banks.
Which brings me to my fourth point: the underbanked and unbanked are the target markets for mobile carriers.
Nokia Financial Services, Ericsson, Telecom Italia and others attended this week’s Summit and they all underlined the same view: it is the underserved that will use mobile first.
This is why mobile has succeeded in Africa, and is now crawling across other regions where markets are under-served.
Where people had no access to bank or payment services, being able to suddenly make and take a payment wirelessly via the mobile is nirvana.
You suddenly have a service that previously was only available by walking 100s of miles or having someone do that on your behalf for a massive fee.
You have a service that used to cost a bucketload, being commoditised into a cheap wireless activity.
For the unbanked and underbanked, mobile moves the world from high cost remittance services to low cost wireless services.
That’s a big deal.
It is the reason why the mobile carriers will go for the high volume, low value first.
Grab the customer base the banks don’t want.
Look after the microfinance and low profit pool.
It’s only just over three billion people.
If banks ignore three billion people, that’s ok.
Someone can make money out of that.
High volume, low value money, but money all the same.
And that’s the mobile carriers’ mission.
Intriguingly, that’s also a classic innovator’s dilemma approach, in the words of Clayton Christensen.
Start with the bottom-end, then upscale.
The fifth area is how apps are really disruptive.
I’ve already talked a bit about disruptive apps such as Angry Birds, a $0.99 mobile app that generated $75 million for its creators in a year.
Apps create micropayments and micromoney.
More importantly, apps deconstitute banks into components.
This was first demonstrated by BBVA who launched the tu cuentas service two years ago, but has built up a head of steam such that my vision of Banking-as-a-Service (BaaS) is finally here.
BaaS allows the user to mix and match apps to suit their financial lifestyle and build their own bank in the cloud.
That’s new and different, and is something unthinkable even a few years ago.
Which brings me to my final point: mobile is a game-changer.
When the online and offline worlds meld into a seamless service, the world has changed.
When everyone on the planet can be connected P2P, B2C, E2E, the world has changed.
When anything can be moved electronically and wirelessly 24*7, the world has changed.
When industries that were delineated are merged and integrated, the world has changed.
When you can balance check with an app or text your partner money at three in the morning, the world has changed.
When money can be transacted from an African village to an Indian paddyfield via a Chinese entrepreneur and an American taxi driver, the world has changed.
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.
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