The Financial Services Club is a unique service designed for Senior Executives and Decision Makers from any firm interested in understanding and planning strategies for the future of banking and finance.
We have a continual dialogue about Renminbi (RMB), or Chinese Yuan (CNY) if you prefer.
What’s the difference?
Well, Remnimbi is the proper term for the Chinese currency, as is referring to UK currency as the Pound Sterling and the American currency as the Dollar; whilst Yuan is the more colloquial term for Remnimbi, and is more like referring to pounds and dollars as quids or bucks,
FSClub friend Wim Raymaekers, Head of Banking Market at SWIFT, talks about this all the time, probably because so much currency movement is now moving through the SWIFT network.
He’s so wrapped up in this space, he sent me a guest blog post about it so, as it’s a worthwhile space to note, here’s what Wim has to say:
At the end of 2011, the RMB’s share of the global payments market was just 0.29% – dwarfed by that of the €/$ which combine to represent 90% of global volumes, at 43% and 47% of payments respectively – but the RMB did weigh in at #17 in the world’s payments currency league table, and its growth certainly outpaced that of other major currencies including the beleaguered euro.
The battle for supremacy among RMB offshore trading centres is also hotting up.
UK Chancellor George Osborne’s recent deal with Hong Kong, to position London alongside Hong Kong as such a centre, lays bare London’s ambitions in this regard – and the City could be starting from a stronger position than even Mr Osborne realises.
Hong Kong remains the world’s biggest RMB offshore centre, handling 78% of all RMB payments sent and received in December 2011, but the UK is well on its way to becoming the next big RMB offshore trading centre.
In Q4 2011, it already handled 30% of RMB payments (levelling with Singapore) and 46% of RMB FX transactions - not considering China and Hong Kong volumes in both cases.
This business intelligence is being generated by SWIFT to see which financial institutions have growing RMB volumes, where the corridors of activity are, which countries’ RMB businesses are growing, which are diminishing.
Taken as a whole, this data also demonstrates how rapidly the international RMB payments business is growing, and how actively many financial institutions are already participating in it.
Keep track of such information with the SWIFT RMB Tracker, published monthly.
There are regular discussions at the Financial Services Club, conferences and meetings about the cashless, branchless future.
Visa and MasterCard are huge advocates of a war on cash, as are the mobile wallet providers.
Brett King and the Bank 2.0 crowd talk lots about a branchless world of banking and how branches are all irrelevant to future bank operations.
Let’s be clear, it won't happen.
There is no such thing as a branchless world, and a cashless future will not happen in my lifetime.
Much as I would love to see this future of a branchless, cashless future – don’t get me wrong, I’m a huge advocate of getting rid of bricks, mortar and paper – the reason it will never happen is that these forms of commerce and finance are important.
Branches are required for advice, sales and service but, more importantly, trust.
Regardless of how irrelevant branches may be in terms of distribution, any bank that wants to get new account openings has to have a branch.
That’s why:
Santander purchased Abbey, Bradford & Bingley and Alliance & Leicester’s branches to become one of Britain’s largest branch-based bank networks behind Lloyds and Royal Bank of Scotland (NatWest);
Virgin purchased Northern Rock’s branches to get some form of physical footprint in the UK;
The Co-operative Bank is buying the 632 branches Lloyds has been forced to sell due to the European Commission’s verdict on UK bank competition after the HBOS merger; and
Metro Bank is opening their tenth UK branch in High Wycombe, with a plan to achieve 24 branches by the end of this year, and then organically grow to over 200 branches by the end of the decade.
Some people argue that branches are irrelevant but, if they were, why are all of these new and expanding banks opening or acquiring branches?
Because they create trust and because it is regularly shown that anyone, including and especially young folks, want a branch locally if they open an account.
Even HSBC’s branchless bank, First Direct, has the backing of HSBC and its ATM network to rely upon if things go wrong; as do Cahoot! (Santander) and Smile (Co-operative), our internet-only banks.
Branches are a core part of community and relating to people with a human touch.
This is why branches will always exist.
So we talk about a branchless future, but should be talking about a less branch future.
The same with cash.
We will never be cashless, just less cash.
This has been shown in many economies, specifically in Iceland, Sweden and other economies.
They get to certain level of cashlessness and then the cashless process ends.
This is because there is no substitute for cash today: cash is anonymous, immediately recognising a value exchange, fuels the shadow economy and is totally trusted.
No other form of currency exchange has the same capabilities.
Not yet anyway.
We can talk about a branchless, cashless future, but it’s a dream and will not be reality for years to come.
So I’d rather talk about a less branch, less cash future, and see what that means.
How far can we push the less branch, less cash world?
What is the minimum number of branches to be effective (in the UK, they say about 250).
What is the minimum level of cash that can be in play to run an economy effectively (in Sweden, they say about 3.5% of the value of GDP, which would equate to about a fifth of the volume of transactions).
Can we push this any further?
If so, by when and how?
Something that will be debated for years to come, I’m sure.
I delivered a presentation at the Association of Corporate Treasurer’s (ACT) conference on the relationship between corporate treasurer’s and their bank advisor called: Corporate-to-Bank Relationships: Brilliant or Broken?
The ACT used the title of this presentation as a question in the interactive voting at the start of the day, and the results were interesting: 7% of treasurers thought their relationship was brilliant (or was that the vote of JPMorgan, the conference sponsor?); 24% thought the relationship was broken, whilst the majority, 69%, felt it was purely ‘surviving’.
This tallies with the survey we performed last autumn, which asked the question: since the financial crisis began in 2008, how have relationships with corporate users changed?
In that survey, the majority of respondents (46%) say that it’s about the same but over a third (35%) say that it is worse, with 27% of bankers and 38% of non-bankers stating that this is the case (btw, we are repeating this survey in 2012, sponsorship opportunities now open).
And I opened my speech with the same question. In this case 15% felt it was better; 50% thought it was about the same; whilst 35% thought it was worse.
Oh dear.
A quarter of our folks think the relationship is broken, whilst over a third think it’s getting worse.
Not a picture of roses and jelly babies in the garden.
So my theme was about the past, present and future issues in the corporate treasurer’s world and the role of their bank provider.
In particular, corporates are looking for bank providers who understand their issues, concerns and specifically their business environment, operations and challenges, and the best bank providers understand these areas as well as the treasurer understands them.
A truly great corporate to bank relationship is one where the bank partner is seen as a trusted advisor, giving best advice and behaving as a real partner, not just a transaction processor.
The ‘trusted advisor’ is a status achieved by few, but aspired to by many, and is all about the ability to earn the client's trust and thereby win the ability to influence them.
Many banks want to be a trusted advisor to their corporate client and, if they achieve that, then the relationship is based in the boardroom and is based completely upon trust in the bank provider’s advice.
In order to get that sort of relationship, the bank must really get under the skin of and in the head of the client.
They must see the world through the client’s eyes and understand their needs as well as the client understands them.
They must advise them with the right things, not the things that are purely in the interests of the bank.
They must look at the long-term relationship, not the short-term sale.
It all makes sense if you want to be a true relationship provider of trust, and banks aspire for this level of trust with their corporates?
Interestingly, we may accept a poor bank relationship in a consumer context, but in a corporate context surely banks behave more responsibly?
Well, maybe not.
After all, I concluded my speech with another interactive question.
A simple one, but a real test of whether there are trusted advisors out there or just transaction processors.
The question was this: do you believe that your bank provider cares more about your business first, rather than theirs?
A trusted provider would rather do right by you, than by themselves.
So I was a little bit started to see the answer was only 12% of the audience voting yes, whilst 88% voted no.
Only 1 in 10 corporates have a trusted provider of finance.
That’s a stark disparity and, over lunch, I asked what was going on.
The answer came back that only large corporates get their banks to behave responsibly, due to the size of their budgets, and even they struggle to get their banks to do the right thing.
So there is a big opportunity here: for the banks that get ‘trusted advisor’, they can fill the gaps of the 90% of their competitors who do not.
If I were a bank CEO, I’d be interested in taking up that opportunity.
FYI, these themes are regularly being explored on the blog. If interested, here's a few more related posts:
I presented a keynote at the Association of Corporate Treasurers (ACT) conference in London the other day ...
... and it was interesting.
Various discussions about all sorts of things you would expect – FX Hedging, Eurozone exposures, Basel III, counterparty risks, liquidity, leverage, etc – and a few you don’t hear about so often –collateralisation of OTC derivatives, margin thresholds, CVAs, CSAs and private placements.
The latter were all about the regulatory regime requiring corporates to provide collateral against derivatives and, dependent upon the size of the corporate, a margin of collateral based upon value at risk.
CVAs is all about Credit Valuation Adjustments, and CSAs are Credit Support Annexes.
CVAs are related to measuring counterparty risks, while CSAs are the legal documents that regulate the collateral required for derivative transactions.
There was also a lot of dialogue about financing and the use of private placements, a funding round of securities which are sold without an initial public offering (IPO).
All interesting, technical stuff, and I’m going to spend some time discussing these areas this week.
To begin with, I was really interested in the interactive voting.
As with most conferences, the ACT had given everyone electronic voting counters, and they had several votes about issues in treasury operations today.
Here’s how the voting went …
How many staff are there in your treasury team?
46% 1 to 4 full time employees
21% 5-8
8% 9-12
25% More than 13
The majority of firms are therefore small to medium size (SMEs), with 1 in 4 being larger corporates.
Is it easier to raise funds now, compared with last year?
3% Much easier
20% Somewhat easier
23% Unchanged
54% Harder
Yep, this year is going to be tougher than last, something we all seem to feel right now.
For your surplus cash, which of these policies do you favour:
41% Keep it on bank deposit
5% Direct investment in government securities
53% Use the money markets
2% Other
I was surprised so many corporates just leave surplus cash in the bank, especially as some of these firms are talking multimillion dollar balances. No wonder working capital is so lax and slack.
Which is more important:
92% Stability of the bank sector (77% voted for this last year)
5% Increased bank competition
3% Increased bank regulation
Forget competition and regulation, treasurers just want to know their bank partner will still be around in a few years.
How important are the large, mega-global banks to your business?
25% Very important (compared to 47% in 2011)
11% Quite important
39% Somewhat important
25% Irrelevant
This kinda bears out the previous question’s point: stability is far more important than globality right now. Nevertheless, a global bank should be more stable, as risk is diversified rather than concentrated surely?
Is your board’s risk appetite:
16% Too cautious
78% Balanced
6% Not cautious enough
This vote was consistent with last year’s voting, and shows that a balanced risk portfolio is what everyone wants of course. What was more interesting is the next question.
Has your board’s risk appetite increased over the last year?
15% Yes (34% voted ‘yes’ last year)
85% No (66% voted ‘no’ last year)
Everyone is consolidating approach and trying pull back from over risky portfolio investing. This is not surprising in light of a second credit crisis erupting from the Eurozone.
Should non-financial entities be required to provide cash collateral in respect of financial derivatives?
0% Yes
100% No (73% voted ‘no’ last year)
This is a huge point: treasury operations and corporates believe that they should have no duty of providing cash collateral to cover their trading positions, even though regulators have placed margin thresholds and collateralisation requirements against these derivate trades in the future.
All fascinating stuff and, in context of the last point, here’s the big issue: according to the International Swaps & Derivatives Association (ISDA), over 90% of Fortune 500 companies use customised OTC derivatives today; and over half of midsized firms and thousands of smaller companies use such products to manage specific financial risks.
According to proposals from the US administration, standardised derivatives must now be traded through regulated central counterparties (CCPs), with strict and challenging collateral requirements to ensure their integrity. Furthermore, Senator Harkin proposed that all derivatives contracts should be made on exchange, effectively banning all OTC derivatives trading (the Derivatives Trading Integrity Act, Section 272).
And if you’re interested in more treasury stuff, the Financial Services Club have further events coming up in the future that are relevant to this space:
Wednesday, 29th February 2012 Launch of the Clearing & Settlement Working Group (CAS-WG)
Tuesday, 6th March 2012 The Future of Cash – is there one? A debate between Adam Lawrence, Chief Executive of the Royal Mint and John Howells CEO of the LINK Scheme in support of cash, versus David Birch, Director of Consult Hyperion and Francesco Burrelli of the Value Partnership against
Wednesday, 21st March 2012, Keynote Dinner The Future of SWIFT Lazaro Campos, Chief Executive, SWIFT
Thursday, 19th April 2012, Keynote Dinner The future of investing and getting the right returns Elizabeth Corley, Chief Executive, Allianz Global Investors
Wednesday, 25th April 2012 The changing relationship between banks and their corporate clients Carole Berndt, Head of Global Treasury Solutions, EMEA, Bank of America
Wednesday, 16th May 2012 Government and banks: a relationship that has changed Mark Hoban MP, Financial Secretary to the Treasury
Wednesday, 23rd May 2012, Keynote Dinner Creating a stable financial system Andy Haldane, Executive Director, Financial Stability, Bank of England
Join any of these meetings by registering with the Financial Services Club at www.fsclub.net.
The ACT has a couple of good conference meetings too:
This two-day conference focuses on techniques and strategies to optimise your cash and liquidity management – from gaining greater visibility over cash to streamlining processes through effective us of the latest technology. Hear from companies including Atlas Copco, Dyson, Kwik-Fit, QIAGEN, SABMiller, Smith & Nephew, Specsavers, Superfos and Virgin Media.
We had our annual pantomime debate at the Financial Services Club this week, with a classical Oxford style debate about whether SEPA, the Single Euro Payments Area, matters or not.
This year, with the backdrop of the Eurozone implosion, the debate was far livelier than usual, with a lot of spicy discussion about countries defaulting, the euro instability, the lack of political union and more.
In particular, the argument against the Eurozone was stronger than usual and so the pro-SEPA panel was loaded with three speakers:
Daniel Szmukler, Head of Communications and Corporate Governance at EBA Clearing;
Ruth Wandhofer, Head of Market Policy and Strategy, EMEA, Global Transaction Services, Citi; and
Jose Beltran, Director of SEPA, STET.
On the other side was:
Simon Bailey, Director, Logica
Johnny Brit, former Chairman, Xenophobank
With the last person being a class act anti-euro plant.
It certainly stirred up the debate a bit.
The Case For SEPA
On the positive side, the panellists argued that SEPA is good for Europe, European Union, and European business and for European politicians. In fact, it’s even more critical today than it has ever been as the strains on the Eurozone would fall apart far more easily if SEPA and other aspects of the European Economic & Monetary Union (EMU), the Financial Services Acton Plan (FSAP) and the Directives that go with this were not so firmly established in place.
SEPA has been slow to progress, but it’s a ‘moving target’ and should be seen in context as a complex project that involves 9,000 banks and 27 countries (plus four if you include the Extended Economic Area of Norway, Iceland and Liechtenstein plus Switzerland).
This means that you need to understand that the political complexity in delivering a project like SEPA in banking is just a reflection of the political complexity of getting 27 nations to work together across the Union, and you can see how hard that is from things like the latest EU Treaty, the issues in Greece and the PIIGS and more.
In fact, progress was slowed because you had some countries blocking SEPA whilst others publicly supported the program whilst privately were trying to sabotage it, just as any political issue is dealt with.
The slow progress was also down to the fact that it was seen as a compliance project, which caused issues at the start as the program was given to lawyers rather than infrastructure operators.
This meant it was also seen as threat to banks rather than an opportunity.
Equally, it’s still unfinished and there’s still a lot of work to do, with goal posts changing as more requirements are added each month by regulators and governments, but important steps have been taken in terms of creating:
Good governance, through the European Payments Council (EPC) which took two years (2002-2004);
Good practices, through the development and implementation of the SEPA guidelines (2004-2008); and
Good delivery, by demonstrating that SEPA Credit Transfers are working, with almost a quarter of all credit transfers now in the SCT formats (2008 onwards).
Some countries such as Luxembourg and Cyprus now transact almost all their transfers in SCT format and even large countries, such as France, are seeing migration with 45 million SCT transfers per month today.
Yes, direct debits are more of an issue as everyone claims their direct debit structures are different, but that is also moving.
Eventually, it will be like SCTs with SEPA Direct Debits (SDDs) implemented across all member states.
And look at the benefits.
It now costs virtually nothing to withdraw euros at any Eurozone nation’s ATM network, when just a few years ago it could cost you up to €30 for a simple withdrawal.
And standards are making a difference in all of this. You cannot underestimate the impact of standardisation through XML for example, which is a foundation for innovation.
The end-dates will also help here, with February 2014 for the Eurozone states and February 2016 for the non-Eurozone nations.
You need to see the end-date as the ‘end of the legacy and start of the new’, which is when SEPA will really kick in.
So it’s going to happen … you just need to be with the programme, recognise it takes time and ‘give us a break’. After all, Rome wasn’t built in a day, and neither will Europe be.
The Case Against SEPA
The nay-sayers were more vocal, and in some ways backed up what the pro-Europeans were saying.
A key point was that SEPA and the Payment Services Directive (PSD) is no longer important against the backdrop of the Eurozone implosion.
Even if you took that implosion away, it would be less important as regulating the post-crisis world has taken over with things like Basel III, Tier 1 Capital ratios, liquidity risk, the rise of Remnimbi and transaction taxes moving to the top of the agenda.
All of this means that mundane activities like payments infrastructure harmonisation has moved down the table and, for some, completely off the agenda.
Equally, the supporters may say it takes time but it’s already ten years and what do we have? 22.66% of credit transfers in SCT format and just 0.93% of direct debits in SDD format. That is pathetic.
Then you say it will change with end-dates but what do the end-dates actually mean?
It’s just a political statement again, as there are no threats here.
Where are the sanctions if you don’t meet the end-date?
What’s the threat?
Where’s the punishment?
Is there any reward?
And the real issue is that no-one has mentioned the customer.
Who is bringing the customer along in this dialogue? The regulators? The governments? The banks?
No-one is dealing with the customer aspects or needs, and the benefits are risible rather than visible.
So the euro will be dead by the time we reach an end-date, and that means you can forget about SEPA and move on.
The evening then ended with many questions around the themes outline above and concluded with a vote on two questions:
Does SEPA matter? and
Is SEPA happening?
The 100-strong audience voted that yes, SEPA matters (65% in support – a stronger showing than in previous years) but it’s not happening (only one hand was raised to say SEPA was progressing well).
Obviously, there’s still a long way to go and, if you’re interested, two members of the audience also blogged about the evening: Ben Poole and Barry Kislingbury.
Thank you to them and to all, particularly our esteemed panellists.
A fun evening all around which, when you think we’re talking about SEPA, the PSD and the Eurozone, is saying something,
Postnote:
This is the third annual "Does SEPA Matter?" debate. Click on the links for the debates in 2011 and 2010.
I’ve written a few bits about Bitcoin but it still confuses folks, as was clear from the debate we had about it at the Financial Services Club the other night.
Donald Norman, co-founder of the Bitcoin Consultancy, presented the latest state of play in the currency ...
... and it led to one of the liveliest Q&A sessions we’ve had at the Financial Services Club for some time.
Let’s start with the basics of Bitcoin.
Bitcoin is a fully encrypted, digital currency which, when you have some, can be used globally as easily as cash. It has no central issuing authority and, if you trust it and can use it, means that you can trade anywhere, anytime with anyone, with no interference.
Described as the WikiLeaks of money by some, and as the most subversive development on the internet by others, it’s an interesting space to be involved in and to watch.
Bitcoin must be doing something to catch attention just by the amount of media coverage it gets.
For example, the fact that the tor-based drugs market Silk Road accepts Bitcoins has created plenty of media coverage, but most of this coverage is ignorant, incorrect and misguided.
This article was decent, in that it contained honest, factual information about Bitcoin and the Bitcoin network. However, I think its journalistic value and integrity is questionable when continuous links between Bitcoin, and the illicit anonymous marketplace, Silk Road, continue to exist and draw media attention.
The point of swalter718’s comment is that Bitcoin does not fuel crime, just as the internet does not fuel crime.
Crime exists wherever there is commerce and crime will exist in a cash form and in any form online that enables crime to be transacted.
But just because the internet enables links to drugs, gambling and pornography, doesn’t mean that you need to ban the internet.
In the same way, if Bitcoin allows criminals to trade in drugs, gambling and pornography, it doesn’t mean that you need to ban Bitcoin.
And you can’t anyway as, like Wikileaks, Bitcoin is a decentralised P2P service that exists globally through any Bitcoin user’s PC.
Tough.
Live with it.
So what exactly is Bitcoin?
Technically, it’s just an open-source payment tool.
Like BitTorrent - a peer-to-peer file sharing protocol – Bitcoin allows the peer-to-peer sharing of value securely globally.
Here’s a 100 second video primer if you want to understand the concept fully:
Simple.
The problem is that folks don’t like open source P2P services like BitTorrent and Wikileaks as it undermines traditional forms of commerce.
This is why services like Pirate Bay and Megaupload get shutdown, although it’s pretty much impossible to close down fully P2P services like Wikileaks or Freenet.
I could write more, and have already, but the point of writing this blog entry is not for me to debate the pro’s and con’s of Bitcoin but to cover our last Financial Services Club meeting on the subject.
As mentioned, Donald Norman who co-founded the Bitcoin Consultancy, presented the ideas behind Bitcoin for forty minutes. We then engaged in a further forty minute Q&A.
Here’s the recording of the evening, if you have time and interest to want to hear it.
Donald starts his presentation at 5 minutes 45 seconds into the video after an introduction of the Financial Services Club from yours truly (including laptop fail and move of microphone, hence first thirty seconds of Donald's speech has a few sound issues), and the Q&A starts at 37 minutes 45 seconds.
Biometrics isn’t discussed that much at banking conferences these days.
Most of the time, when I raise the topic, there’s a groan from the banking audience.
“Oh, been there, done that.”
The usual view is that biometrics doesn’t work. It’s too flakey. Too many false positives and false negatives, as in it doesn’t read the finger, eyeball or voice correctly.
And yet, we now have things like Siri voice recognition on the iPhone and fingerprint PC access that is commonplace.
Voice and fingerprint recognition has come a long way.
India has now identity tagged every citizen with a biometric ID, and most governments are doing the same via passport and cross-border programs.
So why are banks so reticent about biometrics for identity?
Because of the past trials or the future costs?
Probably a mixture of both.
Certainly, the idea of biometrics in banking has been around for a long time.
I was involved in rolling out iris recognition ATMs in the 1990s and engaged actively with the Japanese program of deploying palm reading ATMs in the 2000s.
At airports, I regularly pass through the fast track line with an eyeball to a screen, banks have rolled out iris recognition on smartphones and Apple has even patented a fingerprint recognition as you swipe your iPhone to unlock it.
Yet I still look for biometrics in banking and find it hard to uncover anything worthwhile.
“It seems like an innocuous piece of kit to have inspired such annoyance, but the new HSBC ‘secure key’ has already garnered six Facebook pages plotting its demise, while Twitter is all aflutter with people explaining just why they don't want to use it. So why has the bank decided to introduce this seemingly unpopular gadget.”
No, they don’t like it one bit.
Things will change and biometrics will be deployed instead of additional tokens and devices over time.
Much of this market increase will come from large government ID and security programs, which will then ripple over into financial applications.
For example, Companies and Markets predicts that the global biometrics market will hit $12 billion by 2015, up from $5 billion in 2010, thanks to these government security programs.
The report believes fingerprints will see the major focus, although citizens don’t’ like fingerprint recognition.
The reason is that fingerprints are mucky.
Wiping your finger over a terminal touched by hundreds or thousands of others, with no cleansing or wipe in-between.
Yeuch.
That’s why the Japanese moved into palm or vein reading, as you don’t actually need to touch the terminal.
But the most intuitive of all biometrics has to be voice surely?
With mobile being so ubiquitous, voice makes sense as it’s something you can easily verify via mobile.
Voice is a proven technology and voice recognition is resilient, accurate and reliable enough to overcome accents or influenza.
With voice you don’t even realise you’re being biometrically read necessarily, and you can even use voice to detect lies.
This is why Opus Research predicts that the global number of registered voiceprints will increase from 10 million today to over 25 million in 2015, and much of this will be driven by the payments markets.
Mind you, you need to beware of voice a little bit.
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 hosted a dinner last night with a focus upon developments with SEPA and innovation.
What innovations has SEPA introduced?
Long silence.
To be honest, there are some – the ability to cash concentrate direct debits into the most efficient countries using SDDs (SEPA Direct Debits) for example –but the list is real short.
We found the reasons why are multiple.
First, there’s innovation and change in wholesale versus retail, with the former taking much longer than the latter.
Second, there’s cooperative innovation where countries and operators need to work together to agree change and standards, which is why it takes the time.
Third, there’s delivery of a wholesale change across a wide economic area, which is not just eating an elephant but a humongous great Blue Whale.
Nothing is simple in the SEPA game, or end-game.
And is there an end-game?
Sure, we’re talking about end-dates, with a single end-date now mooted for end of 2014.
If 2014 is achieved, then twelve years after the creation of the European Payments Council we might get something implemented … but it’s still ‘early days’ as someone said.
Twelve years and it’s still early days?
Jeez.
Another banker said that “just as we’ve started to deliver innovation with SEPA, it may never happen”.
Hmmm … life is what happens to you whilst you’re busy making other plans, and twelve years after inception, SEPA might be delivering a stillborn infrastructure if the Eurozone implodes, as many appear to be predicting.
If you don’t think they are, then talk to a few banks around the City here and they’ll tell you that they’re seriously planning for a euro breakup, and modelling what that means to their systems, structures and processes.
No wonder when most respected media are now saying we’ve reached crunch time. From this morning’s Washington Post:
“After two years of failed efforts that world markets have swept aside as inadequate, Europe’s politicians face an increasingly sharp divide in combating their financial crisis: either take the sort of politically difficult steps that would tie their economies more closely together, or prepare for the breakup of the euro currency zone.”
So where are we in reality with SEPA?
The EPC’s latest numbers show that, “as of August 2011, the share of SEPA Credit Transfers (SCTs), as a percentage of the total volume of credit transfers generated by bank customers, amounts to 20.12 percent in the euro area”, whilst “the share of SEPA Direct Debit (SDD), as a percentage of the total volume of direct debits generated by bank customers, amounts to 0.13 percent (ECB SEPA Indicators)”.
SCTs have been around since January 2008 (that’s four years near enough) and SDDs since November 2009 (two years).
The reason for the slow take-up of SDDs is down to incompatibilities between country implementations of SDD, and specifically repudiation and revocation rights which have been compromised due to country opt-outs allowed under the rules (derogations).
So we don’t really have any innovation here yet.
Just a slow-burn.
Oh, one thing that was viewed as innovation in this wholesale space however is ISO20022.
“The ISO 20022 standard provides the financial industry with a common platform for the development of messages using:
a modelling methodology (based on UML) to capture in a syntax-independent way financial business areas, business transactions and associated message flows;
a central dictionary of business items used in financial communications;
a set of XML design rules to convert the messages described in UML into XML schemas, whenever the use of the ISO 20022 XML-based syntax is preferred.”
Yea.
ISO20022.
The Nirvana of financial messaging.
And yes, if SEPA delivers a compliance and move to ISO20022 across the Eurozone’s corporations and banks, then yes, that’s good.
According to those around the room, this has to happen as part of SEPA delivery.
OK.
But I’m not going to place any bets on this happening.
And, as if to prove the point, put “ISO20022 SEPA” into Google and what you get back is a whole bunch of articles … from 2008.
Finally, about 30 entries down the list, you get a link to the EPC’s website where an article from October 2011 states: “the existence already of multiple interpretations of the ISO 20022 message standards; i.e. multiple domestic SEPA formats, threaten to undermine key objectives of the SEPA initiative.”
Maybe it’s just me but I’m thinking that, after ten years of evolution and little revolution, this thing ain’t working.
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:
There’s still lots of debate about the euro and Eurozone, with Greece imploding and now Italy et al all going up the Furka Pass, so to speak.
Now I’ve been purposefully avoiding getting into the fray, as it’s not my place, although I’m quite outspoken in media outlets about such matters (checkout this Bloomberg video about European Banking Authority’s stress tests of banks in July 2011, if interested).
Anyways, we now have David Cameron and Angela Merkel at loggerheads about such matters. Luckily they came to some agreement, although the bank transaction tax is still causing huge disagreements.
Meanwhile, some believe that Britain will regret not being part of the euro. This is down to the new controlling stranglehold in Europe of the inner sanctum – those in the euro – and the rest – those not.
This may create a rift in European Union, but is necessary if the Germans are going to keep paying for holding the Eurozone together.
This is why some folks, even those within the Conservative Party, believe the UK must one day join the euro too.
Nevertheless, talks of joining the euro are more divisive in Britain than ever, and is still unlikely in my lifetime.
One of the reasons why we would never want to join the euro of course, is because we like the Queen and the Pound.
For example, in a survey by Demos published over the weekend – which showed that Muslim Brits are more patriotic than all other Brits! – they itemised what we consider to be ‘national treasures’.
Shakespeare came out tops, closely followed by the National Trust (our ‘green and pleasant land’) and the armed forces (keep our country ours).
Interestingly, the pound came fifth, above the monarchy who came seventh.
BEST OF BRITISH TOP 10
How people rate our cultural icons:
Shakespeare 75%
The National Trust 72%
The armed forces 72%
The Union Jack 71%
The pound 70%
The NHS 69%
The monarchy 68%
The BBC 63%
British sporting achievements 58%
The Beatles 55%
Hmmm … this intrigued me and got me thinking.
Then I spotted a remarkable item about a chap in Poland who’s been designing their bank notes all of his lifetime.
He’s a national treasure there, and an artist designing everything from military medals to passport covers, coats of arms to postage stamps; and his name is Andrzej Heidrich.
Now in his 80s, Andrzej Heidrich’s artwork is being celebrated by Poland’s National Bank...
... including many banknote designs ...
Some of which were never actually issued. For example, this 100 zloty note was never issued:
A better version was demanded by the Central Bank and, a bit like album covers in days of old, we treasure the designs and have rigorous standards.
This is why such designs become treasured and is why it is no wonder that countries who have no euro, and view their banknotes and artwork around those notes as ‘national treasures’, have such resistance to being in the euro.
Maybe the bet should be more on the Germans joining the Deutschmark than Britain, or Poland for that matter, joining the euro?
I felt vaguely irritated today when an analyst from a major research firm was asked to position why NFC contactless payments haven’t taken off.
He said they had analysed the worldwide global market for mobile payments, the demographics of takeup, the likelihood of using contactless payments, the audience for new forms of payments, etc, etc, and had identified a global market of just 1.8% of consumers who would be receptive to such an offer.
What complete nonsense.
The fact is that there is no ‘market’ for contactless payments, mobile payments or mobile contactless payments.
There’s just a need that is as yet unfilled.
Another person in the panel discussion said that he didn’t get NFC, and felt that “contactless is just a solution looking for a problem”.
More nonsense.
I mean, I’m sorry, but NFC contactless mobile payments are intuitively obviously going to take off at some point.
The problem is that it's in a card form right now, and not integrated into a mobile contactless form and, even if it was, there's zero places that accept NFC contactless payments (that are obvious to consumers anyway).
But this will change ... we just need an Apple (in Steve Jobs lifetime of Apple) to focus upon this and make it happen.
Apple have a knack of taking solutions looking for problems and working out how to build the solution in such a way that people see what problem is being solved.
For example, in 2003 I went into a store and asked for an MP3 player.
The store manager said they used to stock them, but stopped as “who wants to download music off the internet?”
That store doesn’t exist now – it’s just a website – and the iPod decimated the music market from its launch in 2001.
Markets were redefined by a visionary taking an obvious product and making it cool.
A visionary who could see the unfulfilled need, the solution, and match the two together.
These visionaries did the same with the iPad – everyone pooh-poohed the tablet market before the iPad’s launch – and yet this was another technology that had been around for over two decades.
In other words, it takes a visionary to see a technology or technologies that are disparate and fragmented, and bring them together into an integrated whole that is blindingly obvious to those who need it and completely compelling.
That’s what is needed for NFC contactless and mobile payments.
An iPod for mobile contactless, rather than the MP3 player we have today.
The iPod for mobile contactless was rumoured to be the iPhone5 but that hasn't appeared.
Mind you, if you look at the new Android details, the iPod for payments might already be here:
Incorporating Near Field Communication (NFC), technology behind Visa's PayWave, Android Beam enables select Android devices to share videos, apps, maps, contacts and other data through slight physical contact.
So, for those who think the market for mobile contactless is zero, go and talk to the trees.
“I’m doing a (free) operating system (just a hobby, won’t be big and professional like gnu) for 386 (486) AT clones.” Linus Torvalds, father of Linux
“There is no reason for any individual to have a computer in his home.” Ken Olsen, CEO, DEC
“I’d shut it down and give the money back to the shareholders.” Michael Dell, CEO, Dell on Apple Computers
“640k should be enough for anybody.” Bill Gates, CEO, Microsoft
“I think there is a worldwide market for maybe five computers.” Thomas J. Watson, President, IBM
During the conference yesterday, several presenters used video clips to illustrate the range of mobile payments options there are today.
One of the longest and most comprehensive is a reworking of Microsoft’s Retail Banking Vision, which originally focused upon branch automation, to a mobile and branch version produced in association with BNP Paribas.
It’s a good video, a little long however. And most of it is just about Bluetooth/NFC mobile interchange.
For a more practical illustration of what banks are doing with mobile, it’s worth checking out a couple of examples from down under.
It’s a good app, with nice features around P2P payments, but has already been surpassed (goMoney was launched in 2010) by the Kaching! app from Commonwealth Bank of Australia, which brings in Facebook connections and more to finance:
Kaching! was launched this week and got a write-up here, in case you missed it.
The fourth video worth highlighting is one I had not seen before produced by Discover Card, and showing how the Square dongle works in action.
It’s simplicity cannot be ignored, which is why 800,000 merchants now use Square in America (Visa and MasterCard have 8.2 million merchants), processing $2 billion a year in transactiosn.
Checkout iZettle for a European Chip & PIN version:
This doesn’t mean we should stop there, as there’s also the great video of Google Wallet I mentioned yesterday:
And then there’s the emerging markets examples of mobile payments and finance, with M-PESA leading the way of course:
Not forgetting the UN World Food Programme’s distribution of aid in emergency areas via mobile payments.
Maybe, just maybe, this blog post is illustrating a little bit of how mobile technologies are revolutionsing the world of banking and payments.
And maybe, just maybe, banks will start to take notice.
In August 2011, EFMA published a report after surveying 150 European banks with McKinsey on mobile banking. Their findings are that banks believe mobile will fundamentally change retail banking within five years, and yet the majority have under ten employees working on mobile and have yet to make any change in their operations to exploit this capability.
Another conference focused upon financial innovation today, and all the talk is about mobile stuff, Google Wallets, mobile stuff, Banksimple, mobile stuff and Movenbank.
I’m regularly stressing today that we must::
stop talking about mobile; and
talk about the point-of-life.
First, stop talking about mobile stuff.
The fixation with mobile is because it’s finally come of age, as has Personal Financial Management (PFM).
Now it’s come of age, all the banks and providers of services to banks are leaping into these two buckets head first and swimming deep in the water.
Give it five years and they’ll be swimming in the next water.
And that water is not mobile and PFM, but connectivity and SFM.
Connectivity
Connectivity is the realisation that it’s not mobile we should be focused upon, but the chip in the mobile that enables it to connect to the network. That chip is going to be in so many other devices in five years, that the consumer’s mobile wallet will no longer be relevant. What will be relevant is how the chip connects to other chips to transact.
The consumer’s chip may be in their mobile telephone, but may just as easily be in their wristwatch, earring or clothing. The consumer will choose how they wear their chip. It might even be embedded in a tooth.
The chip may enable telephone calls and communications, access to wireless electronic services and more, but will also be a fundamental transactor of commerce.
It will transact with chips in merchant stores; chips through QR and NFC; chips in walls, pavements and doors; chips in cars, caravans and casinos; chips in anything and everything in fact.
Some reckon there will be ten billion mobile connected devices in 2020.
I reckon there will be more than one hundred billion wirelessly connected devices in 2020.
And with everything as a connected transaction engine, banks will be looking to leverage wireless connectivity at the point-of-life of their customers rather than thinking about mobile as a channel or device.
This leads to the second fundamental around the point-of-life and SFM.
SFM is Social Financial Management
PFM is already out-of-date.
PFM talks about personal, as though it’s private, and yet everything has shifted to social, as in sharing.
Sharing financial information is not what consumers want, but they do want banks to be part of their lives rather than the bane of their lives.
What this really means is that banks must proactively leverage far more about their customer’s data to intimately understand their lifestyle preferences and shopping habits to become more relevant.
It means taking Big Data and mining it deeply to gain Big Ideas about customer needs and then proactively reaching out to the customer to gain Big Relationships.
Examples are already out there, such as the new video for Google Wallet that demonstrates coupon offers and spending integrated with payments and transactions.
What this is really showing is that Google will be analysing the data from the digital footprints of each individual to provide relevant offers at their point-of-life:
using geolocation allows you to locate where the individual is physically present;
using that location allows you to automate contextual offers proactively to the individual;
using data allows you to make sure the offers are both relevant and not in breach of permissions and privacy; and
using the combination of banking, retailing, searches and devices allows the operator to integrate spending and saving with shopping and living.
And that’s the point-of-life (not the meaning of life, another story).
It’s the point of where I’m living at that moment in time and being relevant to that point-of-life.
That’s what SFM will be all about, and that’s what banks will be focused upon in the next wave of implementing stuff.
Being relevant at the point-of-life through wireless contextual connected devices, rather than mobile and PFM.
Postnote
In August 2011, EFMA published a report after surveying 150 European banks with McKinsey on mobile banking.
Their findings are that banks believe mobile will fundamentally change retail banking within five years, and yet the majority have under ten employees working on mobile and have yet to make any change in their operations to exploit this capability. Although most have mobile web and apps under way, they have made no significant commitment to this service.
Whilst Bendigo Bank in Australia is worried about Google and PayPal, Commonwealth Bank responded this morning by launching the first really innovative mobile app for payments that I've seen since BBVA's Strands.
The app is called "Kaching", and allows users to pay with NFC and Facebook to almost anyone.
Splitting the bill for dinner? With our new app, you can send money to your friends as easily as sending a text message.
Pay to email
Chipping in for a friend's present? Make a payment on the go by using your email contacts or by directly entering an email address.
Pay to Facebook
Purchasing concert tickets for your friends? Enjoy the convenience of paying your Facebook friends using Kaching.
Contactless
Transform your iPhone 4 or 4S into a contactless payment solution for goods and services. All you need is an iCarte case, available from the Commonwealth Bank. You can use it wherever PayPass is accepted.
Although just on the iPhone to begin with, it’s a dramatic move from a bank, so much so that Commonwealth thought it worth doing a global media event around it.
Talking with some of the Financial Services Club sponsors last week, it is clear that there is still a debate raging about the future of cash. Like the future of branches, which both Brett King and I discuss endlessly, cash is one of the other traditional bastions of the old guard of financial servicing.
Yet with mobile wallets, ebanking, contactless everything and real-time transactions, does cash really have a future?
Some say ‘yes’, due to the unique attributes of cash, as noted in a recent Payments Council report on “the Future of Cash”:
Cash circulates, and is reused limitlessly.
Cash is always valuable.
Cash provides full and final settlement of a transaction.
A cash payment is anonymous.
Once issued, the circulation of cash is uncontrolled.
It is regarded as a public good by its users.
These attributes have never been completely substituted by new forms of payment and, until they are, cash will always be prescient.
The most recent attempt to provide a good alternative, that gained significant traction too, is Bitcoin.
Bitcoin is a digital currency designed to be controlled through encryption rather than a centralised authority. Operating in exactly the same way as cash, Bitcoins are fully exchangeable as an anonymous form of currency in real-time across the internet and, shortly, at Point-of-Sale.
accessed from anywhere with an Internet connection;
anybody can start buying, selling or accepting Bitcoins regardless of their location;
completely distributed with no bank or payment processor between users (this decentralization is the basis for Bitcoin's security and freedom); and
transactions are free (for now, this will change).
Now I’m not going to get into the whole debate about whether Bitcoin is a good or bad thing, as there are plenty of other currencies attempting to displace cash out there, but it is the one that has garnered the most media attention in the past year.
‘Bitcoin. Oh, man, where to begin. Its Hype-O-Meter got cranked to 11 this week, and breathless histrionics are everywhere. Death and Taxes called this new currency “a seismic event“; Adam Cohen says it’s nothing but a giant scam; Jason Calacanis calls it “the most dangerous project we’ve ever seen”.’
‘I last wrote about Bitcoin less than a month ago. Since then the value of Bitcoins has quadrupled—and then halved. The founder of Sweden’s Pirate Party moved all his savings into Bitcoin (which disappoints me; I had hoped they were buried on Oak Island) just as US Senator Charles Schumer attacked it as “an online form of money laundering.” Malware designed to steal Bitcoin wallets has been seen in the wild, and in possibly related news, 25,000 Bitcoins were stolen a few days ago. Meanwhile, the virtual currency’s long-term stability has been seriously questioned.’
And now everyone is writing the same story: the end of Bitcoin, as their value has fallen below the level at which it makes sense to trade.
The value of Bitcoins peaked in June 2011 at $33: now they are worth between $1 and $2.
The black line = the closing price for Bitcoins on the MTGox Exchange where they are traded; the red and green lines = volumes of coins sold and purchased.
Tim Worstall at Forbes says that this is because Bitcoin lacks key attributes.
A currency not only needs to be “a medium of exchange, a store of value, we’d also like to it be liquid and security is important as well”. He doesn’t believe it offers much in any of these dimensions.
So where are things headed?
Well, there will always be a war on cash with lots of attacks from providers of alternative means and technologies … but cash is our oldest form of exchange of value.
Unlike cheques, cards, chips and everything else, cash has had durability and even with the best placed attempts to displace its usage, cash still wears well throughout the world.
Having said that, my friend who read my article about Icleand did go thjere and travelled with just cards … he had a very nice cashless week on holiday.
So you never know.
Postnote 1:
We will be having a meeting focused upon virtual currencies including Bitcoin and Ven Currency at the Financial Services Club on 25th January 2012, as well as a seperate debate about the Future of Cash in Q1.
Postnote 2:
One of the more contentious points about Bitcoin is that there are only 21 million of them, but they are infinitely divisible.
The aim is to limit the number of coins in existence because, unlike fiat currencies issued by government agencies, there is no centralised issuing authority in Bitcoin … just users.
This is why the cap was placed and is one of the more contentious points as those who own a whole Bitcoin today might be billionaires downstream, if it becomes a mainstream currency.
Oh yes, and you may also wonder whether the cap means that this will never become a mainstream currency, but don’t worry as the divisibility of the coins is a key point too.
Each Bitcoin can be divided to eight decimal places giving you a total of 2.1 quadrillion units eventually (today, of the 21 million coins to be issued, just over 7.5 million have been issued).
Postnote 3:
Although cynics may be promoting the idea of the end of Bitcoin, Bitcoin has been doing some other interesting stuff. For example, they’ve just rolled out a Point-of-Sale (PoS) system with Verifone that will allow Bitcoins to be traded on merchants terminals in stores.
The system is based upon QR codes – digital barcodes for mobile – and these are printed by the Verifone terminal. The customer can then scan this into their phone. Equally, they can make a Bitcoin payment by presenting the QR code on their phone for the merchant to scan.
Postnote 4:
Bitcoins have also now moved into reality so, if you want to order some physical Bitcoins, you can.
The code required for each coin is kept in a hologram inside.
Postnote 5:
A really good overview of Bitcoin's rise and fall from the Economist, June and October 2011.
At #Eurofinance2011, I chaired another panel on innovations in payment channels with MasterCard, Coca-Cola and the UN World Food Programme.
My opening piece talked about mobile channels and a lot about virtual currencies, including Facebook Credits, Ven Currency and Bitcoin.
The mobile stuff garnered lots of nods and acceptance; the latter on virtual currencies seemed to cause more bewilderment and confusion.
I am used to such looks.
I got the same looks in 2004 when I talked about mobile payments as the next wave of banking innovation and disruption.
No-one believed me then, when I said that the idea of using the mobile as a wallet was going to be business as usual.
Now, MasterCard talk about Google Wallet and everyone seems to see this as the new normal.
In 2004, I asked when mobile payments would be workable and most people said not in the near future. Some even thought they would never see this in their lifetime.
Most of those people are still alive, and mobile is taken as read.
It's even used in the extremes of poverty, with the UN World Food Programme using mobile wallets via SMS text messaging to deal with crisis in disaster and war-torn territories for aid.
Over 70% of populations in the most extreme, hard-hit and greatest poverty areas have access to these mobile technologies apparently.
Mobile is here as demonstrated by this week's Economist which shows the true state of affairs …
…. mobile connected devices and tablet computers are mainstream.
The Economist’s figures show how such devices are rampantly taking over and as I talked about tablets and apps for treasury ops, the audience all nodded in agreement and acceptance.
And yet, at Eurofinance Asia just 18 months ago, I felt like I was being accused of being a heretic for saying that treasury ops could be redefined through simple apps on tablet PCs, and would be because it allowed any organisation to deploy treasury apps for idiots.
So now I talk about Facebook Credits, alternative currencies and hybrid banks that manage virtual and real monetary exchanges.
The audience thinks I’m a heretic but, just as mobile took over as a core channel over the last decade and tablet PCs have established themselves in the heartland of banking and treasury services in the last 18 months, virtual currencies will soon be the new stomping ground of innovation in payments.
So I’ve just finished a mainstream keynote debate at #Eurofinance2011 in Rome about bank to corporate relationships.
My role was to moderate a panel of six key industry players, three from corporations:
Debbie Millar: Group Executive - Treasury, Funding and Investor Relations, MTN Group, South Africa
Darsh Johal: Head of Global Cash Management, Shell Treasury Centre, UK
Dr Mark Kirkland: VP Treasury, Bombardier Transportation, Switzerland
And three from banks:
Rajesh Mehta: Regional Head of Treasury & Trade Solutions EMEA, Citi, UK
Daniel Schmand: Managing Director, Head of Trade Finance and Cash Management Corporates EMEA, Deutsche Bank, Germany
Carole Berndt: Head of Europe, Middle East and Africa, Global Treasury Solutions, Bank of America Merrill Lynch, UK
It was a good debate and opened with what do the corporates want from their bank and how do they see best practices?
The summary of discussion was something like: “we want banks to be honest and open, transparent and communicative, and easy to do business with. Their systems have to be resilient, reliable, robust, scalable and secure, as do their processes and practices. We want them to understand our business needs and our treasury model, and organisation. There needs to be a good, listening relationship where the bank looks at our needs and addresses our problems with solutions. In a global context, they need to show they have a global footprint with a wide range of products and services and demonstrate wherever possible consistency across those services and geographies. We want no surprises or delays in dealing with our requirements and a responsive business partner overall.”
That’s not asking much is it? I asked the bankers.
The bankers responded by saying: “we try our best to provide transparency and ease of use in our products and services. We try hard to understand the business domain and needs of our clients, and to educate them in the changing regulations that apply to our businesses and how it affects their businesses. We try our best to work with our clients to understand the implications of things like Basel III and SEPA, and to support them in a collaborative approach, rather than just viewing these things as internal compliance programmes. In this context, we try to partner to cover all aspects of the complete value chain from a financial viewpoint, in order to complement their supply chain. Generally we see our work as being something of a marriage of needs, and a marriage requires strong relationship and trust. That’s what we deliver.”
A few questions came up as key issues such as the documentary requirements of the banks particularly during client on-boarding, and how much of an overhead this created to both the bank and the corporate.
Another area discussed in depth was how to listen, understand and advise the corporate client when the bank has silos that operate as separate P&L’s: how can you advise a client effectively, when you are trying to sell products, often competitively against other divisions of the same bank?
There’s also a key question of consistency of process and delivery, as most banks are large, multi-country entities and delivering a consistent service across geographies and divisions is a big issue.
The banks claim that they get over this by focus. You cannot be all things to all people, so banks are making conscious decisions around whether they are an SME bank, midcap bank, corporate bank or global bank.
That’s the only way to present, pitch and position correctly.
I was pretty astounded to then hear Rajesh of Citi say that their systems monitor and collect information continually from over 270 million data points across the network, and that the bank is more of a financial network provider than a product provider.
We then went into some interactive audience voting, with most of the audience saying their banks are average to good.
Their biggest challenge is all around documentation, with technology and a failure to understand the corporates’ business coming next.
Having said that, corporates don’t help as the #1 issue in corporate relationships with their banks is a lack of openness and transparency: how can a bank be a true partner if the client hides things from them?
I wrapped up the whole session with the view that corporates want a trusted advisor and most banks will try hard to be just that; the issue is that a bank cannot be a true advisor if they try to sell products that are inappropriate.
Meantime, as is my way these days, here’s what the twitterati said about the panel:
Debbie Millar from MTN Group: banks need to be more clear about what they want to do and where they want to play.
Darsh Johal from Shell: banks need to partner with their clients and understand the business and onboard smoothly.
Banks are a business partner but sometimes they don't truly understand our business. They need to listen and solve problems
Mark Kirkland from Bombardier: banks are really a kind of supplier and need to understand their clients' business.
Having focused conversations with banks is key (Bombardier)
Corporates on the panel are saying transparency in bank fee pricing is key - need to understand what is being charged
Q for panel: do you get value from the banks? Do they have a right to charge for services? - A: a resounding 'sometimes'
Summary of panel so far from @Chris_Skinner: banks need to be business partners with their clients #EuroFinance201
Rajesh Mehta from Citi: banks need to understand the domain in which their products are used.
Mehta: transparency in compliance is as important as transparency in pricing. Innovation discussion must be collaborative.
The elephant in the room: documentation and account opening. Banks need to address these issues and view this from the clients’ perspective (Schmand, Deutsche Bank)
Schmand calls for standardized documentation initiative across banks.
Daniel Schmand, DB, talks about 'Apple-effect' - how to make products easy to use/ plug and play products for corps
Carole Berndt, BAML: we are successful when we stop saying 'the bank' or 'the client' and start just saying 'we'
Berndt: banks need to get out of product silos to achieve successful partnerships
How can banks be advisor and business partner, while they are still trying to sell?
Dr Mark Kirkland (Bombardier): the same thing that happened to FX markets w/ automation is happening to payments. Banks need to adapt. Businesses change and the profit isn't made in the same way.
How do corporates rate their bank (scale of 1-9)? 60% of corporates give an average-good rating (5-8)
Audience poll reveals that 3% of the bankers in the room think they're rubbish (1 out of 9)
28% of corp treasurers in audience say documentation is banks biggest shortcoming
Audience poll: bankers are as unhappy about docs as corporates (maybe more-so). Why is no one fixing this??
Carole Berndt (BAML) makes good point - banks are also frustrated with documentation and lack of standardization
Darsh Johal (Shell) and Debbie Millar (MTN) express difficulties dealing with local banking operations
Schmand: banks can't be everything to everyone. They need to focus their strategies and provide consistent service.
Mehta (Citi) banks need to understand clients and their location, have consistent systems, platforms + knowledge management
Millar: banks also need consistency in their people and how they're evaluated & incented.
Berndt (BAML) - corporates want to know their banks' strengths and weaknesses - no bank can do everything, everywhere
Berndt: the key is honesty and transparency. Banks need to tell the corporates where they're good and where they're not.
What can corporates do to improve the relationship with their banks? 55% say greater openness and transparency is key
Kirkland (Bombardier) negotiate with their bank - open dialogue, facts on table in a scorecard, is the way forward
Shell have bi-monthly (!) meetings with their banks.
Do corporates collaborate enough with banks? Berndt (BAML) - if we know more about your needs we can give better solutions
Key theme at bank-corp discussion: you need to have a strong relationship with open and honest communication
@Chris_Skinner sums up: Corporates looking for trusted advisor to give best service at best price
I got an email last week saying that Google Wallet had launched.
Strange ... I thought it launched last May, but no this is not the launch.
This is take-off.
Here's what I actually received:
Google Wallet now available*
Get ready to tap, pay, and save
Google Wallet, a mobile app that makes your phone your wallet, is now rolling out through a software update to Nexus S 4G by Google, available on Sprint. Set up Google Wallet with Citi MasterCard or the Google Prepaid Card in just a few minutes.
As a thanks for your early interest, we’ll give you $10 on the Google Prepaid Card if you activate it in Google Wallet by the end of the year. You can then reload the Google Prepaid Card using any of your plastic credit cards. Google Wallet will be automatically pushed to Nexus S 4G phones on Sprint as part of a software update. You can pay with Google Wallet at thousands of merchants across the United States.
This is just the beginning for Google Wallet, so stay tuned.
I almost missed this last week at SIBOS, but Bob Lyddon has kindly allowed me to post all details here with attribution to the SIBOS Daily News for the text below ...
The euro zone crisis threatens to derail the Single Euro Payments Area (SEPA), according to a new research paper. Challenging those who separate the crisis from SEPA preparations, The Eurozone, the ECB and the feasibility of SEPA: an overview, says the Sepa policy objectives were based on certain assumptions about how the single market and the euro would be operating by the time SEPA was realised, but these have not occurred.
Last week’s stock market volatility was fuelled by concerns about Greek debt and the ability of the country’s leaders to implement severe savings measures and economic reforms. There was concern that Greek insolvency may be inevitable. Spiegel Online reported that Germany’s Finance Minister, Wolfgang Schäuble, was reviewing scenarios for handling a Greek default and its impact on the euro zone. Two scenarios were reported as possible: Greece remaining in the euro zone, or the country abandoning the common currency and reverting to the drachma.
In studying SEPA and the sovereign debt crisis, the lead researcher for the paper, Matthew Gibson of University College London (UCL), identified two groups – centralists who want to push SEPA through on the basis that a supposed absence of SEPA has contributed to the euro zone crisis, and sceptics (or nationalists) who following the crisis will be less likely to “fall into line” with SEPA. “This contrast could lead to an acceleration of the legislation from the European level, but a weaker implementation commitment at the national level,” says the report.
Bob Lyddon, managing director of international banking alliance, IBOS Association, says looking at SEPA in the context of the euro financial system as a whole, it is “absolutely predicated” on the existence of a single currency in this single market. “An admission either that the single market is fragmenting (because of the different country risks within it) or that the euro is no longer a single currency (because it exists in many guises in what should be its purest form – central bank money) would almost certainly lead to stakeholder behaviours that stopped the SEPA programme dead in its tracks,” he says.
In order for compulsory deadlines to be set, both EU Council and European Parliament agreement will be needed, says the paper, relying on a degree of political will for unification within the European community. This is something that the sovereign debt crisis and tensions between EU countries, resulting at least in part from the European Central Bank’s management of the crisis, may preclude, although Gibson admits that “right now” it is likely that a regulation on SEPA migration will be passed in late 2011.
A survey released last week and conducted during the height of European debt concerns in July and August indicates that belief in the strength of European economic and monetary union is flagging. The State of the European Payments Marketplace, which is published by the UK-based Financial Services Club and sponsored by Logica, found that 15 per cent fewer respondents supported the statement: “economic and monetary union is as strong as ever” compared to last year. Of the 360 respondents from financial institutions, consultancies and technology providers, 41 per cent agreed with the statement, compared to 56 per cent in 2010.
When asked if the European Union itself was “as strong and vibrant as ever”, only 5 per cent agreed; down from 13 per cent in 2010. There was a jump in the number of respondents who agreed with the statement: “the European Union is unlikely to be maintained, and will divide into a Northern Union and the rest”, up 17 per cent from 2010 to 30 per cent of the vote. Overall, says the report, participants responded positively to the question, which indicates survey respondents were losing their belief in the European Union and economic and monetary union.
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