Digital Banking 31

Welcome to planet Earth

One of the best things of flying – in an airplane! – is having the possibility of a ‘loneliness moment’, unplugged from the rest of the world and the constant beeping light of the mobile phone. I believe we all have read this reflection at some moment. The best thing is not to read but enjoy it.

I have spent a couple days in London, in the HP Discover. HP is going through a deep transformation. Plenty of interesting things. We have been back to back, jumping from one interview to a meeting and then to a presentation and then to a demo and then …reset and start again. And during the small breaks we have had the chance of discussing on several topics related to the financial services industry. The so-common digital transformation had to be one of the hot topics. And we have laughed with it, …besides learning from other points of view. And we have laughed because there is no common and generally accepted understanding of what digital transformation is and what the implications are. But everyone talks about it.

In the flight out I was reviewing a survey on digital transformation a friend had sent me. I have asked him to make use of some of his questions. Out of the 20 questions, let me focus on three, that I reckon are the baseline for any discussion on the topic. And here you have my thoughts – dear reader, this may be the moment to click away.

Who should be leading the Digital Transformation in a company?

• This question cannot be answered without agreeing what DT is. I am afraid we still talk about DT when we are meaning digitalization. Digitalization goes about applying “new” technologies to what we already do to sell more, serve better, be more efficient …all of the previous ...and in this sense, the people that should lead the digitalization are the same people who are currently leveraging on technology to do things better. Those are the people that know what does work and what does not. Those are the people who know what is currently working and will need to be working tomorrow too.

• TD goes beyond, it implies a new business model or a deep change in the current one. Yes, it is based on tech, but tech is just an enabler. And it is to be sponsored, advocated and led by the C-suite. If a bank decides to axe its retail banking branch network and rely on mobile and web banking for supporting sales and services, if a bank decides to leverage on its knowledge of its customers behaviors and persona to become a marketing and sales agency for third parties, if a bank decides to go to the market with white labeled products [kind of a B2B2C model, where the first B stands for Bank and the second for Business], if a bank decides to offer third party ecosystem products and services and not its own …decision must come from the CEO and the rest of the C-Suite. It does not only affect technology but the whole bank.

What are the main obstacles for DT?

• The main obstacle is finding the reason to change. Are we in a burning platform? Why does the C-suite want to change a business model that is working and a company that is making money? It may be in financial services or in any other industry, change happens when one is in a burning oil platform in the North Sea. And depending how close death is, the deepness of change (and jumping into the freezing water does not guarantee survival). And banking is a business that still works. It makes less money than it used to, but this is not due to having a bad or out-of-fashion business model – being trust worthy to receive deposits and lending carefully to make a margin …is an activity that goes hand by hand with humankind -, the point is that interest rates are so low that it is extremely difficult to make a margin. The oil platform is not burning, it is pumping at lower pace. That is the reason why digital banking has been so far focused on digitalization and not on digital transformation.

What will be the impact of fintech on the banking industry? Where are the main menaces?

• Fintech are not the main menace for the banks. The main menace for a bank is …another bank – as it has the financial know how, a customer base and the complete banking products and services catalogue – that benchmarks fintechs in whatever services they provide, in their operating model, in their user experience, …in their digitalization. In the UK, only-digital new banks are expected to change the landscape. I am agnostic; this is a titanic task that requires the incumbents to stay still. And the incumbents are moving forward in digital, they are no longer what they used to be two years ago. And they have the stamina to resist and then the strength to copy whatever is successful in the new players. Welcome to competition, the final customer wins.

• Competition … think beyond the obvious … ‘digital’ means ‘global’. The famous crisis is not a road bump, but a direction change. We have awakened to a world that was already there, even it resembles new. Internet and logistics have blown the frontiers up. It is not only that one can buy shoes made in China, furniture from Nigeria, French wine bottles, a bike helmet from Japan, … through internet and have them delivered at home in few days, but also that it is technically feasible to open an account through internet anywhere in the world … and be served in our mobiles and laptops from any bank in the world.

• ‘Digital’ means for banks an exponential increase in the number of competitors. The challenger is no longer the branch at the other side of the street, but the website in the near tag of the browser – dozens, hundreds of financial entities (and yes, fintechs) offering similar (or the same) products and services. The initiatives to suppress or minimize cash (governments are quite keen on achieving cashless societies), the spread in the adoption of single or 'universal' currencies, the freedom of capital movements, the issue of common financial regulations, …fuel this process of digital banking globalization. It is as natural as breathing for a millennial to open an account in internet regardless where the bank is located … and it may be financially convenient and profitable for an X-Generation (watch out, those are wealthier than the millennials) to open not only the account but the loan, the card, the insurance, the investment …This is retail banking. Do you think SME, commercial and corporate are not global? Do you think they do not use internet?

• The banking license as a requisite to operate in a country is an endangered species in the new ecosystem. In this new ecosystem, global digital banks will be the dominant species. American corporations have understood the best that digital allows them to become global and no longer just American. Google, Apple, Amazon, …provide services in only “one” country – the World -, pay taxes wherever is more convenient, and offer same product, service and experience all over the world – they are unbeatable in terms of efficiency per customer.

• Digital is global. Money is digital. Money is global. Welcome to planet Earth.

And in order to finish, a curation of a couple ideas that called my attention. Surely they explain things much better than I do. Hope you like them.

• Disruption is overrated.

• “Banks’ own systems have to be rock-solid — but banks’ customers’ computers are a different story. In an era where more customers connect to banks digitally every day, a secure connection between the two systems is essential, but this can be difficult since customer devices are outside the banks’ control. Problems experienced while attempting to connect to banks’ systems may be blamed on the banks, even if the customer’s own infected machine is the cause.”

Have a nice week

Digital Banking 30

Long time waiting

Long time talking about digital banking, long time waiting for banks to become digital, …long time not seeing something new.

But banking is a ‘boring’ day-to-day business (if not, be worried), so changes may take long time.

Some weeks ago, Fico published a new survey on millennials behaviors - Fico survey on millennials. Millennials have lower loyalty than other age segments. This is just one of this generation characteristics, not good or devil – at least, from a business point of view. I want to believe that this business ‘unloyalty’ comes from the fact that they have grown up used to be just ‘one click away’ from switching providers. When analyzing this unloyalty regarding their everyday banking account (yes, one can switch from one bank to another), it is higher than in other age segments. No surprises. However, the underlying reasons are not ‘digital’ as one may have considered (the new bank has cooler apps, allows P2P payments based on blockchain, the wallet is easy to use and very popular, uses big data in such way that the risk profile is always accurate and updated and the commercial offers are unbeatable, …), but three ‘typical suspects’ in retail banking:

1. price - let’s be realistic, most banks offer the same products and services regardless marketing, so if they are commodities, price matters
2. payments as expected – customers want the certainty that payments are done when due and hassle freely; it is about managing expectations
3. branch and ATM network – I dare considering that the latter is especially relevant, as far as we still need cash and we need it available without fees

Is this the reason it is taking the banks such long time to digitalize themselves? Is it that customers do not really care how digital their banks are, but how properly banks do what they are expected to?

And despite the millennials unloyalty, it looks like things are not so different among banks, since switching is not common place. UK authorities have relentlessly pursued to ease account switching and therefore competition, but results are far from satisfactory. 

On the 9^th of August, the UK government published its report on of competition in the markets for current accounts for personal customers and for banking services to small businesses - Making banks work harder for you. 

Some ideas to be pointed out:

• Mobile banking is now widely adopted and growing fast. New types of payment services, lending and financial management services are now available from providers which are not banks. 
• Banks will only invest in new products or services or reduce their prices and improve service quality, if they expect to win business as a result, or fear losing business if they do not. 
• Personal and business current account relationships are open-ended and do not have regular trigger points (like the annual renewal of insurance policies, for example) when customers might be prompted to ask themselves whether they could be getting a better deal elsewhere on their current account. 
• Only 3% of personal customers and 4% of business customers switch to a different bank in any year. 
• We found that older banks have access to cheaper retail deposits from their existing customers which they can use in their lending businesses. 
• Banks which are viewed by investors as ‘too big to fail’ are seen as lower risk and therefore benefit from lower wholesale funding costs compared to smaller banks. 
• Older banks with a track record in residential mortgage lending have to hold smaller levels of shareholder funds to back up such lending compared to newer banks and some smaller banks. These differences are larger for loans whose value is much less than the value of the property against which the lending is secured. Some smaller and newer banks are therefore at a competitive disadvantage in the residential mortgage market as they have to hold more capital against the loan. 
• Even when new entrants and smaller banks introduce competitive products it takes a long time to build customer numbers 
• … 
• We are requiring banks to allow their customers to share their own bank data securely with third parties using an open banking standard. 
• Without our intervention, the process of developing open APIs cannot be guaranteed and could take a long time, with the effect of denying customers the early benefits of these new services. We are therefore also imposing a challenging, but realistic, timeframe on banks for this process. The least sensitive information – for example about banks’ prices, terms and conditions and branch location – will be made available by the end of March 2017. We expect that all aspects of an open banking standard will be up and running in early 2018. 
• Open APIs will give customers control over what data is shared and with whom. 
• Open APIs can transform the financial services sector.

We need time to see how things evolve, but this open bank API economy will be a new step toward the digitalization of banks. This digitalization is seen as a means for increasing competition, hence customer service.

Digitalizing a bank goes beyond developing an app, having a fancy web, implementing a big data solution (to keep on doing business as usual) or creating an innovation lab with some ex Googlers and the like. Most banks have already done it. And long time ago. Digitalizing the bank may mean to keep on doing banking but in a different way. APIs may give the opportunity to decouple the “shop” from the “factory”; API ready banks will have the opportunity to leverage on their channels to market products and services that have been created by them or third parties, API ready banks will have the opportunity to create products and services to be marketed by them or third parties. The same way business model for Facebook relies on content created by its users, business model for Amazon or eBay relies on products created by others or business model for Apple relies on content (media, music, apps, …) created by others. APIs may enable banks to be part of an ecosystem.

And finally, a couple things totally unrelated:

• Too much talking about the underbanked. What about the overbanked? …The rise of the overbanked
• The dangers of trying to become digital very fast …Fake boarding pass app gets hacker fancy airline lounge
• Brutal …People still use pathetic passwords. You know you have to change your LinkedIn password

Have a great week

Digital Banking 29

API

Dear all,

as in previous occasions, let me start with some data I love …I believe I have already commented the fact that people use a limited number of apps, nevertheless spend an increasing and despairing-for-the-rest-of-the-people time in front of the screen – if you have teenagers, you know what I am talking about -  …so get ready for the “war for your place in the screen”, in first place …and then get ready for the “war for awareness”, as behavioral data show the steeping trend to download the apps when needed and delete them afterwards ...specially financial services ones.

"In the fourth quarter of 2015, iPhone and Android smartphone users in the U.S. used an average of 27.1 apps per month, spending more than 40 hours with them. Interestingly, the amount of time people spend with apps continues to increase, whereas the number of apps they use pretty much stopped growing three years ago.

Apparently, there's a limit to how many apps people actually use, regardless of how many apps are available and how much time they spend using them. To put it differently: there's an app for every need, but there's no need for every app."

Statista.com

And before we get into banking, for all the tech lovers, and for the ones that only have 10 minutes for reading …Google's biggest announcements from I/O 2016.

Some weeks ago I read about the fever for acquiring AI startups. I reckon we are in a later stage of the digital revolution, where the combination of cloud, big data and big analytics are allowing us to do things we only dreamt about few years ago. Is Sci-fi becoming real? Are we close to being able to replicate a human mind? Will we suffer a created-by-machine Armageddon like in the movies? Doubt it. The truth – or the reality - is that we are facing the opportunity to increase our applied and aggregated knowledge. And make it more accurate. 

Acquiring AI start ups

Most human beings are different from the rest of the mammals because the aggregated knowledge they have inherited from their ancestors [ouch!]; and we all know that knowledge is power. Hence AI mastering will mean a new way (maybe the way) of seizing power in near future. Some will win, some will lose.

Talking about AI, or talking about robots [in my mind, it is difficult to segregate one another …maybe too many movies], here you have a perfect example of how fintechs and incumbent banks my work together - bankinnovation.net. It has reminded me of IBM Watson and all the knowledge they are providing surgeons with in order to fight against illness. And coming back to the article, I agree with Sha’s reflection on the fact that many small and medium sized entities – in case they are still around in the coming years and have not become part of a larger one – lack the required resources to invest and develop these capabilities by themselves.

Check this article out, Open banking standards. It is a fascinating article that helps to understand the importance of APIs and how they will enable the change in the way customers use banking services. Do they mean the end of the banks? No, just the opposite. I believe we go towards a deeper banking penetration in society (governments are very keen on it, as a way to fight against black economy), but retail banking - checking balances, accounts and card movements, transfers [be very attentive to PSD2] will not be the same …digital is here …and retail banking will not be necessarily done through branches.

And just a couple things to read and reflect, in case you have longer than the 10 minutes I referred to previously:

• Enjoy it with a good cup of tea …cbinsights research on fintech

• Homework for Mon (though Sun eve is a good time to meditate) …Nine questions to help you get your digital transformation right

Have a gr8 week!

Digital Banking 28

Cloud, the spine

Dear all,

We addressed in the last post the female employee situation in the technology arena. Plenty of feedback. April 12th was the day a man should start working (and charge), so that on average he would have made the same as a woman at year end, having started she on the first of January. Value and not gender - or other condition - should be the driver for reward.

Many news lately in the market regarding alliances among fintech and banks to provide SME with financing options - check this out, bankinnovation.net. I have to agree on the fact this is a way to access credit for customers that would not initially clear the threshold in the risk assessment process of a bank. And I tend to agree those prospects may become "full" bank customers in the future were they successful in their businesses; ... in this case, I am afraid this point is also considered by microfinance lenders (please, let me be politically incorrect).

However the trees may be blocking our view of the woods, ...and we must see further. We have to consider that already "full" customers may find here funding solutions that suit better their needs, they may find here solutions that are not in the classical bank product catalogue. And here comes the main difference (from my point of view) with other types of collaboration among fintechs and banks; it is no longer about reaching an agreement on the fintech technology for the bank to serve its customers - line that has to exist and run its course - or disintermediating financial services that are ultimately provided by incumbents (sorry, most of payments), but selling fintech financial products; it is ultimately a business alliance. And it unveils a world of possibilities and questions (ie. who is responsible if anything goes unexpectedly? the bank? the fintech? the customer? what customer? ...).

Cloud ... and more cloud. Last week I was looking at home for an ethernet cable. I did not find any. I do not know what will happen the day we cannot connect to the wifi ... or rather to cloud through the wifi. Cloud is the backbone of a digital world that is not parallel to ours, but it is actually ours. It is the world where a growing part of our life is, it is the world that is storing the information of our life. Cloud stand for the "C" in SMAC, an acronym that aspires to comprehend the underlying technologies of Digital. 

"By the end of 2017, Google plans to build 12 new data centers around the world to increase the global footprint of its Cloud Platform services, the company announced on Tuesday. After the expansion, Google’s Cloud Platform will be available in 15 regions across the globe – market leader Amazon Web Services covers 12 regions with plans for 5 more." statista.com

And once one has the storage capacity, one can offer specific cloud services, which generate the need for greater capacity and more. And then we enter into this virtuous (or vicious) circle. 

Talking about Google, talking about cloud, talking about fintech, talking about banking  ... check out these two articles:

• Google pushing for more fintech biz
• Auka mcash

I hesitated when stating cloud was the essence of digital. I doubted whether it was cloud or mobility (referring here to the mobile devices). And finally I went for 'cloud' because the concept that today we have of the mobile device is necessarily shaped by cloud. I had a mobile fifteen years ago ... and it was indeed a mobile phone ... with the weight and size of any mobile today ... but the 'concept' was different; it was a mobile phone. Today in my pocket I have a mobile connection to the cloud. Reflect on this report: federalreserve.gov/consumers-and-mobile-financial-services

Talking about mobile devices ... evolution of Apple's revenue in the last 40 years

"While remarkably successful from the start – Apple went from zero to one and a half billion dollars in revenue within eight years – there were some ups and downs in the company’s early days. It wasn’t until Steve Jobs’ second stint as CEO that Apple became what it is today: the most valuable company in the world. With the release of the iPhone in 2007, Apple’s revenue (and profit for that matter) started to skyrocket, reaching a record $234 billion in fiscal 2015." www.statista.com 

The analysis could be too superficial were we at hardware level. I reckon the real change does not come with the iPhone but with the iPod, as far as it means the moment Apple stopped being a HW supplier, to become a service provider ... by the way, on demand ... by the way, based on the cloud - would it have worked all the same if we could not have accessed content whenever and wherever we wanted?

Last but not least,  ir.citi.com/How FinTech is Forcing Banking to a Tipping Point. It may take some of your hours to be read, but seems to be very complete. It may be interesting go to one chapter a day. It is a report that we will hear about; actually we are already doing it.

Have a gr8 wknd.

Cheers

Digital Banking 27

A picture is worth a thousand words

Dear all,

everything changes to try to be the same; and nothing remains the same, because time changes everything. I would like to start with the updated version of a chart we have already gone through. It is good to come back to these known places and see how they have evolved.

Cbinsights.com

Several things that caught my attention those last days. I hope this scoop deserves your time:

• finovate.com. Recordings of the presentations that took place in London. If you have no time to see them all, go to the suggested ones. I have loved the idea of 'DriveWealth' and the fractional investing; if well delivered, they are accessing an enormous market – Millennials that want to invest in those markets, but have little money; millions of unbanked; non Americans who want to enter into the US markets... A new example of the "crowd" phenomenon, where many 'littles' make a 'big' one.

• Three charts from Statista and three questions (actually some more) from me to you:

 

Has the wearable market (as is today) matured? No growth ahead? 

Have we reached the ceiling? Who said women are not good at leading?

How many apps does a bank need to develop (and maintain!!!)?

• If only one app is to be developed, what operating system will you go for? And before answering, check the following heat maps, based on Twitter data.

And in order to finish, ...no graphics. Just a couple reflections:

• Words matter. Banks are afraid of failing, but they are not of testing. Agile should be "marketed" as fast testing, instead of fast failing. bankinnovation.net

• Innovation is not for customers, but for companies ...so they can keep on offering (and selling) the goods and services the former demand. banknxt.com

Hope you enjoyed Easter.

Digital Banking 26

Millennials

Dear all,

I want to start with a chart of 102 start-ups attacking the retail banking value chain. I believe I have already published a previous version, but it is a good habit to revisit it from time to time.

www.cbinsights.com/blog/digital-banking-market-map

102 fintech startups. And none providing the complete banking experience. 102 points of reference for those wanting to improve their services, leveraging on their technical capabilities, customer base, footprint, reach, …. 102 ways to improve aspects of a complete banking experience (and some more, if synergies are discovered).

A friend of mine sent me the access to the following report - insights.fb.com/2016/01/25/millennials-money-the-unfiltered-journey/. This may be an example of what to do with big data, but what really caught my attention was the report content itself. In order to better understand Millennials financial behaviours and attitudes, Facebook analysed conversations about financial matters on their own network, listening to Millennials in their own words – again …be careful what you write down …there is always someone reading. And when we observe their financial behaviours and listen to Millennials describe their relationship with money in their own words, they happen to be cautious (some would say too much), diligent in paying down debt, careful with credit cards and dedicated to accumulating savings. But they have the feeling – some may say they have discovered the truth - there is more they should be doing with their money, and there is no clear offer or guidance out there. Enjoy the reading, really inspiring.

Talking about Millenials, check out these two ads that were broadcast in the Superbowl – and they are not about beer. Guess who the target was, guess what they were about.

Talking about millennials, again …talking about fintech, again …check this out, again … and ask yourselves if they deserve a try, if it is good to go through a Millennial experience this weekend …up to you. Thanks, Mariano!

https://www.cbinsights.com/blog/fin-tech-startups-millennials

And finally a couple things:

• For those “lazy-to-read” ….soundcloud.com/breakingbanks

• For those who believe the world is not global …. www.digitalattackmap.com

Have a great weekend

Cheers

Digital Banking 25

Omnimobilechannel

Dear all

If you watch Bloomberg, you will be aware that one of the week highlights has been Google (aka Alphabet) becoming the world's most valuable company.

http://www.statista.com/chart/4307/google-market-cap/

The reorganization of Google into Alphabet is paying off. A company with present, and a company building its future. And by the way, ours with theirs.

The modern consumer wants it all - mobile, online and branches - and expects all access points to work together in a single, harmonious, delightful user experience. But, what about simplifying life and making the access point to be unique? Fernando García Quismondo talks about what he has called "omnimobilechannel", referring to the fact that nowadays we have almost all channels in the mobile device: web, mail, chat, voice (of course), apps ... Companies are still thinking of "channels" when the reality is that they all are converging on a single device. And it will be customers choosing what "channel" to use in their mobile devices.

Talking of mobile banking, pay attention to thefinancialbrand.com/56959/mobile-banking-roi-benefits-research/. A very good article, ellaborating on why mobile banking is profitable. It seems to me as a catch 22 situation, where nobody knows if profitable customers become mobile customers or if mobile customers become profitable, but there are some data suggesting that former non-mobile customers increase the number of products consumed and the volume of transactions - to charge a fee will be up to each entity - when becoming mobile.

Let's do as Alphabet, let's dream the future (and with the future). Something I have really enjoyed, bankinnovation.net/2016/02/who-wants-to-chat-with-a-robot-turns-out-everybody/. I like the idea of robots not having the perfect knowledge, but interacting with people as humans, sometimes talking of things that have an indirect relationship with what has been asked ... and what really caught my interest was to think that when we say "talk", often we are meaning "chat". And it applies not only to millennials, but all agers. Delivering good financial advise through whatsapp ... with a robot ... would be simply "awesome".

And to finish …www.mckinsey.com/insights/business_technology/how_shared_services_organizations_can_prepare_for_a_digital_future. Only four reflections of my own:

• Digitalise Operations ... is the second 'frontier' - most people are still crossing the first. We are constantly focused on the interaction with the outside, that we forget to reflect on how to use all these ideas, capabilities, possibilities ... .in how we work internally

• Yes, we will also have a war for talent in this area ("Rather than hire low-cost, entry-level talent, shared-Services Organizations will need to look for expertise in areas: such as point robotics, data analytics, and agile software development")

• Considerations on analytics, robotics, DevOps, ... are pretty much exciting

• "The IT and operations groups in shared-Services Organizations have been traditionally siloed; in a digital world, the two entities will need to collaborate frequently more and more effectively "

Have a very nice week.

Digital Banking 24

Omnipresence

Dear all

I would love to start with a chart that has been sent to me by a very good friend from the UK. I believe the chart is fascinating, as long as provide us with an idea of how big the world is.

And this "minute" comes again and again 1,440 times along the day. And all these sites are available all day long. And all these sites can be accessed from anywhere in the world (assuming internet access is available). And all these sites can be accessed from any phone with internet access all day .... let's start understanding "omnipresence". 

The user is mobile [something that goes with our human nature ... or not human, think about cars, robots, ...]. Digital is "omnipresence". Digital banking is the one present where the user is (... and channel to be chosen).

In digitally mature markets, mobile banking is not growing at the same rate as it used to - bankinnovation.net/2016/01/growth-slows-for-mobile-banking-users-at-the-nations-largest-banks/. But keep in mind that

• We still have more and more mobile banking user. The growth rate just happens to be different. 

• Digital banking users may keep on growing at higher rates. They just happen to be using channels different to mobile.

• The decrease in the growth rate for mobile banking user may have been predictable. The starting point is higher from one period to another.

• In any case, I believe we are still far from the asymptote. 

Other fact I have found fascinating in the article is that the number of 'unique' customers accessing mobile banking has already surpassed the number of "unique" customers visiting the branch per day. I believe banks have already reached the threshold required to analyze what customers want and can do in the branch and what customers want and can do in mobile. Do as retailers do, just go and ask.

Moving on, and given the relationship between Digital Banking and Fintech, and since we are in this period of the year when one is shelled by thousands of predictions [keep them for the year end], three ideas I read these days, that caught my attention:

• “Fintech startups will compete more directly with the financial services offered by banks. Fintech startups will consolidate as capital gets scarcer and investors have more outlets for returns with rising interest rates; and startups have started to cooperate rather than compete with FIs”. I tend to agree, and actually we have already witnessed the cooperation movement.

• “You can’t write software for millennials, without having millennials on your team”. Mmmm, well I believe today it is quite likely to have millennials in your team – check the graph below. But, if we are meaning that only millennials can deliver digital products, I am afraid I have to disagree.

• "Momentum Capital (short term hype chasing) into Fintech will slow down but innovation Capital (funding long term value creation) will increase because the reality of the opportunity is not impacted by the hype cycle." Again, I completely agree with second statement.

And I want to finish with a recurrent topic when Davos takes place. Think where you are. Maybe you have good reasons to be happy. And grateful.

Have a very nice weekend.

Digital Banking 23

Churn

Dear all,

The headline calls the attention - www.businessinsider.com/banks-uber-moment-100000-bankers-fired-in-2015-2015-12. I reckon financial services are not in the same situation as the taxi industry when disrupted. What banks are facing today is the inability to earn money or at least to make all the money that were used to - due to regulation, "undergrounded" interest rates, overcapacity for current demand... - and this is a reality that taxi industry was not coping with. And in order to change to make the same, banks see in the Fintech the possibility of evolving their operating models (not necessarily their business models) while incorporating their technologies to become more efficient.

I was fortunate to be the week before Christmas in London with former colleagues in the closing event of the year. Listening to one of the speakers who was ellaborating - no surprises - on innovation, biometrics, voice recognition, etc. ...it came to my mind the question of whether banks want to do things with innovative technologies or do innovative things with proven technologies - or at least mature enough. 

The digitalization of banking enables them to try to change the operating model; the introduction of already available and mature enough technologies allows banks to keep doing banking in a different way. That is the reason why digitalization is not meaning innovation on what banks do, but on how banks do.

At this point ... an interesting reflection on "Churn" - bankinnovation.net/2015/12/the-great-convergence-between-banks-fintech-around-cacltv/ -. What is challenging is that the chance of burning someone in the digital world is much higher than in the traditional world. Customers, actual or potential, are just one click away to leave. Hence, banks have to invest heavily on minimizing churn, minimizing the cost of customer acquisition ... and increasing the LTV - Life Time Value of their customers. And if it is assumed that income from customer will remain the same (otherwise, please, someone explains me why digital customers mean higher gross income), maximizing LTV can only come through cost reduction (optimizing operations becomes more important than ever) and increase in the quality of the product / service to minimize the churn. The binomial "quality / cost" is one of the cornerstones in the world of digital banking (actually in all digital industries ...).

Speaking of "churn" ...please also reflect on the effectiveness of the channel at the moment of account opening (one of the famous 'moments of thuth'). Only 15% of account openings at branches are not fully finished (though these figures probably do not consider the cases that were given up before they even started). Only 15% of the sale processes started in internet are finished - I have no data for bank accounts, but let's assume they are the same figure. It seems that here we have a new rule - the "85/15" rule. How wrecked are the online banking sales processes to mean a churn rate of 85%? ... and what an amazing opportunity is to be able to double sales without attracting new customers, but just doubling the number of finished applications. 

... and now come back to reality and guess how many financial institutions have data of their sale funnels, how many of them know where customers give up. Not too many.

Finally, something completely different, two videos from IBM I have enjoyed very much

• It does not do marketing about themselves (maybe someone should check their communication policy in youtube), but the video is nice and there are some interesting messages. www.youtube.com/watch?v=Tlh2OlkB270

• www.youtube.com/watch?v=-LAQBTYKUtM. I liked the ellaboration on how to articulate artificial intelligence and how to exploit the possibilities of having access to an enormous knowledge. However, regardless how much machines and information processing capacity have evolved, the intervention of humans is still necessary. And language considerations are fascinating. The way we understand every word in context, accent, timing ...

Happy 2016 to everyone.