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.