Brett King

Archive for May, 2010|Monthly archive page

Innovating the customer experience pays dividends – literally

In Customer Experience, Retail Banking, Technology Innovation on May 31, 2010 at 03:07

No one can deny that banks have had a tough time of it when it comes to stock market valuations over the last couple of years. The global financial crisis, massive debt and NPL issues along with punishing public opinion led to a massive collapse in banking stocks and company valuations in recent times. It would be simple to blame the sub-prime and global financial crisis as the sole cause of all the ills of the banking sector, but I have a different theory which explains a large part of the picture.

In the last 5 years the S&P 500 has experienced incredible volatility. On October 9, 2007 the S&P 500 hit its all time record of 1,565.15, but it was followed by the biggest annual loss in the S&P’s history, losing 37% in 2008 (the previous record being -22% in 2002 at the end of the dot com boom). As a result you’d expect any participants in the US market to have suffered similarly, and they have. Volatility, or the range/spread of buy and sell trades in the US markets is at an all time high and according to many analysts this volatility is here to stay. The certainty in the market has largely disappeared, and with it, the status quo in respect to valuations.

In the last 5 or 6 years, however, a new component has come into valuation metrics for listed companies. We still have revenue, we still have market share, branding and so forth, but innovation is clearly an increasingly significant part of the story. Let me illustrate:

Comparative Performance – S&P 500, Tech and Banking Stocks

Below is a graph (source: Yahoo FinanceBloomberg) showing the comparative performance of a selection of key stocks from the US market, the S&P500 Index being the dotted yellow line.

Innovation is being rewarded like never before in market valuations

Clearly Apple and Google have differentiated themselves. What has made the difference? Why have Google and Apple performed so much better over the last 5 years in market terms? Let’s examine the facts and see what conclusions we can draw.

Is it revenue?

Microsoft’s Revenue in 2005 exceeded Apple’s by more than 300%, and Google’s by almost 600%. In the last 5 years Microsoft’s Revenue has increased from$39B in 2005 to close to $60B in 2009, certainly not a bad performance. Google’s revenue certainly has increased, but in the years 2007-2009 it has only jumped from $16.5B to $23.7B. Since 2005 Apple has increased their revenue from $13.9B (2005) to $36.5(2009). Apple has certainly benefited from the popularity of the iPhone (Released June 29th, 2007) and more recently the iPad (Released April, 2010).

But if we compare the top 4 US banks we see that their revenue makes the tech companies look fairly ordinary. If revenue was the key driver, then we’d expect to see that the banks would have better comparative valuations. Given that Microsoft’s revenue is still close to double that of Apple’s revenue, and more than double that of Google – if the answer was that ‘tech’ revenue was valued at a premium then we’d expect Microsoft to be fairing better.

2009 data Assets ($B) Revenue ($B)
Bank of America (BAC) $2,300 $113
J P Morgan Chase (JPM) $2,000 $101
Citigroup (C) $1,800 $106
Wells Fargo (WFC) $1,200 $51.7

On this basis, revenue, while a critical component of a company’s valuation, would seem to not correlate cleanly with the exceptional performance of Apple and Google recently. Well before the GFC started to impact company valuations, they were already being hurt by something…

So is it future revenue potential?

P/E Ratios show somewhat the expectation of the market in respect to future revenue potential. For the ‘blue chip’ performers like Microsoft, JP Morgan Chase, Wells Fargo – P/E Ratio (Price/Earnings Ratio) are all performing in the range of 15-17, whereas Apple and Google are at 21.8 and 22.1 respectively. Certainly expectations are that Google and Apple have not yet hit their peak in earnings capability because their valuations show a higher multiple. Indeed, the S&P 500 typically tracks at around 15 – so Google’s and Apple’s performances are something special.

Future earnings might account for a higher valuation today, but this is not necessarily the sole factor in their comparative performance which, over the last 5 years, has been much better than Microsoft, the top banks and industrials. In fact, you have to look very hard globally to find better performing stocks in respect to either new or established companies in terms of growth in both revenue and share price over the last 5 years.

So future revenue is a factor, but not the sole factor. If it was, then you’d expect Microsoft would get some of the joy too as part of the ‘tech’ clique, but they’ve not received as much optimism as their tech buddies have.

What differentiates Apple and Google’s revenue from the rest of the pack?

You might attribute Apple’s success in respect to valuations from their great products. But if you compare market share both Google and Apple really still are minority players when compared with Microsoft, purely from a product perspective. While Google’s Android and Apple’s OS-X are taking some share of the mobile market, Windows is still a force to be reckoned with.

So where is the differentiation? Google’s strength to date, and Apple’s more recent success with great new device technologies has centered around one key area. Their ability to create great, but simple and intuitive, propositions. as a search engine is the perfect representation of search (at least for now). When Google launched their search engine in 1997, there was really no one that could touch them in terms of simplicity of experience and validity of results, and today, although many have attempted to copy Google’s formula, (read we still see Google maintaining a 65.6% market share of the SE space. What Google bought to the table, their foundation or core, was innovating the customer experience and making technology really simple to use.

The simplicity and user experience differentiate Apple devices

Apple has done the same. User Experience is at the heart of why the iPod, iPhone and iPad have captured not only the imagination of the consumer market, but why Apple and its products are increasingly part of the common vernacular. Sure Apple’s stuff looks great, cool and is about as aspirational as branded products get in the Y-Gen/Digital Natives space today. But this stuff just works.

Innovating the customer experience is the ‘secret sauce’

Innovating the customer experience is at the heart of why Apple and Google are outperforming the market today. It’s also at the heart of why traditional banks are suffering. As market analysts, consumers and as media commentators we just see more of the same.

While there has been pressure on the banking market, bankers seem content to ‘wait it out’ until more sane, normal times return. Banking is an old and traditional industry and it doesn’t take kindly to change. But that is problematic – because right now their lack of adaptability is hurting bank valuations significantly. There’s nowhere for banks to go from here if they can’t innovate around the customer. The lack of innovation means less future revenue and earnings potential.

In fact, as of today it’s more likely that a Google, Apple, PayPal or new start up like Square will innovate the customer experience in banking, rather than banks themselves. This is where banks need to take a good hard look at themselves. The lack of capability to innovate the customer experience is costing them, and it’s only going to get worse.


Banks – get your website right first, before you worry about an iPad App!

In Internet Banking, Offer Management, Retail Banking on May 27, 2010 at 12:49

There’s a lot of excitement about Apple’s new iPad. This week it was reported in various news sources that two banks in Australia were releasing an iPad app to capitalize on the iPad fever. Now… you’d normally find one of the first to jump in and hail such an announcement as an indication of real progress in the fight to innovate the retail banking space. But on this occasion, well I’m not jumping…

The two banks in question in this instance are NAB (The bank formerly known as National Australia Bank) and St George (now part of the Westpac group). The problem I have with this whole announcement is not that it isn’t a positive move, because it is, the problem I have is that they still don’t have the fundamentals right on their existing websites and they’re fooling around with the iPad! Get real people!!!

NAB's Dedicated iPad App looks cool! But they've got bigger problems...

If you go to NAB, St George, Wells Fargo, Citibank, Bank of America – well just about any banking website today – the customer experience is pretty poor. When you get behind the login, which is where 70-90% of the traffic goes when it hits the homepage, things get even worse.

For over 10 years most of the banks that I work with have been collecting information about me. They know my spending habits through my credit card usage. They know the mobile phone operators I work with in the countries where I live and work. They know my average spend on things like my Apple iPhone, iPad, Laptop, Flat Screen TV, etc. They know which business accounts I transfer my salary from. They know the relationships I have with various investment partners where I make regular contributions to savings plans or lump sum payments to my managed funds. They know which stocks I favor and hold in my portfolio. The also know the name of children, how long I’ve been married and the last three residences I’ve had. The reason I know they know all this is that either it is something they’ve asked me as part of their KYC (Know Your Customer) procedures, or something that appears on the statements they send me for my credit card or various accounts. They have the potential to know me and my financial savings and consumption habits, probably better than I know myself. But…you wouldn’t know it.

The thing is…when I visit their website or login to internet banking – they appear to have absolutely no idea of who I am.

In the late 90s I remember that there was a huge push for ‘personalization’ and CMS’. But what have we really learned about forming the appropriate message and content on our homepages in that time? Pretty much nothing. Let’s look at an organization that has learned about the value of the homepage:

“Yahoo is a company that is very strong in content. It’s moving towards the web of one. We have 32,000 variations on our front page module. We serve a million of those a day. It’s all customized. Our click-through rate went up twice since we started customizing this.”
Carol Bartz, CEO of Yahoo, TechCrunch Disrupt, May 24, 2010

So why is it that banks have no idea how to engage me? Here’s a simple test. Take two products that are fairly popular when you review search engine keywords related to banks – mortgages and student loans. When I go to any of the sites mentioned above, finding information on these two products is generally not that difficult. However, when I’m doing research on these products, studies show that I will probably come back a few times to my bank’s website before I decide to apply (if I can apply online at all that is). It is the easiest thing in the world when I return to the bank’s homepage for me to be presented with an offer for a mortgage or a student loan up front, based on what I looked at on my last visit. By prioritizing this content up front, simply through the use of cookies, I dramatically improve the likelihood I’ll get where I need to. The bank already knows I’m interested in this product, so why bother slamming me with the offer of the month or telling me about the bank’s social corporate responsibility program. Give me something relevant!

The fact is, pretty much every bank you visit online these days forgets you as soon as you close the tab or window on the browser. That’s why, with many bank websites, were still presented with commercial banking information, investor news and even the dreaded press releases when 99% of the traffic is focused on retail banking related services and products.

With the amount of data bank’s have on their customers and the amount of data they have on traffic, product enquiries, applications and transaction history – building a platform to allow customization of the homepage should be a snap. There is no offer management, no active sales engagement either through the homepage or the secure internet banking portal – it’s just like walking into my branch and feeling like nobody knows me.

A word to the wise – you should know me well enough to serve me better through these basic platforms. Get those right before you start worrying about your iPad app!

BANK 2.0 – Hits No. 1 on Amazon UK’s preorder bestseller list

In Book Excerpt, Book News on May 27, 2010 at 12:46

Thanks guys for all your support. When I woke up this morning to see BANK 2.0 heading up Amazon UK’s bestseller list for new releases in Banking it was a huge thrill!

BANK 2.0 - #1 on the Amazon Bestseller's list

BANK 2.0 is released on the 29th of May on

EU Exposure for BANK 2.0

In Retail Banking on May 25, 2010 at 01:42

As the UK release date for BANK 2.0 rapidly approaches (just 6 days to go), I’m flattered to see that the book is getting some blog traction and some mindshare in the EU. Here are a few links to some nice pieces on BANK 2.0 and covering my blog.

Usability-Freunde.deMalte Moeller (Germany)

Bank-Zweinull.deMartina Goehring

Banca due zeroRoberto Grossi
Join Robert’s group on LinkedIn too if you can

CyberlibrisEric B @ ScholarVox
You can order the eBook of BANK 2.0 from Cyberlibris @ ScholarVox also

Social Banking 2.0Lothar Lochmaier

Bankervision – James Gardner

So thanks to all my EU friends for the gracious coverage of the book and my blog. Enjoy the read!


What loss of trust really means for the banking sector…

In Media, Retail Banking, Social Networking, Strategy on May 21, 2010 at 03:05

This week we have some of the world’s biggest banks recording staggering, record profits – despite this there are serious challenges heading the banks way in the short-term; consumer trust is just the start of it. As early as July 2008 we started to hear serious grumblings from consumers groups, customer advocates and politicians on how banks had “lost their way”. This loss of confidence and consumer backlash forced politicians in the US, EU and elsewhere to look at mechanisms like the so-called “Robin Hood Tax” or punitive taxes aimed at bankers who took huge bonuses while leveraging off taxpayer funding. Undoubtedly, proprietary trading activity hedging the declining capital markets reeling from the GFC (financed off the back of cheap government money) created the opportunity for arbitrage profits and subsequently huge bonuses/profits. The theory that the bank bailouts would free up credit for the average man on the street was quickly lost as banks chose super risk-adverse customer lending policies. But now the banks face a quandary…

Savings suffering = Balance Sheet suffering
Increased regulation of the banking sector and the GFC fallout mean essentially that wholesale funding sources for banks are under some pressure, both from a ‘reform’ perspective and simply as a result of shortage of funds. Additionally, with the revelations around Goldman’s Proprietary Trading games and the role banks had to play in generating the Global Financial Crisis in the first place, regulators have come down heavily on proprietary trading practices. Some commentators have claimed that the net effect of this could be a reduction in profits for big players by up to 20% moving forward.

Increasing deposits and savings from the retail consumer base, therefore, will be critical for the bank balance sheet in the next few years. But with consumer confidence at an all time low – the savings industry is already suffering. Banks are facing a potential earnings crunch moving forward because they just can’t rebuild their deposit base in the current environment. As a result banks like Westpac in Australia are seeing share prices decline, despite record profits.

Branding doesn’t equal Trust
What we’ve seen in effect is the perfect storm for building and maintaining trust, but interestingly most bankers don’t have a clue as to why this decline in trust has been so ‘harsh’. These factors also explains why organizations like Goldman Sachs and others have performed so badly in public recently. The perfect storm was not just the Global Financial Crisis, but also shifting consumer behaviors and in particular the role of social media in forming public opinion. In April of 2009 a Nielsen survey showed that social media had already become the most dominant force in creating brand perception around ‘trust’. More recent surveys not only reinforce these trends but show that no amount of traditional advertising can match social media in it’s ability to create or destroy brand perception.

The problem for banks is that they generally aren’t participating in social media. Thus, their brands have been hijacked by customers who just aren’t happy. If I’m 3-7 times more likely to listen to what my friends say about your brand through social media, it doesn’t matter how much advertising you are doing – you’ve already lost me unless you demonstrate a reason for me to trust you…

Non-bank FIs don’t look so risky
Remember the saying that Banks are “as safe as houses”? Well it turns out thanks to Banks and CDOs that neither banks nor houses are particularly safe anymore! As a result, consumers have had to adjust their risk radar or doppler. In recent times we’ve seen the advent of some pretty interesting alternative savings mechanisms. Back during the dotcom phenomenon, Save Daily started experimenting with different ways of savings, but in recent times social lending networks like Prosper, Lending Club, Zopa, SmartyPig and others have burst onto the scene to offer an alternative to ‘greedy banks’.

We might have thought of these non-bank financial institutions as risky in the past, but with what we know about bank practices leading up to the GFC, coupled with how our portfolios, pension and superannuation funds have performed in recent times, such a new approach doesn’t look so risky. Undoubtedly there are some Banker’s sitting reading this right now scoffing at my suggestion saying “it will never happen”. So I’ll just say two words (well sort of one word) to give you a precedent in respect to the reality of consumer adoption of these new trends and approaches…


I’m not my parents
The Y-Gen and so-called “Digital Natives” don’t have the same intellectual capital invested in ‘banking’ per se, that their parents did. These uber-connected, demanding and savvy consumers don’t think of banks as a safe place to put your money – they think of banks as service providers, a means to an end goal. In that respect, most banks suck.

Digital Natives are used to much more diverse ‘currency’ than simply cash or savings as well. My kids talk about credits on iTunes, PayPal, online gifting, Facebook credits, Linden Dollars, QQ coins, collective buying power, etc. It’s as if they don’t even conceptualize hard currency in many ways. As payments options in the P2P space accelerate and your phone becomes your debit/credit/payments card – this marginalization of ‘hard cash’ as a concept will intensify. It will be harder to get these segments to save until they get to a point in their consumption cycle where they start to get aspirational about real ‘asset-based’ wealth. In the short-term, the effect is simply that banks will no longer be a consideration in their day-to-day savings strategy unless they create outcomes.

The loss of trust in banks is accentuated by the social media effect, the lack of real responsiveness to the GFC back lash in respect to transparency and bank policy, and changing consumer behavior. The next effect of this loss of trust will be that banks have a much harder time in encourage deposits and improving savings participation – something that is essential for bank profitability moving forward as proprietary trading goes under the regulator’s microscope and as wholesale funding sources dry up.

What banks need to do right now is start honestly thinking about how to engage collaboratively with customers. It’s not just transparency, but a fundamental shift from the internal philosophy that if consumers want to be a customer of our bank they have to play by our rules…

As of today, if you’re a bank – you have to play by my rules!