Brett King

Archive for December, 2010|Monthly archive page

The biggest disruptions in banking in 2011…

In Customer Experience, Retail Banking, Social Networking on December 29, 2010 at 03:00

In 2010 we had a bunch of innovative ideas become mainstream and start to impact the banking arena (for a full coverage see my post in Huffington.) However, 2011 promises to be more disruptive because as the economy finally starts to warm up, we’ll be seeing a lot of new private equity investment into start-ups in the finance arena.

A new dot com boom?

The intersection of interaction design, mobile technology, mobile payments, social media interactions, geo-location technology and augmented reality is producing a land grab for innovative new start-ups. We’ve already seen quite a few investments in new banking start-ups in 2010, which are the early stages of a new boom in the mobile tech space. Right now we’re not yet in the bubble, obviously, but as start-ups grow revenue, as investments start seeing huge multiples, and as the success of start-ups generate even more new business ideas, then this zone appears ripe for an emerging boom. Add into the mix the dissatisfaction en masse with the finance sector, one area where there is sure to be heady action is in the alternative banking and finance game.

Already we’ve seen start-up investments in peer-to-peer lending (Zopa, Lending Club, Prosper, Kiva, etc), payments alternatives (i.e. Jack Dorsey’s Square), Personal Finance tools (Geezeo, Mint, GreenSherpa, Blippy, etc), and even in Banking itself (BankSimple, MovenBank).

In September of 2010, Think Finance secured $90 million in start-up funding for their Elastic web-based bank account replacement. Elastic’s services to the underbanked will somewhat overlap with BankSimple’s approach to online banking. But, the CEO of Think Finance, Ken Rees, doesn’t see BankSimple as competition.

“We celebrate all of the innovators in the space that use technology for banking purposes. They [BankSimple] are more focused on the needs of prime consumers. We’re focused on the underbanked and unbanked — the estimated 60 million people who are not well served by traditional banks,” says Rees.
As reported in Mashable

Jack Dorsey at Square is catering for a gap in bank service performance demographics also. Dorsey is aiming Square at the approximately 30 million small business owners in the US that don’t have a merchant account or credit card terminal. With only 6 million businesses in the US that can currently accept credit card payments, this shows there is huge growth potential for thinking outside of the box in respect to banking and payments models.

The growing innovation and infrastructure gap

The problem for the finance sector with the current level of investment in infrastructure, and old stagnant business models built largely around physical distribution paradigms, is that increasingly we’ll be dealing with start-ups and innovators from outside the traditional banking arena. This will increase the gap between customer experience or in real terms, customer behavior, and the actual state of play in the industry.

While the sector as a whole tries to deal with the devastation of the global financial crisis, and uses this as an excuse to hunker down and resist strong investment in technology and so forth, this opens the gate for innovators who are prepared to invest to take customer mind share, and capitalize on both the wholesale dissatisfaction of the industry in general and capturing the imagination of customers through the use of technology and better interface processes.

The 3 Phases of Disruption - Impact to Finance Sector

For those of you who have read BANK 2.0, you may recall the “3 Phases of Behavioral Disruption” which identify the emergence of Internet, the take up of mobile smart phones and “app” phones, and finally the integration of payments technology and services into the handset. There are two broad opportunities within these 3 phases of disruption for adverse impact to the traditional financial services space.

The Infrastructure Gap

The first opportunity lies in the inability of banks and financial institutions to invest in customer facing technology ahead of the curve, which creates a considerable lag in capability. Banks keep looking for ROI, but at the rate that new technologies are being adopted these days, if you wait for ROI you’re already 2-3 years behind the competition. Banks have to make bets on a number of emerging technologies, experiment and adapt through iteration, rather than wait till a dominant player or platform emerges (which is unlikely in any case) before making strong investments.

In this gap we have players like PayPal, cloud services, direct banks (e.g. ING Direct, UBank, Jibun) and other platform opportunities who are doing it better on a technology platform basis than the traditionals. The opportunity here is for start-ups to leap ahead of banks who are straddled with outmoded legacy systems which simply are not robust enough to work in an always on, superconnected space that customers live in today.

The Behavior Gap

The behavior gap, however, is where the really interesting stuff is happening on a business model front. The gap in behavior is defined in anticipating the ways customers work with new technology and reinventing both the user interface, the interactions and the processes and rules that support the engagement or journey. Banks are enamored with their existing, stagnant model of banking – they find it difficult to imagine a world where mobile applications and internet banking are more popular access methods than branches, where checks no longer cut it because I can SMS or bump money to an associate, and where I am not penalized because I don’t want to follow some archaic risk model. Companies like Square, BankSimple, even Apple and Google who are reinventing the interface to the customer are capturing the hearts and minds of customers everyday, while banks continue to frustrate customers with old models, outdated rules of engagement, and with broken processes and channel support mechanisms.

Conclusion

The biggest risk to the finance sector today is not from other banks, nor related to the inability to apply Basel III risk controls or standards. The biggest risk to the finance sector today is the growing gap between the institution and the customer. The rate at which this gap is opening up is increasing rapidly, as the adoption of newer technology increases too. This is where we are going to see an explosion of start-ups and new businesses who aren’t afraid to reinvent the bank customer experience. This is where the banks who do get customer and try to reinvent the journeys customers are taking will win.

It’s also where banks who wait for ROI, or wait to understand the impact of social media, mobile, near-field contactless payments and other such technologies before investing, will lose out massively.

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What Wikileaks means for the finance sector…

In Groundswell, Media on December 7, 2010 at 08:24

The major news feeds of the world are buzzing with the arrest of Wikileaks founder Julian Assange in London today. Assange was arrested based on an extradition request from the Swedish government, issued last week. Swedish authorities had issued the warrant for Assange so they can talk to him about sex-crime allegations supposedly unrelated to WikiLeaks’ recent disclosure of secret U.S. documents. From blog commentary doing the rounds online, however, it appears that nobody is really buying the ‘unrelated’ nature of the dogged pursuit of Assange. Can you recall the last time you heard of an extradition request issued in this manner by the Swedish government?

Clearly Wikileaks appears to be a significant threat to governments, large institutions, and generally to the so-called industrial-military complex as far as their ability to contain or curtail information about their ‘secret’ activities. Tom Flanagan, an advisor to the Canadian PM, even went so far as to suggest Assange should be assassinated, sparking rapid retractions from the UK and Canadian governments

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Julian Assange - Hero of the People or Villan?

Digital and organizational attacks against Wikileaks

Wikileaks has been the subject of concerted digital attacks in the last couple of weeks. These attacks, originating primarily in the United States and other friendly nations are strongly suspected of being, at least passively, supported by the US Government. Originally Wikileaks moved their servers to Amazon’s cloud platform in the US to be able to cope with the DDoS attacks coming their way. However, in a move many suspect of being due to pressure from the US government Amazon removed Wikileaks from their platform last week citing breaches of their Service Level Agreement.

Just a few hours after Amazon’s announcement the company who registered the Wikileaks.org domain Everydns announced the removal of Wikileaks.org from the DNS (Domain Name Server) database. The DNS database interprets the URL you type into a browser to find the specific computer hosting the website you are looking for, so by removing the domain from the DNS database, it meant people typing in wikileaks.org would no longer find the site.

While this was all happening, Julian Assange, the enigmatic founder of Wikileaks was doggedly being pursued. His own personal bank account hosted by Post Finance in Switzerland, a notoriously difficult country to have their feathers ruffled over such international issues, was frozen. In response, hackers supporting the Wikileaks organization launched a DDoS attack of their own against Post Finance, taking their site down (as of 11:30 GMT Tuesday it remains offline).

To combat the large scale attacks against their domain and site, Wikileaks then appealed to the web community at large to assist by mirroring or hosting a copy of the site on their own DNS platforms. To date more than 500 separate servers have responded positively to this request, making the takedown of Wikileaks in totality impossible.

Historical Parallels

During the Middle-Ages the possession of the old and new testament was banned by the Church. This information was considered sacred and only to be handled by the intellectual elite, namely the clergy class. Those who went against this were persecuted, or even burned at the stake for heresy, such as the Lollards, Sir John Oldcastle, Thomas Harding and many others.

The thing that broke the back of the stranglehold the church held on scripture was technology, specifically the invention of the printing press, which allowed rapid production and distribution of scripture in printed form. Johannes Gutenberg, who invented the printing press and moveable type, is largely credited with this revolution, which eventually lead to the start of the reformation in Europe. Prior to Gutenberg’s press, copies of the bible had to be copied out by hand, dramatically reducing the ability to distribute the text, thus the church was largely able to limit access during this period of history.

Breaking distribution strongholds and information scarcity

Wikileaks and the internet in general, has produced the same profound effect on the distribution of information. The music industry, publishers, media and the finance sector are finding that they can’t protect their businesses from rapid innovation, disintermediation and the destruction of long-held traditional business models because of this change in modality. Governments, and large corporations (like Enron for example) are now finding they can’t limit ‘damage’ by restricting the availability of information or data in respect to their internal operations, especially when such activities are illegal, unethical or morally bankrupt.

Julian Assange, and Bradley Manning (who allegedly provided Wikileaks with much of the information about the US government), will probably be looked back on in the future much in the way Gutenberg was, as groundbreaking revolutionaries who pushed the ‘system’ to evolve for the betterment of all. Right now, it doesn’t look like that, but with the momentum, transparency and global nature of the web as a medium, to think that this cat can be put back in the box is simply irrational or wishful thinking.

The finance sector, governments and large corporations have to get used to a permanent shift in transparency and expectation of customers and constituents in respect to information flow and availability. To think you can spin, lie or manage the public with false information is to invite the sort of disaster in respect to reputation that the US government faces today.