Brett King

Archive for August, 2011|Monthly archive page

How Steve Jobs Killed the Branch…

In Customer Experience, Future of Banking on August 25, 2011 at 04:37

As the news of Steve Jobs’ resignation rocks the world today, it’s almost like we’re reading his obituary rather than the news that a Fortune 50 CEO has moved on. The impact of Steve’s resignation will be felt hard on Apple’s share price no doubt, and even potentially hit the very fragile US market at a time of uncertainty. Although Apple’s leader has had a question mark over his health for some time, the eventuality of the departure of such an iconic leader was always going to hurt.

When we look back at the amazing career of Jobs, the creation of Apple, his messianic return to Apple in 1997, the 200 patents filed under his name (although he has no formal engineering qualifications) and the meteoric rise of Apple Stock – from $7 a share in 2003 to around $400 today – we see the evidence of something amazing. But how has Steve Jobs influenced financial services, and how will his legacy continue to influence the sector?

The Graphical User Interface through to Multi-Touch

Although largely attributed to the team at Zerox PARC (Palo Alto Research Center), Apple was the first company to commercialize the Graphical User Interface. The GUI led to the modern computing interface, the creation of the mouse, and the concepts of human computer interaction and usability that are so widespread today. These are at the very core of our understanding of the way individuals interact with devices today.

For almost 10 years (1988-1997), Microsoft and Apple were locked in a legal battle over the apparent IP infringement of “Windows” in respect to the LISA and Apple Macintosh GUIs. Regardless of the eventual outcomes of this battle (which ended in a private settlment between MSFT and APPL in 97) the fact is Jobs’ team (that included much of the PARC team) were credited with the first mass market GUI implementation. Since then the GUI has been a basic element of our computing. The VT-220 green-screens of old have long ago disappeared, thankfully!

However, Apple totally upped the ante in 2007 with the introduction of multi-touch. Combined with Nintendo Wii launch in 2006, multi-touch saw the emergence of a range of direct input innovations. Microsoft followed soon after with Kinect, incorporating gesture based control. Multi-touch was the first incorporation of human control that was direct input, as opposed to a mouse and a keyboard. Even the Wii was an evolution of the input device – multi-touch eliminated an input device all together. This development has forever changed our expectations of device interaction.

Steve Jobs - Branch Killer, Innovator and Visionary (Photo Credit: Apple)

Of course, as banks we’re already massive deploying iPhone, iPad and Android Apps for mobile banking, but we’re also incorporating other direct input methods such as gesture recognition and biometrics into the experience. Recently bank branches have started deploying touch screens, media walls, Microsoft surface tables and even facial recognition in signage displays. Itau bank in Brazil has developed an ATM that uses gestures and 3D to control interactions. But the biggest change was not around input, but a shift in the value of the bank in our day to day life.

Detaching Banking from the Bank

This is not the sole legacy of Steve Jobs and the team at Apple, but when we look back on banking in 10-20 years time when branches have disappeared, we will attribute the destruction of the traditional value chain of banking to the death of the ‘store’. Not all stores are destroyed, of course, but where you have goods or services that can be easily digitized or where distribution does not absolutely require physicality, then the value chain is disrupted. The two big upsets in this evolution of the store were really Amazon’s destruction of the book store, and iTunes destruction of video and music stores.

iTunes was the more significant disruptor for banking, because the “App” has disrupted the retail financial services distribution platform by changing ownership of the customer experience. Today banks who want customers to have access to their banking through a mobile “App”, no longer have direct access to customers. Customers download the ‘bank’ from Apple or from Google, and banks need to meet the criteria of the ‘store’ before customers can get access to that functionality.

In the future the destruction of the physicality of banking from branches, cheques, cards and cash will all be attributed to the emergence of the iPhone. The smartphone with Apps, supported by an App store in the initial instance was the trigger for a whole evolution of interaction on-the-move. Then the mobile wallet and distributed, pervasive, engaged banking through a device that enables payments and connects customers with their bank everyday, will eliminate the need for “the bank”, but not banking products and services.

Gone, but not forgotten

When historians look back at the massive shift in banking and the rapid decline in branch activity, the death of cheques, plastic and cash – the inflection point will be the creation of the App Phone. This is perhaps Steve Jobs’ greatest legacy for banking today.

He has changed the way our customers behave, he’s changed the way we think, and the way we demand service. Thanks to Steve Jobs’ vision – banking of the future will be about banking embedded everyday into our life, a true utility, and no longer a place you go.

In the end when the dust settles, there will still be banks at the backend owning the wires, payments networks and carrying the risk, but they won’t own the customer. The customer will hardly notice banking embedded in their daily life as they go shopping with their phone, as they buy a new car or home, or as they travel overseas or send their kids off to college. It will just be a part of our everyday life, and my kids won’t even remember the days when you used to have to go to a building before you could do this stuff.

The problem is Identity, not social media and identity theft

In Retail Banking on August 21, 2011 at 22:39

At an event in Indianapolis two weeks ago a banker in the audience ardently challenged me over the transparency of social networks and the subsequent risk of identity theft. There are a lot of identity theft specialists who will warn you of the risks of exposing your identity on social networks and the possibility of compromising your personal information. This is becoming a common bandwagon, that of the risk of exposure via social media – the big bad Internet is the real problem! How do we solve it? How do we educate our audience so they stop giving their personal information away?

The problem with this approach is that it is simply getting easier, not more difficult, to find out personal information about individuals and use this to create a bank account or similar based on their identity. The efforts of banks to ensure I am really me, are also getting more than a little ludicrous and frustrating. Recently I endeavored to open an account in the US with a global bank that I have a relationship with in two other countries. As part of the process of the KYC identity checking, I was asked to provide 3 months worth of bank statements from the account I held with the same bank in Hong Kong, along with proof of a permanent residential address. It turns out in the end that in order to satisfy the KYC criteria of the bank it was easier to get my father in Australia to open a utility account in my name, so that it would appear I had a permanent offshore address, even though I have not lived in Australia since 1999. I was forced to game the process because it was the only way my identity was acceptable from a policy perspective based on my passport.

Our notion of Identity, as embedded and enforced through KYC rules and bank policy, and our attempts to protect that fragile identity through firewalling personal details is laughable in today’s environment. The era of the identity based on a data profile is clearly at an end.

Complaining about transparency and social networks is counter productive

Phenomenon like social media and networks, increased transparency and visibility of your personal details and phishing attacks are not going away. The reality is that thinking that you can rein in social media so that it reduces the incidences of identity theft, is a fool’s errand. Educating customers on the perils of sharing their personal information is a loosing battle. There are two reasons for this:

  1. The amount of information we’re required to share online for registering at sites, etc and for service providers, means the risk of exposure through security flaws grows exponentially, and
  2. Y-Gen and Digital Natives, are increasingly choosing a much more transparent approach to their personal profile because they are comfortable with an increased level of exposure through social media, etc

The thought that I will stop registering for services and such online, or that one day soon digital natives will wake up and realize what a terrible mistake they’ve made by exposing their lives online through Facebook, Twitter, and Google+ – is simply naïve.

Too many logins

How many passwords do you have to remember? It has long be recognized by security experts around the world, that by nature of the way our memory works and the load of having to remember so many login details, that customers increasingly choose the same passwords and IDs for multiple properties. The problem is when you have ask me to remember more and more passwords, that this actually makes systems less secure over time.

The weakest link is actually the individual and our flawed memory. If I use the same password at multiple sites, the risk of one system intrusion being responsible for the compromise of a range of websites increases.

We need to find a better way to manage identities in the digital age...

We need better identity

The fact is, the systems we use today to verify someone’s identity are massively flawed based on growing exposure and increasing transparency of personal information. Data Privacy laws in various jurisdictions are a nice idea, but when the main risk of exposure is the customer themselves sharing information through a ‘phished’ website or at a site with weak security infrastructure, privacy is no longer a legal solution.

One of the banks I use recently called me to verify some transactions that had taken place on my debit card. Although they called me, I was required to verify my details with them to prove who I was – all the information they asked me was pretty easy to source (address, ID number, etc). The ironic thing was, that when I asked to verify who they were, they were incredulous – “But, we’re your bank!”. I could have been giving my details over the phone to an identity thief for all I knew. In the end they gave me a number to call back – although that could have easily been mimicked as well.

The solution – a better identity

The only way to change this is to create a digital identity construct that is far more secure than being based on data that could be readily stolen, phished, compromised or willingly given by accident. We need to create an identity based on characteristics that are much more difficult to compromise. The only current technology that would seem to provide that security is biometrics.

Banks as an industry and government themselves are in a unique position to provide this layer of trusted identity management. They already have strong security platforms, broad availability, strong data management policies, and the ability to capture the biometric data points.

In reality though, the likelihood is that someone like Facebook or Google would be more likely to create a common identity platform because they understand that customer behavior means you can’t prop-up an outdated, outmoded KYC and identity model. It’s just one more reason why banks in the future are unlikely to own the customer.

The Total Disruption of Bank Distribution – The Conclusion

In Bank Innovation, Customer Experience, Future of Banking on August 11, 2011 at 16:10

As we detach ourselves from physical artifacts associated with traditional businesses, traditional distribution models rapidly fail. The fact that you own or participate in a network or virtual monopoly that supports an outmoded distribution model is of no benefit when that network is surpassed by a generational leap in technology delivery at the front end or a significant and irreversible shift in behavior. The challenge is re-tasking your business to be a part of the technology or new distribution model that enables that different behavior.

Typically, the new technology or business model disrupts in one of the following ways:

  1. Creates a cheaper, simpler or more convenient approach when compared with the old method or processes,
  2. Involves a new technology that is vastly superior in speed, quality, form or function when compared with the old method (not an iteration, but next generation improvement),
  3. Creates a dynamic shift in components of the value chain such that the old method is no longer viable or worth the premium levied, or
  4. Results in the creation of a completely new model that completely replaces the need for the traditional players such as in the case of combining two previous products or business.

As in the case of the Telegraph and Fixed Line businesses, this was about a better approach to person-to-person communication. In the case of Encyclopedia Britannica, Stock Trading and Travel Agents, the new technology disrupted the value chain so that traditional distribution methods were no longer able to compete, or the ‘value-add’ of a human interaction was no longer worth the premium. In the case of media such as print, music and movie/TV content, it is a combination of disruption of the network, new technologies at the front end (i.e. computers/tablets/smartphones instead of TVs/newspapers/CD players) and a change in the distribution model in respect to the value chain and cost structures.

Is it really going to happen?

So how viable is this shift in banking? Well almost all the physical artifacts in banking can be replaced by something better. The cheque has already been replaced in most developed economies by debit cards and electronic transfer methods, but even plastic cards themselves are a target for disruption via NFC-enabled mobiles. Cash itself is increasingly becoming a poor instrument for day-to-day payments.

The branch, which originally was designed as a transaction point for cheques and cash, is increasingly facing the same challenges that Britannica, Merrill Lynch and Travel Agents faced – is the value-add of a human interaction enough to differentiate against a rich, optimized, digital interaction when and where you need your banking?

Everything about retail financial services that relies on outmoded physical artifacts, proprietary and outdated networks, and processes that are complex and unwieldy – all lend themselves to disruption. If you can think of a better way to do your banking, then you already realize that the current status quo is not sustainable. In today’s environment, if you can imagine it, then someone is probably building it.

If you are an incumbent player you might argue, for example, that NFC requires critical mass to reach adoption, but so did the internet, so did music downloads, so did Wikipedia and electronic stock trading.  The question is, do you wait until the disruption takes place to start planning for the new reality?

Where are the key threats?

The biggest single threat is distribution model changes. By 2015 aggregate interactions for retail banking will mostly have shifted away from branches to mobile, web, ATM, and call center. On that basis alone banks that are carrying large branch networks will face major disadvantages on an operational cost basis, against competitors who are more nimble, efficient and enable day-to-day behavior better. The good news is, before the decline really starts to bite, the evidence shows that when you strongly support new channels that it doesn’t cannibalize your existing business, it just adds new revenue to the mix. Get focused today on revenue generation through direct channels. Remove the friction, go after revenue.

The cloud, mobile and social will certainly be a part of the shift as well. PayPal has already shown that a new interface can work on top of the old architecture. Increasingly mobile payments are going to sit on top of that old architecture too. The opportunities, however, are more than putting new skins on the old payment system. The opportunity here is to understand the context of payments and work to augment the payments architecture through understanding payments behavior. Start focusing on why, when and how customers make payments, and work to reduce friction and enhance value.

Physical artifacts are going to continue to be challenged by modality. If you have retail banking management asking the question about how to get customers back into branches, or arguing that cash is king, ask yourself how these leaders will fare as increasingly they are faced with disruptive behavior and the breakdown of traditional models. Start looking for leaders who are excited about the future and see the opportunities for adaptation.

Outdated Checks and Magstrip costing the US $30Bn a year

In Bank Innovation, Economics, Mobile Payments on August 3, 2011 at 12:07

The US is enamored with outdated and costly modality that is costing Billions in lost revenue and fraud. While many argue the business case for moving to technology like EMV or NFC is hard to justify, the reality is it is incredibly simple to justify based simply on mathematics around today’s massive cost of fraud. The same goes for those that say shifting the US away from checks is too hard because of the momentum in the system.

The big cost of fraud

In the US alone, check (cheque) fraud costed US consumers and banks an estimated $20Bn a year in 2010, up from $10Bn in 1997. Identify theft is one of the fastest growing types of fraud. In the US identity theft victims grew by 12 percent to 11.1 million adults in 2010 (Source: Javelin Strategy & Research, “Identity Fraud Survey Report,” February 2010). 43% of this fraud, totaling more than $50Bn in costs, were check and card fraud. This doesn’t include the Billions of dollars spent internally by bank risk and fraud departments chasing, tracking and attempting to recover losses from fraud.

In 2009, three individuals were accused of engineering the largest case of card fraud in US history. The fraud involved the theft of more than 170 million credit and debit card numbers utilizing weaknesses in the payment processing systems based around mag stripe tech. Albert Gonzalez, the primary defendant in the case, was said to have thrown himself a $75,000 birthday party and complained about having to count $340,000 by hand after his currency-counting machine broke. The state retrieved around $1.65m in cash as part of a plea bargain, but the Secret Service identified that just one small part of Gonzalez’ operation a group of hackers called “ShadowCrew” took $4.3 million in the early part of the decade. It was also reported that Heartland Payments Systems Group, who was targeted by Gonzalez’ group, lost more than $12.6m in the attacks alone (source: Wikipedia).

Estimates for card fraud in the US banking range from around $5.7Bn a year to $8.6Bn a year (source: Oracle Financial Services Whitepaper).

Outdated technology killing the US banking system

There are various arguments given for keeping checks and mag-stripe going in the US, despite all evidence to the contrary. The biggest argument for keeping checks going is the momentum in the system around checks that stem from the practice of the mystical ‘float’ mechanism. The float has frequently been used as a mechanism in the practice of cheque kiting or ‘playing the float’, convincing a merchant to accept a cheque that takes 3 days for the fraud to become evident. Since cheques include significant personal information (name, account number, signature and in some countries driver’s license number, the address and/or phone number of the account holder), they lead directly to identity theft implementation.

In Germany, Austria, the Netherlands, Belgium, Finland, and Scandinavia, cheques have almost completely vanished in favour of direct bank transfers and electronic payments. In the UK, Ireland and France, while cheques are still used they are in rapid decline, with 95% of merchants not accepting them as a form of payment anymore. The key difference in EU markets where cheques have disappeared versus the US are two simple mechanisms:

  1. Cheques cost consumers to process, whereas electronic payments are free or cost less, and
  2. There are robust electronic payments systems like Giro that provide alternatives that are more efficient

As long as US banks insist on free checking and charging for wire transfers, along with a poor interbank payments capability, then checks have life left in them. Why they insist on this is beyond me?

Mag-stripe related fraud was successfully reduced by 75-80% in the UK and France as a result of the introduction of EMV chips. This is expected to be further reduced dramatically by the introduction of NFC and mobile payments, which allow multiple additional layers of security.

Savings pays for all the innovation we need

In the US alone check and card fraud costs close to $30Bn a year. By incentivizing the removal of checks and mag-stripe from the system, this could result in savings well in excess of 50% of these costs annually. $15Bn a year could pay for a lot of innovation.

In 2010 over 1.5million card terminals were shipped in the US. Accepting that these units cost around $1-3k to deploy, replacing mag-strip capable terminals annually would only cost around $10m for 3m merchants, $100m for 30m terminals. That solves the NFC/EMV issue very quickly.

Interestingly, removing cheques from the system not only reduces fraud, but reduces processing costs internally within banks by some 30-40%. Far in excess of the gains from the mystical float.

Mobile payments and NFC are clearly not only the way to go to reduce fraud, but to provide a massively robust business case for innovation. Anyone who argues for the longevity of cheques and magstripe in the US needs their head read IMHO.

The Total Disruption of Bank Distribution – Part 5

In Blogs, Customer Experience, Engagement Banking, Groundswell, Retail Banking, Social Networking, Twitter on August 1, 2011 at 11:09

Transparency challenges new revenue and friction

In September of 2009 Ann Minch, a customer of Bank of America, posted a video on YouTube called the “Debtor’s Revolt”. Ann detailed her case against BofA who had unilaterally increased her credit card APR (Annual Percentage Rate) to 30% from its historical 12.99% – quite a jump. She argued as a customer of 14 years, having never missed a payment, that such treatment was unjustified.  She contacted BofA and asked if they would discuss her situation or negotiate the rate change, but they referred her to a debt consolidation counselor.

BofA subsequently argued that the terms and conditions she had signed allowed them to make any adjustments of this nature without consultation with customers like Minch. If she didn’t like it, she was free to cancel her card and go to another bank. This wasn’t the end of the story.

Half a Million YouTube views later mainstream media started to pick up Ann Minch’s story. The pressure was suddenly on BofA to explain their actions, and the story that they were within their legal right to do so, just didn’t stand up to cross examination. All but BofA believed that their actions were unreasonable and extreme. The resultant pressure resulted in a complete reversal of BofA’s decision, a win for Ann Minch right?

Transparency wins

The Ann Minch story, and that of David Carroll with his YouTube-generated hit United Breaks Guitars, tells us that today consumers have extraordinary power afforded to them through social media. Consumers today have a voice, but increasingly that voice is becoming about choice, about rewarding organizations that listen to customers, and punishing those that think their decisions are immune from debate or dialogue. Prior to social media, Ann Minch wouldn’t have had a hope of getting a behemoth like BofA to change their policies or decisions based on her complaint. But it’s not just the voice of consumers on Twitter, Facebook, Google+ or social media more broadly.

A plethora of user driven recommendation apps and tools are coming to the fore in helping consumers choose organizations that respect customer involvement. There’s Nosh and Yelp apps that help consumers choose restaurants that they like, that provide great service or great food. There’s Trip Advisor that has become such a powerful force in the travel game that it gets 50 million unique visitors a month who use the site to select hotels for their family vacations. Then there are staples like iTunes and Amazon (who arguably pioneered the consumer product rating mechanism) who rank listings of their products based on consumer votes and reviews.  Today we’ve seen the launch of First Direct’s new FD Lab as a worthy attempt to engage customers in the future of the bank from a service and product perspective.

First Direct, who already has great customer advocacy, has launched a new crowdsourcing platform for engagement

Outdated processes are just friction

Today we live in a world where you can no longer provide poor service based on outdated rules, processes and policies and argue “hey, were a bank and that is the way we do it”. Today, if you are a bank and you have stupid rules and regulations that have been perpetuated by processes built around unwieldy mainframe transaction systems, or around KYC processes that are overkill for 95% of customers and their day-to-day interactions – you are setting yourself up for a fall.

Banking has been for the longest time built on the premise that you have to jump through a bunch of hoops to make yourself ‘worthy’ as a customer – you have to prove yourself before the bank will deem you suitable. As bankers, we argue that it’s not our fault, that we are saddled with regulations and requirements that force our hand, that require us to approach customer engagement in this way.

That kind of thinking is institutional laziness and denial – it creates friction that frustrates customers, is largely unnecessary and is generally costly and inefficient.

Let me illustrate. Take a long-term customer that walks into a branch (for the moment forget my post last week on the decline in branch visitation :)) and applies for a credit card or investment class product after say 10 years of a relationship with the institution. In by far the majority of cases he or she’s sat down in front of an officer of the bank, handed a blank application form and required to fill out details that the bank has had on record for a decade. Why?

There is no process, rule or regulation that can possibly justify that kind of inefficiency and poor service. If there is a requirement to get a signed consent or legal record of the customer’s acceptance of certain terms and conditions, then print out the required document with all his/her details pre-filled, ask them to initial to confirm their details have not changed, and sign the acceptance of the T&Cs. What is so hard about that?

Recently at my annual review with my relationship manager at a major brand bank, I was subjected to a 7 minute video on the risks of investing in Collateralized Debt Obligations (CDOs) and the fact that I might lose all my money if I invest in this asset class, when I was, in fact, applying for a product that was a low-risk Corporate Bond in a totally unrelated asset class. Why the video then? Because someone in legal and risk decided all customers should sit through this video to reduce risk to the bank. Stupid friction.

Take a customer who forgets his Internet Banking password today. How many banks require him to come to the branch or sign a convoluted document and fax it to the bank to unlock his online account? I know at least two of my bank relationships do.

Take a wealthy HNWI (High-Net Worth) customer that moves to the USA or UK from a foreign country and applies for a credit card, only to be rejected because he has no credit score – therefore doesn’t exist in the system so he can’t be assessed from a credit worthiness perspective.

None of these rules makes sense, and yet banking is choc-a-block full of such friction and opportunities for disenfranchising customers.  This is the perfect storm in today’s user advocated consumer world of open, transparent choice.

Friction kills advocacy

The problem with outdated rules, processes and procedures is that thinking “we’ve always done it this way” or “if you don’t like it you can leave” is simply no longer a viable argument to an increasingly well educated and informed customer. Already we’re starting to see customer advocacy as a key driver in choice of financial institution, and high visibility for customers who voice their dissatisfaction with such friction.

Have a look at a few sample tweets in recent weeks:

@DavidBThomas I’ve been with my bank for 30 years. They “thank” me by telemarketing me at dinnertime.
@NewsCut My bank — TCF — has a security question “What city is your vacation home in?” My bank really doesn’t understand REAL America.
@StevenValentino I hate my bank and I would happily shove what little money I have into my mattress if the FDIC would insure it.
@MadRainbowLtd Halifax bank are sh*t! They let someone clear out my bank account using an old cancelled debit card!
@clarecbarry Bank screwed up appointment for third time. Quite impressive. Now on way to work with meeting with Mr Douchebag

And this wonderful series of Tweets from @docbaty on 29 July

@docbaty Things my bank did wrong today:
1) that it would take two weeks to perform a simple account creation;
@docbaty 2) offered to expedite that process, which means it -can- happen faster, but they’re just not trying;
@docbaty 3) asked me if I banked with Bank Y at all; they do the same thing while you wait…
@docbaty 4) gave me a blank form to complete in sign, when every piece of info – other than signature – is already on file…
@docbaty 5) made an error on the processing fee, charging $2,180 instead of $218. I had to correct their calculations (she’d used a calculator)
@docbaty 6) checked new calculations with manager, while making me wait.
@docbaty 7) failed to apologize.

Now imagine the next generation of customers who are out there looking for a new institution to engage with right now. Where are they going to look before they decide on a life-long relationship with a financial institution? They’re going to ask their peers. They will search on a product or brand and find search engine results prioritized, not by some clever search-engine-optimization techniques, but by how their friends and networks have scored the performance of that bank or credit union. They’re going to ask for recommendations on Facebook, Twitter or Google Plus, and they’re increasingly going to choose new providers who think out of the box and who work on simplicity, great customer journeys and improving customer experience through better interactions.

What used to happen informally now is being hardwired into the brand selection process. What marketers used to call the ‘choice set’. We’re learning that this process can’t be gamed, manipulated or bought as a result of ad spend. We’re learning that the most effective mechanism is simply being great service businesses and listening to customers when they’re not happy. The process is brutal, it’s transparent, and it’s going to kill your brand unless you are honestly engaging customers, and you try your hardest to get rid of those pesky, stupid banking rules that only make sense to us as the bank – and even then, let’s be honest… they don’t really make sense to us either.