Brett King

Archive for the ‘Bank Innovation’ Category

Can you do banking without a banking license?

In Bank Innovation, Customer Experience, Future of Banking, Retail Banking, Strategy on June 4, 2012 at 08:59

Clearly, to be a deposit taking bank and offer products like Mortgages, loans, savings accounts and so forth, it would be easier to have a bank charter. However, today the lines between banks and non-banks offering financial services is blurring faster than speculative investors dumping shares for Facebook.

There are many types of ‘banks’ or organizations that use the word ‘bank’ to describe their business activities such as Photo Banks, Seed banks, Sperm Bank, DNA bank, Blood Bank. There are also organizations that use the word bank in their name for other reasons like the “Bank Restaurant” in Minneapolis, JoS. A. Bank Clothiers and others. JoS. A. Bank offers a Pre-paid Gift Card program for individuals and corporates that has the name “Bank” in it’s offering, but isn’t regulated by industry. Bank Freedom, from Irvine California, offers a pre-paid Mastercard Debit Card but isn’t regulated as a bank.

Despite some claims to the contrary, it isn’t actually illegal to call yourself a ‘bank’ or have ‘bank’ in a tradename. In some states in the US, you might have difficulty incorporating yourself as a “Bank” if you have bank in the name of your company and you’re intending on offering financial services. But then again CIticorp, JP Morgan Chase, HSBC and others don’t actually have “Bank” in their holding company name. You don’t need the name ‘bank’ in your name to be licensed as a bank, and having the name ‘bank’ doesn’t force you to be a chartered bank either.

Then there are the likes of iTunes, PayPal, Dwolla, Venmo, Walmart, Oyster card in the UK, Octopus in Hong Kong, and the myriad of telecoms companys who offer pre-paid contracts, who regularly take deposits without the requirement of a banking license. In some markets, this has resulted in a subsidiary ‘e-Money’ or basic deposit taking licensing structure, but these organizations do not have the restrictions, regulations or requirements faced by a chartered bank. For more than 7 million Americans, 11 million Chinese and many others, their basic day-to-day method of payment in the retail environment is a pre-paid Debit Card (sometimes called a “general purpose reloadable” card). The pre-paid market is expect to reach an incredible $791 billion in the US alone by 2014.

When a bank account is not offered by a bank
What’s the difference between a prep-paid debit card account in the US and a demand deposit account from a chartered bank? Both can be used online commerce and at the point-of-sale. Both can be used to withdraw cash from an ATM machine. Both allow cash deposits to be made at physical locations. Both can receive direct deposit payments like a salary payment from your employer. Often pre-paid debit cards can offer interest on savings also. So what can’t a pre-paid card do that a typical deposit account can?

Most prepaid cards don’t allow you to write cheques (or checks), deposit more than a few times a month, keep a balance in excess of $10,000, make transfers/payments that exceed $5,000 per day, and/or going into the red with an overdraft facility.

For many customers who use pre-paid debit cards, these are not restrictions at all – and thus the card represents an alternative to a typical bank account from a chartered bank. Behind the program managers of pre-paid cards there is an issuing bank with an FDIC license in the US, but the program manager is not regulated as a bank. That nuance may be lost on some, but for the customer they are generally completely unaware that there is a “bank” behind the card – they simply see the program manager as the ‘bank’ or the card as a ‘bank account’ based on the utility provided by the product.

Bank Freedom offers an alternative to a checking account, although not technically a bank

Today PayPal, Dwolla, Venmo and others offer the ability to transfer money via P2P technologies that mimic the likes of the ACH and Giro networks. I think it is fair to say that no one considers these organizations to be ‘banks’, but until recently (certainly prior to the Internet) we would have considered the activity of these businesses to be “banking”. Now you could argue that PayPal is more like a WesternUnion than a Bank of America, but the point is that these organizations are increasingly attacking traditional ‘bank’ functionality.

Then you have P2P lenders who in the US have offered more than $1 billion in loans since 2006, despite not having banking licenses.

If only ‘banks’ did banking…
Today banking is not restricted to those with banking licenses. Banks no longer have an exclusive on the business of banking. If they did PayPal, iTunes, Dwolla, and the myriad of prepaid debit cards would be illegal. They are not. If they did, you couldn’t deposit money on your prepaid telephone contract without visiting a bank branch. If they did, you couldn’t send money to a friend without a bank BSB, sort code or routing number.

The assumption that only banks can do banking is a dangerous one, why? Because often, like any other industry suffering from competitive disruption, the only thing that forces positive change on an industry mired in regulation and tradition are competitive forces. Sometimes those forces result in the complete disruption of the industry (see Telegraph versus Telecoms), other times it results in fragmentation.

Are there banks who don’t have banking licenses? There are hundreds of organizations today that are doing banking activities that don’t have bank charters or licenses. Can they call themselves a bank? Some do, but they obviously don’t need to in order to offer banking-type products and services, and those that do generally have a regulated bank charter behind them through a partner. Like Post Offices around the world that offer a place to pay your bills or deposit money on behalf of a regulated bank, this activity is not illegal, nor does it require regulation. Why? Because the partner bank who has a charter is responsible for ensuring their agents and partners stay compliant within the legal framework

The activity of ‘banking’ is going to become a lot less defined, owned or identifiable in the next few years as many non-banks start infringing on the traditional activities of banking, and as banks are forced to collaborate more and more to get their products and services into the hands of consumers. While we still have banks doing the heavy lifting, much of the basic day-to-day activities of banking will become purely functional and will be measured by consumers on the utility of that functionality, rather than the underlying regulation of the company or institution that provides it. Thus, customers won’t really care if a bank is at the front end or what it’s called; just that they can get access to banking safely, conveniently and securely.

What will regulators have to say about this? Well that’s an entirely different matter.

Beyond the Branch – New Distribution Mechanisms

In Bank Innovation, Engagement Banking, Future of Banking on February 1, 2012 at 15:40

There’s a great deal of discussion and debate around what will ultimately happen to banking as a result of the massive changes in connectivity, utility, mobility and customer experience taking place right now. One thing is for sure, the world is changing.

We see PayPal owning online payments, with others like Stripe hot on their tails.

Square is attempting to disrupt the POS and circumvent the existing payments rails by going cardless.

Simple and Movenbank are vying for the new definition of the ‘bank account’.

Telcos like Rogers applying for banking licenses, and ISYS pitching head-to-head with banks for mobile wallet dominance in North America.

We also see Facebook and Twitter becoming increasingly dominant channels for customer dialog.

New Disruptors Abound!

Intermediate or Disintermediate?

So will banks get disintermediated in all this? Well, yes and no. In economics,disintermediation is generally defined as the removal of intermediaries in a supply chain: “cutting out the middleman”. So there’s not too many middlemen in the typical retail banking distribution chain. To some extent in financial services this is already happening with the decline in stock brokers, insurance agents, etc in favor of direct. However, conversely, a bunch of newer aggregators and intermediaries are popping up as the interface to the bank or payments providers.

New intermediary plays in the last couple of years include Square, iTunes, Simple, Mint, and others. Probably the most interesting new intermediary to emerge in the last year or so is Google Wallet (or Google, or THE Google wallet – not like THE facebook though…) If you doubt the veracity of my statement, here’s proof – after just over 18 months of operation, Square supports 1/8th of all US merchants. They didn’t exist 2 years ago.

So we’re likely to see more variations on a theme in banking and payments, where new players are coming into the ecosystem and offering value beyond the traditional methods of distribution. In its purest form, this will be simply a challenge to the branch-led distribution model. How so? Ultimately, with mobile banking and payments, the branch and resultant paperwork processes becomes a convenience “penalty” for transactional and basic onboarding. This friction is a target for disruptors.

Disruption and Disenfranchising

The disruption that is occuring in the customer experience is all about removing friction in outmoded or outdated processes for customers. Whenever you tell a customer he needs to fill out manual paperwork, or visit a physical location today, you’re going to increasingly get kickback from a segment of the market. While many will argue passionately for the role of a face-to-face interaction and the “richness” of the branch experience, the reality is that there are two reasons why most customers will balk at that.

Firstly, they don’t have the time or they perceive it is faster to go an alternative route – convenience was always a key driver for disruptors like Amazon and iTunes. Secondly, we’re being trained that you can open pretty much any non-bank relationship completely digitally today – so KYC (Know-Your-Customer) issues aside, the push is for rapid digital onboarding of customers. In usability terms we call the later a design pattern and it ends up driving consumer’s expectations becuase it is a entrenced behavioral expectation.

Digital natives won’t be able to figure out why you can sign up for Facebook, iTunes, PayPal and other relationships completely electronically, but your bank still requires a signature. It defies logic for the modern consumer, and no amount of arguing regulation will overcome that basic expectation.

The end result of this is that banks being the slow, calculated and risk adverse organizations that they are, will likely allow disruptors the opportunity to come into the space between the bank and the consumer as a ‘friction’ eliminator.

Secondly, geo-location and contextuality of banking products and services, will mean a marketing and engagement layer that is built on either event or location triggers to recognize the need for a financial services product and the capability to stimulate an engagement or journey in real-time.

The mobile, wallet and tablet are all key components in this shift, as is social media and the cloud to some extent.

The outcome?

In the end banks will, for basic products, no longer exclusively own the end consumer. They’ll simply be the underpinning bank manufacturer that supplies the product to a new distribution channel or channel partner.

So will banks be disintermediated? Not really, but they will be disenfranchised, losing direct relationships with customers as banks adapt to becoming pervasive providers of bank products and services, when and where you need them. A split between the distribution and manufacturing of retail FI products will be the core outcome.

Banks can not possibly own the telcos, mobile operating systems, marketing companies, retailers, locations and other elements that will drive the delivery of banking products and services in the near future. This is where the customer will live – this is where they’ll engage. I won’t come to your branch, download your “App” or even visit your website to directly engage the bank if someone else can deliver me that product as I need it

How many jobs will digital kill off in banking?

In Bank Innovation, Economics, Future of Banking, Social Networking, Strategy, Technology Innovation on January 16, 2012 at 08:35

I’m starting to hear of some very significant digital and multi-channel budgets being put in place by many of the leading retail banking brands in 2012. It’s about time!

While I won’t name names or budgets, I’ve heard of mid-sized banks dedicating more than $50m to Internet, mobile and social-media this year, and large banks in the range of many hundreds of millions. It’s obvious from some of the outcomes in 2012 that major brands like Citibank, BBVA, CommBank, and Amex, for example, are putting some major spend into various initiatives on the digital engagement side. Key to these activities is some groundwork around platform development, staying competitive on the customer interface side, exploring the mobile wallet and new forms of loyalty around payments, and of course, big social media plans.

2011 was a tough year for many bank brands

As earnings reports have been coming in this quarter, it’s no surprise that 2011 was a tough year for the big banks. Of course, I’ve also heard of major brands in the space whose budgets are woefully thin and spell major problems for them on a competitive front this year, some of these banks are already hurting. How can I argue that budgets for digital are too thin in the current environment? Well, when a major global brand in the space spends less on social media globally than the cost of deploying one branch in central London or New York, and they are yet to have any type of coherent social media strategy (no real Twitter presence as an example), that is a budget out of kilter with the reality of customer behavior and acquisition/retention mechanics.

The Intertia Problem

While I’m sure I’ll hear the justification that the economy and particularly the ongoing Euro crisis is the primary cause, there must be a recognition that banks are simply carrying a lot of redundant capacity, based on the old paradigms of the way banks should operate, and are under-invested in the new platforms and skills that will help them grow their business out of the current economic malaise. This appears to be forcing banks to try new fee structures to cover the costs of legacy business operations, rather than adapting the organization and thus cost structures. I could call out legacy branch infrastructure again, but I won’t beat a dead horse, as they say – the economics of that are becoming glaringly obvious to most. So let’s take two other simple examples where the organizational behavior is skewed by inertia:

Account Opening and Administration
With average account acquisition costs being in the range of $250-350, you would think that someone would have connected the dots between the need for a signature card (and related physical handling) at account opening, with the cost of acquisition. The easiest way to reduce acquisition costs is get rid of the paper. Which brings us to annual costs for checking accounts too. With an average checking account costing around $350 a year, sending paper statements, printing checkbooks that are never used, charging big fees for wire transfers so that you prop-up your dying legacy check business, all smacks of a business driven by inertia.

What’s my account balance?
This is the number one requested piece of information from the bank today, and while we provide internet banking access to this piece of information, the dominant method of a customer getting this is still through an ATM or through the call centre. A far simpler mechanism would be sending the account balance via text message when a major transaction occurs, at set intervals (say weekly) or as defined by the customer. The cost of sending a text of your balance to a customer 10 times a month, is less than the cost of one call to the call centre for the same information, and less than two ATM balance enquiries (based on current channel cost estimates). The deployment of mobile wallets will massive reduce these ongoing costs as well.

Investment prioritization

In terms of size of budget, here is my rough take on where the investment prioritization is occurring across the board:

  1. Mobile
    Clearly, whether it is deploying new mobile apps, iPad apps, playing with mobile wallets, or geo-location features and offers, Mobile is the big play in 2012 and everyone wants a part of the action.
  2. Social Media
    From deploying monitoring stations, building service paths organization-wide to cope with social media requests and incidents, building new loyalty programs powered by social platforms, or trying to tap-in to friends, likes and advocacy, social media is a big play this year.
  3. Acquisition/JVs/New Appointments
    Acquisitions are a tough one because it is only the larger organizations who are looking at this, but there’s an effort to acquire key skills, technology and business practices emerging though acquisition, and significant dedicated funds for exploring new lines of business. With CapitalOne’s acquisition of INGDirect, and other moves, we’re going to start to see this being a sizeable component of global plays in the space as the bigger players try to acquire core capability. We’ve seen banks like Comm Bank in Australia start to make strategic investments in core skills at the top, such as the appointment of Andy Lark, along with major changes in their budgets internally around digital. While Andy is billed as the Chief Marketing Officer, he bares little resemblance to the marketing officers of most banks traditionally.
  4. Core Systems replacement to cope with channel mix
    I think this one is obvious
  5. PFM, Big Data and Analytics
    I’ve put all these in one bucket, which isn’t really fair, but for many organizations the start to collating their big data into useful information only occurs through the move to PFM (Personal Financial Management) tools behind the login. The need to connect people to their money, to target cross-sell and up-sell messages and otherwise monetize account activity and data, is a big priority.
  6. Engagement Marketing and Collaboration
    Increasingly we’re seeing dedicated efforts at partnerships, API layers, new marketing initiatives across broader platforms and other such mechanisms. We’re starting to see a new slew of ‘business development’ and ‘partnership’ resources emerge as banks look beyond their own walls for growth opportunities. Expect this to grow significantly over the next 3 years as we see more JV, incubation and acquisition budgets emerge as well.

The downside to the shift

Clearly these changes are all good for staying relevant to consumers, changing business practices to adapt to new behaviors, and better aligning costs with operations as they shift. However, the downside is that as you move away from legacy operations there’s a lot of dead wood.

AUSTRALIA is on the cusp of a white-collar recession with insiders warning that thousands of jobs are at risk in the finance sector, after it emerged yesterday that ANZ planned to cut 700 jobs.

While many banks used the global financial crisis to ‘downsize’, the reality is that there are going to continue to be significant job cuts in the sector as a result of re-tasking the organization for the new reality. In fact, my estimates are that we’ll lose many more jobs to the ‘shift’ than we did in the global financial crisis. Sure, there will be new hires as well, but the reality is as we downsize branch staff, manual operations and traditional marketers, we simply don’t need the volume of skills to replace them on the digital front. Even in-branch we’ll be using technology to avoid queues, speed up transactions, and hence reduce branch staff footprints.

Joshua Persky, an unemployed banker, on the job trail

It’s inevitable in the shift to digital within finance, that some humans will be replaced by technology efficiency gains. As we really start to see digital making progress, those legacy skills sets will become glaringly obvious on the balance sheet. Unfortunately, it’s either lose legacy operations staff or lose customers and profitability.

Transparency, Broken Risk and the Loss of Physicality

In Bank Innovation, Customer Experience, Economics, Engagement Banking, Future of Banking, Strategy on October 19, 2011 at 12:33

Recently I’ve been discussing with bankers, economists, strategists and futurists the future of the banking industry. At a time when we’ve got the likes of the “Occupation of Wall St” (#OWS) through to discussions in various camps about the very survival of banking as we know it, a question you might ask is how did we get here so quickly? 10 years ago, discussing the collapse of the modern day banking system and widespread loss of trust in bankers, might have been ludicrous, unthinkable – but today it is happening.

The New Normal is inherently unstable
As bankers most of us would have preferred if things had just stayed the same as they were, or at least returned to the ‘good ole days’ once the dust from the global financial crisis had settled. Instead we’re faced with talk of a “New Normal”, of increased volatility and of sustained uncertainty. There’s now a growing concern that a Greek default will trigger a crisis in the Eurozone, which in turn will bring on a new ‘great depression’. It is not lost on the public at large that this is a financial crisis we probably didn’t need to have. It is a financial crisis that was bought on by the ultimate in speculative investment behavior, the creation of financial instruments designed to create wealth and trading momentum from underlying, sub-prime debt that really should never have been readjusted as collateralized ‘AAA’ rated securities. So here we are today with so called blue-chip or developed economies which have higher volatility and risk, than so-called emerging markets. Since when did China and Brazil become better bets than the US as investments?

The perfect storm for a financial system in crisis is not just the failure of the banking system to self-regulate, or the default of sovereign nations in respect to servicing their national debt. The perfect storm is driven by three primary mechanisms that aren’t normally discussed as macro-economic factors, but are critical as part of a discussion around reforming the banking industry. They are:

1. Increased Transparency and Visibility
2. The Reassessment of the role of Risk and Regulation, and
3. The Loss of Physicality

Adjusting to a Transparent World
The response to bailouts, banker bonuses, new rates and fees structures, and to the financial crisis itself is indicative of the fact that bankers can no longer just assume that the public at large will trust that banks know what they are doing. How has the industry at large responded to this increased transparency? At first with incredulity, then with a defense of the indefensible, and finally with begrudging acceptance.

There are still many banks today, for example, who not only prohibit the use of social media in the bank workplace, but refuse to engage with end consumers in any really useful way through social media. In a world where dictators can be overturned, where public opinion is expressed in mentions, tweets, likes and fan pages, and where consumers can be as loud and effective as your most expensive marketing initiative – how do you adjust?

Understanding that you now answer to the public and you need to defend your positions with openness, logic and fair value, Brian Moynihan’s defense of BofA’s recent fee hikes shows a lack of nuance in this new, socially transparent world:

“I have an inherent duty as a CEO of a publicly owned company to get a return for my shareholders,” Moynihan said in an interview with CNBC’s Larry Kudlow at the Washington Ideas Forum… Customers and shareholders will “understand what we’re doing,”… “Understand we have a right to make a profit.”
Brian Moynihan, CEO – Bank of America

As a bank you do have the right to make a profit, but customers now understand more acutely than at anytime in history that they have rights too. It’s not that customers don’t want to pay for banking, it’s not that they are unreasonable; it’s that they now demand value and they are assessing that value, and exposing your shortcomings when you don’t meet up to their expectations.

In this way, what we need to do as an industry is better understand our value in the system. Right now we have trouble articulating that because we’ve become too historically focused on ‘banking’ as the system, rather than banking as a financial service to those that have the right to pay and choose. The balance has tipped in favor of the voice of the consumer.

There are bigger Risks than Risk
I was in a conference in Oslo earlier in the year and talking about the need for retail banks to adjust to serving their customers better, no matter when or where they needed banking, and a banker in the audience defended the need for a strict, traditional approach to physical KYC (Know-Your-Customer) because banking is first and foremost about ‘managing risk’ – at least that’s what he said. With our almost myopic focus as an industry on risk management and risk mitigation, we’ve perhaps missed the biggest risk of all – the fact that we are putting so much of the risk workload back onto the customer and the front-end of the business, that we’re starting to become a problem.

I’ve talked at length previously about the huge amount of time the front-end staff and customers spend in an attempt to reduce the potential legal or regulatory enforcement risk. When I, as a customer, am spending 50%, 60% or perhaps 90% longer doing a simple task like opening an account or applying for a loan than I did 20 years ago – do I see that as progress, or do I feel it a burden? Do I see such moves as a reduction of risk, or do I merely see it as an increase in complexity? In such a risk adverse environment, the bank is no longer serving the customer, the customer is serving the bank – and the customer is increasingly getting intimidated by the thought of having to navigate this complexity before he can get to the actual product or service he wants.

If you look at the biggest consumer shifts in the last 15-20 years, the biggest shifts have been driven around change in process or distribution that makes life simpler and easier. Here’s a few examples:

  • Mobile phone versus Landline
  • Google Search versus Catalog
  • Online Trading/Travel versus Broker/Agent
  • Multi-touch screen versus stylus/keyboard
  • iPad/Tablet versus PC
  • Kindle/eBook versus Paperbook
  • Online News/Streams versus Newspaper
  • Email/SMS/Facebook versus Mail/Telephone

The threat here is complexity, and invariably as we try to manage risk, we’re actually making customer facing processes more complex. This is bucking the trend of almost every other core customer interaction we’re seeing today.

The Loss of Physicality
I recently posted on American Banker | BankThink about my views around branches, checks/cheques and all things physical in banking. I suggest you read that separately, but a key consideration or thought in that article is as follows:

“The bank is no longer a place you go. Banking has becoming something you do. It is now contextual, and measured in terms of utility – how easily someone can use bank products or services to accomplish a task like shopping, traveling or buying a car or a home. The more a bank insists on physicality, the more it risks becoming irrelevant to customers who no longer cherish the traditional processes and artifacts. In just four years, that will be the vast majority of your customer base – not a marginal demographic, as some would prefer to believe.”

Conclusions
In this environment, retail banking is ripe for disruption. Why? Because instead of understanding the shifts around us, we’re digging in – levying fees, increasing complexity, and arguing that customers are just going to have to suck it up. After all, where else are they going to go?

Increasingly customers have a choice. Whether it is pre-paid debit cards, mobile wallets, PayPal, or other challenges to day to day financial interactions, the concept that as a regulated industry we’re protected from having to make the hard decisions and actually reform the way we work, is foolhardy.

We need to start working very differently…

Movenbank’s Reboot of Banking – now the work really starts…

In Bank Innovation, Future of Banking, Mobile Payments on September 20, 2011 at 18:47

As some of you may have heard, our team formally launched the Movenbank project at SIBOS yesterday. It’s an auspicious start, for a very ambitious project.

The buzz at SIBOS was stellar, with some major support coming from the Twiteratti, from the “InnoTRIBE” and the bloggers in our unique community. Having said that, I’m under no illusion that this was only the start and we’ve got some heavy lifting over the next few months before we launch our consumer service. I thought in the spirit of Innotribe’s theme this year I would talk briefly about what the launch means, and what we’re going to do. But more than that, I wanted to share with you the specific challenges we’ve had to fight to overcome and why I believe we very aptly classify this as a reboot of banking. I don’t want this to be an advertorial for Movenbank – I’d like to expand on what was discussed at SIBOS, and I think sharing our thinking and challenges is instructional if you really want to change the way your institution engages customers.

CRED™ and the Movenbank Ecosystem

We believe that generally the way banks work with customers is totally broken/screwed. How many customers want a more transparent relationship with their bank (and I don’t mean just fees and interest rates?) How many have had a request for credit turned down and scratched their head to understand why? How many wonder what those mystery fees are on their statement, or why they were even charged in the first place? How many have wanted to increase their credit limit on their card or get a loan, but simply didn’t know how? These are questions the average bank consumer asks all the time – let alone questions about complex products, or the dizzying array  of choices around asset class, rate, features, etc. The industry talks about ‘educating customers’ so that customers understand products. But we believe if you have to educate customers before they understand your product, you’ve already lost the opportunity.

In trying to find a way to better articulate the day-to-day relationship with customers we realized that lack of trust, the systemic resistance to transparency that has become apparent as a result of social media, etc, the tendency to leverage information scarcity as a revenue/margin tool, and the lack of flexibility in current risk assessment models – all needed to change if we were really going to do something new. Fortunately, the solution manifested itself in the form of CRED™.

In creating a behavioral, social, viral, gamified engagement system, what we were really trying to do was change the way our bank communicates with customers about their relationship, and the way we assess their value to us as an institution. It had to be something visible and easy to understand for consumers, but it had to have enough depth that it could not only accurately assess risk, but also enable us to satisfy the requirements of regulators. Sounds complex right?

Well it turns out that if we ask questions of customers gradually, allow them to transact, and tell us how they spend and save on a daily basis, we can build up not only a complete KYC/CIP profile, but we can also start to help customers manage behavior that is risky. The problem with current credit scoring models is that they only record a failure after it’s happened, but we realized we should be able to anticipate that failure by watching the way customers behave. Rather than being invasive, most of this was available based on the current aggregated data for a ‘banked’ customer. If the customer was unbanked, we were going to have to build it over time.

The final element is really the gamification. What I don’t want to do is give the impression that we’re making banking a ‘game’. We’re using the principles of gamification for engagement. We will have some of the standard bells and whistles like badges, rewards and incentives, but the real secret to understanding CRED gamification is understanding how we will deliver banking products and services. One simple trick – if you want someone to keep a positive balance in their savings account – then allowing them to see that balance or reminding them that a specific transaction or event will take them into negative territory, makes the spend a conscious decision. Is it gamification? It is when you ‘game’ the messaging, and make it frictionless or even fun. We’re playing with that messaging and engagement layer to influence your financial health positively. So maybe we should more accurately call CRED Engagementfication or Contextualization, rather than pure gamification. We’re all about positive persuasion, based on very clear and ethical permission sets.

Getting over the ‘hurdles’ for the new thing…

One of the real questions was should we or shouldn’t we start with our own license and charter, or do we go the BankSimple route and work with partner banks. In the end this decision was really taken out of our hands because there were no guarantees on either the outcome of the license/charter application process or the timing of such. Purely on a commercial basis, if we wanted to go to market, we couldn’t wait on the regulators to make the call. That’s not to say we might not acquire a bank in the future or build our own for purposes of scale.

So what about KYC (Know Your Customers)? It turns out that KYC requirements in most jurisdictions are not that exhaustive – it basically boils down to name, date of birth, physical address, unique identification (Passport, Social Security Number, TIN, etc) and verification of that identity. The rest of the ongoing KYC stuff is typically around transactional behavior (e.g. AML suspicious transaction reporting). The fact is, the workload of this stuff is not erroneous, nor does it require an absolute physical presence (at least the way we read the regs). In fact, we will have much more data on the behavioral side and on the customer’s profile than an average bank. For example, which bank do you know that requires you to have a Twitter or Facebook account and a mobile phone number before you can sign up? That’s much more useful than insisting on utility bills before you open an account in our opinion.

Lastly, on the product side, CRED™ will simplify much of this space as well. In most cases, customers will be engaging with Movenbank for a facility, whether it be a day to day transactional account, a savings ‘bucket’ for a specific goal, or a line of credit for those times you need a bit of extra cash. The utility of banking means that we believe as long as the rates are competitive, you don’t need to describe or understand the features of that product – you just want to use the ‘utility’ of the product. So CRED will be the interface to this, and we’ll turn on and off the utility of those products or services as required. Given we’ll already have all of the KYC up front with CRED as the engine of the relationship, you won’t need any application form, it will just be turning the facility on or off.

What’s next?

CRED will launch initially with a financial personality profiling tool

The Alpha Release of Movenbank’s site is scheduled for October the 1st, where customers will get their first glimpse of the CRED ecosystem through a financial personality profile. Then we’ll be ramping up for a staged commercial release next year – with broad availability schedule for the summer of 2012 (summer in the Northern Hemisphere that is).

It’s an exciting time. We’d love your feedback and love to have you along for the ride.

Rebooting banking will require your participation as well. Thanks for your support and encouragement.