Brett King

Archive for the ‘Engagement Banking’ Category

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

Customers will never use Facebook to login to their bank!

In Engagement Banking, Future of Banking, Groundswell, Mobile Payments, Social Networking, Twitter on December 7, 2011 at 07:16

We’re experiencing a massive shift in consumer behavior right now with the explosion of Facebook, Twitter, YouTube, and other community collaboration and social media platforms. A world where Facebook has 800 million inhabitants and a President who is a college dropout (albeit Harvard).

We’re seeing the global domination of mobile across the entire world, where before long every person on the planet will have a mobile phone – and soon that phone will be a wallet. Smartphone owners will be the majority in just a few years as smartphones are virtually free on contract, and unlimited data is bundled free. Already the average smartphone user spends more time using Apps than they do using an Internet browser on their computer.

The traditional players amongst us say that such things don’t really change the fundamentals, that “it will take time for people to trust these new mechanisms”.

I’ll never login with Facebook to my bank.

I won’t pay with my mobile phone unless I understand how secure it is. This NFC technology is too new and there’s no common standard.

Huh?

The same people who said this probably said…

I’ll never use email, there’s nothing like calling someone or a face-to-face discussion to solve a problem

I’ll never use an ATM machine, I don’t trust a machine to give me money.

I’ll never get a cell phone – I don’t want people to be able to call me whenever and wherever I am.

I will never put my credit card details on a website online – are you crazy?

I’ll never bank online. Not in my lifetime…

I’ll never need a Facebook account – it’s a waste of time, it’s just for college students.

Really?

If you are saying you won’t do something that millions of other people are already doing, that’s a sure sign that it’s going to disrupt the hell out of your business and you’re in trouble.

If you’re not planning to work differently, if you’re not thinking differently, then you’re just out of touch, you’re just one step away from irrelevance. You’re fighting the flow upstream and getting pushed towards disaster.

The one constant of the internet-enabled world is that you have to be ready to change constantly. Resistence is not only futile, it’s stupid and very costly in the long run. It’s cheap and easy to be social right now, same for mobile – it won’t be in the future.

Right now you have two choices.

Start experimenting with how to adapt to these new methods

Start figuring out what people want to talk about on social media. When they’re using their phones at a store, for searching on products, when they check-in, tweet or update their facebook status.

Start talking to them. Start sharing content that isn’t marketing messages pushed down their throat, but helps them.

Start trusting consumers to talk to you about your brand, your products and about what they want from their bank or services provider. Understand you can’t control the conversation, but you can and should participate in it.

Open up new products and services based on social media. Get consumers to give voice to their needs and help you form those ideas. OCBC, DBS, First Direct, ASB, Comm Bank are all trying different types of crowdsourcing to develop better relationships with their customer base.

OR… Ignore the obvious, get ready to be displaced

Our customers don’t feel safe using Facebook for login!

But some of them might… how long before most of them will? How do you meet your KYC requirements and keep customers safe when allowing them to do this? Are you going to wait till everyone else is doing it, or are you going to learn how to do it properly and securely now. Are you asking your compliance teams to find ways of figuring out how to do this stuff safely?

It will take years for the mobile wallet and NFC to take off!

Right now Google and Apple are eating your lunch and you don’t even know it. You are getting ready to write off the one device that is most critical for connections and context with your customers in the later part of this decade. Someone else is going to own your customers, and as banks we’re going to be paying the likes of Google to include our branded card in their wallet, or our products and services and messages on their platform.

We already have to ask permission from Google and Apple to give our customers our App.

Don’t want to change! You will…

The fact is most of the last two decades we’ve been facing constant change, and no one organization has been able to resist the shift because customers decide how and when you’ll engage with them.

Customers have already decided they want their mobile device to be their bank. They’ve already decided that they want to discuss your brand and your service capability in the open community of social media.

Now it’s time for you to decide that you want to stay relevant to your customers. Or ignore the obvious and go away.

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…

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.