Brett King

Posts Tagged ‘banking’

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.

Mobile Banking versus the Mobile Wallet?

In Customer Experience, Mobile Banking, Mobile Payments, Retail Banking on February 23, 2012 at 06:16

With recent news that Barclays Pin-git (or is it Ping-it) has had 120,000 downloads in 5 days, that Square has 1m merchants on their payments platform (1/8th of all US card merchants/retailers) and Starbucks is doing 25% of it’s North American payments via a cardless App – it seems like Mobile Payments are taking off like the H1N1 virus. The interesting thing is that many bankers are looking at all of this activity as if it has little meaning or impact on their business at this point in time. I think part of that may be that there is a fundamental misunderstanding of how the mobile can be utilized in the banking and payments space.

120,00 downloads in 5-day for Barclay’s PingIt

When showing glimpses of Movenbank’s Mobile App I often get asked by bankers whether it is a mobile wallet or a mobile banking app? It’s as if the two worlds of cards/payments and banking are destined never to meet when it comes to a conventional view of the banking world. In banks today, we even institutionalize this by having cards as a separate division or business unit, separate from the retail banking function. The only time they ever seem to meet is in the form of a debit card or within internet banking. But the cards business, while being a strong revenue earner generally for banks because of credit card fees and interest margin, philosophically is not really considered banking per se by most die-hard bankers.

In fact, I’ve known banks where if you walk into a branch, the teller needs to call the call centre to find out any information about your credit card, even your balance. With many of the banks I work with, in-branch or in the contact centre, CSRs/Tellers need to navigate between separate screens to see your credit card details and activity versus transactions in your checking account.

For a long time these two worlds have remained largely operationally separate. The popularization of the smartphone is destined to destroy that division of labor.

The world of Two Channels

Today retail banking is emerging out of the hyperconnected, digital transformation age as not much more than a collection of channels and utility. In the past, you had branches which were THE distribution channel, but that has rapidly fragmented. You also had cheques and cards which provided you a mechanism, or utility, for moving your money around. Historically banking was really about two primary things – storing or protecting assets, and helping in the conduct of trade and commerce. Rudimentary cheques (or bills of exchange) were around almost 800 years before physical currency, and prior to bank branches ‘assets’ were often stored in temples and palaces. At the core of banking was assets that you either kept safe, or moved around to effect trade. In many ways, that’s still at the core of the bank value proposition.

As some of you may have noted in BANK 2.0 I call out bankers for calling digital channels ‘alternative’ or e-channels because of the psychology internally within banks that tends to put these channels in a subordinate role to the branch. Recently I was approached by a recruiter looking at placing a global head of ‘E-Channels’ into one of the big global brands and asking me for my input into how could take on the role. I told the recruiter that any digital guy worth his salt would immediately stay away from this major banking brand, largely because the decision to classify the role as a head of ‘E-Channels’ already told me everything I needed to know about the brand – that they still thought of digital as ‘E’ rather than mainstream, everyday banking. That told me that anyone taking on this role would still be faced with massive inertia around branch networks and would be fighting everyday to justify budget, investment and mindshare in the total channel experience – and that is why I said this brand was not ready.

With Internet Banking being the primary day-to-day channel for banking in the developed world, and branch frequency/visitation off 90% from it’s peak in the mid-90s, the branch is really ‘alternative’ banking today, rather than pride of place at the core of banking behavior. So the pendulum has shifted.

So what are the two emerging channels?

If you characterize banking today from a day-to-day perspective, you’ve really got two core classes of activity. Payments AND day-to-day banking based on your assets, including applying for new products, wealth management engagement, etc. If you look at either customer engagement, transactional activity or the role of an advisor in respect to your assets, you’d be hard pressed to identify activities that aren’t done through either Payments Channels or Delivery Channels (credit to Terence Roche @Gonzobanker for this insight).

Given the way retail banking is structured today, this means that many banks look at a mobile wallet as an instantiation of payments – the ultimate, downloadable payment channel ‘function’ or utility.  However, they look at Mobile Banking as a mobile-enabled version of the Internet banking platform, which is ultimately just channel migration of transaction activity from branch to digital – hence, a delivery utility. Some progressive banks are even looking at onboarding customers entirely electronically through the web, mobile, ATM or call centre – without a signature. More delivery channels. The branch is the premier delivery channel still, and more so as transactions shift out of the branch, and it becomes about high touch sales and service (delivery of revenue and service).

When two worlds collide

The problem philosophically for retail banks is that the mobile device is collapsing this view of the world. Payments and traditional day-to-day banking utility will be packaged into one portable, handheld ‘channel’. It doesn’t make sense to have one app for ‘banking’ and one app for ‘payments’ or the wallet, you must have the utility of both the bank and payments capability in one.

That presents an organizational shift because it merges the two disparate parts of retail banking, but it also presents massive opportunities.

What is possible is that my day-to-day connection with my money is far tighter than it is in a traditional banking relationship. Whether it is simply the fact that I can see my balance before and after I make a payment (not possible with plastic, cheques or cash) or whether you can start to advise me day-to-day on how to utilize my money better – the opportunity for mobile is not the wallet, and not mobile banking. It is re-imagining the utility of banking from a mobile perspective.

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.

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.