Brett King

Posts Tagged ‘Business News’

Forget greater regulation, social media will force transparency (HuffPost)

In Retail Banking, Social Networking, Strategy on May 10, 2010 at 09:53

See the original post on Huffington here

As President Obama was gearing up last month to push further reforms for the finance sector through congress, the sector lobbyists were also gearing up for a battle of PR wits to try to prevent changes that threaten the status quo.  Senior industry players like Jamie Dimon were extremely vocal in challenging the president’s push for greater regulation.

The mantra of “too big to fail” was the protection the big banks were all hoping to fall back on, and this call was certainly an underlying foundation of the bailout and TARP initiative in the US. The fear that if the biggest banks fail, the economic repercussions would be so serious that it is less costly and more economically prudent to bailout big banks so the economy didn’t get hurt further. Such sector lobbying and grandstanding is a fairly standard reaction to such government intervention, as we’ve seen time and time again.

But there is something more powerful than regulation or reform which looks like it will be a much more powerful force for creating change that even politicians will learn to fear – social media. In the recent UK elections, voter turnout was at the highest level in 13 years, largely due to the influence of social media in creating interest and driving participation in the election.

We’ve seen social media act as a force for small business and consumers in breaking the back of long held bank policies that have been unyielding even in the most regulated markets, with active ombudsmen or watchdogs. In February of this year Citibank was forced to very publicly back down from a policy-based decision on blocking the business account of a web start-up called Fabulis. In September of 2009 Ann Minch, a long and faithful BofA customer, posted a YouTube video documenting the interest rate increase on her BofA credit card from 12 to 30%. In the video Minch comments that she “could get a better rate from a loan shark”. Bank of America was unmoved by her social media efforts, at least initially. But after more than half a million views in just a few weeks, BofA was forced to reverse their interest rate increase and in doing so set a very public precedent for other customers.

Corporations are under the watchful eye of social media

This is a trend more and more questions by customers, more reversals in policy decisions that were once held as sacred and unmovable by the biggest corporations globally – basically they were too big to be challenged.

The largest corporate bankruptcies in history (see great infographic) largely occurred due to either lack of adherence to existing regulations (Lehman Bros), unbridled greed (Enron), lack of innovative thinking (GM) or just poor management. Even though Enron and Worldcom’s collapse resulted in the creation of the Sarbanes-Oxley act, it is generally believed that it is not lack of regulation that resulted in what were the biggest bankruptcies in US history at the time, but the intent of the management to circumvent existing regulations to create ‘arbitrage’ opportunities.

Great infographic on largest corporate bankruptcies (Source:www.good.is)

Goldman Sachs is being targeted for similar practices, this time around CDOs and the sub-prime crisis. Calls for Lloyd Blankfein’s resignation are sounding around Wall Street as Goldman’s shares have plummeted 19% since April 15, knocking $15 billion from Goldman’s market cap. The issue at hand is Goldman’s active strategy to make money from the collapsing sub-prime market, such as the so-called “Big Short”.

We saw the same shenanigans during the Enron debacle with empowered traders coming up with trading strategies they gave nicknames such as “Get Shorty”, “Fat Boy”, “Death Star”. This represents an institutional, wall street embraced, increased appetite for driving speculative bubbles or exploiting regulatory weaknesses to make extraordinary profits. Traders argue that arbitrage is just an ability to read risk and hedge appropriately, but when the traders have enough clout to create the bubble that generates the arbitrage opportunity, it takes on a different life – and creates lots of ethical questions.

We are coming to a point in time where such speculative, hedging and arbitrage strategies, or even outright fraud, are going to be a lot more difficult to execute because of the force of public opinion powered by social media.

We have come to an age where those organizations who are transparent, open and engaging with their customers will be rewarded. Those who don’t understand social media, refuse to participate in the conversation, and who don’t easily integrate customer needs, opinions and issues into their organization, will be punished – publicly and without mercy.

We often talk about the privacy implications of social media, but when it comes to large corporations – you most private, sacred issues will be played out on the public stage unless you are on top of social media and it’s impact on the voice of your customer.

Get ready for open, transparent customer engagement, 2.0 style!

Banks: KYC is Killing Your Customers (Huff Post)

In Retail Banking, Strategy, Technology Innovation on February 23, 2010 at 05:53

See the original blog entry on Huffington Post…

In my discussions with bankers about innovation, I often hear them tell me that perhaps in other industries innovation could be achieved, but due to heavy regulation and the compliance requirements of the banking sector that such is more difficult for financial institutions. This is part of the story, but I’m sure that it is fixable.

I met with a Private Banker from one of the dominant bank brands in Asia this week. In Central Hong Kong this bank has it’s own tower, of which three floors are dedicated to the Private Banking unit, but that’s only half true. Almost half of that office space is taken up by a team that is designed to reduce risk to the bank by ensuring that customers are accurately informed of the risks their investments will carry, and to ensure that the bank does not commit itself or their client to undue risks. The name of this team within the Private Bank – the Business Prevention unit – I jest ye not.

Has it come to this that regulation and risk aversion is such an important part of the bank that we now actively try to prevent business occurring? It would appear so.

This explains a great deal about the current state of our banking sector. If customers are a risky proposition, then how does the bank make money? Well they invest it in stuff where they know they have an element of control, or in the case of sub-prime they try to actively engineer it so that they make profit regardless of the underlying asset risk. Some banks have even been known to borrow money from the government and margin trade on it in recent times…

The point of this is that banks have become so myopic in respect to customer risk that as customer we’ve almost become an anathema. In fact, the compliance workload we as customers have to deal with these days is so offensive, that it is almost not worth engaging a bank for an investment deal or asking for a loan. To illustrate, in the mid 80’s I recall being a student and walking in to open an account with no identification, I filled out two cards with a specimen signature, my address and particulars, and that was it. Now that same bank requires a 100-point identification scorecard to be realized, and the basic current account application form is some 18 pages long. This is progress apparently.

Compliance procedures are Killing customer experience Figure 1 – Internal Compliance Procedures are bad for business

Now, I appreciate we have Anti-Money Laundering, we have identity theft, we have IRS and tax departments eager to know what we’re doing with our money, and we have regulators that are making it their job to ensure we don’t invest in a financial product that we don’t fully understand. Sometimes, just sometimes, however, we just want a decent banking experience. We just want it to work, and the more paperwork you throw at us, the more hoops you make us jump through – the worse our banking experience is.

The thing with this is, that although there are regulations and legal constraints, most of the work we have to do is due to internal bank policy and process. For example, let’s say an existing customer comes to the bank to ask for a loan – this is a customer we’ve known for 5 years, his salary gets paid every month on time, and he’s a low credit risk based on what we already know. Why then is it that this same customer has to fill out an application form with the same details he’s provided us with since day one?

There is absolutely no regulatory or legal requirement for the process to be handled in this way. Right now this is all about making it easier for the bank to mitigate risk for their brand. A customer-focused bank would either allow the customer to sign on with their Internet Banking credentials to agree to the loan, perhaps sign on a tablet or digital form or if absolutely necessary generate a paper application form based on existing customer records where all he had to do was sign. All of these solutions would produce exactly the same result from a regulator’s or compliance perspective as a hefty paper KYC process.

So why as banks don’t we do this way? Firstly, no one senior enough in the bank has sponsored such a move. Secondly, because the internal IT department would probably take 15,000 man days, and $184.63 m to enable this. And lastly, because at the end of the day as bank executives we get rewarded for mitigating bank risk, not for making customer experience better.

Regulators and bankers need to separate ‘customer’ risk from operational risk, and in this way innovation can still occur.

Customer’s tell banks “We don’t believe you anymore…” (HuffPost Blog)

In Blogs, Groundswell, Media, Retail Banking, Social Networking, Strategy, Twitter on February 11, 2010 at 14:21

Brand reputation the key to banks leveraging social media.
Check out the original entry on Huffington Post…

Recently I posted on how shifts in consumer behavior and technology adoption is significantly changing the marketing dynamic for banks. Essentially my message was that for marketing to continue to be effective in measurable ways, that a large portion of effort needed to be redirected to optimizing the mechanisms for reaching and enabling customers, rather than just reinforcing brand recall and directing campaigns. I have had some brand marketers bristle at this suggestion and asking me how brands themselves would get started or get known it it wasn’t for the fundamentals of brand marketing.

First of all, I don’t believe that brand marketing will disappear, however, I think it is far to say that social media brings a transparency and honesty that means that despite the best brand marketing money can buy, if you screw up your customer relationships it won’t matter – social media will punish you. Google was able to build its brand entirely online, so some might argue that the need for traditional brand marketing is no longer a given either. However, for banks right now, they need all the help they can get, so it can’t hurt.

Brand marketing is useful for telling us as consumers the core brand values of these organizations who want our business. Banks have long held up their brands as bastions of stability, trust and understanding. They kept telling us that they were safe places to hold our hard earned savings, and that when they loaned us money we should be eternally grateful, because it was only out of their gracious generosity that we were able to afford to buy that new home, car or trip to the Caymans. We could trust banks because they were ‘as safe as houses’! Well, guess what…thanks to banks even houses aren’t safe anymore.

The side-effect of the global financial crisis, and the huge botch up that leading financial brands like Bank of America, Citi, Merrill, JP Morgan, Goldman Sachs, RBS and others have made with their bonuses and lack of prudence, is that trust for banks is at an all time low. Brand marketing is not going to save the banks in this environment.

Right now if you go and do a twitter feed search on say… Bank of America you’ll find a plethora of negativity out there in cyberspace. Now to be fair BofA has a twitter feed (@BofA_Help) and they have a Blogsite (http://message.bankofamerica.com/futurebanking/) – although it should be pointed out that their blog has no content as yet…

The key issue is that although Bank of America has a brand built over more than a century, their brand presence across the USA is pervasive, and their marketing capability staggering, they face an uphill battle. None of that capability really can help them in the current environment where they lack transparency on fees, are generally seen as out of touch with customers and are struggling in the war on customer word of mouth impact. Brand marketing is not enough to win in the 21st Century – the BANK 2.0 paradigm. Bank’s need to rebuild their brand reputation – and telling us how fantastic they are won’t cut it anymore. We just don’t trust those messages anymore.

What customers long to see is banks that care. Banks that reward you for the more business you do with them. Banks that are prepared occasionally to waive fees because you are a good customer. Banks that try to make it easier to work with them, instead of the endless compliance hoops we have to jump through because the banks find it to much trouble to change their internal processes.

We want the banks to build their brand reputation by restoring their reputation with us – the customer.

Social media is empowering customers – giving them a voice. It’s time major brands took the time to listen and adapt. Most banks spend millions on focus groups, customer satisfaction surveys and mystery shopping exercises each year to find out what they can learn for free just by listening to their customers on social networks and blogs. It’s not rocket science – but it is good branding.

Would Google make a better bank? (HuffPost Blog)

In Media, Mobile Banking, Retail Banking, Social Networking, Strategy, Technology Innovation on February 1, 2010 at 11:05

As posted on Huffington Post by Brett King
See the original Post on Huffington…

This is not the first time this question has been asked. Jeff Jarvis started this discussion back in 2008, and covered the topic in his book entitled What Would Google Do? However, in recent times with the banking sector in so much turmoil and facing the ire of so many, the question probably is not whether a Google might come along and start a bank, but when will an Amazon, Google or Facebook weigh in to this space?

Unlikely? Sceptical? Let me challenge that thought with a simple fact. Google already has a banking license…

Yes. Since late 2007 Google has held a banking license issued by the Central Bank of the Netherlands- De Nederlandsche Bank. The license is nominated as being for digital banking services. They’re not the only ones looking at financial services to extend their brand. As of May of 2007 Pay Pal has held a banking license from Luxembourg. HP has banking licenses in a few countries, allowing it to issue loans and leasing agreements. The publisher of the online science-fiction game “Entropia Universe” has a banking license from the Swedish Financial Supervisory Authority and this enables it Entropia to encourage trade of their virtual currency used in their online world. What about Apple? Well as far as we know they don’t have one…yet.

What’s wrong with your bank?
Many feel today that the big banks have got too big, have lost touch with their customers. They seem more interested in speculating on the assets they hold to create profit, than basic banking services to their customer. The criticism is often levelled that these banks feel they are big enough that if you don’t like it, they’ll just ignore you.

The fundamental issues that customers face today, however, are relatively simple to fix. For example, when you go down to your bank to apply for a loan or a credit card, they ask you all the same questions they’ve already asked before a million times before. Banks have a habit of hiking up fees without any warning, and you can’t do anything about it. When you do need a new loan or changes to your mortgage, you feel like you have to beg just to get some consideration. No matter how many times you ring the bank, you have to repeat the same story you’ve already given to the last person you spoke to.

The question at hand, however, is Would Google build a better bank? The immediate answer might be – it couldn’t be worse than what we’ve got now. The question really is how could a Google or someone like them build a better bank?

Simplicity is a service in itself

“The perfect search engine,” says co-founder Larry Page, “would understand exactly what you mean and give back exactly what you want.” This was the power behind Google’s early success obviously, but we could easily paraphrase this for banking – the perfect bank would understand what you need and give you exactly what want…

Google has built its business around ten key business principles, what they like to call “Then things we know to be true”. A number of these principles would come into play in creating a different type of banking environment for customers Google Style. Focus on the user and all else will follow, fast is better than slow, you don’t need to be at your desk to need an answer, you can make money without doing evil, there’s always more information out there, you can be serious without a suit, and great just isn’t good enough. How would this manifest in a better bank?

2010-01-31-images-BetterBank.png

Are you ready?
Whether it is Google, Apple or a fresh start-up, the likelihood of a new retail financial services organization stepping into the fray over the next few years is extremely high. As Google learned with its search engine opportunity for innovation is often borne out of either customer frustrations or simply a better way of doing things. Given our recent experiences with the big banks, is it unthinkable that someone might try to innovate your banking experience?