Brett King

Posts Tagged ‘microsoft’

How Steve Jobs Killed the Branch…

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

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

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

The Graphical User Interface through to Multi-Touch

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

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

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

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

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

Detaching Banking from the Bank

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

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

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

Gone, but not forgotten

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

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

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


Mobile Payments action heats up…

In Customer Experience, Future of Banking, Mobile Banking, Mobile Payments on May 25, 2011 at 20:10

Square POS and Cardcase, ClearXchange (BofA, Chase and Wells), Visa NFC trials, Google NFC trials – wow! Mobile Payments just arrived big time this week in the US particularly. So what does it all mean?

Inevitability is biting
Clearly there’s a bunch of very smart people that have all come to the same conclusion over the last months. Mobile Payments is not about what’s going to happen in 5 years, or 3 years – it is about what’s happening now. Regardless of where you stand on the whole death of checks, death of branches argument, I think that horse has bolted. You can’t seriously be in banking or payments today without a mobile play. End of story.

So who are the players to watch as this roles and who is going to dominate? Here’s a comment I received from PayPal’s communication team this week in respect to the action hotting up.

“eBay Inc. companies are leading the mobile commerce experience with our wide-ranging mobile assets, from eBay’s Milo and Red Laser to PayPal’s recent acquisition of the app, Where. PayPal is the leader in mobile payments. We have been offering our 98 million active users ways to send and receive money anyway they want, anytime they want, wherever they are in the world. PayPal is the only global service perfectly positioned to deliver on the convenient and secure “digital wallet.” – Anuj Nayar, PayPal Spokesperson

Everyone wants to own either the platform, the wallet or the ‘network’. That just isn’t going to happen. What Apple, Google, PayPal and the banks should have done is create a digital wallet standards organization years ago to bring the Telcos, handset manufacturers and banks together. But that’s never going to happen.

The Banks?
Banks think they are much better at this stuff because of security and access to network. The only problem is they are archaically slow.

ClearXchange announced today seems to be an effort to compete with PayPal, with some P2P effect aimed at around mobile. It is a shame that it is only now close to a decade after PayPal has already commanded a huge lead in this respect that a small smattering of US banks has finally got how critical P2P is.

Think about that. It took BofA, JP Morgan Chase and Wells Fargo 10 years to catch PayPal in respect to a basic platform of person-to-person payments. Why? Because they don’t get customer experience (CX). If you’ve ever tried to do a wire or ACH transfer in the US, you’ll know that PayPal with the option of sending to a mobile or email address is massively superior from a CX perspective.

The banks look at risk mitigation as their primary driver and don’t want to move until a secure, safe standard of doing ‘digital’ emerges. The problem is, that by the time it clearly emerges, they are almost a decade behind in capability. Driving customer experience improvements should be in the DNA of banks and it is a long way from being so. Until they crack that, they will increasingly be doomed to being the products, pipes and wires to enable the back-end of the banking system, rather than owning the customer.

Telcos are almost as chaotic as banks when it comes to creating common standards around something like a digital wallet. I get the challenges of platform differentiation, geographical diversity, etc, but organizations like the GSMA or IEEE could have played a strong role in creating a standard. We seem to have been able to crack it in the IP world around standards like HTML5 at least at a high-level, but not when it comes to mobile. Just see CDMA vs 3G vs 4G vs LTE vs WiMax, etc…

Lack of standards is not helping us here. If we want interoperability on payments, it sort of requires we have interoperability from operator to operator, payments network to payments network, etc. We’re a long way off from that.

Handset Manufacturers
Here is where it gets tricky. Ironically it turns out that probably Google, Apple, Microsoft/Nokia and to a smaller extent RIMM will be in the best position to actually build a mobile payments framework. Purely because they own the primary hardware that gives you access to the ‘rails’ payments will have to run on.

So banks, mastercard, visa, etc might own the rails that the payments are processed on, but it does them no good to be restricted to stations provided by Google and Apple (think App Stores) or to have customers only ride on trains run by others (i.e. handsets). Ok here ends the rail analogy.

Start-ups like Square
Square and others think out of the box. They are not hampered by years of inertia behind existing business models, or challenges about who owns what part of the network or who gets what share of interchange. They are able to by-pass all of that and just simply think about a better way of executing. Square has the potential to become significantly disruptive to the traditional players, and when NFC comes along Square can just plug it in to their ecosystem.

We can’t expect banks to think like this, nor them to greet the efforts of start-ups like Square as revolutionary and actually helping to evolve the payments industry. But that is what Square is doing. They are showing us that the current system of checks, unwieldy complex KYC requirements for money transfers, the hoops we have to jump through for card issuance – all the complexities of the banking system when it comes to current payments ‘systems’ – have no place in our future world.

As customers we don’t value complexity – we value simplicity. We need standards, cooperation, and better user experience.

Banks and Credit Card Issuers beware – Apple just stole your business

In Customer Experience, Mobile Banking, Retail Banking, Technology Innovation on October 17, 2010 at 23:01

200 individuals were the first to receive credit cards issued by Diners Club in 1950, the brainchild of Frank McNamara. It was the start of a completely new era in personal credit and payments. American Express entered the credit business with its own card in 1958, within five years had issued more than a million cards.

Today there are more than 1.6 Billion credit cards in circulation, and the US credit cards industry generates $2.8 Billion dollars a year in revenue. One in 12 households in London (or 8 per cent) have used credit cards to pay their mortgage or rent in the last 12 months and outstanding credit card balances stood at £63.5 billion in November 2009. By 2013, China’s consumer credit market—encompassing credit cards, mortgages, and other personal loans—will account for 14 percent of profits in the banking sector.

Growth in Contactless Technologies

In recent times we’ve seen the move to NFC or Near-Field Contactless credit cards. It is estimated that NFC enabled credit cards will reach the tipping point in 2011, with a total of 30 million British contactless bank cards alone being issued by then. The ease of use of an NFC-enabled card is obvious, no swiping, no inserting. Steve Perry from Visa Europe said that the rising popularity of contactless technology brings the promise of a cashless society where there is no longer any need for people to carry notes and coins around with them.

“Contactless is as revolutionary as the shift to internet payments was five years ago. It will mean having no notes and coins – it will certainly mean having no coins. It will move us almost to a cashless society.” – Steve Perry, Visa Europe

But as the modality shifts toward NFC, the reality is that the physical card itself does not represent a competitive advantage or differentiation for banks or issuers, not that it does today. Once the move to NFC-enabled POS terminals is ubiquitous, it’s probably easier just to carry your phone to make payments than a gaggle of credit and debit cards. That’s not going to happen overnight though right? Cards as a product are still too strong to be replaced by mobile quickly, so we have plenty of time right?

It will happen quick…

WRONG. We know that Apple is working on an NFC-enabled phone, and given their recent hires in the space, it is assumed that the iPhone 5 will be the platform for this change. So how will Apple’s NFC-enabled iPhone 5 work? We know a few things about the likely capability of the phone based on the patents issued by Apple. Firstly, the payment application will be a core app integrated into the phone, there will be a biometric strip (presumably enabling fingerprint authentication) and the phone will ostensibly work just like an EMV-chip credit card.

Some of the detail of Apple's NFC patent for the iPhone

The question you are probably asking is, how will the payment mechanism work? Here’s where it is largely speculation because Apple is being extremely tight lipped. We know that the primary payment app will work as an interface to your bank or credit card company as you need it to. However, it doesn’t take a rocket scientist to work out that Apple could use its current iTunes store platform to provide stored value for an effective debit card mechanism. If Apple was to use this mechanism as the underlying currency or stored value behind their core ‘debit card’ equivalent payment capability, they would effectively become a bank overnight, and one with perhaps an even stronger differentiation than any other debit card on the market today. Other handset manufacturers and mobile platform providers would be sure to follow as Apple’s payment capability quickly becomes ubiquitous. That is, if the payment networks talk to Apple’s iTunes store…

Competing with Apple, Google and Microsoft Mobile

So how will banks compete in such an environment? Well banks can’t issue their own mobile phones like Apple or Google’s partners can, and plastic cards and checks look downright archaic in comparison to such a payment paradigm. The only choice of Card issuers and banks would be to embrace the new technology and scramble to partner with the handset manufacturers and mobile OS owners. Visa has already deployed their Visa Paywave solution on the iPhone, but currently you need a cradle or sleeve that the iPhone sits in to do the sexy NFC bit, that simply won’t be necessary on the new device.

So the question for banks in this new environment would be how do we now issue cards to customers? Do they have to come into the branch for us to configure their phone? Given how easy it is to upload iTunes credit, this would be a huge competitive disadvantage, so the compliance procedures applied to the current physical process of card issuance become a millstone around the bank’s neck and result in rapid disintermediation. Within the space of 3-5 years, banks no longer have a credit card business. Sure, they might eek out a small business settling payments between Apple’s iTunes store and the bank, but compared with the size of the card business today this would be miniscule.

Challenges Ahead for Banks

What about if a customer could download a new “credit card” from the iTunes’ App store, or from Google’s Marketplace? Well how would you qualify for the card as a customer, are there different card apps for each bank, what is the onboarding and risk assessment process?

Don’t be tempted to think that the protection of existing payments networks or a bank license will protect your existing business from such innovation. If Apple does launch their NFC phone and announces collaboration through Visa and Mastercard’s payment network, do you honestly think with millions of iPhone 5’s going out the door that the regulator is going to call a halt to payments from a phone?

Seriously, if you are a bank, it’s likely that in just 8-9 months you’ll be faced with competition from non-banks who can do the whole NFC-enabled phone payments thing much faster, easier and more compelling than you ever could by issuing a plastic debit or credit card. And guess what?

If you’re the CEO of a bank, you probably don’t even have someone appointed to work on mobile credit card onboarding yet, so what’s the likelihood you’ll be ready to compete?

Let’s try plan B – let’s go to the regulators and see if we can stop mobile phone payments as a mechanism shall we?

Innovating the customer experience pays dividends – literally

In Customer Experience, Retail Banking, Technology Innovation on May 31, 2010 at 03:07

No one can deny that banks have had a tough time of it when it comes to stock market valuations over the last couple of years. The global financial crisis, massive debt and NPL issues along with punishing public opinion led to a massive collapse in banking stocks and company valuations in recent times. It would be simple to blame the sub-prime and global financial crisis as the sole cause of all the ills of the banking sector, but I have a different theory which explains a large part of the picture.

In the last 5 years the S&P 500 has experienced incredible volatility. On October 9, 2007 the S&P 500 hit its all time record of 1,565.15, but it was followed by the biggest annual loss in the S&P’s history, losing 37% in 2008 (the previous record being -22% in 2002 at the end of the dot com boom). As a result you’d expect any participants in the US market to have suffered similarly, and they have. Volatility, or the range/spread of buy and sell trades in the US markets is at an all time high and according to many analysts this volatility is here to stay. The certainty in the market has largely disappeared, and with it, the status quo in respect to valuations.

In the last 5 or 6 years, however, a new component has come into valuation metrics for listed companies. We still have revenue, we still have market share, branding and so forth, but innovation is clearly an increasingly significant part of the story. Let me illustrate:

Comparative Performance – S&P 500, Tech and Banking Stocks

Below is a graph (source: Yahoo FinanceBloomberg) showing the comparative performance of a selection of key stocks from the US market, the S&P500 Index being the dotted yellow line.

Innovation is being rewarded like never before in market valuations

Clearly Apple and Google have differentiated themselves. What has made the difference? Why have Google and Apple performed so much better over the last 5 years in market terms? Let’s examine the facts and see what conclusions we can draw.

Is it revenue?

Microsoft’s Revenue in 2005 exceeded Apple’s by more than 300%, and Google’s by almost 600%. In the last 5 years Microsoft’s Revenue has increased from$39B in 2005 to close to $60B in 2009, certainly not a bad performance. Google’s revenue certainly has increased, but in the years 2007-2009 it has only jumped from $16.5B to $23.7B. Since 2005 Apple has increased their revenue from $13.9B (2005) to $36.5(2009). Apple has certainly benefited from the popularity of the iPhone (Released June 29th, 2007) and more recently the iPad (Released April, 2010).

But if we compare the top 4 US banks we see that their revenue makes the tech companies look fairly ordinary. If revenue was the key driver, then we’d expect to see that the banks would have better comparative valuations. Given that Microsoft’s revenue is still close to double that of Apple’s revenue, and more than double that of Google – if the answer was that ‘tech’ revenue was valued at a premium then we’d expect Microsoft to be fairing better.

2009 data Assets ($B) Revenue ($B)
Bank of America (BAC) $2,300 $113
J P Morgan Chase (JPM) $2,000 $101
Citigroup (C) $1,800 $106
Wells Fargo (WFC) $1,200 $51.7

On this basis, revenue, while a critical component of a company’s valuation, would seem to not correlate cleanly with the exceptional performance of Apple and Google recently. Well before the GFC started to impact company valuations, they were already being hurt by something…

So is it future revenue potential?

P/E Ratios show somewhat the expectation of the market in respect to future revenue potential. For the ‘blue chip’ performers like Microsoft, JP Morgan Chase, Wells Fargo – P/E Ratio (Price/Earnings Ratio) are all performing in the range of 15-17, whereas Apple and Google are at 21.8 and 22.1 respectively. Certainly expectations are that Google and Apple have not yet hit their peak in earnings capability because their valuations show a higher multiple. Indeed, the S&P 500 typically tracks at around 15 – so Google’s and Apple’s performances are something special.

Future earnings might account for a higher valuation today, but this is not necessarily the sole factor in their comparative performance which, over the last 5 years, has been much better than Microsoft, the top banks and industrials. In fact, you have to look very hard globally to find better performing stocks in respect to either new or established companies in terms of growth in both revenue and share price over the last 5 years.

So future revenue is a factor, but not the sole factor. If it was, then you’d expect Microsoft would get some of the joy too as part of the ‘tech’ clique, but they’ve not received as much optimism as their tech buddies have.

What differentiates Apple and Google’s revenue from the rest of the pack?

You might attribute Apple’s success in respect to valuations from their great products. But if you compare market share both Google and Apple really still are minority players when compared with Microsoft, purely from a product perspective. While Google’s Android and Apple’s OS-X are taking some share of the mobile market, Windows is still a force to be reckoned with.

So where is the differentiation? Google’s strength to date, and Apple’s more recent success with great new device technologies has centered around one key area. Their ability to create great, but simple and intuitive, propositions. as a search engine is the perfect representation of search (at least for now). When Google launched their search engine in 1997, there was really no one that could touch them in terms of simplicity of experience and validity of results, and today, although many have attempted to copy Google’s formula, (read we still see Google maintaining a 65.6% market share of the SE space. What Google bought to the table, their foundation or core, was innovating the customer experience and making technology really simple to use.

The simplicity and user experience differentiate Apple devices

Apple has done the same. User Experience is at the heart of why the iPod, iPhone and iPad have captured not only the imagination of the consumer market, but why Apple and its products are increasingly part of the common vernacular. Sure Apple’s stuff looks great, cool and is about as aspirational as branded products get in the Y-Gen/Digital Natives space today. But this stuff just works.

Innovating the customer experience is the ‘secret sauce’

Innovating the customer experience is at the heart of why Apple and Google are outperforming the market today. It’s also at the heart of why traditional banks are suffering. As market analysts, consumers and as media commentators we just see more of the same.

While there has been pressure on the banking market, bankers seem content to ‘wait it out’ until more sane, normal times return. Banking is an old and traditional industry and it doesn’t take kindly to change. But that is problematic – because right now their lack of adaptability is hurting bank valuations significantly. There’s nowhere for banks to go from here if they can’t innovate around the customer. The lack of innovation means less future revenue and earnings potential.

In fact, as of today it’s more likely that a Google, Apple, PayPal or new start up like Square will innovate the customer experience in banking, rather than banks themselves. This is where banks need to take a good hard look at themselves. The lack of capability to innovate the customer experience is costing them, and it’s only going to get worse.

Computing in the cloud

In Retail Banking, Technology Innovation on December 18, 2009 at 11:36

Excerpt from Chapter 10: Gridless Customer Experience – More complexity, More choice

As we become more mobile, a great deal more of what we do will need to become detached from our work computer, laptop or enterprise network server. The ability to get access to our data and core applications on the move is one simple example. Restricting this data to physical devices in one specific location is not going to work. So the trend has been for laptops to get more capable so that we can carry them with us. But laptops still have to deal with access to corporate data, security issues and such regardless of their portability.

For this reason, Google, IBM, Apple, and even Microsoft are making various bets on what is known as cloud computing. Cloud computing is an emerging computing technology that uses the internet and central remote servers to maintain data and applications. It allows the use of applications without installation and allows users access to their personal data and files using any device that has internet access. Cloud computing abstracts users from their applications and data by providing those facilities via the browser effectively, making storage requirements minimal and leaving processing to the cloud rather than requiring heavy processing capability. It does, however, rely very heavily on bandwidth to get expeditious results.

Although Windows still runs on 90% of PCS and laptops, the fading importance of the PC means that Microsoft is no longer all-powerful. While some look to Google’s Chrome OS and Apple’s OS? to produce a viable competitor to Windows, the fact is that with increasing reliance on mobile devices, App Phones and other device platforms, the role of the PC operating system is not necessarily a key driver in the future of computing.

While there are hundreds of firms offering cloud services—web-based applications living in data centres – Microsoft, Google, IBM and Apple play in a league of their own. Each of these firms has their own global network of data centres and they are working on a whole suite services within the ‘cloud’. Such tools and services being touted include e-mail, address books, storage, collaboration tools and business applications. App Phones or smart devices will add to the mix, with various approaches to widgets and applications, some from within the browser and others integrating with the cloud.

Apple has recently started to make a foray into cloud computing in a major way. Apple is building a $1 Billion data centre in North Carolina (USA), possibly the largest of any in the world. MobileMe® is the first of a series of online services based on cloud computing that are designed to create new revenue streams for the tech giant. MobileMe is designed to connect all of your devices and push information up and down to keep everything synced and up to date. iDisk, incorporated into MobileMe, gives you 20GB of remote hard disk space for storing files that are too big to email, photo galleries, and such. MobileMe even allows you to find your iPhone if you’ve lost it.

While Microsoft has launched Office Live as an attempt to win over cloud enthusiasts, their poor mobile showing in recent times against both Apple and Google’s Android might affect their ability to dominate the cloud as they have the PC market. Motorola’s ditching of Microsoft Mobile in favour of Google’s Android platform may just be another nail in the MS Mobile coffin.
The question remains as to what services work, and what revenue models will drive cloud computing. For corporations the business case is simple, shifting to the cloud reduces infrastructure costs and moves platform and application costs to an OpEx (Operating Expense) model instead of CapEx (Capital Expense). In the current economic environment this has to be promising. Distributed platform access and the benefit of data centres in the cloud, also creates more opportunities for more agile institution operations and different models such as telecommuting, homeshoring, pop-up branches and so forth.

If you are sitting there reading this right now with some scepticism about the possibilities of the cloud, think about this. Arguably the most successful cloud computing service today, with more than 350 million users is Facebook. If you can’t get your head around that – think about it. It is completely run through your browser or app widgets. It allows users to collaborate, share information and communicate online – all things that businesses want to do to…

Whether Google, Apple, IBM, Microsoft or another contender like Amazon or Facebook is able to dominate the cloud space, is not really the issue. The issue is that if you are a decision maker in a business you need to think about whether some of your core infrastructure, platform or applications would be better placed in the cloud so that your workforce can be more innovative and productive. It can be just as secure as your own dedicated infrastructure, plus you get the benefit of much more mature UI (User Interface) and shared services.

One of the more interesting elements to think about with cloud computing is what happens to the role of the bank in payments. If the majority of payments processes on a consumer and B2B space are increasingly deployed within the cloud, then the need for such services provided by banks to their customers directly becomes effectively redundant. After all, Pay Pal is already in the cloud…