Brett King

Posts Tagged ‘mobile banking’

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

The Total Disruption of Bank Distribution – Part 4

In Branch Strategy, Engagement Banking, Future of Banking, Mobile Banking, Retail Banking on July 26, 2011 at 06:48

The Widening Gap between Behavior and Capability

In 1980 the average bank in the developed world would receive a visit from a customer once or twice a month, making an average of 20-25 times a year. As ATM machines started to emerge, by the end of the 80s average branch visits per customer were already starting to level off as the primary reason for visiting the branch – to get cash – was moving to the ATM.

In the early 90s to combat this decline in visitation trend banks started to create specialist branches around High-Net-Worth-Individuals, and seek to attract the most affluent and profitable customers back to the branch. This strategy was successful in attracting new and highly profitable customer segments stimulated by loyalty programs, specialist branches and better service, but could it last?

Internet Banking Disrupts Banking Behavior

The reality was that it wasn’t until around 2006 that Internet Banking fully reached its potential as a disruptor. By 2006 the trend for Internet Banking adoption had become very clear, it was ready to overtake the branch as the preferred method of day-to-day banking. Between 2005 and 2009 Internet Banking usage doubled, and across the United States, UK and throughout most of the EU, Internet banking emerged as the leading channel for day-to-day access to banking services.

The perception reinforced by some within the retail banking set was that this emerging behavior around Internet Banking was isolated to newer generations of customers only, and that older, more established customers were still keen to have the personal experience of a face-to-face interaction, or that customers seeking to start a relationship would always opt for the richer experience of the branch. However, the data did not bear this out. The earliest adopters of Internet Banking turned out to be the time-poor, affluent HNWI segments who valued their time over the upside of a branch visit. They could afford computers, the fastest Internet connections and had a strong incentive to use iBanking – they sought convenience and time saving.

In 1985 70% of transactions occurred through physical artifacts and networks, namely Branches, Cash and Cheques. By 2010, however, 75-90% of retail banking transactions were processed through Internet, Call Centres, Mobile Devices and ATM machines. Today branches make up at best around 5-13% of total transactional traffic, and that is on a good day. As a result, branch staff are poorly motivated and in many markets staff turnover is toping 40% annually. The average customer is now visiting a branch in the United States less than 5 times a year, in some EU markets the average is less than half this number. This is resulting in massive closures of bank branches. That number doesn’t get better if you look at it another way – it’s just bad news for branch focused brands.

RBS is closing 55 branches this year, this is the behavioral effect

In 1990 11 million cheques a day were written in the UK, by 2003 that figure had ballooned to 36 million cheques a day. By 2010, however, Internet Banking had caused that figure to crash dramatically to less than 1 million cheques per day. Why? Behavior has irreversibly changed. What used to be second nature to many is now a dwindling holdover for an ever shrinking demographic; those who hark back to the days of good old fashion banking.

What happens in the next 5 years?

Today we’re seeing mobile banking take off as the fastest ever growing channel for retail banking services. Today some banks are reporting a 300-500% faster adoption of Mobile Internet Banking than what they saw with Internet Banking. Rather than take traffic away from Internet Banking, the trend is for mobile banking users to actually increase their use of Internet Banking.

So what’s more likely in the next 5 years? Is it more likely that customers will suddenly, spontaneously buck all these trends and spontaneously start using branches more, or will Internet and Mobile simply increase their march of dominance for day-to-day banking? The answer is obvious (to most).

Why, then, do branch networks still command the massive bias in funding that they have today within retail banking P&L, and why do leaders in the digital space struggle for board-level attention and legitimacy?

It’s not about Internet vs Branch, it’s about behavior

We’re not going back to vinyl records, the telegraph, or steam powered transport – we’re just as likely to go back to a banking system dominated by branches and cheques. This is an undeniable, statistical truth. The majority of us now (over 50% in developed economies) are simply too busy to drive down the branch, find a parking spot, stand in line for 15-20 minutes, to hand over the counter a cheque that will take 3 days to clear for a nominal processing fee. But it’s not just transactional behavior that takes the hit.

Today if I’m looking to start a new relationship with a bank, the first place I go is to my search engine, and possibly my social networks. Admittedly there are still some who will seek to visit a branch to kick off a new relationship, but after that initial visit my day-to-day banking becomes pure utility and convenience. In 2007 when I worked on a global survey for Standard Chartered, 75% of customers in 42 countries said that Internet Banking capability was their primary criteria for deciding on a new banking provider. Regardless of whether I might come into the branch to get started, the fact is you aren’t going to be seeing a lot of me. That’s not the way I behave anymore.

By continuing to favor branch from a channel investment perspective or organizationally from a strategy perspective, and by insisting on multi-year business cases before making real investments in mobile, social media and web, we are opening up a gap. This gap is a behavioral gap between how our customers behave everyday, how they want to bank, and how prepared “the bank” is to facilitate their needs. This gap can easily be exploited.

The more banks insist on me conforming to their behavior and processes, the more I will feel the bank is irrelevant, out-of-date and a poor match with my needs. I’ll start to find workarounds like PayPal for transfers, or Prepaid Debit cards for day-to-day billing and payments. I’ll start to move my cash to other banks that have a mobile banking and iPad App.

There are many who will argue that this is not enough to kill the branch – I say you won’t be able to afford not to kill them off yourself very soon.

Does your Internet Banking suck?

In Customer Experience, Internet Banking, Offer Management, Retail Banking on August 25, 2010 at 07:44

Is it just me or have you noticed that the pages behind the login for your bank haven’t changed much in the last 5 or 6 years?

According to the omnipresent Wikipedia, Stanford Federal Credit Union was the first financial institution to offer online internet banking services to all of its members in October 1994. Interestingly, while the Gramm-Leach-Bliley Act introduced some important elements to support internet banking, it wasn’t until 2002 that the The Office of the Comptroller of the Currency issued final regulations on the use of Electronic Banking for US-based banks. This informs another key innovator’s dilemma. That of trailing regulation. In fact, it’s also indicative more broadly of the speed at which the banking industry adapts to changes of the significance of the introduction of the Internet. Far too slow for the rate of change that is occurring these days.

Excuse me sir, your Internet banking is looking a little tattered…

I wrote recently on The Finanser’s Blog about the problem of lack of investment in Internet banking by the mainstream banks. The issue is that when you categorize Internet banking internally as a channel where you migrate customers to reduce cost, the initial impetus for investment in Internet banking is just getting the required functionality in place – once in place, and cost savings on-track, it’s hard to get further investment in the customer experience behind the login because it’s already doing its job.

The problem is – it isn’t doing its job.

The assumption that internet banking behind the login is about transactional costs savings for the bank is a very bad assumption. It assumes that customers are using the channel to save the bank money, when customers are actually using the channel for convenience and to increasingly engage the bank on the fundamentals of day-to-day banking. The increase of online banking usage just doesn’t want to slow down because of this behavioral shift, and unless banks understand and adapt to this shift, their internet banking platforms will increasingly isolate customers who want more convenience and control. Here’s how comScore, who has been measuring this since 2006, characterizes the relentless take-up of internet banking:

Since the inaugural comScore online banking report in 2006, the number of DDA customers visiting the top 10 online banking sites has increased from approximately 40 million people to more than 58 million people. In any given quarter, nearly 60 percent of the total U.S. Internet population visits at least one of the top 20 financial institution (FIs) sites.
Comscore: 2010 State of Online Banking Report

This is played out across the world. In looking at data on major website and internet banking redesigns, the fact is that since the launch of Internet banking in the last 90s and early 2000’s most banks update their public website’s look and feel every couple of years, whereas they’ve only updated behind the login capability every 3-5 years at most and in general the last round of updates was largely cosmetic. And yet, the growth keeps coming…Look at the statistics for Commonwealth Bank of Australia for monthly logins between 2007-2010 as reported in The Age of August 12th, 2010.

Year CBA Monthly Logins
2007 18.5mil
2008 22.9mil
2009 29.3mil
2010 35.6mil

See more details at CommBank Investors site

That’s a 92% increase in usage between 2007-2010. This trend is borne out the world over. Internet banking usage is increasingly not only in that a larger portion of the population is logging in, but that existing customers are logging in more frequently. So if Internet banking needs more than just a facelift, what exactly does Internet banking need to become to capture the behavioral needs of the customers who are using it?

More than bill pay – my financial control tower

What I need more than a transaction dashboard, more than pure functionality is something that helps me manage my finances. Right now Internet Banking is to intelligence, what an old mainframe dumb terminal is to an iPad. Extremely primitive. There are some solutions out there right now that do an admirable job of personal financial management, I’d rank Geezeo’s and Yodlee’s toolset and Mint as solutions every bank should be looking at. Geezeo has taken it once step further of recent times with their customizable widget/dashboard approach.

The thing is most banks are not yet using PFM and many claim the jury is out on whether or not PFM really generates strong ROI. Intuit certainly sees differently, their acquisition of Mint late last year for US$170m is telling – they see the future in managing the finances of individuals.

The top three activities within Internet banking are still checking account balances, transfers and bill payment. But just adding PFM functionality is not necessarily going to be the answer to solve the flagging, lagging development of the world behind the login. More is needed.

The future of the login

What customers will be looking for from their Internet banking portal moving forward is more control. More than just offering the ability to pay bills, customers will be looking for integrated bill management – this is not just direct debit services. Customers will be looking to see a consolidated view of their billing relationships, and have their internet banking dashboard help manage bill payments automatically. This will require banks to be integrated in respect to data with utility companies, telecomms network operators, cable companies, and the usual suspects. The Internet banking dashboard will become the place I go to see my aggregated monthly expenses, drill down on individual accounts and statements, and setup rules for automated bill management.

On the products side, banks are going to have to start to get a lot more proactive. For example, if I have a lump sum sitting in my savings or deposit account, the bank could show me how much interest I could be earning if I invested that in either a term deposit, CD or in something more exotic like an equity-linked investment. On my credit card statement, that large ticket item purchase you made last month…the bank could offer to put that on a 12-month payment plan at a lower interest rate. Observing that you do a lot of travel, the bank could proactively upgrade your credit card to a deal that gets you free air miles with your favorite airline.

In addition to those more obvious elements, the whole multi-channel thing will start to come into play here too. For example, the dashboard will also let me manage alerts. Increasingly we’ll have to handle of whole lot of messages in respect to ingoing and outgoing payments, warnings about upcoming bills where your balance is short, location-based offers for retailers that you frequent and where you get a discount for using your NFC mobile enabled credit card, and other trigger-based alerts or offers that you subscribe to.

Mobile has to become one of the primary acquisition tools that banks will use in the future, but to ensure that this channel is not abused by overeager marketers, we’ll need a filter mechanism. That means that you’ll need somewhere to tell the bank what you will and won’t accept being sent either by SMS or to the the apps that you utilize on your smartphone. The Internet banking dashboard will need to manage all of this – it will be a critical tool in managing the multi-channel relationship.

If you’re a bank you better get serious about investing behind the login – you’ve got a long way to go.

If you are on the corporate banking side, stay tuned…I’ll talk about corporate Internet banking dashboards next

Telcos need to think about different mobile pricing

In Mobile Banking, Retail Banking, Technology Innovation on June 15, 2010 at 11:24

The greatest competitive differentiation a mobile operator can give me today is an always on data plan across devices. Right now I have an iPhone, a Blackberry, an iPad and a Mac and I effectively have to manage different data plans for each device. This sucks. I also maintain a broadband connection at home, although I would abandon that gladly if my wireless data deal were better.

Not only does multi-device connectivity cost me more than I believe it should, but I actually have different plans with different providers for different devices. Some are monthly WiFi deals, others are mobile data deals that actually limit my downloads on a monthly basis, and others are pre-paid deals that I pick up when I am visiting other countries.

My best deal is a great 3.5G solution through CSL in Hong Kong, where I pay around US$50 a month for 21Mbps access speeds and unlimited downloads. Unfortunately when I am working in the United States, UK and Australia on my iPhone or iPad, I can’t get a deal even remotely close to this sort of value for money. Firstly, 21Mbps isn’t available on AT&T, Telstra or many of the UK providers.  Secondly, unless you are Sprint 4G in the US, there’s not one provider who gives an unlimited download deal.

In the US, UK and Australia on my mobile plans I am restricted to downloading between 6 Gb and 10 Gb per month. You might think that sounds like a lot, but I’ve recently been conducting webinars and Skype teleconferences frequently, and I can chew through 1 Gb of data in a single day. If you exceed the monthly download limit, then that’s where you start to singlehandedly make an sizeable direct contribution to the profits of the telco themselves. Normally this manifests itself as overage charges that resemble the budget of a mid-size multinational.

Plans need to be for access, not data

I understand the need and right of an operator to make margin from their business. To some extent with fixed line business I understand the cost of running cable and the fact that as a user of the infrastructure I must pay a penalty. But let’s face it, when it’s wireless data of the 3G or 4G network, essentially the operator is providing this over cell tower infrastructure that was installed in most cases over 10 years ago, and has just undergone successive upgrades of antenna and firmware to operate at the new frequencies. Unless you are a VNO (Virtual Network Operator) the data is costing you nothing.

In any case, the cost of the infrastructure is a sunk cost, and regardless of how much data I suck down the pipe, I should be paying for the size of the pipe, not for the data because the operator most certainly isn’t paying for the data.

To illustrate the great digital divide let’s compare the more progressive countries with US, UK and Australia based on 12 month contracts.

The great digital divide

Pricing plans should get cheaper a lot faster than they do

You’ve heard of Moore’s Law right? Well there’s a law for the telecoms sector in respect to bandwidth too. It’s called Gilder’s law. Gilder’s law effectively states that the capacity of a pipe to carry data will increase by at least 3 times Moore’s law. Moore’s law says that computing capacity/power will increase at 200% per 2 years, so that means bandwidth will increase 600% in carrying capacity every 2 years.

So the cost of data over a 7Mb Next-G modem, if it is $50 today, should be $8 in 2 years time for the same deal. From my experience, this is extremely unlikely.

So what is happening is operators are getting increasingly cheaper pipes, and are maximizing the profit of those pipes over more years than they need to. If South Korea can provide 1 Gbps broadband in the home for the same price as Australia charges for a 2.5Mbps connection, you know something has to give eventually. So what is the great equalizer?

4G – Herein lies the problem

The next generation of mobile standards (4G) allows for much faster download speeds, infact, when 4G taps out the upper end will allow 1 Gbps download speeds. The problem is that when Australian, UK and US providers move to the next generation of technology, capping downloads with limits just won’t make any sense whatsoever. What would you cap it at? 100 Gb?

It gets a little ridiculous. I could download a DVD quality movie every day and still not exceed my download limit. But more importantly, once in place, the whole benefit in 4G is the fact that I become permanently unwired as a consumer.

To understand where we are going means that we will move from one device to another seamlessly. This is already happening with the iPad, iPhone and your HD TV. I am looking for a data provider that allows me access to connectivity as a bundle, not by Mb.


In a Wired article back in 1993 George Gilder predicted that Bandwidth would eventually be free. I believe that bandwidth will eventually be so cheap that it is effectively free, but right now operators need to understand that charging for the pipe, and not the data is how they can both enable business and future revenue.