Brett King

Posts Tagged ‘Square’

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.

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

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
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.

Why Apple’s iPhone5 must have NFC capability

In Bank Innovation, Customer Experience, Mobile Payments on May 9, 2011 at 05:36

On 14th of March 2011, The Independent newspaper from the UK published an article suggesting that the iPhone 5 would not include Near-Field Communication (NFC) capability. A few days later on the 17 March, Forbes rebutted the Guardian’s article quoting a source that said NFC was a sure thing. Who’s right, and will Apple delay their NFC launch to better perfect the tech?

The Independent article was surprising as it was hot off the heals of Google already launching their Nexus-S handset with NFC capability and a host of other manufacturers were flocking to utilize Android’s new OS codenamed Gingerbread. Of course, having an NFC chip in a handset doesn’t automatically mean that you can use it in a constructive manner for stuff like payments, coupon redemption and interactions at the point-of-sale. Then again, if you don’t have an NFC chip that’s basically a guarantee that you can’t do all that sexy contactless stuff (unless you use tags for example).

The sexiest NFC application coming is obviously payments, but it isn’t the only one. We’ve already seen Google trialing some pretty cool marketing capabilities with one-touch discounts, and other types of applications like NFC bump.

Now that LG, RIM, Nokia, Google, and Samsung have all launched an NFC-enabled phone, Apple really has no choice, but to go one step better. I can’t see Steve Jobs, who has made a trademark of the ‘this changes everything’ banter, deciding to give up on NFC until the next generation of iPhone in 2012. Imagine Apple launching the iPhone 5 and trying to position it as ‘changing everything again’ without NFC…not going to happen. The iPhone 5 has to go one step better than Google, RIM and all the others. Catching the competitors isn’t going to be enough for Apple.

You can't "change everything again" unless you catch up to NFC-capable competitors

The loss of POS

The mobile payments space is rapidly heating up. In recent times Square was attacked pretty vigorously by the likes of Verifone over their mobile merchant approach. Accusations were flying that the square dongle was little more than a card-skimming device. With Visa recently acquiring a stake in Square, it certainly appears that the smartphone-based POS terminal has hit mainstream.

Certainly it’s not hard to see why Verifone and other POS manufacturers were ramping up the scaremongering over Square’s clever approach. Verifone went so far as demanding a recall of the square hardware, which they claimed could be used for card skimming. The beauty of Square’s approach was not just the simplicity of the hardware, of course, but the real beauty was in simplifying merchant onboarding. Register online, download the app, plug-in the dongle and go…

The ongoing trick to protecting payments networks like Visa and Mastercard, is the ability to leverage off merchants at the point-of-sale. If conceivably most phones within the next 2-years gain NFC capability, each one of those can become a mobile POS-terminal as well as a payment device. Theoretically, circumventing existing payments networks would be possible via the cloud, so card issuers need to rapidly move to providing an economical and interoperable network that is not worth bypassing. POS hardware isn’t necessarily a barrier to entry. As the ISIS collaborative recently found out, however, creating a new payments network is tougher than it appears.

One of the main issues is that you might be able to launch a new NFC or Mobile-powered payments network locally in the US, but take your NFC phone offshore to the EU or Asia, and it could be worthless. Thus, you need global reach, a ready user base and a strong user experience play to take ground in this space. That leaves PayPal, Google, Apple and maybe Facebook with enough grunt globally to create a new payments paradigm.

The payments imperative

With so much happening in the payments space then, the iPhone 5 needs to come out swinging. When the 5 launches it needs to be much more than just NFC-enabled, Apple needs to ‘change everything’ again and the only viable way of doing this is taking a first mover payments capability. That’s tougher than what it appears.

Launching NFC payments out of the gate for the iPhone 5 means one of two things. Either Apple needs to come out with either their own payment network based somehow around the iTunes store account as the backbone, or they need to provide seamless integration into existing payments networks provided by the likes of Visa and Mastercard.

Regardless of which of those two outcomes Apple chooses to go with, if they want to change everything it’s their only possible choice. It’s either that, or let Google change everything and rethink your iPhone branding strategy:

iPhone 5 – not changing everything, but upgrade anyway…

That’s the biggest reason to expect the iPhone 5 not only to have NFC, but to come out of the gate with a swinging payments capability. Get ready to upgrade your life.

The biggest disruptions in banking in 2011…

In Customer Experience, Retail Banking, Social Networking on December 29, 2010 at 03:00

In 2010 we had a bunch of innovative ideas become mainstream and start to impact the banking arena (for a full coverage see my post in Huffington.) However, 2011 promises to be more disruptive because as the economy finally starts to warm up, we’ll be seeing a lot of new private equity investment into start-ups in the finance arena.

A new dot com boom?

The intersection of interaction design, mobile technology, mobile payments, social media interactions, geo-location technology and augmented reality is producing a land grab for innovative new start-ups. We’ve already seen quite a few investments in new banking start-ups in 2010, which are the early stages of a new boom in the mobile tech space. Right now we’re not yet in the bubble, obviously, but as start-ups grow revenue, as investments start seeing huge multiples, and as the success of start-ups generate even more new business ideas, then this zone appears ripe for an emerging boom. Add into the mix the dissatisfaction en masse with the finance sector, one area where there is sure to be heady action is in the alternative banking and finance game.

Already we’ve seen start-up investments in peer-to-peer lending (Zopa, Lending Club, Prosper, Kiva, etc), payments alternatives (i.e. Jack Dorsey’s Square), Personal Finance tools (Geezeo, Mint, GreenSherpa, Blippy, etc), and even in Banking itself (BankSimple, MovenBank).

In September of 2010, Think Finance secured $90 million in start-up funding for their Elastic web-based bank account replacement. Elastic’s services to the underbanked will somewhat overlap with BankSimple’s approach to online banking. But, the CEO of Think Finance, Ken Rees, doesn’t see BankSimple as competition.

“We celebrate all of the innovators in the space that use technology for banking purposes. They [BankSimple] are more focused on the needs of prime consumers. We’re focused on the underbanked and unbanked — the estimated 60 million people who are not well served by traditional banks,” says Rees.
As reported in Mashable

Jack Dorsey at Square is catering for a gap in bank service performance demographics also. Dorsey is aiming Square at the approximately 30 million small business owners in the US that don’t have a merchant account or credit card terminal. With only 6 million businesses in the US that can currently accept credit card payments, this shows there is huge growth potential for thinking outside of the box in respect to banking and payments models.

The growing innovation and infrastructure gap

The problem for the finance sector with the current level of investment in infrastructure, and old stagnant business models built largely around physical distribution paradigms, is that increasingly we’ll be dealing with start-ups and innovators from outside the traditional banking arena. This will increase the gap between customer experience or in real terms, customer behavior, and the actual state of play in the industry.

While the sector as a whole tries to deal with the devastation of the global financial crisis, and uses this as an excuse to hunker down and resist strong investment in technology and so forth, this opens the gate for innovators who are prepared to invest to take customer mind share, and capitalize on both the wholesale dissatisfaction of the industry in general and capturing the imagination of customers through the use of technology and better interface processes.

The 3 Phases of Disruption - Impact to Finance Sector

For those of you who have read BANK 2.0, you may recall the “3 Phases of Behavioral Disruption” which identify the emergence of Internet, the take up of mobile smart phones and “app” phones, and finally the integration of payments technology and services into the handset. There are two broad opportunities within these 3 phases of disruption for adverse impact to the traditional financial services space.

The Infrastructure Gap

The first opportunity lies in the inability of banks and financial institutions to invest in customer facing technology ahead of the curve, which creates a considerable lag in capability. Banks keep looking for ROI, but at the rate that new technologies are being adopted these days, if you wait for ROI you’re already 2-3 years behind the competition. Banks have to make bets on a number of emerging technologies, experiment and adapt through iteration, rather than wait till a dominant player or platform emerges (which is unlikely in any case) before making strong investments.

In this gap we have players like PayPal, cloud services, direct banks (e.g. ING Direct, UBank, Jibun) and other platform opportunities who are doing it better on a technology platform basis than the traditionals. The opportunity here is for start-ups to leap ahead of banks who are straddled with outmoded legacy systems which simply are not robust enough to work in an always on, superconnected space that customers live in today.

The Behavior Gap

The behavior gap, however, is where the really interesting stuff is happening on a business model front. The gap in behavior is defined in anticipating the ways customers work with new technology and reinventing both the user interface, the interactions and the processes and rules that support the engagement or journey. Banks are enamored with their existing, stagnant model of banking – they find it difficult to imagine a world where mobile applications and internet banking are more popular access methods than branches, where checks no longer cut it because I can SMS or bump money to an associate, and where I am not penalized because I don’t want to follow some archaic risk model. Companies like Square, BankSimple, even Apple and Google who are reinventing the interface to the customer are capturing the hearts and minds of customers everyday, while banks continue to frustrate customers with old models, outdated rules of engagement, and with broken processes and channel support mechanisms.

Conclusion

The biggest risk to the finance sector today is not from other banks, nor related to the inability to apply Basel III risk controls or standards. The biggest risk to the finance sector today is the growing gap between the institution and the customer. The rate at which this gap is opening up is increasing rapidly, as the adoption of newer technology increases too. This is where we are going to see an explosion of start-ups and new businesses who aren’t afraid to reinvent the bank customer experience. This is where the banks who do get customer and try to reinvent the journeys customers are taking will win.

It’s also where banks who wait for ROI, or wait to understand the impact of social media, mobile, near-field contactless payments and other such technologies before investing, will lose out massively.