As the internet reinvents commerce on this planet, it’s interesting to see the two things that enter the innovation mix: simplicity combined with connectivity. When you think about the Uber, Airbnb, Facebook, Google, Amazon and more, you realise that they have all simplified some complex things from sharing to finding. Google’s home page has stayed pretty much the same since day one.
Clear, clean and simple, it’s a SEARCH engine. It helps you find stuff. It’s easy.
You don’t think about the complexity of the thousands of servers that are indexing everything non-stop. That’s the complex stuff that sits behind the simple home page. You don’t think about the connectivity needed to do this. The fact that Google is linked into every server on the planet to index the internet. You just assume the homepage is there and will find stuff.
It’s all simplified through global connectivity.
The same is true with Facebook. You share your life with your friends, from links to funny videos of cats and babies to pictures of your own cats and babies. You don’t think about the complexity of the thousands of algorithms required to tag, link, upload, organise, store and manage all your stuff. You just want to share stuff. You don’t realise how Facebook is getting smarter and smarter. You just want to connect with your friends and family.
Amazon is the same. Again, you’re just buying things you like. It’s simple and easy. You don’t think about how Amazon has created a global store of everything through connectivity to every sales outlet. You just buy things. You don’t think about how Amazon can read your mind and predict the next things you want to buy through indexing all purchases through meta-tags. You just enjoy the fact that it has suggested that you might want that next book by Anna North. You just like the fact that it can read your mind and your tastes.
Uber and Airbnb are doing something different however. Rather than simplifying how you find, share and buy things, they have simplified marketplaces. The taxi market was fragmented and disorganised. Uber organised it. In this case, the simplification is through connectivity rather than complexity. Uber’s purely connecting people with cars through an app with people who need driving.
Airbnb saw a similar opportunity to sell spare space by connecting people with rooms to people who need rooms. It’s the P2P connectivity that provides the simplification of markets (transport, lodging), rather than purely simplifying activities (finding, sharing, buying).
Which brings us around to banking. What activities can we simplify in banking and which marketplaces could be simplified through connectivity?
These questions have already been answered in some areas. PayPal and Alipay simplified the activity of paying by providing a layer over the traditional complexity, called an email. Prosper and Lending Club have simplified the credit markets by providing connectivity between those who have money and those who need it.
Paying and enabling credit are the narrow areas of finance being attacked by simplification, but what else could be flattened by connectivity. I must admit that when I look at this chart from CB Insights (doubleclick image to see a larger version):
It really makes me take note, as any financial activity can be levelled by technology. Any financial activity can be simplified. Any financial marketplace can be flattened by connectivity, peer-to-peer, person-to-person.
This is why banks must change tack, and become integrators and aggregators of components of finance. A bank cannot compete with a specialist who is simplifying a marketplace or financial activity. Instead, they need to work with the simplifiers and incorporate their best practices into their own. This is why the likes of Moven and Fidor are being brought into bank operations as partners. This is why the likes of Venmo and Braintree are brought by PayPal.
Any incumbent player who tries to resist the onslaught of the simplifiers is going to fail, because the simplifiers are reinventing activities and markets overnight. My favourite current example in fact, is Venmo.
If you don’t know the story, Venmo was invented by two mates during a long weekend. The whole story is here, but the gist of the story goes like this:
One of the weekends we were getting together to work on this idea, Iqram was visiting me in NYC and left his wallet in Philly. I covered him for the whole weekend, and he ended up writing me a check to pay me back. It was annoying for him to have to find a checkbook to do this, and annoying for me to have to go to the bank if I wanted to cash it (I never did). We thought, “Why are we still doing this? We do everything else with our phones. We should definitely be using PayPal to pay each other back. But we don’t, and none of our friends do.” So we decided, let’s just try to solve this problem, and build a way to pay each other back that feels consistent with all of the other experiences we have in apps we use with our friends.
Could PayPal invent Venmo?
Did PayPal invest Venmo?
Why didn’t PayPal invent Venmo?
Because simplification comes from kids and complexity comes from incumbents.
The incumbents are too dogged in their own complexity to see simplicity in too many cases. That’s why banks spend all their time talking about regulations, regulations, regulations, whist Fintech start-ups talk about innovations, innovations, innovations.
The startup has the excitement of simplifying complexity; the incumbent has the weariness of dealing with complexity.
That’s why Fintech is so hot – because it’s reinventing financial activities and simplifying markets. Watch this space for more.
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I was flicking through the Economist this week and was surprised to see a big quarterly special all about Fintech. Wow, this stuff is hot, hot, hot. That’s what the magazine makes clear:
From payments to wealth management, from peer-to-peer lending to crowdfunding, a new generation of startups is taking aim at the heart of the industry—and a pot of revenues that Goldman Sachs estimates is worth $4.7 trillion. Like other disrupters from Silicon Valley, “fintech” firms are growing fast. They attracted $12 billion of investment in 2014, up from $4 billion the year before.
The magazine probes these areas in depth, citing Lending Club, Venmo and others on my list as disruptors and concludes that: “the bigger effect from the fintech revolution will be to force flabby incumbents to cut costs and improve the quality of their service. That will change finance as profoundly as any regulator has”.
In other words, the industry does not disappear, just the big, fat, lazy players. I agree.
By coincidence, this article hit my radar the same day as the great guys over at Finovate were running their annual West Coast bash. In preparation for this, Jim Bruene posted a list of Unicorns – start-up firms founded since 2000 that have achieved over $1 billion valuations – and notes that the list has tripled over the preceding year, from just 11 companies in 2014 to 35 in 2015. Simlar to other lists, a third of these are in lending and credit markets and a third in payments – that’s where the action si ffolks.
With a big thank you to Jim for compiling this, here’s the names of the biggest Fintech firms around:
1. Lufax (Lending)
2. LendingClub (Lending)
3. Square (Payments)
4. Zillow (Real estate)
5. Zenefits (Insurance)
6. Stripe (Payments)
7. Powa Technologies (Payments)
8. Klarna (Payments)
9. Xero (Accounting)
10. CommonBond (Lending)
10. CreditKarma (Credit Reports)
10. Oscar (Insurance)
10. One97 (Payments)
14. Prosper (Lending)
15. Dataminr (Analytics)
16. Zuora (Payments)
16. FinancialForce (Accounting)
16. LifeLock (Credit Reports)
16. Adyen (Payments)
20. iZettle (Payments)
21. SoFI (Lending)
21. Housing.com (Real estate)
21. Qufenqi (Lending)
21. Revel Systems (Payments)
25. On Deck (Lending)
26. FundingCircle (Lending)
26. Jimubox (Lending)
26. Kofax (Doc mgmt)
26. TransferWise (Payments)
26. Trusteer (Security)
26. Mozido (Payments)
32. Avant (Lending)
32. IEX Group (Investing)
32. RenRenDai (Lending)
32. Coinbase (Bitcoin)
32. ClimateCorp (Insurance)
Oportun (Progreso Financiero) (Lending)
Circle Internet Finance (Bitcoin)
AnJuke (Real estate)
FangDD (Real estate)
VivaReal (Real estate)
Motif Investing (Investing)
Snowball Finance (Investing)
CAN Capital (Lending)
Receivables Exchange (Lending)
21 Inc (Bitcoin)
Financial Software Systems (Risk Mgmt)
Strategic Funding Source (Lending)
Ping Identity (Security)
Source: Compiled by Finovate, 8 May 2015
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This is a blog from the Hotwire PR website, written by Camilla Ives. It summarises my good friend John Chaplin’s Payments Innovation Jury Report report well. The report has been produced annually for the past four years and John will be presenting this in person to the Financial Services Club in England (June) and Poland (July). In the meantime, here’s the low down.
The Payments Innovation Jury Report sheds light on the state of the FinTech industry in 2015, from those on the inside, and dispels any hype with candid perceptions on where the biggest opportunities lie. This year’s report was sponsored by Currency Cloud, Ixaris and WorldRemit.
The Jury is comprised of 40 uniquely qualified individuals from 23 countries across six continents. Unlike many payments commentators, every Juror has been there and done it before – these are the opinions of FinTech founders and CEOs of the most successful businesses in the sector.
What’s interesting is that the area in need of most innovation, according to the jury, is the B2B space. The jury wholeheartedly agree that SMEs who require international payments technology would really benefit from disruption. However, there are well established businesses helping to provide this service, including our clients Kantox and Currency Cloud. It seems that all the right elements are there; the competition and the infrastructure, so why aren’t more FinTech startups rising to the challenge?
The jury are not enamoured with Apple Pay. While the tech giants are starting to make a play for acquisitions in the FinTech market, they are far from exciting the jury with their own innovations. The majority of the jury believe that Apple Pay is over-hyped due to the significance of the Apple brand, but ultimately it’s an unremarkable product. Saying that, the in-app functionality is impressive and most jurors had to concede as much. It’s hard to knock Apple completely, so the jury is still out on where Apple Pay will be in a few years’ time; shelved entirely or a major player.
For those of us working in FinTech, it will come as no surprise that the availability of low cost smartphones will be the single biggest enabler for driving adoption of Mobile Money. Very few Mobile Money schemes have yet to become profitable, but this could come full circle within the next couple of years. There are still billions of ‘unbanked’ people (i.e. without bank accounts) in the world, predominantly in developing economies. Of the worlds unbanked, most will own a mobile phone. The World Bank reports that Mobile Money has helped significantly to increase financial inclusion across the developing world. In Kenya more than half of adults who pay utility bills use a mobile phone to do so!
The key takeaway here, though, is that the legacy systems in Europe and America – i.e. our dilapidated banking systems – are leaving us lagging behind the developing nations of Asia and Africa. The European banking systems really are the ball and chain of the continent. It’s about time we swallowed our pride and learned something from the innovators in emerging markets.
Download the full report here.
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I get a lot of lists these days of the most powerful people in FinTech. Many of these lists include me, for which I’m honoured and grateful, and come from esteemed organisations like City AM (I’m #9 this week) and Financial News (I’m one of their Top 40).
However, my friends on twitter involved in FinTech felt that some of the lists included people that were inappropriate. This is because most of these lists use the ‘social media influence’ of key industry leaders via a metric like Klout, which is far from perfect and not a complete representation of someone’s actual influence. For example, Jamie Dimon, who has considerable influence in the financial services industry, doesn’t have a Klout score at all because he is not active on social channels. So, how can we better determine who is influential in financial services?
1. Brett King
The CEO and co-founder of Moven, King is also a bestselling author andBreaking Banks radio show host. Often provocative and sometimes polarizing, King was named “King of the Disruptors” by Banking Exchange magazine, with American Banker naming him Innovator of the Year in 2012. King has been regularly featured in trade and business publications as well as broadcasts, and has spoken to more than a quarter of a million finance professionals in over 40 countries in the last 3 years. He is currently working on his newest book, Augmented, due out this Fall. You can follow Brett’s thoughts on hisBanking4Tomorrow blog.
“If you don’t like rapid, earth-shattering change and you work in a bank, you should start looking for a new job in another industry…“
2. Chris Skinner
Chris Skinner is a London-based independent commentator on the financial markets and the chairman of the Financial Services Club. He is the author of ten books including his most recent bestseller, Digital Bank. He is also chief executive of the research firm, Balatro Ltd, and a regular commentator on BBC News, Sky News and Bloomberg about banking issues. Chris is known for regular speaking and keynote presentations at leading industry forums. You can also follow Chris’ daily writings on his Financial Services Club blog.
“Just like Apple, there’s a lot of folks trying to associate themselves with the FinTech brand but, for me, these guys are the real deal.”
3. Jim Marous
Jim Marous started his career in banking and is currently the publisher of the Retail Banking Strategies section of The Financial Brand and well as the owner and publisher of the Digital Banking Report. Marous advises develops commentary on customer experience, portfolio growth, innovation, marketing strategies, channel shift and digital transformation. Marous has been featured on CNBC, CNN, The Wall Street Journal, New York Times, The Financial Times, The Economist, Banking Strategies and the American Banker and has spoken worldwide.
“The biggest challenge for banking in this age of disruption will be to break free from the patterns and comfort level of the past and accept the realities of the new digital marketplace – it is the non-banks that are setting the expectations for the new generation of banking consumers.“
4. Ron Shevlin
Ron Shevlin has been a management consultant and industry analyst for more than 25 years, working for leading consulting and analyst firms like Aite Group, Forrester Research, and KPMG Nolan Norton. Shevlin is currently director of research at Cornerstone Advisors where his research focuses on retail banking products and services. He is the author of the bestseller, Smarter Bank and is the author of the award-winning blogSnarketing 2.0 which is published by The Financial Brand. He is also a regular guest on the Breaking Banks radio show, providing his offbeat take on the issues faced in the banking industry.
“The talk of impending death of large banks is way overstated, as is talk of the ‘unbundling’ of banking. Large FIs will become ‘rebundlers’ – integrating and coordinating the products and services of hundreds of smaller players and upstarts into cohesive and coherent offerings that consumers can make sense of. That’s the future of banking. Industries get disrupted by technologies, not by individual firms.“
5. Bradley Leimer
Bradley Leimer is the head of innovation at Santander, N.A., where his team serves as an observatory for the Santander global organization on trends originating in the U.S. that have the potential to expand and accelerate globally. He has additional perspective leading marketing and technology efforts from within the bank and credit union industry and from working with more than 6,500 financial services clients. Bradley is an outspoken writer and speaker about banking and technology trends, and is an advisor for startups and industry conferences.
“Working together, we’re making financial services and financial technology better and more inclusive for generations to come.“
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I just sat through a nice presentation from Cognizant President Prasad Chintamaneni at the CEB Summit in Boston …
… and was pleased to see others referring to channels and front-end investments as sticking lipstick on a pig. Something I’ve been saying for a while, as you have to re-engineer the core to be fit for digital, not just keep sticking things on the front-end; and the only reason we talk about channels at all, is because we have just one in the 1970s – the branch – and have been sticking crap on top of that legacy for the last fifty years, cementing it in place thanks to our channel overlay. We have to get out of that and rearchitect for a digital core where there are no channels. There’s just access to the digital core.
Anyways, I’ve blogged about this so much, I’m starting to get repetitive so, rather than do that, I was intrigued to see the questions posed to Prasad at the end and thought I would discuss them here.
Which of the forces driving digital do you as the nearest-term threat to traditional financial institutions?
Probably social lending and crowdfunding. According to Foundation Capital this is forecast to rise to a trillion dollar market by 2025 and I see Kabbage, Lending Club, Funding Circle and more taking a huge slice of the traditional credit market from banks. Some say that banks are just offsetting direct credit risk to these guys through wholesale funding of their businesses. I say that if lean and mean loans and savings firms offer services on a razor-sharp margin basis directly through servers between savers and borrowers, then what are the banks left with?
How do you drive adoption through an aging customer base?
Well it’s blatantly clear that the highest earners are often the most digitally savvy and it also intrigues that we think millennials are where it’s at, whilst banks like Fidor say no, it’s the over 40s. Digital is not an age thing so much as a mentality thing. How do you look at the world and how smart are you with tech? Often grandpas and grandmas are the ones with the headphones on at the dinner table these days, and you have to tell them to stop texting. It’s not always the kids. However, the real point of this question is what are the incentives to use digital? That’s easier to answer: it’s giving people control of their money 24*7. That’s what is really driving adoption. That people can see where it’s at, what they are doing with their lives financially, and can control that in real-time. That’s the incentive.
Given the regulatory environment, what will happen to the digital disrupters when the CFPB (Consumer Financial Protection Bureau) look at them?
Great question. Many think that digital disrupters are liked by the regulators as they are creating more competition. Of course, they are; but are they also creating more risk? If all the SMEs getting loans through Kabbage and Funding Circle on the basis that they don’t meet the risk criteria at the banks, what risk criteria are Kabbage and Funding Circle using? That’s going to be an interesting development over time. Maybe it means that all the upstarts gradually feel the pinch of the regulator’s hand on their collar and, over time, start behaving just like banks. As they do so however, they’ll have stolen a good portion of current bank business.
Many of the success stories for digital finance are in the consumer retail side of things. What impact will digital have in other areas?
To be honest, digital is mainly discussed in consumer lending and payments right now, but it’s impacting just as much, if not more, elsewhere in commercial and investment banking. Looking at things like Holvi, eToro, Betterment, Personal Capital, Currency Cloud, Ripple and more, you can really start to see a digital rearchitecting of the system. Some banks are part of the rearchitecting, such as Deutsche Bank with their Autobahn App Store, but most are still going Digital What? I feel sorry for those ones as they won’t be around in a few years.
Can you point to anyone who’s doing this digital bank strategy right?
I always point to a small few like mBank in Poland, Fidor Bank in Germany, ICICI Bank in India, Commonwealth Bank in Australia, Deniz Bank and Akbank in Turkey and even USAA and Bank of America. The reason why I pick on these is that they have all embraced digital fully and taken significant steps to adapt and adopt. For example, ICICI place all their customer service in Facebook communities, as does Fidor and Deniz Bank. USAA is investing in cryptocurrencies and are renowned for great digital remote service, but you cannot ignore what Bank of America is achieving with mobile digital services for the masses such as location-based loyalty discounts using Cardlytics. CBA transformed the bank through cloud and mBank threw away the mother ship – BRE Bank – to become truly digital. All of these deserve credit. There are more out there too btw, but these are the top of mind examples.
What advice would you give to a bank that needs to transform to digital?
Make sure the CEO is committed and, by that, I mean the old chicken and pig breakfast sort of commitment (the chicken participates, but the pig is committed). Does the CEO believe I this and are they aware and knowledgeable of what digital means to the bank? Are they leading the change or delegating it? These are critical questions as you won’t succeed otherwise.
There were lots other questions but maybe the last one was key:
Is Fintech going to destroy banks or will banks adapt and survive as Fintech reformed?
I’ve been playing this question on the blog for the past week, with the argument that we’re adapting winning over being destroyed. Nevertheless, it’s easy to argue either way. The net: net is that banks will be destroyed if they ignore Fintech and the digital reform it is introducing to finance. That’s the only thing you really need to focus upon.
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Just to finish off my contention that banking is not being disrupted, just evolved or adapted if you prefer, it’s worth a thought about what would it take to cause a disruption.
First, I don’t think of disruption in a dictionary sense but in the sense that Clayton Christensen meant it in the book The Innovator’s Dilemma. This definition goes as follows:
Disruptive innovation, a term of art coined by Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.
And the question today is whether the Klarna, Holvi, Zopa, Lending Club and brethren are doing the above or not?
To a certain extent, it seems clear that they are. According to Foundation Capital, P2P lending and crowdfunding will be worth over $1 trillion by 2025 and companies like Apple are taking over the customer wallet. The counter-argument is that there are banks that sit behind all of these movements, with wholesale markets moving heavily into support of the likes of Lending Club. Equally, others see markets expanding. For example, many banks won’t lend to high risk projects r companies. A new start-up small business will always find it hard to get unsecured lending from the bank, unless they have a robust business plan. But companies like Kabbage and Funding Circle have stepped into this space and are helping to widen markets. According to today’s Telegraph, small businesses are getting access to over £2 billion of new funding through alternative lenders. But then, Funding Circle does partner with banks like Santander to do this, so they’re basically picking up business that banks don’t want. Is that the disruption?
Possibly. Today, banks don’t want this business. Tomorrow, it’s their core business that’s gone. Equally, bank are not helping themselves. Today’s Financial Times: “UK banks are charging businesses that need short-term finance £425m a year in “hidden” extra fees, according to research.”
Surely, by giving away future business with one hand whilst sticking two fingers up at existing business with the other, banks are trying to destroy their futures rather than build them?
This should be a concern, but is P2P going to be the massive disruption that some believe is happening, or will banks partner and then merge and acquire with P2P lendersa and crowdfunders. Maybe the latter is likely if these firms become mainstream.
After yesterday’s blog, Holvi made clear that they have regulation and are also operating in a bank-like manner.
If it looks like a bank, walks like a bank, smells like a bank, surely it’s a bank?
No. It’s a payment services provider. However, if payment service providers started offering core deposits and loans as well as payment services, then yes, they’re a bank and would need a bank licence. And have Transferwise, Holvi, Funding Circle and their brethren yet really made a mainstream impact on core bank business, or just built around that business? I would contend the latter today.
But, and here’s the real point of all this, tomorrow. Tomorrow is the question. Are these companies that are small beans today relentlessly going to move up market to displace the established firms?
Will the largest financial institutions of tomorrow be a Lending Club or Alibaba? Over the past few weeks I’ve been arguing no, but maybe you should be asking: does Chris believe this?
The reason I’ve been arguing against the Fintech tide is that many banks will say to me: “we have over X million customers today, and we know what we are doing. The regulations protect us from competition and the technology we can incorporate over time.”
Which side do you believe and where are you placing your bet as, in ten years, one of the other will probably be true. Most bankers I talk to believe they have time to adapt and that they are adapting. Most technologists I talk to claim that banks are too slow to adapt, their cultures are too traditional and their leadership too weak.
Which do you believe?
I claimed that the size and regulatory structure of banking is too much of a barrier to allow some upstart to take over their core business, but disruptive innovation is “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”
Are we seeing this today?
Finally, I recently asked Where is the Uber of Banking? that sparked a really interesting twitter debate:
@Chris_Skinner it’s cheaper to build the uber of banking than it is to explain it to banks. Why spend the money to explain it?
— Ian Grigg (@iang_fc) March 31, 2015
— Carl Marc Forcestein (@MarcHochstein) March 31, 2015
@Chris_Skinner banks operate as closed processing and distribution networks. If 1 opens up BPaaS/APIs we may see many ‘Uber of banking’
— Kevin Simback (@KSimback) March 31, 2015
Along with comments from many others.
So now it’s back to Chris believing that disruption is where it’s at whether you like it or not, and arguing that banks must act now. Some are but many are not taking this seriously, and they’re the ones that will be disrupted if they don’t watch out.
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Building on the discussion of data being key to disruption, I often use the phrase ‘digital core’ in this context. Therefore, I was intrigued when someone asked for a definition of a ‘digital core’ and one of the replies was there isn’t a core anymore.
I wondered what they meant and, in explanation, they referred to the idea of a central point of systems – a mainframe – is no longer the way the markets operate. Systems should instead be spread across server farms in the cloud so there is no single point of failure. I totally agree, and therefore felt it worth a little more explanation of digital core as so many misinterpret what this means.
First, I have defined my terms several times before:
But it does no harm to reiterate some points, such as this one.
So a digital core is, in essence, the removal of all bank data into a single structured system in the cloud. The data is cleansed, integrated and provides a single, consistent view of the customer as a result.
That’s a big ask, and most banks tell me it’s not achievable. Silo structures and line of business empires protect data sharing and lock client information in their product focused empires; creating a single, cleansed store of cloud-based data is too insecure, creating the opportunity for any cyberattacker to bring down the bank; a single data store would not be good for risk management purposes; etc, etc.
I understand all these concerns, but don’t agree with them.
The product-focused empires are the problem. You cannot have customer-centric operations if your organisation is product aligned.
Cyberattackers also find it far easier to steal from fragmented systems than one that can track digital entries in real-time across the enterprise.
Equally, banks are pretty darn poor at risk management in their fragmented, product-focused structures, as evidenced by two meetings with my bank recently. The first meeting is with my business relationship manager, who tells me all the ins and outs of the banks’ SME operations. I then, for the first time in living memory, allowed my new personal relationship manager to visit. He had printed and read very carefully all my information and wanted to complete an up-to-date fact find for KYC and sales purposes. That was fine.
Halfway through the conversation he asks: “what do you do for a living?” I said that I thought he would know as I talk to my relationship manager often. “Oh”, he says, “that doesn’t show on our records. Who did you talk to?” I explained that it was Paul, my SME manager, as I have my business account with the bank. “Oh”, he says, “I didn’t know that”.
This is fairly typical of all banks I talk to – their corporate, commercial and retail bank systems are separated and never the twain meet – but it’s not the way a digital bank would work.
A digital bank with a digital core would immediately create the inter-relationship profiles of the digital footprints of all individuals who touch the bank. That is the way you can drive contextual relationships and offers to those who touch the bank. It is also the only way you can drive a consistent, augmented and informed approach to clients who touch the bank.
Equally, a digital bank has a single digital core of data in the cloud that can then be accessed by any form. The digital core is independent of the processors, and hence you can take out a server or a system at any point and replace it with a new processor, because you have no reliance on the engines. Your reliance is on the data being clean and consistent.
For me, it is a critical factor in developing the digital bank and yet whenever I get into a conversation about this with a bank, I’m told it’s too difficult.
It may be too difficult but I suspect that if banks don’t bite this bullet, the fintech specialists who do get the data structures right will eat their lunch,
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I just finished presenting on Digital Bank strategies and Fintech, and was asked a wide range of questions:
- How do we transform our legacy structures?
- What is the biggest obstacle to becoming a digital bank
- You mention partnerships but all cooperative structures failed in the past, how can we succeed in the future?
- Can you show us someone who is doing this right and making it work?
- What should a bank do when we have millions of customers who trust us?
… and more.
I kinda realised something at this point that hadn’t struck me before or, rather, it had struck me but not as visibly. Banks are worried about the future, not complacent.
I guess that is why I am being paid to talk, consult and write about this stuff, but it didn’t hit me as noticeably as it did today (probably because at most conferences, no-one asks any questions).
One lady came up to me afterwards and said: the problem is we all know we need to do something, we just don’t know what to do.
I said it’s pretty easy, and started re-iterating my underscores about digital needs to be seen as core, not periphery; it needs to be invested as a continuum, not a project; it needs to be seen as foundations of the bank, not a channel of the bank; it needs to be articulated clearly about what it means to the bank and led from the top; etc, etc.
She intervened fast and said: I hear you, I hear you, I hear you Chris, but you don’t get it.
It was then I got the message: Our bank is led by someone who doesn’t get it. He’s assigned digital under the leadership programs but, when it comes up, you can see he switches off. All he’s concerned about is regulation and compliance. Digital is on the back of the bank’s envelope, but it’s not key.
It was then I realised I was talking to the head of digital at the bank. Oh dear.
I must admit that I encounter this frustration more and more often. The frustration is that the bank is worried about fintech, has woken up to digital and are thinking about what to do. They’ve invested in apps and APIs, restructured services, trying to get off legacy and doing the things that should be done. But the problem is the CEO doesn’t get it. The CEO has grown up in the bank, understands the bank, loves the bank but has no idea what this digital stuff is all about.
A great example was another conference attendee who runs a group that represents bank thinking. He said they had created a fintech focus area but were struggling as no-one in the group knew anything about fintech or digitalisation. Sure, they all knew about bank risk, compliance, counterparty systems and mandates and such like but digital? Fintech? Oh no! Bring in the nerd.
So, I know now something I’ve known before but can articulate better than ever before. If your CEO is not leading change and articulating a digital vision, then what are they doing? If they have a team delivering digital change but appear to have delegated their responsibility to be part of that change, thn what are they doing? If you are seeing inertia and complacency about fintech and digital in your bank, then show them Jamie Dimon’s shareholder letter and scream: WHY? If you are in a bank that needs to wake up to digital and fintech, then make sure that the CEO is awake first. Finally, if you are in a bank that has not even got this in their agenda … leave.
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I’ve heard a lot of talk this morning about Big Data at a conference here in Barcelona, and had a realisation half way through. The conversation was all about the move from mass markets and customer segmentation to the market of one and peer-to-peer personalisation. In other words the deep data mining demanded by Don Peppers and Martha Rogers in 1:1 marketing in the 1990s is finally here. It took twenty years, but here it is. Yet this is the heart of the debate about digital disruption, fintech startups and bank responses.
The reason why banks are being accused of being old and stale and slow, is that they are finding it very hard to adapt from product selling to mass markets through traditional media engaged via channels to offering contextual services to individuals via social media that provides digital access. This is all part of the evolution, or revolution if you prefer, of banking and the heart of this is that the fintech startups are focusing upon putting control in the hands of one.
For example, at a recent US conference, there was a lot of talk about Venmo. Venmo is a social payments app that acts as both a way of ensuring bills are paid between mates and also being a social share. We all go out at the weekend and Dave pays so Chris, John and Erin send money via Venmo a few minutes/hours later. The next time we go into Venmo, where’s Brett’s payment? Hmmmm …
What’s Big Data got to do with that?
Not a lot.
What’s that got to do with the new market of one?
The market of one is all about making the individual the centre of control and supporting them in controlling their lives. The market of one can only be served by apps that leverage data and personalise it. So Venmo’s secret is not deep data mining but allowing deep data sharing.
It’s also interesting that Venmo came through Braintree into PayPal, and PayPal now have one of the hottest apps out there. For example, Venmo processed $141 in payments in 2013 increasing four0-fold to $700 million last year. Could PayPal have created Venmo? Not really. PayPal are already being called an incumbent legacy, as they’re over a decade old. Ten year old firms find it hard to stay fresh, as even Facebook demonstrated. That’s why the new tech firms are acquiring and investing fast to keep up. It is why Braintree acquired Venmo and PayPal acquired Braintree in a similar way to Facebook acquiring WhatsApp and Instagram.
PayPal would not be able to create Venmo anyway as Venmo came out of an idea of two mates in their 20s who owed each other money after a long weekend. A bit like Facebook, Tinder, Snapchat and more, these apps come from people seeing context and then looking at how to use new tools from Big Data through Cloud to Apps to provide real-time sharing and sourcing of needs.
And this is where we do see the banks struggle, as they cannot create these new apps as they don’t have the structure, capability or organisation to do so. But what they can do is seed fund these apps, buy their companies, partner with the founders and more. And that’s what Jamie Dimon is alluding to in his shareholder’s note, and it’s what banks need to wake up to in the new landscape.
The new landscape demands that banks work 1:1 with relevance to the individual’s needs. If the bank cannot deliver this through their archaic systems and structures, then they have to rebuild the bank through working with the new systems and structures.
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