By now, even if you are not into Pokémon yourself, you have probably heard of the Pokémon Go phenomenon that has swept the US and other countries in the last several weeks.   Ever since Niantic, Inc. launched the Pokémon Go mobile game on July 6, #augmented #reality (AR) hasRead More
Bank Innovation
The discussion around digital transformation in #banking has long revolved around the nexus of technologies that are globally driving this change. Technologies such as mobile, social, big data and cloud computing are surely impacting significantly all industries, but for financial services there are other silent technological revolutions taking place that, at the very least, can massively accelerate the technological disruption occurring in the sector.
If mobile, social, big data and cloud computing are the core technologies of digital transformation, for financial services the emerging underlying substrate are APIs (Application Programming Interface). Now, APIs have been around ever since someone wrote a piece of computer code that was meant to be reused by someone else and are common parlance in IT. However, the threat of fintechs and regulations such as the revised Payment Services Directive (PSD2) are elevating the IT lexicon to board-level discussions. Bank boards, in many cases for the first time, are being exposed to IT concepts and jargon that, not only they cannot afford to dismiss, but in effect they need to deeply understand as it becomes a key part of the future of competitive advantage in a digitally transformed industry.
Why should #banks care about APIs?
APIs expose banks’ products and processes for use by third-parties. Since banking products are inherently digital and processes already are or can largely be automated, the development of an #API strategy drives three key advantages for banks:
I. Vertical disintegration of banks and ecosystem integration
The various impacts of globalization and #technology in the financial services industry led to the emergence of niche providers, specializing in key activities of the banking value-chain. Most traditional banks tend to be vertically integrated organizations with relatively fixed cost structures and, as transaction costs decline, some of the key activities in the banking value-chain suddenly become cheaper to procure externally than to execute internally. As a result, we see a move to vertically disintegrate these activities and outsource them.
With the threat of fintechs and neo-banks looming, an API strategy enables banks to streamline their internal value-chain, becoming at once leaner and more focused, while at the same time, transparently integrate themselves into a broader ecosystem exploring new revenue streams and business partnerships. For instance, consider the ability of a car dealership to provide an immediate loan for a customer at the point-of-sale. In this scenario, the cost of sales would be handled by the car dealership. From the dealership standpoint, they would be able to close a sale on the spot providing great value and a great experience to the customer. Also, consider the fact that this is a contextual sale, where additional products, such as auto insurance with multiple coverages, can (and should) be recommended with increased probability of acquisition by the customer. Now, I’m not naïve to the point of disregarding the many existing hurdles of this or other similar scenarios, such as compliance and legal issues. However, even compliance and legal are prone to disruption by APIs and automation as well as by self-regulating technologies such as distributed ledgers and smart contracts (but that’s a topic for another post).
II. Healthy coopetition with fintechs and neo-banks
There’s no longer any question about the threat that fintechs, neo-banks and non-banks pose for the future of traditional banks. After the boom of late 2014, the #fintech “movement” came of age during 2015 and is now competitive across all categories – lending, personal finance, payments, retail investments, institutional investments, equity financing, remittances, consumer banking and more. CB Insights reports that global fintech investment is rising and that Q4 of 2014 was the busiest of the last 5 years with a total of $3.1 billion invested across 214 deals – that’s an average of $14.5 Million dollars per deal. There’s also increased acquisition activity, mostly by established fintechs rather than by traditional banks.
Additionally, regulations such as PSD2 will inevitably push traditional banks into the playground of fintechs and neo-banks. Strategically, it’s a dangerous place to be in for traditional banks, since most of them are not yet ready to compete with these new enterprises in their own ground. However, with the right invesments, such as APIs and open banking, banks are starting to develop the resources that’ll be a key part of the answer to long-term prosperity in an evolving and growing eco-system. Here are four key areas of cooperation and competition with fintechs and neo-banks that banks can explore in the course of their API/open banking strategy:
III. Looking within for innovation
It’s true that when talking about APIs and open banking, we usually address it from the standpoint of an outward-facing competitive advantage that can enable incumbents to compete and/or partner more effectively with fintechs. However, looking within traditional banks, we can also find areas where APIs and an open platform can help drive increased performance and efficiency.
To be fair, through the years banks have made significant investments in IT and in services platforms, primarily driven by interoperability and modernization rationales. The problem with these approaches is that they have mostly been IT-led and for a long time there wasn’t really a great business justification for them so they weren’t typically discussed from the business standpoint as a key strategic investment. Where these investments occurred, banks are now taking a new look at their IT assets and resources and realizing that they are better off than they actually thought. Some of those past IT investments have become key in this new digital economy, particularly when it comes to simplifying business processes and products.
Internal APIs are also key to driving innovation from within. They can work as a sandbox for internal development of ideas before external exposure to partners and others. In this area we see several banks hosting internal Hackathon events, pairing business and IT people in the development of new digital products and in the automation and simplification of internal processes. Internal innovation is key as the rate of change accelerates in the industry. Simpler processes, new innovative products, and a leaner organization will drive growth and efficiency for traditional banks. I believe that in the short term, we’ll see an increased focus in using APIs to build resilience into the banking business model, whether through innovative products and services, or through the ability to replace internal processes and services with external providers.
[linkedinbadge URL=”https://www.linkedin.com/in/josealmeida” connections=”off” mode=”icon” liname=”José Almeidaos”] is digital advisor at Microsoft and this article was originally published on linkedin.
Much has been written about the #future of #banking. In the end, it all seems to come down to one question: will #banks become platforms or #pipes?
In reality, there’s no question at all. Platforms are the winning business model of the 21st century and the banking industry is well aware. In fact, banks have been platforms for decades — #fintech is merely creating the latest set of bank #platform extensions. Earlier incarnations include ATMs and online bill pay for consumers.
That said, what’s happening today is forcing banks to rethink how fast they extend their platform to avoid becoming just the pipes. The advent of the cloud and the software revolution in Fintech with billions of capital being invested every quarter has brought more innovation to banking in the past two years than it has seen in the past twenty. Still, the current David taking down Goliath narrative surrounding the future of banking and finance ultimately fails to account for the reality of the situation.
While it often goes unnoticed, a great many fintech startups today rely heavily on banks to enable their innovative services. The success of financial innovations like Apple Pay for instance is happening with a great deal of participation and cooperation between #technology companies and financial institutions.
This relationship between banks and fintech underscores the reality of the financial services industry’s future. Yes, finance is evolving alongside the accelerating curve of technology, and yes, fintech is driving much of this change, but banks are – and will remain – squarely at the center of the financial universe for quite some time to come.
For one, banks have been the backbone of the modern economy since its inception. They are far too ingrained in the financial system to be removed within any foreseeable time frame.
Banks also have deep pockets, infrastructure and experience. Large market caps and long track records are clear signals to customers that banks can weather the inevitable downturn. Startups, on the other hand, are more susceptible to turbulence and market volatility — things banking customers, especially business customers, would rather avoid.
Big data is yet another boon to banks’ staying power. Banks have been collecting data on customer transactions and behavior for decades. This creates major advantages for banks. When used in the right way, this data can be leveraged to do things like identify customers that are ripe for new payment services or to mitigate and underwrite risk in innovative ways.
But despite all this, there is one hazard currently menacing banks: disintermediation. Starting with the ATM, technology has been distancing consumers from banks for quite some time. Today, their relationship with the consumer is slimmer than ever.
Meanwhile, fintech is picking up the slack. While traditional banking experiences can feel clunky, fintech products and services are designed to work with people’s lives and deliver value in new and unexpected ways. These upstarts pride themselves on delivering superior customer experiences — banking that is intuitive, mobile, cloud-based, responsive, available 24/7, you name it.
Fintech companies are also agile and built for rapid iteration — skill sets banks don’t yet have internally. This allows fintech companies to focus heavily on usability and keeping their user interfaces modern. At Bill.com, for instance, we iterate our onboarding experience every two weeks. By comparison, most banks have outsourced many key functions to third-party service providers like Fiserv and Jack Henry, severely limiting their ability to make product changes outside of rigid, long-term release cycles.
The comparative lack of innovation by banks is no surprise. For decades, banks have spent most of their resources driving to meet quarterly earnings targets, delivering consistent results and ensuring compliance — the key objectives most highly-regulated, publicly-traded financial institutions must focus on to meet its obligations to shareholders — leaving fewer resources and funds for experimentation, learning and new product development. This makes it difficult for banks to keep up with shifts in customer preferences and behavior the way that fintech can. Banks know this and it is exactly why they are starting to shift their strategies to reflect being a platform and not just the pipes.
When banks become platforms for their customers and fintech partners, they increase the value of what they have built over the past several decades and disintermediation on the consumer front becomes irrelevant. Instead, as banks fuse their platforms with fintech, innovation will accelerate creating tremendous value for everyone in the food chain.
[linkedinbadge URL=”https://www.linkedin.com/in/renelacerte” connections=”off” mode=”icon” liname=”René Lacerte”] is CEO/Founder Bill.com and this article was originally published on linkedin.
As the market for apps is maturing and artificial intelligence advancing, text-based services, or chatbots, are poised to take off.
Chatbots are essentially software programs that use messaging as the interface to carry out various tasks. Venture Beat estimates that the bots landscape currently consists of over 170 companies that have attracted some US$ 4 billion in funding.
One particular area where entrepreneurs and market observers are optimistic about, is their use to deliver financial services.
Image credit: maxuser via Shutterstock
Already, a number of #banks have dived into this emerging trend, building and delivering solutions on instant messaging and popular social networks (think Facebook Messenger and Twitter) to deliver basic #banking needs such as checking your banking account balance, finding nearby ATMs, and even make payments, have launched this year. Toshka Bank of the Otkritie Financial Group, and Absa Group, also known as Barclays Africa, have both released their own chatbots in July and May, respectively.
The Royal Bank of Scotland has also introduced a #chatbot into its operations. Luvo is basically the bank’s customer service chatbot, and although the service doesn&8217;t handle transactions, it is the bank&8217;s first step towards simplifying financial transactions.
Going beyond daily banking needs, other companies are looking to use chatbots for other purposes such as trading services and personalized financial guidance. This is the case of AJ Bell, a UK firm providing online investment platforms and stockbroker services, which plans to reach millennials with a new trading service that would allow customers to buy and sell shares on Facebook Messenger.
Another example is Personetics, an Israeli provider of personalized digital guidance solutions, which launched its Personetics Anywhere chatbot in May. Personetics Anywhere, a solution targeted at banks, is essentially a tool that allows their customers to get up-to-date information and personalized guidance via Facebook Messenger and other messaging apps.
Digit, a San Francisco-based startup, focuses on helping customers save money. You simply need to connect your bank account, then, its algorithms analyze your income and spending, and find small amounts of money it can set aside for you.
Every two or three days, Digit transfers some money (usually between US$ 5 to US$ 50) from your checking account to your Digit savings and promises to “never transfer more than you can afford.”
When you need your savings, you simply send Digit a text message, and Digit will transfer the money from your Digit savings back to your checking account next business day.
The service allows unlimited transfers, with no minimums and no fees. Plus, Digit automatically sends you a text message with your checking account balance every morning.
Speaking to Fast Company, Digit&8217;s founder and CEO Ethan Bloch, explained why he decided to go with text messages instead of building an app:
&8220;The honest reason is it was easy. It was fast. We didn’t want it to be another notification because we didn’t want to have to build an app; I just really wanted to ask Digit for my balance. Really quickly, we wrote the code and it shifted [to SMS].&8221;
Similarly to Digit, Cleo, too, connect with your bank account to assess your daily debits and other transactions. Cleo, an artificial intelligence money-managing assistant, sends you text messages about your spending and help you find better deal banks. You can also send her text messages with specific requests. Cleo is unfortunately only available in the UK right now.
San Francisco-based startup Olivia AI, Inc. said it intends to &8220;revolutionize the way people spend their money&8221; and &8220;help people maximize their paychecks.&8221; Olivia, which is still under development, will organize all your accounts and transactions for you and come up with unique insights on how to save money and stretch your paycheck.
Olivia&8217;s CEO and founder Cristiano Oliveira said that unlike competitors, Olivia is &8220;not focusing on creating budgets, we’re focusing on helping our users keep doing what they love to do without compromising their lifestyles, providing ways to save money on everyday items like groceries, cable, and insurance.&8221;
Featured image: A line of retro robots by charles taylor, via Shutterstock.
The post The Rise of Chatbot Banking and AI Money-Managing Assistants appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
#Banks only care #about millennials, right? Not really, though marketing about digital efforts may make it appear that way. Yesterday #Capital One, a leader in digital #banking, joined OATS (Older Adults #Technology Services) in launching‘“Ready, Set, Bank: #Online Banking Made Easy,’” an educational tool designed to increase online banking usage among older adults, enabling themRead More
Bank Innovation
What happens when an unstoppable force meets an immovable object? The unstoppable force is customer expectation of real time, which we get from using email, text and social media. We are instant gratification junkies, like Veruca in Willy Wonka “I want it and I want it now”. The immovable force isRead More
Bank Innovation
A few weeks ago, at Viva Tech’s International Summit in Paris, I bumped into David Kenny – one of my heroes. I will tell you why: David is a man with an entrepreneurial mindset who has deserved every bit of success that he has achieved. Currently, he is General Manager of #IBM Watson tasked to build Watson into “artificial intelligence as a service”.
I have been following David’s career since he was CEO of Digitas, a very successful digital media company acquired by Publicis Group in 2006 for $1.3 billion. At that period, I was running a small digital media company called Art House Media and, therefore, all of their moves were of great interest to me.
After that David moved to other demanding positions, but he is probably best known as Chairman and Chief Executive Officer of The Weather Company. I, on the other hand, moved into the financial services sector.
The Weather Company was acquired by IBM for more than $2 billion at the beginning of this year, and that’s when David was transferred to IBM’s Watson team.
The reason why I told you this story is to emphasise that running a marketing and #technology agency that was helping businesses adapt to the digital age, with more data and more analytics, 10-15 years ago; as well as more recently connecting hundreds of millions of sensors to produce more than 20 terabytes of data daily for The Weather Company’s apps and websites, definitely required a clear vision of the future driven by digitisation and innovative technologies.
So, what did we talk about?
Since I work for one of the big European #banks, our discussion started with three early things AI can be used for in the financial services industry.
The first area is understanding data and rules, something Watson is really good at. When dealing with compliance, fraud detection, money laundering and all other processes commonly known as KYC, Watson is capable of looking at all the data in the public about each customer in a very private and secure way. Essentially, that ensures that banks fully respond to their responsibility of knowing everything they need to know about each customer.
David also mentioned that Watson was learning about #banking regulations and laws in different countries to help global banks deal with the compliance issue. Especially nowadays with Brexit, there is a new problem: Do you know that there are 10,000 rules between EU and Britain in banking? Well, Watson too needs to learn all these rules!
David then moved on to the second area: customer connection, that is, the ability to use AI for managing text messages and Twitter accounts. In that way, Watson becomes a virtual agent that enormously helps the customer service agents by supplementing them.
The third is predictive models. Banks need to predict what the customer might need next and what information they might find useful. This is about personalisation – but with structured data. With Watson, it is possible to process so much more data; find out what is happening in someone’s business, in their environment, in their economy, in their life – so that banks can be ready to help them.
Inevitably, our next topic was #blockchain. David told me that IBM had invested literally billions of dollars in research. They think that blockchain is really an important technology since it enables us to keep track of absolutely every transaction – banks in particular need to know that data or currency is in the right hands. Another advantage is that the sender and the receiver can be verified at an enormous scale!
IBM thinks that blockchain needs to be baked into all of the Watson systems we have mentioned here because they do not do AI from search – which is very much about public knowledge. They are Watson for private data and, thus, need blockchain to make sure the data stays private and is only exchanged and secured by the right person on the other side.
Please note that IBM donated all of their blockchain technology to the Linux foundation because they want it to be an open source and they want everyone to use it. The aim is to make data more useful so that AI can work on private data, rather than just on the data available in the public search grid.
And, why is data so paramount? For two reasons. Firstly, the higher the quality of the data, the better AI algorithm results are. Secondly, that, in turn, helps us make much better decisions. Therefore, the data banks possess provides true competitive advantage!
I learned that 80% of the world’s data was held within companies and organisations! Only 20% is stored on the Internet. Did you know that?
Can you see now how we can improve our business significantly by employing new AI technologies to access data from all three: proprietary, third-party and public sources?
Of course, I could not let David go without asking him about his view on design thinking. In my previous post “How to ignite creativity and flair for innovation?”, I talked about a large-scale transformation IBM had undertaken to replace the company’s engineering and sales culture with the innovation mindset by bringing in design thinking.
David revealed to me that he himself was also a great believer in design thinking, and explained that it was the belief of Ginni Rometti that we were moving to a world in technology that was no longer B2B, but rather B2I (business-to-individual), that led to IBM’s transformation.
All this is highly relevant to us in the financial services sector as well, but I will leave if for one of my future posts. In the meantime, think of B2I as marketing on the individual level. The philosophy behind it is that companies should better tailor not just their products, services and go-to market strategies, but also their whole business models to the individual buyers’ wants and needs due to the rapidly shifting digital market and buyer behaviour.
David said that it was already possible to see that new approach in how they were working with Watson. Today at IBM, they actually start every project with design thinking to make sure they know the persona of the user and that their technology fits the user’s life.
They begin the design thinking process with the following questions: “How are our clients using the product? How is their day spent? What is the right way to connect with them? What is the right content to connect with them?”
As a result, as David pointed out, although their main task is to show how AI can help their clients, they are also making sure that technology itself is not a barrier, that they are communicating in a normal language, that it is easy to find the next thing and that they are not overwhelming people with too much information.
Thanks to design thinking, in Watson’s case, they took into consideration the end user – the retail customer; the decision maker; and the growing group of developers. Since the banks are increasingly bringing in tech people to work on machine learning, IBM made Watson easier for them. All they have to do is just take an API and use it. As straightforward as plug-and-play!
At the end, I asked David to tell me what he thought about the use of design thinking in banking. Without hesitation, David stated that design thinking was actually essential! Then he explained it further: “The banks are built on trust. Your reputation is very trustworthy. Trust will grow if you bring it all together – if you look for business solutions from various perspectives, empathise with users, and address various stakeholders. Design thinking is used to build trust.” – What a fine answer!
[linkedinbadge URL=”https://www.linkedin.com/in/deandemellweek” connections=”off” mode=”icon” liname=”Dean Demelweek”] is Agent of Change & Innovation Catalyst | Tech London Advocate and this post was originally published on linkedin.
A major theme that we track on Daily #Fintech is the “programmable bank”, how innovation is enabled by APIs that abstract complex layers of utility services so that innovators can focus on “rebundling” (creating new UX based on integrating unbundled best of breed services). We are also big believers inRead More
Bank Innovation
I was lucky enough to be invited to a #banking panel discussion recently and given the privilege and opportunity to express my opinions about what digital means to banking. What became apparent from the discussion and questions was most people link digital to #technology. If not about technology, it was about how new development was undertaken; be more like the fintechs, don’t fear failure, etc., etc.
But to me such discussions miss the point entirely. While no doubt there’s an element of being digital in back office efficiency (such as robotic process automation) the real digital focus for #banks should be in creating market differentiation. Differentiation won’t be achieved through making processes faster and more efficient.
Recently, when taking a more design-led approach to digitisation and removing the constraints of the current offerings and technology altogether, I’ve been amazed at the number of simple yet effective offerings banks could make with very little effort. It was during that panel discussion that I became even more aware that people really weren’t, despite the rhetoric, “thinking outside the bank”. Gartner was telling us the two most asked for features were proactive security and some other enhancement to the current standard fair. But that is tunnel vision. Customers don’t expect banks to truly innovate and are used to them remaining confined to the products and services they’ve always delivered.
With the real threat to retail banking being that in the near future the standard offering will be as much a utility service as turning on a tap, concentrating on the water pressure and flow rate isn’t the way to maintain or increase market share. Banks need to offer a compelling differentiation to attract customers as account switching continues to rise. By thinking a little more laterally, this isn’t a difficult thing to do.
I think the blinkered thinking is all down to how analysts and those in the banking industry look at the problem. By focusing on feedback from users of current services and products, the drive is to make these more efficient and with lower friction, moving from multi-channel to omni-channel. But how about forgetting channels altogether? Yes, we need to make whatever the new world efficient and frictionless, but that’s just a faster car, not anything new. Very soon everyone’s car will be faster. The fintechs are starting to reshape the user experience of banking and, like Mondo’s transport for London payment reminder, are starting to look outside of the existing standard service.
This is what I believe banks need to do more of. Whether you use design-led thinking or just sit down and wonder, with the information that a bank has about me, what should it be able to do?
Two examples came to mind on my flight down to the panel discussion. The first was, wouldn’t it be handy if when I landed at the airport my banking app asked me if I am here for business or leisure? I’d choose business and the banking app would now know to tag any payments as expenses, such as the hotel room. When I land back home the banking app, in addition to welcoming me home and offering to call a cab, should ask if that concludes this trip. Answering yes, it would then send me an expense report with digital receipts for me to claim back – even better if it offered an API to my expense system to do this automatically. There’s nothing in this idea that isn’t already available to a bank. They know where I stay, they know how much I’m spending and on what, so it’s a very simple but effective value adding service. Similarly, when I was a one-man-band contractor (like over 3 million others in the UK) I spent £125 per month for an accountant. How many of these potential 3 million plus customers wouldn’t switch if a SME business bank account offered to automate their accounts creation? The bank has all the information and should easily be able to derive the context of the expenditure or prompt via the website or their app for this to be added where there’s doubt (it’s not as if there’s lots of transaction) and by integrating a simple accountancy engine, the bank could spit out the annual accounts and tax return. Add in connectivity to GOV.UK/Verify as Barclays have and there’s no reason it couldn’t submit them for you on your behalf as well.
Neither of these ideas are difficult or ground breaking but I was faced with a sea of blank faces when presenting them. Rather than UK banks spending over £400m trying to convince customers to switch with cash incentives, how about giving customers a real reason to move (or stay put). By truly thinking digitally and outside of the bank? Then simple and compelling offerings can be created that will fight off the threat of the aggregators and #fintech. If you’re not thinking in this way then it doesn’t matter how good the user interface becomes or how many keystrokes you remove from the application process. You’re not going to prevent a flash aggregator post PSD2 making your hard work redundant.
Banks need to think not just about cost savings or application dropout (as important as these things are) but also about how to turn the customer and bank engagement relationship from transactional to a valuable daily experience. This means not just replicating what is done in the branch but offering a whole new set of services that may only bring value to the customer and no additional revenue to the bank. But in doing so the banks will have market differentiation and create real benefit for their customers. This, I believe, is the only way to maintain any control over the user engagement channels and not relinquish it to the aggregators but to do so takes a real commitment to thinking right outside the bank.
[linkedinbadge URL=”https://www.linkedin.com/in/fegan” connections=”off” mode=”icon” liname=”Gary Fegan”] provide Financial Services Solutions at Fujitsu Digital, and this article was originally posted on linkedin.
Today there are more bankers convinced of the need to transform their businesses than those that are not. This is no small matter as realizing the need to change is half the battle. The other half of the battle is to find the right solutions and implement accordingly.
In order to find the right solution one has to ask the right questions. I have struggled to find the right framework for these questions until I came upon this article by Scott Anthony.
Scott outlines three main questions:
– What business are we in today?
– What new opportunities does the disruption open up?
– What capabilities do we need to realize these opportunities?
Here is my attempt at answering these questions for a Bank.
– What business is a Bank in today?
Taking my cue from Scott, I will avoid the obfuscating and basic answers such as “offer accounts”, &8220;lends&8221;, &8220;makes payments&8221; which are either #technology based or category based. More abstractly, a bank acts as an intermediary by linking depositors and borrowers. In comes deposits, safely tucked in accounts, out comes loans safely underwritten to borrowers – or so we hope. This intermediation role creates various benefits: a) spurs economic activity and supports the community in which the bank operates, b) safeguards and protects money entrusted by customers, c) provides access and convenience to money and how it is transacted, d) builds wealth directly (lending activity needs to be profitable) and indirectly (savings, investments). Abstracting further, a bank is in the business of providing trusted services around a customer’s money. Abstracting even further, a bank is in the &8220;TRUST&8221; business. Do note there is a major difference between being in the money business and being in the trust business. Thinking of being in the money business forces you to think in terms of products and services around how money is stored (checking account), transferred (payments), invested (assets) or lent (loans). The outcome of such a paradigm is to sell products. Such outcome may not have been explicit when #banks operated in small environments, serving defined geographies where the relationship a banker had with his community was the vector that enabled all. This outcome is explicit in modern #banking however. Therein lies the conundrum and the creative/destructive tension. Banks have ended up engaging in the business of selling products that serve a function around money whereas their existential function is to extend and project TRUST. Many pundits have recently declared banks need to be less product centric and more customer centric as a result of this tension. I agree and will unequivocally and irrevocably state that a Bank needs to reclaim and redeploy TRUST. Without trust, there are no bankers. Without trust there is no bank.
– What new opportunities does the disruption open up for a Bank?
In an era where new ways to invest, underwrite risk, lend, transfer money are being rolled out, all of which necessitating less knowledge centralized in an individual&8217;s brain (a banker) or an organization (a bank), where the way we spend our time and our money occurs less within the constraints of the physical world and more via digital means; a Bank is rapidly finding itself threatened and ultimately disintermediated as an agent handling our money. We also live a paradox where we do not &8220;like&8221; our Bank &8211; we spend less and less time in contact with its employees or its branches and we profoundly dislike the excesses of some bankers and the opacity, applicability or utility of many banking products &8211; while we &8220;like&8221; our new sacred cows &8211; we spend more and more time on our beloved social media apps, marketplaces, social messaging apps, social gaming apps, business apps &8211; yet we TRUST our Bank more than we trust our new sacred cows. Lonely is the pundit advocating we store our money with Facebook or the customer ready to do so. Banks have so far treated this phenomenon as an existential threat. I posit this phenomenon is actually an opportunity. A major opportunity.
As a result of our digital engagement we have experienced an explosion in the amount of data we generate. We are drowning in data and metadata. Our identities have multiplied to the point where our confusion about their management is only surpassed by the threats we face every day from hackers. Whereas software and hardware are the vessels, arteries and vital organs of any functioning business, data has become its lifeblood. The second coming of artificial intelligence will only further the point I want to make: Data has become an asset class and will become more and more valuable, unlocking a multitude of values we cannot begin to imagine today, for us and those we engage with.
Tying TRUST and DATA together, I come to the inevitable conclusion that today&8217;s opportunity for a Bank is to provide TRUST services around its customers data. Data is what you do, who you are and how you evolve today. It will be what you monetize tomorrow. So far, we, the real owners of data, have been cut off from its monetization, with consent &8211; engaging in a quid pro quo with a social network &8211; without consent &8211; with little control over how one&8217;s data is used to price a loan for example.
Let&8217;s imagine a Bank offering its clients a master account, part checking account where a client will entrust money, part data account where a client will entrust data. Let&8217;s further imagine this Bank will monetize the data residing in the data account and &8211; much like with different flavors of traditional bank accounts &8211; will offer a cut off the revenue generated. Little to nothing if the customer consents to narrow use cases, narrow data sets or anonymized data. Much more if the customer consents to wide use cases, wider data sets or personalized data. Let&8217;s further imagine this Bank will also provide services around a customer&8217;s identity: verifying one&8217;s identity based on the requirements of third party services, individuals or entities. Imagine that and you have imagined a Bank reinventing its core tenet, TRUST in the age of DATA and IDENTITY. In a subtle way, this reinvention is akin to a Bank finding back its original roots. Indeed, an old school banker was entrusted with his customers data when interacting with them in the community. The data resided in the banker&8217;s head, shared only because of the trust factor. Tomorrow, the data will reside in the cloud, protected by one&8217;s Bank, with a trust factor.
To convince you further of the validity of such a thesis, consider what the likes of Google, Amazon or Facebook are interested in? Are they rushing to obtain a bank license to handle money or are they focusing on harnessing the power of data? I will leave you to answer this question on your own and ponder the competitive pressures banks are and will face whether they choose to own and manage trusted data or not.
The other major opportunity I see for a Bank resides with the ability to orchestrate a value chain &8211; instead of the old paradigm of owning the entire value chain. I analyzed this opportunity in previous post. The concept of Bank as a Service, Bank as a Platform, the Platformification of Banking is slowing taking hold in the ecosystem. A few startups have capitalized on this trend already, a few Tier 1 Banks have made preliminary moves. I do not pretend there will be only one new Banking reality of course and some banks will not chose the &8220;value orchestration&8221; path. What I am convinced of is that &8220;value orchestration&8221; is a major opportunity. The shear amount of data and transactions we are and will continue to generate within the context of heterogenous and diverse technology ecosystems we elect to engage with requires a new breed of Banks adept at organizing, servicing, facilitating and sharing work flows and processes across a financial services value chain.
So far we see several trends unfolding: a) the buildup of an ecosystem of #fintech startups, b) the strong gravitational pull of social networks + messaging apps (soon to be joined by the full force of AI powered chatbots) exercised over our daily attention, c) a secular trend towards peer to peer relations or horizontal networks (sharing/renting economy, #blockchain, cryptocurrencies…😉 d) the resulting arms race all banks have undertaken to digitize their customer touch points.
This arms race is the result of the mistaken assumption that retaining customer attention by owning it fully is the main way to continue delivering value creation. I am not convinced and even if I were, competing for attention against nimble upstarts, savvy tech giants or the secular horizontal network trend is a strategy I do not like the odds of &8211; few banks will survive doing so. Rather, refocusing one&8217;s strategy on value orchestration to facilitate and enable the seamless inclusion of financial services conversations where we spend most of our time, the new nature of the transactions occurring during these conversations and their seamless operational orchestration and provisioning seems to be a much more fertile ground to mine.
We have yet to see a Bank owning the &8220;value orchestration&8221; mantle. I believe that will change soon. How soon? Within less than 5 years is my bet. I am convinced this will happen because the Internet has fundamentally altered the way we can do business. Achieving near zero marginal cost of delivering any product or service will occur in every industry. I am convinced this has not happened yet because the financial services industry is unique, complex and heavily regulated.
If you think that only large banks can and will capitalize on the &8220;value orchestration&8221; opportunity you are wrong. In my view, although there will be few &8220;value orchestration&8221; or platform owners, there will be many smaller banks that federate and participate as platform partners. Further, if you think this platformification may lead to what I refer to the &8220;dumb pipes&8221; syndrome, you are wrong again. The age of dumb pipes is long gone, smart pipes is what you need to think through and digest &8211; the variety of services at both end of the pipes and within the pipes themselves is underestimated by many.
A more appropriate concern is how will disruption and the resulting opportunity of &8220;value orchestration&8221; impact the direct relationship a Bank has with its customers? Will that relationship be maintained, shared or broken and to what extent? Could we see &8220;Intel Inside&8221; models emerging, capitalizing on implicit trust and technology prowess augmented by value orchestration without the necessary immediacy of a direct to consumer experience?
– What capabilities does a Bank need to realize these opportunities?
I will limit myself to a high level analysis.
First, let&8217;s rifle through some important existing capabilities.
a) Regulated and Licensed: Although viewed as a constraint by some, I view these as assets. The trick will be to educate regulators as to the need for innovation. Different licenses will be needed, changes to existing licenses too. Different regulatory frameworks will need to be adopted.
b) Security, Cybersecurity, Authentication, Authorization, Identification: Banks invest heavily in these area. Again they shall need to add new technologies to the mix, which they are already in the process of doing. I would not be surprised to see a Bank acquiring a cybersecurity firm for example. Core competencies need to be brought in.
As for some of the new capabilities.
a) UX/UI: We are now used to sleek experiences and interfaces in our digital & data worlds. Nothing short of closing the gap and excelling is acceptable for a Bank going forward. I view this capability as core actually. I would advocate acquiring best of breed UX/UI practices, hiring leading designers. That capability, that talent needs to be acquired and treated well as it will be too time consuming to grow it internally.
b) Data Analytics: If your business is TRUST + DATA, you better be good at analyzing the latter to back up the former. Certain banks already have data science talent in house and are uniquely positioned to understand their own as well as their customers&8217; data. Still more needs to be done. I can see home-growing talent into specialized units, even spinning off these units to better grow them &8211; at least one bank has done so I believe &8211; or acquiring best of breed startups.
c) Artificial Intelligence: Arguably a wide field. There is an arms race going on. Google, Facebook, Amazon, Apple are snapping up talent in the US and I am sure European companies are doing the same in their respective countries. In a way AI and Data Analytics are intertwined, thusly AI is as important when one is dealing with data. Again, acquire!
d) Cutting edge Technology: One need not acquire all cutting edge technology capabilities (cloud, blockchain, quantum computing, AR, VR, IoT, API&8230;), partnering will do for most, understanding, mastering and managing is a must though. To be fair, many banks have started learning and closing the gap here.
e) HR Skills: Hire, hire, hire from outside banking to acquire mindsets that live and breathe either data or complex networks&8230; technologists, executives familiar with platform strategies, data experts, software entrepreneurs, p2p and/or network specialists, experts that understand and study the emerging properties of large systems (biologists, behavioral scientists&8230;) . Basically, hire less bankers, more non-bankers.
If the above spurs your imagination, please share other opportunities you may find attractive, as well as capabilities I have not thought of.
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