Are bots taking over #banking? Yesterday, a Danish bank introduced a bot for simple queries (and soon, transactions) and earlier this month, San Francisco-based startup Dyme, a member of the Spring 2016 Bank Innovation INV class, released a prototype of a Facebook messenger bot whose functionality mirrors that of Dyme’s SMS-basedRead More
Bank Innovation
At the end of the day, the bloodiest battleground in #banking is “real-time analytics for relevance in the financial relationship, and the partnerships that go into that relationship that allow that to happen.” This observation by Chris Skinner, founder of The Financial Services Club, is absolutely on point.
Banking is really about leveraging data to provide insights to customers just when they need it, in the way they prefer, through physical or digital channels. This means offering a delightful experience every time customers interact with their bank. But for this to happen, #banks need the right partners.
THE RELEVANCE STRUGGLE IS REAL
Let’s face it: banks are struggling to stay relevant in their customers’ lives.
When your customer does not know her branch director’s name anymore, or when customers avoid going to the bank more than their dentist’s office, it means the bank is losing relevance.
When customers only check their account balance, withdraw cash from the ATM and order a transfer from time to time, the Bank is not being relevant.
When customers are used to positive digital experiences with Apple, Google or Amazon, and don’t find a similar experience when dealing with their Bank, the Bank does not meet new generations’ expectations.
When customers get an instant loan from a new online lending platform, the bank is getting dis-intermediated. When customers are increasingly looking at crowdfunding and crowdlending platforms to make a better use of their money, the bank is out of the game.
As the above examples illustrate, relevance is the name of the 21st century banking game.
HOW TO STAY RELEVANT IN THE DIGITAL ERA
So how can banks stay relevant, or even gain relevance, when customers interact less and less physically, are lured by alternative options and even avoid dealing with the Bank?
Simply by impacting customers with the right solutions at the right time in the right way.
I know – easier said than done!
The best place to start is with the core function of banking: help customers better understand and manage their money. Basic, right?
But wait – which customers are we actually talking about?
The answer is all of them: the ones that are barely scraping by right up to the ones with money to burn. By all means, their bank should be reaching out to each and every one with properly segmented educational material, physical interactions and digital tools. Proactively and timely, at the different stages of their life.
To illustrate the potential contribution of #Digital Money Management (or PFM) to improving the lives of all kinds of customers, let’s separate them by saving capacity* (i.e. amount of disposable cash at the end of each month) and take a closer look. Depending on their needs and priorities, I’ll show how each customer uses the PFM features most relevant to their day-to-day financial life.
(*Separation by saving capacity is done for the sake of the argument, with no intention to oversimplify)
PFM FOR CUSTOMERS WITH LIMITED SAVING CAPACITY
These customers will generally be extremely cautious with their spending, withdrawing a maximum of around $50 from the ATM at a time. You know the type: The odd extra purchase. Minimal savings.
What these customers will love is the ability to visualize their expenses, which also come automatically categorized. They are more likely to set budgets for each category to effectively track weekly spending. Once they understand the meaning of Ok-to-Spend, they will check it often to eliminate those nasty, embarrassing surprises – no more “Card Declined” or “Insufficient Funds”.
Naturally, these customers love discounts and will appreciate receiving highly relevant offers in line with their spending habits. With the right software, their bank will be able to use machine learning algorithms to match merchant offers with customers’ purchasing behaviour at key moments in their buying journey. Before making any purchase, these customers might even check their app to see what-if they make the purchase, and how it will impact their balance and budget for that category.
Armed with these digital tools, the bank is truly helping customers with limited saving capacity to spend smarter and budget better. With this newly found discipline, such customers could even begin to start saving a little!
PFM FOR THE SAVINGS-CAPABLE (CASH-FLOW POSITIVE)
These customers generally focus on building future savings despite holding some debt, perhaps from financing their University degree or buying a car or acquiring a property. Still, they have a higher capacity to spend, and should therefore take care to spend and invest wisely.
Ok-to-Spend is an especially useful indicator for them since it factors in all direct debits, contributions to savings goals and even identifies spending patterns. The other side of the same coin would be Ok-to-Save which will become a monthly reference to build even more savings up.
Automatic categorization will shed some light on their spending and possibly help correct some (bad) spending habits. The good planners will start setting budgets online to better control expenses and creating savings goals to fund a recently announced wedding or summer holidays to Europe next year. Savings-savvy customers will especially appreciate perfectly-timed, personalized alerts and push notifications received from their bank, which is helping them gain full control of their financial situation without being overly intrusive or irrelevant.
Finally, cash-flow positive customers can get a broad overview of their finances and forecast and anticipate expenses looking at their personal financial calendar. This feature improves their receptivity to relevant merchant offers, product recommendations and financial advice that are relevant to their actual financial situation and lifestyle preferences.
PFM FOR AFFLUENT CUSTOMERS WITH HIGH SAVING CAPACITY
In my early-days experience in private banking, I learned that wealthier customers generally keep a very close eye on their money (maybe that’s why they’ve been able to accumulate so much) and can even be the greediest!
However, their higher capacity to save does not mean they don’t (want to) control their spending – a common misconception. Visualizations are welcome, and not only for their investment portfolios.
Actually, having an aggregated view of all their bank and card accounts, automatically categorized, visualized and analyzed, is a kind of nirvana very few high-savers have reached with their bank.
These customers are very used to receiving and even paying for financial advice, having their portfolio rebalanced, and taking risky investment decisions – but what does their spending actually look like? No clue. What if they are losing part of their investment gains in bad spending habits? No idea. Of course, some affluent customers won’t care – but others will.
Furthermore, they and their wife (or husband) will love receiving luxury merchant offers on their smartphone that fit their exquisite lifestyle and social status.
By being proactive, pushing the right notifications at exactly the right time, and providing personalized recommendations, banks can become or and remain relevant in their customers’ lives, which is absolutely crucial in the era of digital transformation.
Banks ahead of the customer experience curve are already (re)engaging with customers on a regular basis. They are already (re)building their relationships in a digital world. They are slowly but surely becoming the financial companion their nature mandates.
What’s even better is the full spectrum of customers would be grateful for such a delightful banking experience, each in their own way – even the ones who had previously lost faith. They would not be looking elsewhere, why would they?
[linkedinbadge URL=”https://www.linkedin.com/in/xaviermarcillac” connections=”off” mode=”icon” liname=”Xavier Marcillac”]
Xavier Marcillac is VP APAC at Strands and this post was originally published in Strands #Fintech Pulse
Some of the shine seems to have come off #fintech innovation in #2016. Startup valuations are dropping; once abundant venture capital is growing scarcer; marketplace lending has gotten bruised — even the self-proclaimed capital of fintech, London, faces an uncertain #future with Brexit. But that doesn’t mean innovation is any less necessary.Read More
Bank Innovation
The current #banking ecosystem is built on a clear and transparent system of fees. Customers are charged fees based on products, transactions and services. It creates a level playing field of competition whereby a customer can choose the right provider based on perceived value versus fees declared. This model is now under threat as innovation from the online digital ecosystem is merging into financial services.
Fees are like queues.
Or bad hair days.
Annoying things you have to live with.
But what if you didn’t have to…
#Technology driving competition
#Finance was one of the first industries to adopt technology at a wide scale, particularly information technology and computers (IBM, 2016). Two things in Finance changed fundamentally with the emergence Financial Technology, or #Fintech as it’s now known.
A: Costs went down
How much time does it take to maintain a bank’s ledger on paper? How much time and effort is spent keeping physical records? That’s where we started. Today, paper is on its way out. In all meaningful senses the #banks run on computers now. Computers create efficiencies by eliminating manual repetitive tasks and increasing the speed of transactions. Efficiency saves cost. There is now less of a reason to charge people menial fees for everyday operations and transactions, as they are largely automated and instantaneous.
B: Competition went up
As technology created efficiencies, it also created opportunities. With technological efficiencies, you could undercut your competitors’ fees. With the onset of digital banking, initially in the form of online banking websites, banks could suddenly expand their footprint without bricks and mortar. No longer was setting up more branches and hiring feet on the ground the only solution to growing your business. You could serve customers virtually. Not just your customers, but other banks customers. Not just other banks customers, but other countries too!
Boy, this new punch card system will show ’em Midwest boys!
From monetary to value exchange
This global competition has sent financial services providers to further and further lengths to optimize their processes through technology. However, there are only certain limits to which costs can be optimized. Therefore new models have been adopted to become more competitive.
The basic building block of any business is a customer relationship. Once a customer relationship is formed, value is created through various services and goods that are sold. In the modern economy, sold has implied exchange in monetary value. After all, you could only find so many squirrel skins, and carrying pigs in your wallet gets old real quick. Given the fact that technology creates cost efficiencies, which drive prices down, and secondarily makes competition easier, there is always someone willing to take the customer relationship for a lower fee. Life insurance for a pork chop, anyone..?
The concept of Customer Lifetime Value was created to project the potential revenue that could be created from a customer over their entire customer relationship (Berger, Nasr, 1998). Therefore companies must balance the cost of acquiring a customer against the lifetime value. Whatever is left between those two figures becomes the earning potential through that single customer. Either you’re making money off Joe, or you’re paying Joe to be your customer. Usually the former. Ultimately then, competition drives up the cost of acquisition as companies go to further and further lengths to secure the earning potential of the customer, and similarly are willing to settle for lower and lower revenue in the form of fees.
In extreme cases,
like with some Fintech startups with truck loads of Venture Capital,
they will literally pay Joe to be their customer for 5 years or more.
Over time, fees become negligible, and the only logical step is to remove them completely. In a world of services that charge no fees, an alternative method for monetization must therefore exist. The concept of Value Exchange has been used in marketing to describe a transaction between a company providing a product and a customer, where the transaction goes beyond a simple monetary exchange (Ballantyne et al., 2003). This concept can be expanded to describe a business model, which is not based on monetary exchange at all. Life insurance for a back rub, takers?!
This type of approach was introduced to the masses in the 1990’s with the free online email service Hotmail. Users received free access to a fully featured email service. In exchange, they were simply exposed to advertising. As more and more users were attracted by the free service, the value of this advertising grew quickly. The model pioneered by Hotmail achieved explosive worldwide growth, making it the largest email service in the world in just two years after launching (Microsoft, 1998). Today it is one of the prevalent online business models used to great success by Google and Facebook, who are using advertising as the main revenue source across their various services and products. Through the advance of mobile technology in particular, financial services have become an increasing target for startups, which are adopting these new online business models.
Mechanisms for value exchange
Typical mechanisms for value exchange are passing the fees along the value chain, gathering customer data for targeted advertising, or monetizing the data itself. Each of these models poses different opportunities and challenges for financial services. The key issue revolves around regulatory approval, and the balance of data value versus data privacy. After all, what is the cost of one’s privacy?
A: Passing the buck
The first of the three models seems to be totally void of fees to a customer. Free ninety-nine, bro!! As it seems, nobody is paying anything. The party will go on forever! An example of this model is Robinhood, the free trading startup, currently expanding into international markets from its home base in the United States. Robinhood takes no commission at all from its customers, providing seemingly free trading. BEAUTY! According to their website, Robinhood states that they simply accrue interest off un-invested cash left in investment accounts. Given today’s zero interest rate environment, that clearly does not amount to any meaningful amount of revenue.
Suddenly every other way seems crazy
The same example of Robinhood also provides a variation on the value chain concept, by charging clear fees for additional services such as margin accounts. This model, dubbed Freemium, was widely popularized by mobile gaming companies in the late 2000’s. It means the basic service is provided at no cost to any customer, while those customers wanting additional services must pay fees, often at significant cost. The few pay the cost of the many. Who told you life was fair? This model has also become a mainstay of low cost airline carriers, as customers are increasingly paying for items such as food and drink, which were earlier modeled and built into the prices of all tickets. In the case of Robinhood, this is demonstrated in the form of fees for margin accounts, for traders who’s demands cannot be met with a regular trading account that has limits on trading volume and leverage.
Additionally, Robinhood have raised $66 million in venture capital which gives the company “freedom to focus on building an outstanding experience rather than short-term profits”, claims Robinhood (Robinhood, 2016). Which means they can afford to pay their customers to be their customers. This essentially means they are willing to lose money to make money later. While an admirably aggressive strategy, this type of price warfare pushes that later date further and further into the future. Once the business has achieved a sufficient scale, it will become profitable. Today, some investors may be willing to endure several years of revenue drought for a chance at achieving that holy grail: “scale“. Tomorrow, another investor may come along that is willing to go even further. The conditional nature of such strategies make them inherently susceptible to recession periods, where further funding may not be readily available, leaving such companies under threat of depleted cash flows and even bankruptcy. Sorry, didn’t mean to poop the party.
B: Laser-guided ads
The targeted advertising model was largely introduced by the free email services such as Google’s Gmail in particular. Through the capability of it’s famous search engine, and marketplace for bidding on ad placements, Google was able to monetize their email service. Google reserves the right to read the contents of your private and personal emails, and therefore can target very specific promotions against those contents. An example might be an email discussing flight plans to Egypt. The next day you may notice an ad within the Gmail application for a 20% discount on flights into Cairo. Dude, these Google tickets are off the chain!!
The critical element of this model is the targeting.
Finding the dude.
Simply placing randomized advertisements would not attract significant amounts of engagement from users, thus leading users to simply ignore the adverts. Most users have grown accustomed to such exchange in value, and even see the adverts as a useful tool in their daily lives, as opposed to seeing them as annoying adverts. After all, the dude got his tickets with a sweet deal.
This model is now making its way into the financial domain, for example in the form of spend tracking. A customer might receive a free credit card, with an accompanying mobile application for customers to track their spending. This spending data is then used by the company to attract advertisers onto the platform, to provide highly personalized ads. Against a fee, naturally. If a customer often buys groceries from a particular retail outlet, perhaps they would be interested in joining a loyalty program of that establishment. Customers that have just shopped at a sporting goods store may be interested in joining a nearby gym. Just lookin’ out for you, buddy.
Loot goes beyond savings analytics with in-app offers
This model is being adopted by some so-called challenger banks, which are offering their customers varying degrees of a digital-only bank. Often the service is limited to a credit or debit card, which comes with the companion app. This provides the bank a further opportunity to monetize, by simply charging minute interchange fees for each transaction (Guardian, 2015).
C: Pumping for data
The final model for value exchange that is being witnessed in the financial marketplace is that of direct data monetization. Perhaps the most complex of the models, it is a fine balance between maximizing the value of data gathered, while maintaining a sufficient level of privacy for customers. What kind of data is being gathered? Data about customers, data about their behavior, data about demographics, data about usage patterns, data about correlations, data about trends.
If you own a tinfoil hat, put it on now.
Early examples of data driven business models include Capital One, who recognized the value of detailed customer segmentation in evaluating consumer credit worthiness. In the 1990’s every other bank was using simple models and uniform pricing to offer credit cards. Instead, Capital One used statistical models to create more personalized products based on demographic and credit data (Capgemini, 2014). This was long before Big Data was an established term. Let’s call it Just The Right Sized Data. Trademark.
A more complicated model was introduced by the online providers of classified ads and airline tickets, which have largely replaced traditional channels. In the marketplace model, someone is selling, and someone is buying. Often, the person who is selling will pay a small fee to promote their listing online. Almost exclusively buyers enjoy the service for free. Sometimes marketplace providers will charge a transactional fee from the seller instead. In this approach, there are in fact two distinct customer groups. The more obvious customer group is the consumer of the service. Without this group there is no business model, as their data is the currency the company seeks to gather. Therefore most money and effort is targeted towards this customer group, even though they create no revenues. Hmmph, imagine that. The key is simply to gather enough data to sell. This data is then sold to the real customer, who may use it for any purpose deemed appropriate by the company in agreement. The nature of this secondary relationship may not always be apparent to the happy consumers of the free service. While obvious in the case of airline tickets, could the same be replicated to create a financial marketplace? Wait for it…
The early successes of this marketplace model have come with peer-to-peer lending (“P2P”), particularly in China. Here, the platform connects consumers or small businesses in need of cash flow with investors looking for those elusive 10%+ returns and not afraid of a bit of risk. Currently in China, there are more than 3,858 P2P providers (Economist, 2016). Leading providers CreditEase and Lufax are some of the highest valued Fintech companies in the world today. The data from China also shows that in such volumes there is always a rotten apple or two, with a few lenders running outright Ponzi schemes. If you see gold Lamborghinis, walk away.
A sea-side bungalow worth $20M was a gift to the CEO. I need a better boss.
Perhaps a more opaque, and controversial example of data monetization in Finance is that of Order Flow. Oooh, it’s on now! This concept has been widely publicized by the book Flash Boys (Lewis, 2014). Detractors of High Frequency Traders (“HFT”) point to the inherent unfairness of allowing certain market participants to pay for faster access to market and trade data. Whether HFT are a positive or negative market participant is an ongoing subject of heated debate and even academic research (Kirilenko et al., 2015). *cough* CROOKS *cough*. As market intermediaries, HFT are embedded within the financial markets, and there is precious little retail investors can do to choose how their orders are routed. Considering the traditional model was for the broker to pay for execution, it becomes clear that this arrangement may not always be in the best interest of the retail customer. Particularly, most customers will not be aware to any extent of the mechanics and impact of this business model. Seems fair! Said owner of brokerage while being paid by HFT. Totes legit. 100%.
Dude. Trust me. Duuude. It’s legit. Dude!
A promising and transparent model for data monetization is the Open Banking initiative in the United Kingdom (Open Data Institute, 2016). In theory, all banks would provide a common set of API’s that allow approved third-parties access to aggregate statistical data, but also actual customer data. This data could be used for a multitude of use cases by startups, while making competition more transparent between the banks themselves. A possible use-case of data monetization could be an intelligent fraud detection service, which aggregates data from all banks, and against a fee, provides the banks with suspected fraudulent accounts or transactions. In this scenario, customers would not be aware in any way that such a service and agreement was in place.
Some institutions may not necessarily see data aggregation and open API’s as a model worth promoting, as we have seen developing in the United States. For a number of years, account aggregation services like Mint.com, Personal Capital and FutureAdvisor have been able to carve out a sizeable market for Personal Finance Management, based on API access to bank and fund data. They have used the data to provide added value analysis and recommendations on improving consumer’s personal finances and investment decisions. As witnessed by Bank of America, J.P. Morgan Chase and Wells Fargo temporarily halting API access to such services last year, mostly around concerns in security (Wall Street Journal, 2015).
Mint sees what you’re doing, and tells you how to save
Yet there is a longer-term challenge for banks in losing the primary customer interactions to these services, and becoming a simple commodity provider. In such a service, there is less opportunity for banks to differentiate on anything else except price. Having a third party such as Mint accumulate as many as 20 million customers in just 5 years is tipping the scale of power away from the banks. We can’t have that, Chip. Gosh darn it! Do something! Such growth stories are attracting more venture capital into Fintech startups than ever before. This massive flow of funding makes a small startup a real contender in fighting for ownership of customers. Given enough scale, such startups might choose to provide their own competing products directly to their customers. Naughty, but I like it!
Value exchange as an agent for disruption
In the modern financial system, short-term interests of shareholders greatly out-weigh long-term competitiveness. One must simply look at Mark Zuckerberg prioritizing his global social mission over the investor’s financial interests, which gathered media attention (SEC, 2012). Another famous example is Steve Jobs, who’s vision caused constant struggle with Apple’s board, leading at one point to him being fired from the company he himself founded. That must have sucked.
Given the rigidity of public corporations, what implications does this cause to financial institutions in the context of a disruptive paradigm such as value exchange? It simply means they will be unable to sacrifice short-term financial positions, in order to explore and trial new business models. Large corporations cannot sustain loss leading business models for extended periods of time, particularly if it means sacrificing existing revenue sources.
This creates an inherent and significant advantage for outsiders with fewer fiscal pressures placed upon them. In fact, it is often the goal of venture capitalists to pursue high growth for years, accumulating great losses, only to achieve a meaningful market share. Therefore the Fintech startup community is primed to adapt to the value exchange paradigm. They will be able to start without any fees, only accumulating meaningful revenue if the concept and business model find enough traction to achieve scale. Through plentiful capital, they will be able to go to extreme lengths to acquire customers at losses for years before turning a profit.
It’s like a game of financial limbo.
How low can you go?
Underground, son. Next level.
An alternative strategy, avoiding high dependancy on such excessive external capital, is being implemented by #Robo-Advisor platform provider Bambu. While the long-term goal is to enable financial inclusion through a direct-to-consumer platform, the company and brand is being built with a scalable B2B model and low cost base. This avoids the typical pitfalls of Fintech startups, that often require years of R&D and licensing to take place before customers can be acquired. Once licensed, Bambu plans to offer it’s platform to non-financial players such as telco, media and internet companies. This approach has been proven in Europe by the marriage of Fidor and Telefonica launching a digital banking app, without a bank involved. Smells like disruption to me!
Bambu wants to turn Spenders into Savers into Investors
With the consumer offering, Bambu plans to operate in a world of zero fees, and make money through value added services much like the challenger banks. This could include financing short-term loans for consumers to reach their goals quicker, or ultimately find sellers for the very thing users are saving for. An example might be selling a discounted plane ticket to a user saving for their dream holiday to the Maldives. Not only does the dude get his sweet deal, but he can save for it upfront, like a financially responsible person might do. No need to max out the credit cards as per ‘uge!
Through the work of these pioneering companies, new models are being invented, trialled, and proven at an increasing pace. Like we have seen with other disrupted industries, once a model finds footing, entire industries are changed with incumbents left wondering what just happened. Just ask those who doubted AirBnB and Über how they feel now, if they’re still in business, that is. They’re probably still listed in the phone book.
Conclusions
In the last five years, we have seen the emergence of new business models within the financial services industry, often based on an exchange of value rather than traditional monetary fees. Most of these disruptive models are adaptations of successful online businesses in other industries, such as free email services, or websites offering classified ads and airline tickets. Early adopters of value exchange are most often Fintech startups that are looking to disrupt the incumbent institutions with aggressive pricing strategies and improved customer experience.
Some of the most successful growth stories are the peer-to-peer lending companies of China. This explosive growth also showcases the key challenges of the value exchange model. How can regulators approve, track and penalize all 3,858 P2P lenders in China? As the cost-of-entry into the financial markets goes down with the advent of technology, regulators are under increasing pressure to deal with the flow of innovation. Is the answer just do it? Time will tell.
Some markets choose to tackle the challenge head on, like in Singapore, where the Monetary Authority of Singapore has established their own Fintech team to address this emerging segment of the market. Yet for even successful businesses, the challenge regulation poses is one of internationalization. Due to lack of standardization across regulatory bodies in the United States, Europe and Asia, the cost of expanding business into new markets remains high. This can be seen in the highly localized Chinese P2P lending market and U.S. Robo-Advisory market.
From the customer’s point-of-view, the trade off often comes in the form of trust and security. While the low cost or even free service seems tempting, can customers trust these companies with their private data and money? These perceptions will evolve over time, and will have significant regional biases. Millennials in the United States may be ready to invest their life savings with Robo-Advisors, but same formula has yet to be proven elsewhere at scale.
Ultimately the consumer is the winner, as competition drives both incumbents and new entrants to innovate further to provide higher value in exchange for the valued customer relationship. Privacy concerns must be tackled head on to win the hearts and minds of customers. New technology will unleash new opportunities for efficiency and competition, leading to more creative solutions for removing cost while making profit.
In the end, the future of finance is free. Hashtag disruption. Emoji smileyface.
—
Rather PAY than give up PRIVACY? Go FREE or go HOME?
References
[linkedinbadge URL=”https://www.linkedin.com/in/akiranin” connections=”off” mode=”icon” liname=”Aki Ranin”], is Commercial Director at Tigerspike and this article was originally published on linkedin.
In a stunning vote, British citizens decided to leave the European Union, and the so-called #Brexit has not just profound implications for #fintech, but creates massive #uncertainty for global financial services. “How can we be so stupid?” tweeted Eileen Burbidge, a partner at Passion Capital and FinTech Envoy of HMRead More
Bank Innovation
Berlin-based startup #Number26 just raised a $ 40 #million Series B round led by Horizons Ventures. With 200,000 clients, Number26 wants to become a major consumer-facing bank in Europe providing all the services you’d expect from your bank. And this funding round is an important milestone in order to reach this goal. Read More
IBM’s new Watson, Garage, and Design Studios in Singapore mark a radical departure for how IBM engages its clients. For those in IT this engagement model may be new, but as a former banker it feels very familiar, IBM built a #trading floor for #Fintech.
“ IBM has captured a trading floor’s sense of immediacy, focus on talent, and culture of collaboration“
Now let me immediately dispel any notions that IBM is buying and selling #technology like stocks and bonds, it isn’t. You won’t find traders on the phone selling software licenses or servers. What you will find is that IBM has captured a trading floor’s sense of immediacy, focus on talent, and culture of collaboration and put these traits to work for the benefit of its clients. It radically changes how product lines within IBM work with one another, and how we come together to work for our clients. It is immediate, doesn’t take “no” for an answer and is focused on results.
“ We’re not just playing a bigger game, I thinkwe’ve invented a new game.
Need an interface developer? There’s one in that corner. Could this software be used to capture a certain risk management function? Ask him, he’s an expert. There is simply no precedent for the immediate feedback and collaboration available in the studio and how it will help shape our progress when building something new. The new “trading floor” creates an environment where you are defined not by the limitations of your own knowledge, but by your ability to harness the imagination of the vast pool of talent around you. We’re not just playing a bigger game, I think we’ve invented a new game.
“ Our clients come in and sit with us..…and are free to reimagine their bank without limit “
So why is this a breakthrough for Fintech? Fintech isn’t a specific product or technology, it is discipline that borrows technology from anywhere it can to reimagine finance. The new trading floor makes this easier than ever. Our clients come in and sit with us on the trading floor and are free to reimagine their bank without limit. There are no traditional silos, or cubicle walls, nothing at all that would prevent a banker from talking to a social media expert, or the other way around. Its not about the technology that you know about, its about the technology that you didn’t know existed being brought to you by the people who work with it everyday.
“ All of my #banking clients, no matter how senior, now work in technology, they just don’t know it yet “
There is a paradigm shift underway in finance. All of my banking clients, no matter how senior, now work in technology; they just don’t know it yet. The convergence of finance and technology is so new, that many haven’t realized the full extent to which design thinking is reimagining the future of finance. What is already clear is that it’s the re-engineering of technology to serve finance that is driving the process. Cellphones weren’t made for banking, but with re-engineering do it very well. Our “fintech trading floor” is designed to speed the process of re-engineering and get bankers using the latest tech that IBM has to offer.
“you are defined not by the limitations of your own knowledge, but by your ability to harness the imagination of the vast pool of talent around you “
I feel that I’ve now come full circle in my career back to where I started. I have to confess that I’ve always missed the buzz and excitement of the trading floor. Its great to be back, and even greater to know that I’ll be playing a small part in helping to reimagine the future of banking.
IBM Watson Centre, Garage & Design Studio open in Singapore
[linkedinbadge URL=”https://www.linkedin.com/in/turrin” connections=”off” mode=”icon” liname=”Richard Turrin”] is Fintech evangelist transforming #banks and changing paradigms and this article was originally published on linkedin.
What do fast-growing companies like Uber, Airbnb, Amazon, Deliveroo, and Facebook all have in common? They’re all platforms.
Deliveroo delivers food – but doesn’t make it; Uber is the world’s largest taxi firm, but doesn’t own any taxis; Airbnb is one of the world’s largest accommodations provider, but owns no accommodations.
These platforms have quickly grown to become giants in their fields because they benefit from network effects: the more people and businesses that join them, the bigger the benefit of being a member, which creates a positive feedback loop encouraging further growth.
But What About #Banking?
So far, banking has been almost unique in resisting the platform business model: there were no benefits from network effects – so no reason to share a platform, and #banks owned the way customers purchased financial services – so no reason to share an alternative.
But all of that is changing.
New #technology is lowering the barriers to entry, new regulations on information sharing (such as PSD2) are creating opportunities for new business models, and changes in customer attitudes are encouraging fresh approaches.
Soon, banks may lose their dominant position as the primary intermediaries for their customers, and traditional industry leaders will face calls to either revamp or risk becoming obsolete.
What does the future hold for your #bank? And how will #BaaP fit into the equation?
What will BaaP look like?
In the traditional model, banks create products and sell them to their customers. Almost all of the products and services offered are owned and controlled by the bank, and there is only limited collaboration with key partners.
In contrast, a BaaP model allows for much more in the way of partnerships. Banks focus only on their core activities, with other functions fulfilled by partners. There is scope for partners to develop and offer their own products, which will work in partnership with the core products through the use of APIs and open source. Key data is shared with partners to enable this.
Three Questions Banks Must Answer to Succeed at BaaP
Moving to a platform model is a big step, involving reversing the silo mentality that many banks have and replacing it with a new culture in which other #FinTech organisations aren’t necessarily your rivals.
Here are three key questions banks must answer before getting started:
1. What is your focus going to be?
When you move to a platform model, you no longer need to be producing and controlling every product. The possibility for other businesses to have products on your platform means you must decide exactly what value you are going to bring, as this will influence which partners you try to attract to your platform.
2. How will your architecture support your platform?
Most legacy software used by banks were built with the idea that other businesses should not have access to the information within. These silos need to be broken down, and new infrastructure built in their place that enables APIs and open standards.
3. How will you maintain and improve security?
The necessary changes in culture and technology to move to a platform strategy will inevitably create new security challenges. As these changes take place, it is imperative that banks continue to invest in their security; a significant breach in the early days of a platform could cause significant damage to reputation, making it harder to gather partners.
Should You Choose a BaaP Model?
BaaP is happening now – and those that embrace it now will have a significant advantage over those left trying to catch up. The platform model offers almost limitless possibilities for those that choose it, and banks should decide soon whether they want to have an absolute platform or not.
Are you considering BaaP? Crealogix can help. We provide a multi-disciplinary absolute platform model that is fully-customisable, modular, and transparent.
To find out more, check out Crealogix
[linkedinbadge URL=”https://www.linkedin.com/in/elkeblankbuerk” connections=”off” mode=”icon” liname=”Elke Blank-Buerk”]
Elke Blank-Buerk is Senior Sales Manager at CREALOGIX Group.
The International Monetary Fund (IMF) has published an article in Finance and Development magazine that #examines the case for #bitcoin‘s #blockchain #technology and suggests that while the technology might have been built to “avoid #banks” it could have benefits for the #banking and trading sectors. Authored by Andreas Adriano, a senior communications officer in the IMF’s communications […]
fintech techcrunch
Let’s keep it rolling. Now it’s time to talk about the #Fintech sector labelled as ‘neobanks’. The buzz around them has increased in the last year, especially in the UK and Germany. But there’s one success story that has not been covered by the media (beyond its home country) and deserves to be highlighted. I’m speaking about Compte Nickel, the French #neobank that is leading the way for this Fintech segment.
What a neobank is
Well, the usual problem associated with definitions of ever-evolving innovative businesses is that very different firms (with different business models and infrastructure) fall under the same umbrella. That’s also the case of neobanks, which are often loosely defined as online #banks built from scratch.
Such a general label comprises firms providing current account services packaged with “Mobile First” or “Best User Experience” slogans. But many of them are just user interfaces on top of an existing #banking player or partner, i.e. they do not own a banking licence and therefore they still need to rely on other banks’ accounts. Many of these firms do not have a very disruptive positioning (it is more a marketing ploy) and although they are trying to improve the user experience and reduce friction, they are not reinventing anything (at least for now).
However, we also find other kinds of neobanks that have completed the arduous process of obtaining a banking licence, which could in turn be divided into two categories: those that aim to actually compete with banks in retail deposit-taking (banks’ core business activity) and those banks that position themselves as payment institutions working through self-issued bank accounts. An example of the latter is the France-based Compte Nickel, perhaps the most successful (and least known) neobank in Europe.
They started as the bank for ‘unbanked’ people…
Compte Nickel has chosen a very interesting positioning by gearing itself towards unbanked people. Although this term is usually linked to developing countries’ financial inclusion initiatives for the poor, we also find such a customer segment in Europe. So yes, there are many unbanked people in France, people that are not accepted by banks and so are unable to have a bank account, to have their salary paid by direct deposit, to set up direct debits or to get debit cards.
But more interestingly, Compte Nickel has built a defensible business with a really high barrier to entry, by allowing customers to physically deposit cash into accounts (the unbanked cannot do bank transfers). The model is based on partnerships with more than 1,600 French newsagent shops (2,300 next december, +100 every month), which have to set up a Compte Nickel desktop that registers the cash deposited by customers and updates their account balance. No branches needed. They are also the ones issuing the debit card to the customer. Replicating this distribution model is complex and they have created a barrier to entry in the newsagent shops industry, leveraging their huge capillarity.
…but a more interesting service is about to come
So, although providing services to the unbanked has proved to be a very successful idea, they are definitely more ambitious. The next step is targeting the self-employed. However, their success will still rely on simplicity. In the words of CEO Hugues Le Bret: “We are not a full-fledged bank. People pay for a service that allows them to deposit money and make payments without any extra bells and whistles.”
Recently, a friend of mine working in private banking explained to me that he opened a Compte Nickel for each of his three kids. As you may imagine, he is not the typical unbanked client Compte Nickel was targeting, but their offering really meets his need. So their customer base is expanding fast to new segments. They started at the bottom and they are now going up.
Compte Nickel’s amazing metrics
Astonishingly, after 300,000 accounts opened in 27 months, they forecast reaching 500,000 by the end of 2016. This means they are opening 20,000 accounts a month. But the numbers do not end here:
So, after 27 months they have generated revenues which represent more than 25% of the amount of money raised and they are spending almost no money on marketing because they meet real customer needs, which works amazingly well through word of mouth. In other words, they are not “buying” growth by spending crazy money on marketing.
And I guess this is the main outcome that I would like to convey through this post. Of course, there are other neobanks that have raised much more money, but we are also seeing cases of quick customer acquisitions by charging no fee. What this means is that no money is made. We can debate about the meaning of success, but in the end it is always a matter of clients, revenues, profitability and barriers to entry. It is therefore amazing to see that the most successful neobank in Europe is a Fintech that is practically totally unknown beyond France’s borders (while all the buzz is in the UK).
What amazes me most about Compte Nickel is the traction they have gained due to their value proposition without having raised a huge amount of money. In the end, this shows that when you focus on what really matters, “bullshitting” becomes superfluous. Well done!
[linkedinbadge URL=”https://www.linkedin.com/in/philippegelis” connections=”off” mode=”icon” liname=”Philippe Gelis”] is CEO at KANTOX, disrupting the financial industry
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