EXCLUSIVE—Digital #shopping is expected to hit a high today during #Cyber #Monday, and most #consumers should be ready for it: especially considering that a good number of them even did their #Black #Friday shopping on digital channels. This year’s Black Friday saw a startling 24% increase in digital shopping from last year, according to a […]
Bank Innovation
Seneca, the 1st-century Roman statesman, didn’t believe in luck. For him, what others called luck was when opportunity met preparation. Hopefully there aren’t many bank CEOs relying on luck to get them through their digital transformations. The opportunity in front of them is becoming clearer—to thrive in a more open and competitive #banking industry by being customer-centric and agile—but what of the preparation? What does a Future-Ready Bank look like? One big obstacle that #banks need to tackle is their cost base; particularly, seeing and understanding “#black box” #costs and then assigning ownership of them in ways that provide competitive advantage.
Regardless of how committed a management team is to becoming Future-Ready, in the words of Muhammad Ali, “The hands can’t hit what the eyes can&8217;t see.”
The black box refers to the complex and opaque costs, functions, processes and activities in banks that are not directly related to any single line of business. Comprising some 65 percent of a bank’s cost base, the complexity, centralisation, disparate data and non-accountability of the black box lands a knockout punch to bank profitability and evolution.
Banks can gain visibility into black box costs by bringing together data from the General Ledger, HR and AP systems, invoices, and other data sources to create a rich dataset that categorises costs in a meaningful way and clarifies cost ownership. It provides management with a front-to-back value chain view of the organisation, costs and headcounts tied directly to business line and revenue base.
Once banks have a clear view on this hefty share of their costs, they can assign responsibility for most, if not all of the cost base. Bank leadership can make such ownership concrete by creating a framework for rewarding managers based on successful cost management. Arguably, clarifying cost ownership represents the greatest shift in improving a bank’s ability to manage itself.
With visibility in hand and ownership in place, banks are positioned to better re-enact zero-based approaches to get off the traditional ropes and transform to the “new”. They can challenge not only the cost, but also if the activity needs to be done in the first place—informed by actionable, granular-level data analysis on how cost, risk and capital interact, to then purge unwarranted activities.
Though not a new concept, zero-based budgeting is becoming more critical as rates and yield curves rise, compliance costs increase and new agile, digital-native contenders emerge. Rather than being boxed into a cost corner, banks can fundamentally rethink their path to efficiency, better their cost-income ratios and, ultimately, their digital readiness. It requires banks to establish a culture in which visibility, transparency, simplicity and ownership of costs are the goals of the organisation. With the right preparation, banks will be able to make their own luck in a digital future.
To learn more, I invite you to read our report: Get fit | Shining a light into the black box
The post Target black box costs for zero-based, Future-Ready Banking appeared first on Accenture Banking Blog.
Remember how #Apple joined the growing number of merchants refusing to offer #Black #Friday #deals last year? Well, the deals are back, but not in a way you’d expect. The company announced yesterday, on a special section on its website, that it will offer a one-day, online-only sales event this Friday.Read More
Bank Innovation
Phone: charged. Cards: ready. Game face: on. #Black #Friday is here, and #consumers couldn’t be more ready to win—because that’s what this day is about, not shopping, winning—but before they dive in plastic-first, shoppers should make sure they’re staying safe while they shop, and nowadays that means protecting their onlineRead More
Bank Innovation
I was invited to a one day event on #Identity at the US Dept. of Treasury this past Friday. Treasury officials had invited a healthy cross section of identity management and solutions practitioners ranging from startup founders, technologists, scientists involved with standards settings, officials from various US governmental entities such as the Dept. of Justice, the IMF, the World Bank, FinCen, USAID, several bank representatives, executives from telecom, payments or social media companies, academics from various universities, current or former representatives from the governments from Estonia, the European Union, Pakistan or the United Kingdom, lawyers, institutions such as Brookings or the Pew Charitable Trust and the Treasury of course – I am sure i am missing a few. Who would have thought Identity was such a sexy and trendy topic. All in all, and from my own count, we were shy of 90 in attendance.
I was seated next to an official from the Dept. of Homeland Security and another gentleman with a buzzcut and no identifiable badge for the first part of the day. Needless to say I was on my best behavior, ready to flash on command my ultimate proof of identity in the US &8211; my green card. Given the convivial atmosphere I realized my identity had already been vetted and I started to relax and soak in the proceedings.
The event was masterfully organized with a variety of panels that touched upon what legal identities were both from an US and a global perspective, the role of international standards when building identity solutions, the #technology solutions at hand to make optimal identity solutions a reality, the issues around identity as currently experienced and the ways government and the private sector can collaborate to bring to market viable digital identity products and services in a compliant and legal way.
I took away the following points from the day’s proceedings:
1) Identities are as diverse as human beings, their cultures and modes of social organization. Therefore digital identity solutions will have to be as diverse as possible given the contextual nature of what an identity means both from a structural and dynamic point of view. In other words, there is no one size fits all identity solution.
2) Standards are crucial if we have to have the appropriate level of interoperability both within a country and between countries, assuming there will be more than one identity solution brought to market.
3) Cooperation and coordination between the private sector, not for profit organizations, standards setting organizations, consumer advocacy groups and the government is a must. Digital identities and their related data sets &8211; legal, static, dynamic, social, digital, in real life &8211; are too sensitive for one group to take the lead without any cooperation.
4) Digital identity solutions are by definition multi-faceted as they have to take into account how an identity is created, its baseline, how it evolves and is managed over time, how it can be kept trustworthy throughout the lifetime of the human being or entity it represents and how a framework is built to enable its assurance and verification in context.
5) Digital identity solutions have to empower either individuals &8211; retail solutions &8211; or entities &8211; wholesale solutions &8211; and allow them to retain control in legal and compliant ways. Any identity solution that does not have the needs of its users at its center is not an adequate and appropriate identity solution. One of the logical paths towards identity solutions that empower individuals/entities leads to self sovereign identities constructs. (My personal views here.)
6) Fraud, theft and all kinds of illegal activities are being combatted vigorously by several US entities. the battle is far from being won, but we are well protected by US govt entities that fight the good cause.
7) Our current means of assuring one&8217;s identity, authenticating one&8217;s identity belong more to a universe of misfit toys than to a rational and organized approach. Much can be done to make our identities safer. Much is available too. Why is the private sector, as well as us as consumers, so complacent is a mystery though.
8) Advanced technology solutions are being developed or have been developed &8211; biometrics, various #blockchain technology stacks, cryptography amongst others. Few are live and operational as of today. Only a matter of time I guess. Yet, I could not shake the fact the advanced technology solutions are neither a silver bullet nor should be an excuse for us to wait to see solid identity solutions come to market in the US.
9) Indeed, it was clear that various identity solutions have already been deployed to great effect in countries as diverse as Pakistan, India, Estonia, the United Kingdom, seemingly without the use of advanced technology solutions. Except for the United Kingdom, most of these countries have national identifying schemes such as a national identity number, or national identity card. The cultural and genetic aversion for such a scheme within the US may explain why this country is behind when it comes to digital identities. The fact that the United Kingdom is also working very effectively towards government enabled digital identities shows there is no excuse for the US to remain a laggard.
10) Natural identity solutions providers are financial institutions, #banks or #fintech startups.
11) Two strong themes emerged towards the end of the day. First, there is a natural tug of war between the yearning for protecting privacy and the craving for transparency and disclosure to combat illegal activities. This natural tug of war is exacerbated by the sensitive nature of identities in commerce. Indeed, the private sector stands to monetize data &8211; our data &8211; in myriad of ways in the digital age, which renders the issue of privacy, ownership and legality even more important. Second, especially in a country like the United States, the private sector both dislikes overt government interference and abhors uncertainty. As such to the question of how government could help which was asked by one high ranking Treasury official, most in the room, a cappella and in perfect musical harmony declared it important the government help the market create a framework to foster identity solutions. I interpret this pleas as the quest for the right governmental nudges and an active avoidance of rigid mandates.
12) Finally, although we did discuss a variety of subjects ranging from privacy concerns, legal and compliance issues, enforcement, technology solutions, identity vs data, the plurality of identities, one subject was notably absent from the proceedings: Identity rights. By identity rights I do not mean the right to an identity. I mean rights akin to property rights. In as much as property rights have been one of the foundational blocks of economic prosperity during the industrial age, I believe Identity rights will be a key engine for growth in the digital age. One needs to know his identity and the data associated with it are secured and that one owns them outright. In this sense data privacy is not enough. I have blogged about this in a previous post already. I suspect the issue of identity rights will be settled in different ways depending on context, via the courts in an organic way in the US, via legislative fiat in Europe. Be that as it may identity rights will emerge as currently our identity and data are neither tangible property nor are they intangible property and more than not are regulated by the various Terms of Service we seldom read but often agree to when signing up to use the various digital applications we spend more and more of our time with online.
13) One parting thought: I view this one day event in a very positive light, as a proof that the thorny problem of digital identities is being taken seriously at the highest levels of government in the US. a very positive sign indeed. The private sector, along with standards bodies, now needs to come up with proposals and submit them to various US govt bodies. I eagerly await the next chapters and hope I will be invited to follow on events at the Treasury or which other entity takes up the challenge.
If you have not read The Black Swan by Nassim Nicholas Taleb, I recommend you do post haste. For a brief description of #Black #Swan Theory without reading the book, see here.
Taleb makes a distinction between two types of Black Swan #events: a) “…those that are present in the current discourse&8230;” and b) &8220;&8230;those nobody talks about, since they escape models&8230;&8221; He goes on to state that, due to natural human behaviors, the incidence of the first type of Black Swan event may end up being overestimated while the incidence of the second type of Black Swan event is usually underestimated. Further, needless to say that whatever the type, Black Swans are notoriously difficult for human beings to identify and analyze correctly. Our brains are so hardwired to focus on the immediate past or future that we naturally occlude data residing in the long tails.
Re-reading Taleb’s work recently got me to ask myself several questions. Which are the Black Swan events already well documented in the #fintech/finserv ecosystem? Which are the ones few talk about that one systematically underrated? I include both Black Swans that can be directly linked to fintech and those that would have an indirect influence on fintech to my musings.
I can think of the following Black Swan events of the first type that are overestimated:
– Fintech startups will fundamentally disrupt finserv incumbents
&8211; #Bitcoin will revolutionize the financial services industry.
&8211; Bitcoin will eliminate the need for financial institutions as intermediary agents.
&8211; The Uberization of Financial Services has arrived.
&8211; New technologies will disrupt financial services
&8211; Roboadvisors are the future of wealth management
&8211; Crowdfunding/Crowdlending is the future for financing individuals/companies
&8211; Regulatory rules (Basel IV or others) become even more draconian and are applied as is, further hampering the finserv industry by reducing profitability, adversely impacting liquidity and increasing volatility.
Are there any other Black Swan events every one is talking about in fintech/finserv?
What about Black Swan events that few people are talking about, i.e. those that are underestimated. Does the threat of GAFA (Google, Amazon, Facebook, Apple) and Ali Baba competing against financial services incumbents fall in that second category? The narrative most mined at all fintech conferences I attend seems to revolve around &8220;fintech startups vs finserv incumbents&8221; where the questions asked are should there be competition or cooperation and who will be the ultimate winner. Seldom do I hear about potential GAFA threats although I know savvy bankers and insurers take the threat seriously. Does this mean this Black Swan threat is underestimated as it does not fit most participants&8217; models?
Here are other Black Swan events I think may be underestimated in the industry:
&8211; Any action from central #banks that would eliminate fractional reserve banking &8211; and implications thereof for the role of banks in money creation and lending intermediation
&8211; A repeat of the economic crisis of 2007-2008 &8211; or even worse another great depression &8211; which would further weaken financial services firms and make them even more vulnerable to fintech startup competition or GAFA competition
&8211; Large financial services conglomerate breakup by legislative fiat or due to market forces, thereby reducing incumbent size to a point where fintech and finserv blend into one thereby redefining the rules of engagement and competition and probably favoring large non-bank competitors. I have Robert Sams to thank for pointing this one.
&8211; A string of natural disasters clustered in time &8211; thereby weakening insurance companies and banks&8217; balance sheets due to resulting losses. Would such losses weaken incumbents to the benefit of startups?
&8211; Long term and secular deflation with continued negative interest rates. How would bank react? How would asset managers be impacted? How would consumers react vis a vis their savings strategies? How would lending be impacted? I have Jan-Maarten Mulder to thank for this one.
&8211; Quantum computing ushers a new era of financial services, making many existing offerings obsolete
&8211; Oil prices crash and remain low, thereby inducing strings of bankruptcies in the industry, followed by heavy losses with large banks, forcing regulators to step in and further crippling said incumbents to the benefit of their non-bank competitors and fintech startups
&8211; Cybertheft takes on a new meaning and as digital identities become central to our lives, an entire country&8217;s worth of identities is hacked and stolen, thereby chilling digital adoption in material ways. I have Michael Meyer to thank for this one.
Can you think of any other Black Swan events of the second type that would have an incidence on the world of fintech/finserv?
Let the brainstorming begin.
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