September 22, 2015 by 1 Comment
Last week I had the pleasure of going to Finovate, a biannual event (at least in NA) where startups and established vendors show off their newest creations. My colleague Dan Latimore wrote an in-depth piece about it last week. It’s usually a good temperature read of where the market is and what banks are thinking about. PFM used to be hot, now it barely makes an appearance. Mobile account opening and on-boarding was massive. Each year you can count on a few presentations tackling customer communication, whether it´s customer service applications or advisory tools. While this year was no different, I didn´t see any presentations representing an emerging trend in mobile: assistant as an app. What is assistant as an app? Basically, it puts a thin UI between two humans: the customer and the service provider (e.g. retailer or bank). The UI layer enhances the interaction by allowing each party to push information back and forth, whether its text, pictures, data visualization, etc. There are a wide range of possibilities. Apps are already starting to incorporate this idea. For a monthly fee, Pana offerings a human personal travel assistant who will take care of any travel related need. The concierge books restaurants, hotels, rental cars, and flights, all via in-app communication. Vida Health allows users to push dietary information to a health coach that can then send back health plans, ideas to diagnose health issues, or create a weight loss regimen. The dating app Grouper uses a concierge to coordinate group dates. EasilyDo is a personal assistant that can manage your contacts, check traffic, schedule flights, etc. The app Fetch uses SMS to let users ask the concierge to buy just about anything. For a small fee (sometimes free, subsidized by business or premium services) these companies provide value-added premium services to customers through a mobile device. The applicability for banks is obvious. Finances can be complicated; most people aren´t good at managing money, and according to Celent research, consumers still prefer to speak to a human for important money matters. Assistant as an app would offer institutions a clear path towards monetising the mobile channel, moving interactions away from the branch, and capturing a growing base of digitally-directed consumers. I predict this will be a major trend in financial services in the future. What do you think? Feel free to comment below.
April 30, 2015 by Leave a Comment
It struck me while I was driving this morning: First-gen mobile apps are fine, but virtually everyone is missing high-volume opportunities to engage with their customers. Allow me to back up a step. I was stuck in traffic. Not surprisingly, that gave me some time to ponder my driving experience. I found myself thinking: Why can’t I give my car’s navigation system deep personalizations to help it think the way I do? And how do I get around its singular focus on getting from Point A to Point B? I explored the system while at a red light. It had jammed me onto yet another “Fastest Route,” disguised as a parking lot. My tweaks to the system didn’t seem to help. I decided what I’d really like is a Creativity slider so I could tell my nav how far out there to be in determining my route. Suburban side streets, public transportation, going north to eventually head south, and even well-connected parking lots are all nominally on the table when I’m at the helm. So why can’t I tell my nav to think like me? I’d also like a more personal, periodic verbal update on my likely arrival time, which over the course of my trip this morning went from 38 minutes to almost twice that due to traffic. The time element is important, of course. But maybe my nav system should sense when I’m agitated (a combination of wearables and telematics would be a strong indicator) and do something to keep me from going off the deep end. Jokes? Soothing music? Directions to highly-rated nearby bakeries? Words of serenity? More configurability is required, obviously, or some really clever automated customization. Then an even more radical thought struck. Why couldn’t my nav help me navigate not only my trip but my morning as well? “Mr. Weber, you will be in heavy traffic for the next 20 minutes. Shall I read through your unopened emails for you while you wait?” Or, “Your calendar indicates that you have an appointment before your anticipated arrival time. Shall I email the participants to let them know you’re running late?” Or (perhaps if I’m not that agitated), “While you have a few minutes would you like to check your bank balances, or talk to someone about your auto insurance renewal which is due in 10 days?” What I’m describing here is a level of engagement between me and my mobile devices which is difficult to foster, for both technical and psychological reasons. And it doesn’t work if a nav system is simply a nav system that doesn’t have contextual information about the user. But imagine the benefits if the navigation company, a financial institution, and other consumer-focused firms thought through the consumer experience more holistically. By sensibly injecting themselves into consumers’ daily routines—even when those routines are stressful—companies will have a powerful connection to their customers that will be almost impossible to dislodge. Firms like Google have started down this path, but financial institutions need to push their way into the conversation as well.
April 27, 2015 by Leave a Comment
Celent recently released the report On the Margins: A Comparison of Banks and Credit Unions by Asset Tier, where community institutions of the same size are compared across a number of performance metrics, mainly efficiency ratio. One of the most interesting findings is that credit unions are becoming less efficient at a faster rate than banks of the same size. Efficiency ratios measure how much it costs an institution to create one dollar of revenue. Looking at the data in previous sections, credit unions are increasingly spending more money to generate as much revenue as banks of the same size. Efficiency ratio can be dependent on a number of factors, but as a way to look at simple margins, it´s one of the more useful industry metrics. At a glance it seems counter-intuitive. Credit unions are generally more customer-centric and have higher technology adoption. They use real-time systems, simpler product lines, invest in labor saving technology, and leverage community involvement like CUSOs and shared services to drive down prices. But there are obviously distinct business model differences, where credit unions, being member-owned, generally run thinner margins, returning more benefit back to the customer in the form of better interest rates and/or lower fees. Although this is an intentional business decision reinforced by member-centric charters, it leaves the institution with fewer resources than similarly sized banks that may take a more profit-driven approach. So what’s the issue here? It comes down to the effects of digitalization. Celent sees three challenges that may affect the credit union market going forward:
- As the complexity of business demands in financial services grows (e.g., technology), the resource requirements may present a challenge for credit unions (and all community institutions) running thin margins. Since raising capital is limited to retained earnings, non-profits need to be more intentional about how they prioritize tech investment.
- Banks in recent years have seen a significant shift in how they view customer service. Once a key point of differentiation for the CU market, banks are now coming on board to make customer centricity the new operating model, increasingly driven by the digital experience. While customer centricity is healthy for the industry as a whole, it’s unclear to what extent it indicates an erosion of credit unions’ key value proposition.
- As technology breaks down geographical barriers of financial services, customers are given more options, and the competitive landscape widens based on the availability of channels. Switching financial services providers is no longer a high-friction process, and the selection is wider than ever. Digital is also redefining what it means to be a part of a community, and it’s increasingly being decoupled from physical proximity. This puts pressure on institutions that have previously enjoyed relative isolation in well-defined localities.
March 16, 2015 by 3 Comments
This last week the American Banker Retail Banking Conference 2015 was going on in Austin, TX. As expected, it was a great way to read the temperature of the banking industry. The conference was well attended, with broad representation from all institution sizes and markets. There were a couple of overarching themes throughout the event. Competitive pressures on smaller institutions were top of many bankers´ minds. The conference was full of community bankers discussing evolving business models and the pressures its placing on their ability to gather deposits. Customer centricity is forcing a convergence of traditionally segregated value propositions. Large banks are now trying to compete on serving the customer and they´re positioning themselves to look and feel like a community experience. New entrants and delivery models are also opening up the competitive landscape. Consumers are no longer limited by geography when choosing a bank, and they have a growing number of alternative financial options from which to choose. Smaller institutions are finding it hard to overcome some of the barriers of resources and marketing that arise as the competitive landscape broadens. Many presenters discussed developing non-traditional revenue streams. With interest rates low and new regulations following the financial crisis, banks are running incredibly thin margins, and traditional revenue sources are no longer viable. Presentations focused on targeted marketing for “moneyhawks”, new P2P models (e.g. P2P lending), and new payment schemes. A few thoughts on some of the talking points:
- Breaking down omnichannel applications for financial services: Omnichannel within banking was a popular talking point between attendees and among presenters, and it´s obvious there´s still more than enough ambiguity around its application in the context of banking. One of the presentations used non-FI examples to look at how banks can approach integrating omnichannel into customer interactions. Home Depot was an interesting case study. The retailer combines the in-store and app experience to enhance the customer buying process. Customers can browse the app and make a list of the materials they need. The app shows only what´s in stock at the nearest physical location, and each item is given a corresponding aisle number for easy location on arrival. While in the store, customers can scan QR codes on each product to bring up specific measurements and statistics. This is the essence of an omnichannel experience. It´s not about doing everything from every channel—it´s about optimizing the customer experience across the variety of methods used to interact with the retailer (or bank).
- Community banks differentiating from large institutions: This was a common thread running throughout the presentations. How do community banks grow deposits in a climate of shrinking deposit share? Presenters proposed some solutions. One spoke of the need to market correctly. A recent study found that despite problems with megabank perception, 73% of those asked said a recognizable brand was important in choosing a financial institution. A regional bank poll of millennials found that not one could name a community institution in their area. These institutions find it hard to inform consumers about the value they provide, and often lacking the resources and experience to do so. A few small institutions spoke about shifting towards serving small businesses. Despite only having 20% of deposits, community banks are responsible for 60% of small business loans. Focusing on small businesses could be a way for small institutions to remain viable, without having to drastically alter their businesses.
- eCommerce and Merchant Funded Rewards (MFR) through mobile banking to help consumers save: During one of the sessions, a banker made a good point: consumers don´t need help spending, they need help saving. The comment reflected a number of discussions about the role financial institutions can play in helping consumers save money, but was echoed across a handful of presentations on digital commerce. US Bank discussed Peri, its eCommerce app developed in cooperation with Monitise, while other presenters spoke about card-linked and MFR propositions. These initiatives are definitely innovative, but is conflating the ideas of saving and driving commerce shaping the conversation around a fundamentally misaligned approach? First, will a bank´s eCommerce app be able to compete with the likes of Amazon and Google? Banks often do not have the customers, data, or pricing competitiveness to match big online retailers, and they seldom win on brand favourability. Second, even when these initiatives are successful, do they really help people save? For many, the data isn´t targeted enough for banks to offer deals on purchases a consumer was going to make anyway. For example, based on one bank´s demo, a customer would go to make a purchase at a retailer and the bank app would push out a geo-located card-linked offer for a nearby restaurant. This requires additional spending. Without the right data, these programs are mostly playing off impulse purchasing, not saving.
October 29, 2014 by Leave a Comment
I’ve just returned from a two-week swing through Asia, with stops and roundtables in Tokyo, Singapore, Melbourne and Sydney. Along with my colleague Neil Katkov I was fortunate to meet a large number of clients and market participants, both banks and their ecosystem partners, in a series of more than two dozen meetings. In each country Celent hosted a half-day session on digital innovation. Attendance was good and discussion spirited; digital and omnichannel is a topic that every bank across the region wrestles with. Their service providers, too, are keenly interested in the topic. What struck me as particularly noteworthy, however, was that a large number of providers are trying to reposition themselves in the marketplace. Their (legacy) brands are extraordinarily strong, which is a blessing and a curse. Brand strength is great, but when it’s associated with a technology that’s in decline, and not yet associated with new areas of investment, then vendors are put in a difficult position because they don’t get the calls associated with that new fintech. A common question for us was, “how do I get the message out about this new solution I’ve developed?” There’s no one answer, but I’d suggest to banks that they cast a wide net when looking to address their new technology problems; many of their historical partners are learning (or at least trying to learn) new tricks. That their marketing (broadly defined) has yet to catch up shouldn’t dissuade banks from seeing what new solutions they have to offer.
October 9, 2014 by Leave a Comment
I was able to attend Oracle’s Open World at the end of September, and although it conflicted with Sibos, it was an extravaganza. While there I sat down with some of the folks involved with core systems; they outlined the interesting way they’re thinking about progressive transformation (briefly, how to migrate core systems gradually; the opposite of a “big bang” approach). Oracle agrees with the consensus that a big bang for any sizable bank is going to be problematic. What interested me was that they outlined three different approaches for progressive transformation:
- Replace a vertical slice
- Replace a horizontal slice
- Create a new target state architecture off to the side
- Vertical Slice. Suncorp in Australia has started the process of moving off its Hogan core by focusing on unsecured lending; its next stop will be secured lending.
- Horizontal slice. KeyBank, based in Cleveland, announced at Open World that it intends to use non-core systems components of Oracle Banking Platform (“OBP”) to enhance and modernize its mobile and online channels. To be clear, KeyBank has not committed to a core transformation. The project is in its very early stages; it’s one we’ll watch with interest
- Target architecture. National Australia Bank’s new entity, UBank, is a digital-only bank that NAB created as part of its bank transformation using OBP. Its goal is to change the customer experience, and uptake has surpassed initial expectations.
October 8, 2014 by 2 Comments
As an IBM alumnus (but no longer a stockholder) I’ve gotten pretty used to seeing the company do things a certain way. And then I attended a day-long “Watson at Scale (aka Ecosystem 2.0)” event on October 7 and had a lot of my old notions upended. Watson, of course, came to prominence when it won Jeopardy in 2011. Immediately after that IBM began experimenting with a select number of industries (Healthcare, Travel and Retail) to demonstrate proofs of concept and learn what works and what doesn’t. Beginning in January of 2014, Watson expanded dramatically and is now covering 26 industries. IBM proclaims that Watson is the harbinger of a new era of computing, what they call “Cognitive Computing.” There’s just too much information being created today for any single person to digest; Watson aims to “amplify” experts’ capabilities. Doctors, salespeople, and wealth managers are but a few examples. IBM says there are four key attributes to understand:
- Watson understands natural language (computational linguistics).
- Watson is a voracious reader
- Watson provides recommendations with confidence levels
- You don’t program Watson, you teach it
- Consulting to investigate and establish what Watson will do for the firm
- Priced products (e.g., oncology)
- SAAS revenues from running Watson for individual projects
- A cut of the revenue that partners earn from Watson projects
- Is playing the role of an ecosystem platform
- Is using partners to reach consumers, realizing that IBM’s strength is as a B2B company
- Has built a new physical space, reversing a trend of selling real estate and having employees work remotely
- Is not trying to do this on the cheap
- Is focused on just a few areas
May 16, 2014 by Leave a Comment
It’s been a whirlwind week for service provider analyst days and client conferences: Friday with Genpact, Tuesday and Wednesday with FIS, and Thursday with IGATE. Each firm is trying to differentiate itself amidst all the market noise; like banks, they’re constantly resisting the grind of commoditization. And while interaction was unique and fascinating, four common themes struck me as being indicative of the massive changes going on today in banking technology. Not coincidentally, they’re all consistent with what Celent has been saying about the evolution of the banking ecosystem.
May 5, 2014 by Leave a Comment
NetFinance 2014 just finished in Miami. Celent spoke on “Engaging Mobile Customers through Content, Display, Alerts, and More,” which generated a number of follow-on conversations on how to execute on the notion of engaging with customers, and a great question on how long today’s innovation stays differentiated. Our answer: “not very.” I’ve mentioned before that customer-centricity is becoming a key concept that many banks are highlighting as a key point of their retail strategy. What NetFinance crystallized for me is that the necessary follow-on to this customer-centricity is this simple idea: The best defense against continuing commoditization is a solid customer relationship. Technology, clearly, can go a long way to enhancing that relationship. A number of vendors at the show (like AdRoll, Backbase, Domo, EarthIntegrate, Ektron, Epsilon, IgnitionOne, Leadfusion, Liferay, Message Systems, Message Broadcast, and Personetics, among others) focus on helping banks touch customers at the right times, or giving them an omnichannel view of all customer touch points, or enabling customers to start a transaction in one channel and continue it in another. But for these technologies to be effective, customers need to be receptive. And they’re going to be more receptive if they think, and feel, and believe in their gut, that their bank is going to do the right thing by them. All the technology in the world can’t replace some very visceral customer feelings. To engender these feelings with their customers, and stop them from transacting with one hand holding their wallet so their pocket doesn’t get picked, banks should consider some potentially radical ideas (simple concepts?):
- Not every touch needs to be a sale.
- Foregoing short-term income for longer term gain can (in many instances) make sense
- Surprising customers on the upside can yield long-term benefits
February 18, 2014 by 3 Comments
Celent thinks that banks can learn a lot from other industries. Since I spend a lot of time on planes, I’ve gotten to thinking about the similarities between banks and airlines. They have a lot in common when we think about the way that they interact with their customers. They are both: 1. A means to an end. Just as no one says, “Let’s go to the bank for fun today,” no one says “let’s pack ourselves onto a metal tube with a bunch of strangers for several hours” (frequent flyers making year-end mileage runs notwithstanding). People bank so that they can have a safe place to store their money, pay for things, and borrow. Similarly, people subject themselves to flying in order to get somewhere a lot more fun than the airport. 2. Typically not held in high esteem by their customers. While this is certainly strongly related to the point above, it’s also the case that even when banks and airlines perform perfectly, customers aren’t excited. “How was your trip?” “Oh, fine” meaning that the airline did what it committed to do. Rarely does someone who hasn’t been bumped up unexpectedly say, “That was a fantastic flying experience.” Rather, it’s a case of, “That was uneventful,” or “that was as good as can be expected.” Banks, too, suffer from the curse of being unappreciated (as do, for that matter, utilities). Only when something goes wrong do people pay attention. 3. Involved with their customers in a very intimate way. Banks know many details of their customers’ personal finances. Airlines put travelers in very close proximity to perfect strangers for hours at a time. This intimacy engenders strong feelings in customers and lays the groundwork for strong feelings to flow. Despite how much worse the US airline experience has gotten for most customers, airlines are nevertheless returning to profitability. Bankers may want to mull some of the tactics that airlines have used, if not for outright emulation, than at least for lessons that they might provide in a banking context. Five key areas come to mind: 1. Pricing fairly 2. Being human 3. Setting expectations and being transparent 4. Recognizing valuable customers 5. Providing value-added services 1. Pricing fairly Unbundling products and services is one element of pricing fairly. Charging fees for baggage is the most prominent example of unbundling a service that used to be included in the price of a ticket. Customers squawked, and behavior changed in ways anticipated and not (have you ever squabbled about overhead bin space?), but they adapted and paid up, opening up an annual revenue stream counted in the billions of dollars. Even as the typical airline seat shrinks, airlines have added rows of more comfortable seats that they either give to their frequent fliers or sell on a variable-priced basis. Airlines are segmenting their frequent fliers and letting other customers self-select with respect to what they’re willing to pay for extra comfort. The lesson: demonstrate the value in the services that you provide, then charge customer segments appropriately. 2. Being human Because of the intimacy I mentioned above, it’s critical that firms let their employees act as people rather than automatons or faceless bureaucrats. Three key areas help ease the pain of a long flight or a mistake on an account. Foster personalities and connections: Having a person-to-person conversation, rather than focusing only on the business at hand, can drastically change the tone of an interaction. A simple “are you heading to or from home?” from a flight attendant makes me feel better about the flight, and the feeling is a critical part of the customer experience. Thank people for their loyalty: When an airline actually thanks me, it again helps with the good feelings. Similarly, the airlines send me coupons that I can give to staff who’ve performed exceptionally – the corporation has given me the opportunity to be human, too. Develop a brand personality: Airlines are required to give a safety briefing at the beginning of the flight. Some personnel simply read their manual in an incredibly bored (and boring) tone; others personalize it and manage to make it sound interesting. Some, like Delta, even have genuinely funny video briefings (see a YouTube version here: http://youtu.be/eduNjwNvcH4). 3. Setting expectations and being transparent It really helps to makes rules and expectations (in both directions) clear and easy to understand. Once those mutual obligations are set, then the firm has to stick to them – think about boarding by rows. When someone in group 4 tries to board with group 2, gate attendants who politely ask them to wait are reinforcing the mutual obligations that everyone on the flight has assumed. And you’ve got to be transparent about what’s going on; airlines still have some ways to go, but they’re making some progress in explaining why, for example, a flight is delayed. 4. Recognizing valuable customers Banks have recently begun doing a better job of segmenting their customers, but they can still learn a lot from the ongoing refinements that airlines continue to make. Airlines give passengers goals (elite status levels), keep them apprised of their progress, and have devised ways to monetize the desire to achieve those goals. “Mileage runs” are a topic of discussion on frequent flier community sites, and some airlines have dispensed with that and will simply sell miles at the end of the year to allow people to achieve their desired status. Providing differentiated service to valued customers is very basic, but airlines do it transparently and consistently while laying out the benefits different elite segments stand to reap. Incidentally, this isn’t to say that banks aren’t doing some of these things now, but if and when they are, it’s not necessarily widespread. 5. Providing Value-Added Services The basic function of an airline – getting a passenger from one airport to another – is pretty commoditized. Airlines try to differentiate on all the elements that we’ve just discussed, but they also try to make themselves stand out by offering a variety of value-added services. These are often driven by a web of partnerships that the airline has developed. Some of the most basic include:
- Building a network of partners (e.g., Delta and Starwood) whose members enjoy reciprocal benefits
- Booking hotels or renting cars through the airline site
- Redeeming miles for a variety of goods or services offered through the airlines network of partners
- Describing the weather at the destination (easy to do, not necessarily a huge value, but a nice touch)