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For the past three blog entries, I have tried to convey how the old world of products, processes and people - or manufacturing, operations and distribution if you prefer - is being re-engineered by technologies.
Cloud-based products and services can deliver the bank products anywhere, anytime; open source processing via APIs allow those cloud-based products to be integrated into anyone's front-end delivery; and the front-end distribution is now through the best app.
We can now see that the whole end-to-end production, processing and distribution of finance is being changed by this new technology capability.
Building upon the previous two blog entries that discussed the new business models in banking based upon products (cloud-shared leveraging data analytics) and processing (real-time via open sourced APIs), we now arrive at the customer layer (mobile and social).
Seen as the most important layer, as this is where the relationship between provider and their client comes together, it is not.
So I started this series of blogs by talking about the age of the Digital Bank and that it starts with these basics: products are cloud-based components that leverage data in the back office to be relevant to the customer in the front office.
Building block one: cloud and big data.
Building block two: APIs and real-time.
I showed this in the chart in the first blog entry:
But building block two is the processing part.
To get the product that is now relevant to the customer. thanks to our data analytics, to the customer, we need processing.
We need to make sure that our product is in front of our customer’s face at every opportunity (especially bearing in mind that we are no longer in front of our customer’s face), so APIs are the way to go.
An API takes our cloud-based functionality and allows anyone to integrate that product functionality into their offer. It allows Starbucks and Uber to offer a payment process, thanks to unbundling our payments product and allowing ti to be stitched into anyone’s offer in real-time.
It is the reason why PayPal has succeeded.
If you thought PayPal’s success was down to their coding or eBay’s vision, you’ve got it wrong.
PayPal’s success today is down to their unbundling of the payments processing into an API.
This can be easily seen from the charts below (taken from Glenbrook news).
What you can see below is PayPal’s cost-income ratio through the years.
Now, do you see that spike in Q2 2011 and Q3 2013?
There is a sea change taking place in finance, the economy and the world, thanks to digitalisation and technology.
In banking, I’m not sure that it’s seen, or that it is seen visibly, but the sea change is being enabled by seven key technology components right now: cloud and big data in the back office; APIs (Application Program Interfaces) and real-time connectivity in the middle office; and social media, mobile and apps in the front office.
This is represented in a chart like so:
In this first piece on these technology changes, I will focus upon the back office impact of cloud and big data, before looking at the other components in follow on pieces and then, finally, at the pieces combine to create the whole.
Building on yesterday’s theme, I struggle when people (including myself, I must admit) shout out that banks are going to be disintermediated, I struggle when someone starts shouting out that Google, Facebook or Amazon will replace banks.
I struggle even more when rebels state that bitcoin is the future and down with the capitalists.
Maybe I’m too old or too jaded or just too darned cynical, as I’ve heard it all before.
The times we live in are confusing. Just as we think we have clarity of direction, the direction changes. Take Facebook. That mighty social network, that links over a billion people in a massively sharing global hive. Facebook almost died. Yep, it missed a beat and almost died.
As I blogged yesterday about how Facebook almost died after missing the mobile wave, it’s interesting that PayPal could have also followed a similar path. PayPal are not an innovator or disruptor, but they are a machine. A growth machine.
Talking of how fast things change, here are a few Friday facts to make you smile (or feel ill). The UK Office of Communications (Ofcom) run regular surveys on our digital lifestyles. This year the impact of smartphone and tablet computing hits the radar and shows how things have changed fast.
When I first started working in banking, I didn't have much idea about risk. Then I was told about market and credit risk, the two major forms of trading risk in the mainstream markets. Put simply: market risk is the risk of losses from trading whilst credit risk is the risk of the counterparty being unable to pay.
After outlining the four main buckets of risk that banks have to tame: market, credit, liquidity and operational; the real issue is the bank’s structure. Historically, banks have been built in product silos and hence there is no sense of enterprise risk.
The BBC recently asked me about the impact Russian sanctions would have on the City of London last week, followed up by European CEO, who interviewed me on the subject. My view is that sanctions are no good for anyone.
The major general news stories of the past week include ...
Talking of how fast things change, here are a few Friday facts to make you smile (or feel ill).
The UK Office of Communications (Ofcom) run regular surveys on our digital lifestyles.
This year the impact of smartphone and tablet computing hits the radar and shows how things have changed fast.
For example, this year’s survey finds that that the average UK adult now spends more time using media or communications (8 hours 41 minutes) than they do sleeping (8 hours 21 minutes - the UK average).