The Financial Services Club's Blog

The end of Indian outsourcing

Forbes reports today that India's competitive advantage for offshore services is disappearing fast as wage demands mean that services are now 66% cheaper for US and European firms in India, compared with 84% a few years ago. 

As wage demands increase, it can only be a matter of time they say, where it will cost the same.  In fact, they forecast this could be as soon as 2015 based upon current trends. 

The issue India then has is that Forbes reckons India doesn't have any people who think, create or differentiate because all the thinking is done by their customers.  India has 'outsourced' the thinking and just do the implementing.

Is this the likely future ...

... or is this just a US-magazine trying to forecast the end of India's competitive advantage because Americans don't like hearing about India's success? 

Banks have no idea how to cross-sell

An interesting little survey came out this month, looking at the fact that banks do not cross-sell effectively through their call centres. The truth is that most banks do not cross-sell effectively full stop. 

I have had the pitch from the teller in the branch who asks me whether I would be interested in a loan or mortgage as I pay in a cheque.  To be honest, I would rather walk across broken glass in bare feet than talk to a teller about mortgages. 

It is not that I do not like tellers or anything, it is more to do with:

(a) that I am in a rush;
(b) I am only in the branch to do one thing – pay in a cheque; and
(c) I don’t want to talk to an administrator about my complex financial dealings.

After all, tellers have been hired, trained and coached to be just transactional administrators haven’t they? 

They certainly have been historically.  They have been trained to be box-ticking, button-pushing engines.  So how a bank’s management team suddenly expects these low-paid transaction engines to transform overnight into super-duper, extrovert, commission-based sales people, is a shocker.  A bit like trying to make a pig fly isn’t it?   

Then we go to the call centre and you find the same thing.  I’m ringing the call centre to check a balance, process a request or ask a question. Normally, the call centre person is either efficiently capable of processing my transaction or, for more complex discussions, they refer me back to my branch manager.

“Is there anything else I can help you with sir?”   

“Yes, sure.  I would like you to hold my hand and explain how 30 year annuity bonds work, in terms of increasing my overall value towards my pension, and whether this is a tax efficient method of saving for retirement or whether I should look at fund of funds or other savings vehicles.”

“Sorry, sir, I didn’t quite catch that.  Did you say something about your birthday?  Happy 30th birthday sir.”

"Actually, I'm after someone who can talk to me about a pension.  Is that clear enough?"

"Ah, yessir," says the agent getting excited now as bonus times are ahead, "I can make an appointment for you with our pensions manager on the 30th of never in the branch you only visit to pay cheques into."

Apparently, they cannot deal with me on the telephone because it needs an expert, for regulatory reasons.  "Because he's certified", the agent throws in helpfully.

"What?  You mean you have to be legally insane to sell pensions?" I ponder.

"No sir.  He's been certified by the bank to recognise he's had the training to sell, sorry advise you about pensions sir."

Ah well, that makes sense, so I go onto the internet and sign into my account.   

I’ve got money sitting in the account just languishing.  It’s just lying on it’s back and going, “Look at me, you loser.  I’m not earning any interest.  I’m not doing anything actually.  I’m just sitting in your deposit account and lolling about, you waste of space.  Do something with me, won’t you?”         

Has the bank put an ad in there saying, “make your balance work harder for you?”  Can I see a note anywhere, pointing an arrow at my balance and saying, “we can make sure this earns you cash whilst it’s sitting there?”  If there is, then it’s totally invisible.  But then, my internet banking service is just a reflection of the core processing system which administers my account, as in it focuses upon transactions, not sales.

So I finally go into the branch on 30th of never and meet the hi-follutin' pensions manager, or is that salesman.

"Why did I need to see you", I ask politely.  That's a good start isn't it?

"Because I'm certified", he grimaces back.

"I heard, but it doesn't mean you're mad does it?" I ask jokingly.

"Actually, I am sir."  He says deadly serious.

Jaw drops to floor as this is not a good start to the meeting.

Then he breaks into a smile and says, "we all have to be a little mad to work at this bank". 

Not sure whether he was being honest, ironic, ambiguous or all three, I ask again, "so why do I have to see you?"

"I'm sorry sir, I don't understand."

Seemed like a clear enough question to me. 

"Why do I have to see you.  Why can't we do this over the telephone or internet", I ask again.

"Oh yes.  Well, you see it's for regulatory reasons", he's now getting all serious.  "For regulatory reasons, I have to see you so that you can fill these forms out in triplicate, sign here and that way I can then say I know you and I've found out all the facts I need to know about you."

"Blimey", I gulp, "not very twenty-first century is it?"

"Well sir, we don't want to move too fast into the future do we.  After all, how can I sell you ... ahem, advise you about a pension if I don't see the whites of your eyes?"

Jolly-di-dee. 

He then takes me through all of the in's and out's of a pension. 

After an hour, I've filled in twenty-eight pages of inside leg measurements and mother's maiden names and we shake hands.

"So, there you have it.  The stitch-you-up-for-life, never-have-a-spare-penny, hope-you-live-long-enough-to-use-it, made-me-a-nice-earner pension."

"I'll take it", I say.

"OK. We'll get this in the post to you in the next few days, and you then have two weeks to think about it."

"What?  Post?  Two weeks?  I want it now!" I'm always impatient.

"Ah well, by law I have to give you two weeks to think about it, and I have to put it in the post because our bank won't let me email documentation to you."  He looks worried now, as he's about to lose a sale.

"OK, I'll think about it.  Meantime, do you have anything that can make my money earn interest in my deposit account."

"Oh yes sir."

So, I walk out of the bank with a brand spanking new deposit account that's been upgraded from no-interest, to low-interest with a free credit card and overdraft facility.

For the bank, they count this as yes, I've been cross-sold two extra products.  The deposit account plus a credit card and a loan.  After all, by overdraft facility they actually mean loan.  So the bank counts me as holding three products: a deposit account, credit card and loan. 

The thing is, I see these as all being only one thing - a deposit account.  They may count it as three, but I count it as one, and I can close down one product relationship with them very easily.

The true cross-sell, the pension, cannot be sold for regulatory and internal structural reasons.  And yet, this is the one product I wanted to buy, and the one product that would hold me to the bank for life, and probably death.

The real bottom-line is that banks have grown up focused upon transactions, payments, money transmissions. Therefore, they sell transaction products.  To make them retailers with real sales pizazz, and advisory high net worth solutions, is darned tough.  But there is definitely an opportunity here for banks:

(a) if they want to use branches to cross-sell, then make sure there’s someone who is trained to talk to the customer about complex finances inside that branch, or available via a videolink there and then, rather than prompting tellers to embarrassingly beg the question: “would you like a mortgage with that cheque deposit today sir?”;

(b) do the same with the call centre so that if an agent says, “can I help you with anything else” that they can immediately refer the customer to a specialist who is competent in complex finances and not say “oh, we will need to make an appointment for that sort of request sir, can you come into the branch in a fortnight?”; and

(c) start using internet channels to point out the inefficiencies of my deposits and withdrawals, proactively highlight how  I could be more efficient, make automated offers that relate to analysis of my transactions and activities. 

Anyway, back to that survey. 

It was released by Maritz who came up with startling stats like: 73% of customers listened to a product pitch as they called into the contact centre, but only 31% remember hearing it. 

The reason I liked the survey though, was that the American participants were asked to chose their favourite celebrity call centre host and here they are:   

• 23% chose Oprah Winfrey (chat show queen);
• 19% wanted Kelly Ripa (Regis’s sidekick on daytime TV);
• 10% voted for Bill Clinton (Hilary’s sidekick);
• 9% for Ellen DeGeneres (famous for the Ellen DeGeneres Show!); and
• 9% for Bill Gates (what?!).

Meanwhile, less than 1% voted for Britney Spears.   Maybe that does show that the plea to LEAVE BRITNEY ALONE is working. 

BBC survey: 57 percent of Brits are happy with their bank

I hid this link in my blog about the Abbey, but had to draw out this survey in more depth.  According to the BBC's Mintel survey of over 13,000 Brits, 57.5% are very satisfied or satisfied with their bank.  Mind you, that does mean that 42.1% are disatisfied or very disatisfied.

Nevertheless, 80% have stayed with their bank for more than five years even though over 40% think the service has got worse or much worse over this time.

The majority give the reason for not changing being that they do not believe they will get a better service anywhere else, and half the viewers say that resolving problems with the bank is not easy.

The bit I can't believe is that half of these voters would recommend their bank to others.

Fascinating stuff.  Reminds me of the old joke about the British Airways flight landing in Sydney, and you could hear whining for hours after the engines shut down.

Problems at Abbey due to core systems upgrade

I mentioned the other day that Middle Eastern banks were upgrading core systems in six months whilst, in the UK, the last major upgrade I've been aware of is that of the retail bank, Abbey.  Abbey are changing core systems to implement those consistent with their Spanish owners, Grupo Santander, who bought Abbey in 2004.

Now there's a whole variety of research out there on customer satisfaction with UK banks, and most are showing Abbey performing poorly.  For example, Which? magazine reported last August that Abbey were rated poorly for customer satisfaction.  No wonder when you get bloggers writing reports with headlines such as "Sparky vs Abbey" and "Abbey: How I Hate Thee".

Funnily enough, in conversation with various folks this week, I've heard that if you bring together most of the league tables of benchmarks for customer satisfaction with UK retail banks, then you'd get something along the lines of the following:

1. First Direct *
2. Co-operative Financial Services
3. Nationwide Building Society
4. NatWest
5. Lloyds TSB
6. HSBC
7. Barclays
8. HBOS
9. Abbey

with Abbey consistently performing badly.  In fact, according to this BBC survey, 60% of their customers are fed up. 

Now this surprised me, as Abbey is expanding branches and have been fairly innovative with products such as the five times income mortgage (not so popular now, I bet).

But then you read this tirade on MoneySupermarket.com and see that even former Abbey employees, managers and shareholders are deriding the bank, calling it Shabbey and claiming that the bank is 'dying on its feet'. 

Mind you, the bank has just gone through a massive cost reduction programme where 24,000 jobs have been cut to 16,000 in the last three years, to save £300 million.  Maybe that's why they're having issues and why there are so many ex-employees who are angry and disgruntled.

So, is this just Mr. Angry of Anfield and Mrs. Disgruntled of Derby?

Not really.   There's more to it as it's also an issue created by their core systems upgrade.

BBC's Watchdog caught this story and reported on it in December.  The story is that Mr. Angry and Mrs. Disgruntled are p***ed off because the bank can't issue them with debit cards.  The bank can't issue debit cards because of their systems change.

So, one big reason why Abbey has such poor customer satisfaction levels is 'core systems upgrade'.  Changing the engines at 39,000 feet can be a very easy way of exposing yourself to customer issues.  For example, when you read through the Sparky vs Abbey discussion, you find an interesting note from Sparky that says

"By the way, the various people I have spoken to at The Abbey (say) that a LOT of problems have cropped up since they changed to a new computer system, presumably since they came under the wing of Santander. Emails to Santander that I've sent have all gone unacknowledged and unanswered but from what I glean from the people at Milton keynes is that I am one of many many MANY people who have had their account details 'randomised' by the new system."

Hasta la vista, baby.

Meantime, how the bank can be reported as aiming to 'increase its revenues twice as fast as its rivals' is beyond me when they've trashed their customer and staff loyalty.

 

* do First Direct always come out on top because they don't have branches so you don't see their staff, operations and processes?

Chi-x is now seven percent of LSE's volumes

Seeing this story about the impact that MarkitBOAT is having upon traditional data reporting, I received a heads-up from Chi-x, the alternative exchange launched by Instinet in April last year, that they traded 7% of equity volumes of the LSE yesterday. 

Q4 trading stats show that Chi-x's number of trades were 2,401,856, up 121%; share volume was 1,850,602,948, up 177%; and turnover was €34,614,579,690 , up 71%.

Not bad for a one year old exchange who enjoy blowing their own trumpet.

Fascinating new phone service: Ribbit

Just found this website for a soon to be launched integrated mobile-internet service called Ribbit.   It's a method of having your mobile leave messages that are transcribed and stored on the internet for you to access anywhere and return call using Skype or whatever. 

The video is particularly worth watching from the home page as it shows the idea of all of the phone calls being integrated with your social network stuff.   

Now there's an idea - socially networking through talking to people in real-time.  Could be a good way to connect the bank to the customer?

Mind you, it also makes me think about the blog I posted last year, saying that banks need to use the internet rather than the mobile as their m-banking platform.  Developments like this just reinforce this view.

Phishing the Phishers

Interesting podcast from the British Computer Society today discussing a Moroccan phishing kit called "Mister Brain" that you can download and use for free.  It allows you to create a nice little phishing site of your very own.  They even provide templates for spam e-mail including brands such as Bank of America, eBay, PayPal and HSBC. 

The only thing is that each time you phish someone's money, a little bit disappears into Mister Brain's bank account.  Nice one!

Maybe one day we'll have identity theft stealing identities from stolen identities of people who's credit cards don't exist to fund accounts that are stealing from other accounts which also don't exist.

If you don't want to listen to the podcast, then you can read about it here.

Microsoft-SAP would be Oracle's worst nightmare

Just as Apple make their money out of being consumer friendly, Microsoft make theirs by being business friendly.  This is why it intrigues me that they are trying to buy Yahoo! to compete with Google.  This is a consumer-focused play and the New York Times thinks it is completely the wrong strategy.  Randall Stross of the NYTimes states it is the pursuit of "an old-style Internet asset, in decline, and at a premium", and says they'd be much better off making an Oracle-style expansion in business software by buying SAP. 

Funnily enough, by following Oracle's acquisitive approach to buying like-minded software firms in the business space, Microsoft could produce “Oracle’s worst nightmare” as a Microsoft-SAP merger might actually start to displace Oracle's dominance in this space. 

Oo-errr.

I was then discussing this with a banking colleague yesterday who has dealt with all the major players.  He's an old contact from my Unisys days and has made a major investment in Unisys services across the bank.  He wonders about their future and said to me "at 4 bucks a share, it's amazing no-one has tried to acquire them".

Funnily enough, Unisys have been asking this question too and have apparently started to explore options with Bear Stearns, their investment bankers, to do the same thing.

So, a Microsoft-SAP-Unisys integrated business-focused software powerhouse, combining software development and delivery, could be a much better combination than a Microsoft-Yahoo! feeble consumer-annoying software confusion.

What is 'value add'?

I've been hung up with office bingo for years and hate it when you hear words and phrases like scenario, paradigm shift and value-added.  The reason is that the phrases are meaningless buzzwords that people throw out to sound intelligent but often just sound like a complete pratt.

"Oh yes, let's run this scenario up the flagpole and see if the poobah in the tent likes the colour of the smoke."

Sounds like that complete twit David Brent from the Office. The thing is that although David Brent is a complete wazzok, he's fairly typical of management in any bank or technology firm.

"We have implemented leading-edge feature functionality using the latest tools and technologies to provide a platform fit for the future."

"I think we need to look at our customer profile and segment to deliver an experience through our relationships to enable higher value results." 

"This product is unique in that it provides a full service capability using the latest best-of-breed management techniques to ensure you achieve your full potential."

"We have thoroughly re-engineered the process to organise around the structure of today's markets to optimize our cost-income ratio."

Now I wouldn't mind this kind of gawkish toss if it actually had some substance but, a bit like mission statements, it's just modern office techniques for hiding the fact that you have no idea what you are doing or what you are talking about.

Take this statement for example:

"Our company provides value-added services for our clients that are unsurpassed by any of our rivals."
OK.  What do you mean by value-added services?
"Well, we mean that we are better."
OK.  How are you better?
"Well, y'know, we're good at what we do."
Good?  You just said you're better.
"Well, we are."
Better than what?
"Everyone else."
Prove it.
"Pardon?"
Prove it.
"Doh!?"

Too often, firms just throw out this tripe and cannot substantiate any of it, whether it is a bank, technology firm, infrastructure provider or corporation.   What I want to see is some definition.   I mean, I don't mind phrases like 'leading edge', 'best of breed', 're-engineered', 'paradigm shift' and so on and so forth, as long as it is relevant, defined and clearly being used in context to mean something.

Take value-added.

Value-add is bandied about all over the place and yet no-one ever says, how are you defining that?  But we should.

Personally, I define 'value-add' as a measurable difference before and after a project, based upon clear delivery of results.  These results should be quantified and demonstrate either a revenue uplift or cost saving or both.  But that's not all, as value-add does not have to just mean a financial value.  Value can be value through retaining staff, improving productivity, increasing customer satisfaction, creating customer advocacy, managing risk or minimising risk.

By way of example:

• 50% increase in customer responses to followed up leads as a result of our work
• Customer response rates of 38% to 50% as demonstrated here
• 14 million contacts per year, with response rates up from 10% to in excess of 25%
• Savings of more than $700,000 in the first year and incremental revenue is more than $1.5 million per year         

In other words, value-add is creating a measurable difference through the work you deliver that can show either a financial, customer, employee or risk improvement.   That's what I mean by value add and that's what I want to see businesses articulate when they talk about their products and services. 

Otherwise, it's just buzzword bingo.

Where did all of Northern Rock's customers go?

Once news has broken, it becomes an avalanche.

Jerome Kerviel loses €5 billion ... 7,000 news items later and it's old news.

Credit Suisse panned over an unexpected $2.85 billion write-down ... 2,000 new items later and it's old news.

Northern Rock goes down the toilet, can't find a buyer and is nationalised ... yep, old news.

The only thing is that sometimes old news has a twist.  In the case of Northern Rock, it's the question few have asked: where did all their customers go? 

You know, those long queues, hundreds of Brits desperate to get their money out of the ailing bank, the first bank run in a century* ... where did all the customers go?

Well, tomorrow night you can find out if you're in London.  Stuart Bernau, Executive Director for Retail Distribution at the Nationwide Building Society is presenting to the FSClub and I've just seen his slides.

During 2007, the trend was for residential lending to increase, up 77%, and retail deposits to decrease, down 29%.  This was until mid-2007 when UK consumers were still spending like crazy and saving nothing.

Then the second half of 2007 hit, with borrowing levels being squeezed and Northern Rock going belly up and guess what?  Nationwide's lending levels dived down 39% whilst deposits went through the roof, up 96%. Apparently, all the Northern Rock disaffected savers were leaving the bank to walk across the Nationwide branches to open accounts. 

That meant huge volumes of new account openings and a massive cash injection  of £4.1 billion.  It'll be interesting to see what strain that puts on people, processes and systems for account openings.  Come along if you're interested.

 

* actually, the last run on a UK bank was in 1991 when Town & Country Building Society wobbled and was rescued by the Woolwich in November 1991

The Banking Jungle Book: Wolves, Lions and Chickens

Over the weekend, there were lots of references to animals in banking.   

It started with the Financial Times discussing the issues of Jerome Kerviel and the fact that traditional commercial bankers should stay out of investment banking.  In this context, it refers to most bankers as chickens, whilst investment bankers are like a pride of lions:

"Commercial and retail bankers are like battery hens. You put them in a small cubicle, pressurise them with tough sales targets but provide a decent salary, and they will produce a steady steam of returns. Most are conservative, somewhat harassed souls, who seldom think to bite the hand that feeds them.

"An investment bank is more like a zoo, full of bizarre, prideful and sometimes dangerous animals. A zookeeper who pushes them around, or issues orders, is asking to have an arm bitten off. Instead, the job is to keep the animals in their cages, so they do not savage the paying customers, while understanding their individual behaviour patterns."

Investment bankers maybe compared to something more like a pride of lions according to the FT, but they're more like a pride of lions on Cocaine according to the book I'm reading at the moment. 

In the recently released book The Wolf of Wall Street, Jordan Belfort describes himself as a wolf rather than a lion.  The book has already been snapped up to be a major movie starring Leonardo diCaprio by Martin Scorsese - do these guys ever not do anything together? - and the book seems to divide emotions, as half the reviews on the US Amazon love it or hate it, so I'm not recommending it to you.  However, it is a true story written by the guy who inspired the film Boiler Room, and follows in the tradition of Liar's Poker, Barbarians at the Gate and The Bonfire of the Vanities, to which it pretends.  And of course, the thoroughly marvellous Future of Banking in a Globalised World (ed: nothing to do with the aforementioned, just a shameless plug). 

Of course, there have been many books about Wall Street's failing, and having just seen Jerome Kerviel's failures, alongside many others (NAB, AIB, Barings, Credit Suisse, etc) these books help to illuminate, entertain and disgust.

Here's a few of Jordan's insights which show you the beasts of the broker-dealer jungle in action:

Advice on his first day in the offices of broker LF Rothschild: "People don't buy stock, it gets sold to them.  Don't ever forget that." 

He was then put on the phones to connect brokers and, at 9:30 the sales manager told them to hit the phones.  "Within minutes, everyone was pacing about furiously and gesticulating wildly and shouting into their black telephones, which created a mighty roar.  It was the first time I'd heard the roar of a Wall Street boardroom, which sounded like the roar of a mob (or pride of lions) ... it was the sound of young men engulfed by greed and ambition, pitching their hearts and souls out to wealthy business owners across America."

He then went to lunch with one of the senior brokers, Mark.  Mark "reached into his suit jacket pocket, pulled out a coke vial, unscrewed the top, and dipped in a tiny spoon.  He scooped out a sparkling pile of nature’s most powerful appetite suppressant and took a giant snort ...  I was astonished.  Right here in the restaurant among the masters of the universe.  Out of the corner of my eye, I glanced around the restaurant to see if anyone had noticed.  Apparently, no one had.  After all, they were too busy getting whacked on vodka and scotch and gin and bourbon and whatever dangerous pharmaceuticals they had procured with their wildly inflated paychecks."

Why did they behave this way?

"The money's great, but you're not creating anything, you're not building anything.  So after a while it gets kinda monotonous.  The truth is we're nothing more than sleazoid salesmen.  None of us has any ideas what stocks are going up!  We're all just throwing darts at a board."

No wonder we watch with awe as the Jerome Kerviel's get stressed out trying to buck the system to make a buck.

The book goes on to tell of Jordan's roller coaster ride of selling penny stocks to millionaires, to becoming a multimillionaire himself - making $50 million a year - and earning the nickname the Wolf of Wall Street. 

His firm even created the game of midget tossing, where they paid $5,000 to a vertically challenged person to spend an hour wearing a velcro suit, and being thrown by the brokers against velcro mats.  The person who chucked the little sucker the furthest earning a gold dusted booty.

The other factor however, is that with so much money he became hooked on hookers and all sorts of chemicals.  At one point, the wolf's daily regimen included:

• 90 milligrams of morphine and 40 milligrams of Oxycodone for pain relief;
• 12 Soma's as a muscle  relaxant;
• 80 milligrams of valium, 8 milligrams of Xanax and 20 milligrams of Klonopin for anxiety;
• 30 milligrams of Ambien for insomnia, which is not surprising considering the above;
• 20 quaaludes purely for recreational purposes;
• a  gram or two of cocaine "for balancing purposes";
• 20 milligrams of Prozac and 10 milligrams of Paxil as an anti-depressant due to being so fed up with being hooked on all these drugs;
• 8 milligrams of Zofran to cure nausea from swallowing all the Prozac; 
• 200 milligrams of Fiorinal for the migraine caused by the Zofran;
• 2 heaped tablespoons of Senokot to cure the constipation created by the Fiorinal;
• 20 milligrams of Salagen for the dry  mouth from the Senoko; and
• yes, of course, a bottle of whisky to wash it all down with.

It's amazing the guy is still alive.

Re-telling the high stress, high pay lifestyle of a top City slicker, it reads more like Keith Richards with a Death Wish ... and that's saying something.  But then it also speaks of the crass hedonism of those who think they are better than everyone else.  American Psycho at its grandest, boldest and most bizarre and nauseating.

Me?  I'll stick with Guns 'n' Roses ... welcome to the Jungle.

Want to see an alternative future for money?

I've spoken about community currencies regularly, but some folks find them hard to visualise.

Well, there's one project alive and kicking in the Devon town of Totnes, as described in the Observer and many other articles.   This BBC coverage of the Devonian Totnes pound shows the concept best though, and includes a video that explains how it works. 

Worth having a look if you want to see an alternative view of the future of money.

Facebook, MySpace and Bebo have a hiccup

Maybe all the talk of Facebook's privacy policies being a concern are finally having an impact on people networking online as Facebook had it's first drop in usage in January.  According to Nielsen's ratings, the number of unique visitors in Britain fell from 8.9 million people in December 2007 to 8.5 million in January 2008. 

The same was true in Europe also, with unique French users down 200,000 people to 1.87 million in January, and 23,000 Spanish users disappearing in January leaving 659,000 to kiss, date, hug and poke each other.

British Bebo and MySpace users are also tailing off, with Bebo peaking in July 2007 with 4.6 million unique users dropping to 4.1 million today, whilst MySpace peaked at 6.8 million users in April 2007, dropping to 5 million today.

Nevertheless, the millions of users are still worth noting, and social networking will not go away.   After all, this is a global phenomena with Facebook registrations in the USA still rising, and also with my friends in Asia telling me just this week about the success of Cyworld and Mixi in South Korea and Japan respectively.

Like Facebook, MySpace and Bebo, these are social networks for Asia that have also enjoyed similar success.  For example, 20 million Koreans had signed up with Cyworld last year which, when you consider the total population of South Korea is 47 million, is amazing.  90% of South Koreans in their 20s have their own page on Cyworld.

Mixi in Japan has had more modest growth because you can only join if you are invited by another Mixie user.  Even so, with 10 million users, they're not doing bad.

Just goes to show that the internet - as a relationship service - cannot be ignored and banks that want relationships, which they claim is the core of their business offer to their customer, still need to get a grip on this phenomena.

FSA's data hypocrisy

I had a fascinating conversation with a group of information security professionals yesterday. 

We were talking around the issues of data leakage and covered a wide variety of subjects from accidental leakage to deliberate theft, from human frailties to ISO27001 standards, from the challenges of ensuring users find it easy to get the information they need to the issue of blocking unauthorised access and implementing layers of security, and so on.   To be honest, we could have debated for days rather than an hour and a half.

During the conversation, there was one moment that really surprised me.   

One of the banks had been severely beaten up by the UK’s regulator, the Financial Services Authority (FSA), over their lackadaisical approach to data security.  As a result, this firm has really tightened up their policies.  They don't allow any laptops or systems on or off the premises without security checks, all PC's and laptops have their USB ports blocked to stop any data leakage through memory sticks, and all email is sent using secure servers and high levels of encryption.

The email systems they use, in fact, are based upon PGPU, the PGP Universal Gateway.  If you're not familiar with PGPU here's the write up from their website:

"Unprotected email poses a critical risk to an enterprise’s most sensitive data: customer information, financial data, trade secrets, and other proprietary information. Exposure of this information can result in financial loss, legal ramifications, and brand damage.  PGP Universal Gateway Email provides centrally managed, standards-based email encryption to secure email communications with customers and partners. By encrypting data at the gateway, PGP Universal Gateway Email ensures data is protected from unauthorized access in transit over the public Internet and at rest on a recipient’s mail server. With PGP Universal Gateway Email, organizations can minimize the risk of a data breach and comply with partner and regulatory mandates for information security and privacy."

Excellent. 

After all, the biggest exposure for data loss is surely as you move files of information around between organisations?

Trouble is that the FSA cannot receive PGPU emails because their systems aren't up-to-date enough to allow such emails through their internal mail servers. 

So the bank set up a bank-hosted secure server which could hold their FSA directed emails.  The idea being that FSA staff could access the bank’s server to download emails.  However, that didn't work because the FSA's firewall blocked staff from accessing the bank's secure server!

I thought this couldn't be true, but the story was backed up by other banks in the room who use PGPU encrypted email systems.

In other words, the FSA beats up these banks about their tardy internal data security standards, so the banks overhaul everything to conform and kowtow, only to find they can't tell the FSA about what they've done because the FSA is unable to communicate with their newly secure bank servers.

Smacks a bit of regulatory hypocrisy if you ask me.  Mind you, with so many data leaks from government departments, is it that surprising?

Maybe the FSA should give themselves a fine.

Where's the best place to head office the bank?

"Where's the best place to head office the bank?" is a question asked regularly by folks like HSBC, and the answer may be quite surprising.

Obviously, key contenders would be London, Paris, Frankfurt, New York, Chicago, Sydney, Tokyo, Hong Kong, Singapore ... in fact, any of these could be appropriate.  Most banks decide based upon where their roots were and what sort of specialisation they have, such as whether they are a local retail player or a derivatives focused investment bank.  In other words, you locate based upon history, product, service, access to resources and skills and so forth.

But if you were moving Head Office as a global bank, without any loyalty to any location today, where would you locate?

Well, now there is an answer. 

The Heritage Foundation's Distribution of Economic Freedom.

The 2008 list has just come out and it's got some surprising details and views.

Before giving you the results however, it's worth understanding how they calculate this list.  The Heritage Foundation assessed 162 countries  and reviewed ten areas, such as their freedom of trade, freedom of business, freedom of investment, freedom from corruption, size of Government and respect for property rights.  Countries are then graded with a score between 0 and 100 to produce a simple, unbiased overall score for each country.

So, who do you think would be the winner?

USA?  Nope, they're fifth.

The UK?  Nope, tenth.

Japan?  Seventeeth.

Iraq?  Urrmmm ... they didn't grade that one.

First for freedom and the best place to locate your bank would be ... Hong Kong.  Now, isn't that lucky for HSBC if they wanted to move?

Here's the Top 10:

1. Hong Kong
2. Singapore
3. Ireland
4. Australia
5. United States
6. New Zealand
7. Canada
8. Chile
9. Switzerland
10. United Kingdom

Visit  the Countries or have a look at the World Economic Freedom Map.

What's interesting is that when you look at the analysis of the Top 10 based upon the ten criteria used: America is the worst for corruption, Chile the worst for monetary freedom, Australia the worst for fiscal freedom, and the UK is the worst for freedom of labour and our size of Government.

Don't we just know it?

The end of the EU, euro, SEPA and MiFID is nigh?

There’s been a recent storm of controversy over the ECB’s decision to accept mortgage backed bonds from Spain.  In effect, Spain has had a disastrous subprime mortgage collapse and has been bailed out by the ECB.       

This Investment Markets note of last week explains the process well, saying that Spanish banks have been forced to “increase their provisioning of liquidity auctions held weekly by the ECB, using mortgage-backed bonds as collateral".  This would be all well and good, except that Spain publishes its figures for their reliance on these funds and, so far, they are taking “around 10% of ECB’s total, which is up from 5% not too long ago, this is a raising of nearly €24bn ($34.8bn) in Spanish lending."

In other words, Spain has been bailed out by the ECB in a rescue of similar size to the rescue and nationalisation of Northern Rock in Britain.  The Daily Telegraph reports that “Moody's said the total issuance of securities by Spanish banks last year reached €143bn, up 55% on the 2006. Over €62bn were mortgage securities."   

This has raised the question amongst many as to whether the British, German, French and Italian citizens will be happy that their funding has rescued Spain’s mortgage market, when the rest of us are left to suffer the slings and arrows of outrageous misfortune.   

The reason I pick on the British, German, French and Italian citizens is that we run Europe apparently, according to Portuguese national paper Correio da Manhã (the Morning Mail).  In an opinion piece written by columnist Armando Esteves Pereira, there is major objection to the fact that London hosted a European summit a couple of weeks ago, but forgot to invite 23 countries.

This was a meeting hosted by the UK Prime Minister Gordon Brown on January 29th, where he hosted German Chancellor Angela Merkel, French president Nicholas Sarkozy and the resigned Italian Prime Minister Romano Prodi for a mini-summit about the world's financial crisis in Downing Street.

According to Sr. Pereira, the meeting "sets a dangerous precedent for the EU by imposing the false authority of four giants on the fate of the 27 member states.  And Barroso, the Commission's president, is approving this controversial division of power with his presence ... The United Kingdom is not part of the eurozone and the decisions made by the European Central Bank have little impact on the lives of Britons, as opposed to those from countries that do belong to this zone.  Thus all European citizens are equal, only, as in George Orwell's Animal Farm, some are more equal than others."   

Funnily enough, this is a sentiment I’ve heard many times around Europe.  For example, there is a quote I use in presentations regularly which came from the main newspaper of the European Commission in Brussels, New Europe.  There is an opinion column on the back page of New Europe called Kassandra’s Notebook. 

This Notebook had a killer column a while ago that ended: “It is ridiculous for Europe and its leader to tolerate a situation in which a country, not participating in the Euro, is the one dictating policies in the Eurozone.”   

The column was actually a rant about the fact that Charlie McCreevy had replaced Alexander Schaub with David Wright as a Director General of the European Commission in the Internal Markets. The rest of the column went something like:   

“Alexander Schaub is leaving his post as he reached the retirement age and Commission President Barroso did not extend his mandate”, which is because “Charlie McCreevy is serving the British view for Europe” and also “explains why President Jose Manuel Barroso, rather susceptible to the wishes of Anglophile Commissioners and of Downing Street, did not have the political courage to offer a two year extension to Alex Schaub.” 

The bit I liked the best is the fact that David Wright, who oversaw the introduction of MiFID, had "introduced the Financial Service Action Plan, by coincidence tailor-made to satisfy the needs of the City of London.”   

Well, London is the financial centre of the European Universe isn’t it?  I mean we have more people working in financial services here than the population of many large cities, including Frankfurt.   

However, all this tension does raise the question: what would happen if the EU fell apart or, more importantly, EMU.  What would it mean if the euro disappeared?   

This was a question raised when the French and Dutch rejected the EU constitution referendum in the summer of 2005.  The result of these rejections led to reports that German finance ministers and the Bundesbank were planning scenarios for the collapse of monetary union and returning to the Deutschemark. 

Meanwhile, there are regular reports of Italian politicians pleading to break away and return to the lira.   

All in all, we live in times where we think that SEPA and MiFID, along with the Market Abuse Directive, Capital Adequacy Directive, Solvency II and all that other stuff is here, now and stable ... but it’s not.   

I’m not proposing that the EU will fall apart, but with Spain being propped up by the rest of us, Portugal whinging about being one of 23 countries being controlled by the other four and the euro still only six years old as a currency and nine years old as a trading instrument, should we be betting the farm on PEACHs, TARGETs and STEPs?

Actually, for those in the Finanser community supplying the banks, it doesn't matter as it would be good news if it did all fall apart.  I mean think of how much more revenue consultants and vendors could create by breaking up SEPA and MiFID now they've been implemented, and it would secure our IT jobs for another decade too. 

Hmmmmm ....

SIA to compete with SWIFT

A mate pointed this out from International Banking Systems Journal, December/January issue: 

"Italian payment network provider, SIA-SSB, is seeking to move firmly into SWIFT's domain, with plans to extend its SIAnet broadband network. It is taking its current infrastructure, which provides connectivity between banks and corporates in Italy, as well as linking to European brokers on the capital markets side, and is seeking to position this as a much wider facility. It is claiming a number of benefits over SWIFT, including breadth, ease of connectivity, flexibility and cost, and is seeking partnerships to further extend its reach."

Worth a read ...

George W Bush: Fascist Dictator?

I was prodded to look at this broadcast from Valentine's Day by Keith Olbermann, anchor for MSNBC in the US of A. 

Mr. Olbermann is a highly articulate chappie and is obviously a little angry with Mr. Bush over the FISA Bill.  This Bill would have allowed the National Security Agency (NSA) to tap into every email and telephone call someone makes, but was rejected by the Senate last Wednesday. 

Personally, I just like the seething anger bubbling under Mr. Olbermann's whole ten minute diatribe about Bush being a fascist dictator ... no political statement intended.

The Britney Exchange

Due to the voracity of the stock markets and traders looking for new ways to wheel and deal, we will soon be trading in things we never thought of trading before.   

For example, I was intrigued that Britney Spears has her own economy.  The poor lass, who is being hounded by the paparazzi to either hospital or an early grave, has great value with her $9 million a year earnings ballooning into an annual $120 million industry, even in her current fragile state. 

This industry, nicknamed the Britney Industrial Complex in Portfolio magazine, operates through:

• her 83 million record sales, worth $400 million since her debut in 1999;
• she generated almost $150 million through tours;
• she is worth $50,000 to sit next to, or that's the cost for a table at Pure Nightclub in Las Vegas who reportedly sold seats at a table next to hers;
• Britney's perfumes have sold almost $100 million;
• photos of Britney are estimated to generate $4 million a year; and
• she generates magazine sales of $360 million a year, with her impact on those sales worth around $75 million a year.

This Britney economy reminded me of the move ten years ago, when David Bowie converted his back catalogue of music into Bowie Bonds.  This was a first and netted Bowie $55 million so everyone followed, from Rod Stewart to Iron Maiden.  Nevertheless such bonds, a bit like subprime, are viewed as being near junk status today (some of the music was considered that status originally).

The reminder of this is purely the coming together of celebrities and financial markets.  So why not consider a Celebrity Stock Exchange, where you can buy celebrity equities and even options and futures on someone's career?

Oh yes, sorry, there already is one.  In fact there's many, such as The Hollywood Stock Exchange (HSX), The BBC's Celebdaq and Celebrity Contest. On these exchanges, I can create a portfolio of the great, not so great and downright sad.  A little bit of Jack Nicholson and Nicole Kidman would be a good backdrop for low-risk, and then throw in some Lindsay Lohan, Amy Winehouse and Britney for higher risk with higher returns. 

Then stitch this together with some futures and options.  I'll hedge a bet that Britney gets sectioned this year with an option on her being #1 in the charts.  I'll take a slice of Amy being wino housed with an option on her performing at the Royal Variety Show. 

As this starts to become more and more complex, I could then build in some news algorithmic engines to change my investment strategy.  Aha, the rumour of Heather Mills's money pay-off from Paul McCartney automatically triggers a hedge on his daughter Stella ripping out Heather's eyes at the Fashion Rocks show. 

The more this goes on, the more extreme it could become, and far more fun than dealing with commodities or FX.    I could even start building some really complex cross-celebrity class trading strategies. 

Should David Beckham get groin strain then invest in Posh Spice trying to make a comeback hit song; underwrite this with an option that as long as Posh Spice does not record a song this year then buy shares in LA Galaxy along with the US economy recovering from recession; and, as a result, invest in the Spice Girls making a new movie, Spice World 2: The Climax, offset by the Spice Girls being played by Lindsay Lohan, Britney Spears, Paris Hilton, Nicole Richie and Charlotte Church.

The only trouble is that, like these other markets, much of what we're discussing here is just called gambling.  In Britain, we actually tried to ban such gambling 200 years ago.

In those olden times, folks used to bet on well known persons dying or getting the pox. 

"I reckon the King will be around for at least another year, don't you?" says the odorous oike. 

"Oh no, I think he'll pop his clogs well before November 13th", some peasant replies, "and I'll give you a shilling if he doesn't". 

"That's good", says the smelly squire, "and I'll give you two shilling if he does." 

"Tis a deal", says t'other and they shake their grubby mitts. 

This form of gambling was outlawed in Britain in 1774 by the Life Assurance Act.  This Act is the foundation for today's modern life assurance markets and a fundamental principle enshrined in the Act is 'insurable interest'.

After 1774, life contracts could only be enacted and honoured if you had an insurable interest in the life you were paying premiums for.  This meant that the person being insured had to be related to you in some form, and that you were dependent upon them.  The usual life assurance is therefore only taken out by the policyholder, such as a father or mother insuring themselves to protect for their children, who would be destitute if they expired suddenly. 

The problem before this Act was passed is that I'd bet that Joe Blow would die before the year end, and would then go and kill him.  Sure enough, I'd win my bet and get my money. 

Maybe, 200 years later, as we look at the Britney Exchange in action, we'll realise we haven't changed that much.  So let's all join the 16.7 million people who have watched Chris Crocker on YouTube pleading, "Leave Britney Alone!".

 

p.s. I think I'm going to buy a little equity stake in Chris Crocker's acting career on HSX

 

A beginner's guide to robbery in the 21st century

I know I shouldn't post this, as some folks might take note for illicit purposes, but what I'm writing is nothing new.  It's already well-known by the criminal fraternity, so I might as well share it with you.  It’s also well known in the risk and security community, but they don’t seem to make it as clear as I’d like it to be. 

What am I talking about?

Social engineering. 

The number one method of committing a robbery in the 21st century. 

Here are a few examples of how easily social engineering works.

Example #1 

You go to a conference in a suit.  You are not part of the conference and you wait until lunchtime, when everyone leaves the room.  You then go in and steal as many laptops and briefcases as you can without looking conspicuous.   Because you are in a suit with a briefcase, no-one in the hotel stops you as you leave.  Because all the conference folks are in another room scoffing, no-one notices.

This one happened to me where I lost my passport and laptop one time.  Now I always pack everything up and make sure I carry it around with me. 

Example #2

Two customers in the bank hall are taking their time to complete paying in forms and are carefully looking at their statements.  They obviously are meticulous about their financial affairs.  What they are actually doing is listening carefully to the branch staff conversations, and they pick up the fact that tomorrow morning the systems are being checked  and a replacement network router is due to be installed.   

The next day, two technicians turn up with a new network router and are sent through to the back of branch to carry out their work.  They then steal almost over $250,000 ... and the real technicians turn up an hour later.  The two imitators were the studious customers of yesterday.

Example #3 

I look around Facebook and find the details of a person.  They have given their email address as sxodavies@aol.com and, as I look around their Facebook profile I find their mom is called Ruth, their dad is David, they have a sister and brother, Carly and Robert (Bobby), and a pet dog called Scamps.  Their favourite rock star is Christina Aguilera and their favourite celebrity Ashton Kutcher.  I go to AOL and enter username as sdavies and then try variations of passwords from Ruth, David, Carly, Robert, Bobby, Scamps, Christina and Ashton.  It works as most folks use a password that is a family member’s name, a pet or a personality they like. 

Result: identity compromised in less than ten minutes. 

Example #4

I want to gain access to someone’s account so I begin by using Facebook as above.  This time, I have found a variety of details about the individual, including the fact that their name is Suzanne and they have a number of financial accounts and investments.  I’ve discovered this information because I'm quietly watching what they’re emailing, both sending and receiving, and they have no idea I’m watching or accessing.   

Eventually, I know enough to be confident to call their bank, and I get my female friend to make the call and pretend to be Suzanne:

“Hello, my name’s Suzanne Davies and I’d like to move £650 to my savings account.” 

My friend struggles with some of the security questions and, not wanting to be rude, the call centre person helps them out with a little prompting, as Suzanne seems to know most of her personal information. So she gets to know the postcode, the place of birth and other information. However, she gets to the personal security question, “what’s your mother’s maiden name”, and my friend says that she’s been interrupted and will call back.

This goes on several times until my female friend has all the information needed to transfer funds. 

Result: identity stolen within half a day (something I’ve spoken about before)

Example #5 

There’s a major merger and acquisition going down in the City with Megabank Advisory Services taking the lead.  I’m the lead negotiator for one of the firms in the fight to win the bid, and I’m desperate to know what’s going on with the competition and with the advisory firm. So I hire some friends to help and they offer £25,000 to a cleaner, who works for the advisory firm, to place a covert listening device under the leading advisor’s desk.  The cleaner, who earns about £15,000 a year, of course accepts.

As a result, I can hear and know everything that is taking place and act accordingly.  After all, how many of us look under our desks and check there’s not a bug there every day? 

 

These are just a few examples from hundreds and, although you may think me a little risky in posting them, if anyone wanted to try these techniques then they're all out there, known and can be easily demonstrated. 

This is because all of the stories above are true stories and all of them rely upon one fundamental characteristic: the villain is bold, confident and assertive, whilst the rest of us are trusting, unchallenging and supportive.

That, my friends, is the total basis of social engineering for robbing in the 21st century.

In other words, most deliberate theft relies upon the fact that most of us are trusting.  We don't protect vital information because we trust people.  We fear challenging someone who seems to know what they’re doing because we trust they should be honourable and ok.

All you need is a little information, a lot of confidence and then prey on people's trust.  This is the stuff of The Real Hustle and there are many other examples of how this works in practice.   In fact, robbers haven't really changed for years, as Raffles, the fictional gentleman thief from over a hundred years ago, stole with the same tricksters confidence.  It's just far easier to be Raffles today than it was a century ago.

A robber who is confident and knows a few facts, can blag their way through anything.  A bit like the way Chris Tucker in Rush Hour or Eddie Murphy in Beverly Hills Cop can convince a bar room full of tough guys that they’re a cop with a licence, when all they are is a guy with a flashy badge, if you look the part, act the part and believe you are the part, then you can swing anything.

So, there you have it.  I can easily pass myself off as anyone I want to be, as long as I believe.

Somebody stop me!