So yesterday, I identified the three biggest challenges to banking today based upon a major dialogue on social media with the Next Bank Facebook community. Those three barriers are regulations, legacy and culture.
The three barriers are intertwined in a vicious circle. Regulations stop banks from innovating; legacy systems stop banks from innovating; a risk averse culture stops banks from innovating. All three things work together to wrap the bank in ropes of stagnation. Management are unwilling to change systems because it is too risky. Management are unwilling to place systems in the cloud because it is too risky. Management are so focused upon regulation, that innovation takes a back seat.
That’s one view of the world. The other view is that these are intertwined reasons for doing nothing.
So I cast doubt on a survey published last week that said that PayPal is a bigger challenge to traditional lenders than challenger banks.
In the coverage I gave to the survey, I said: “which players are most likely to replace banks, rather than add on to the bank services? I answered this a while ago, and pointed to the P2P players.”
So I stand with egg on face in some part today, as the Financial Times reports: PayPal expands lending programme to merchants.
There’s a headline in yesterday’s Financial Times: PayPal poses bigger threat to UK lenders than ‘challenger’ banks.
The article covers research published by lawfirm Pinsent Masons who used YouGov to survey 2,000 consumers on their views about banking and providers. Headlines from the survey include:
So Apple Pay finally launched in the USA on October 20 and there’s been mixed reviews. Some people couldn’t make payments, whilst some found they were double-charged. However, these are just teething issues and the overwhelming reports are positive. Even former Apple CEO and Financial Services Club keynote speaker John Sculley:
I often talk about how our work-life balance has disappeared and that we now have just a tech-life balance. Social and professional have merged. What was personal is now shared, and things that would usually be private are now public.
This is clear from the way we seamlessly move between our social and professional lives electronically. One minute we’re posting work news on twitter, then next a shared joke. One moment we’re updating our facebook friends with our latest experiences and our linkedin colleagues with a more formal view. Before going to bed, we probably check our emails for work news and social media for friend’s news before we go to sleep and do the same in the morning.
24 by 7 we are morphing between work media and friends’ media and, as a result, banks and other corporations are starting to invest big time in being relevant in our social spaces.
In Boston I was honoured to be invited to deliver the keynote to my law firm sponsors, Goodwin Procter, at their third annual banking symposium. The audience comprised mainly community banks from the North East of the USA, and the discussions comprised panels debating the key issues we all deal with every day: regulation, innovation and demanding customers who needs are changing continually thanks to technology.
The day finished with an excellent keynote from Whitney Johnson.
I’ve been talking about the hot new start-ups targeting the banking markets for a while. There are literally 1000’s of them – the Fintech Awards had over 750 firms to review this year alone – and sifting the wheat from the chaff is hard. There are a few standouts however, and these are the ones I talk about in my presentations.
They generally fall into three categories: wrappers, replacers and reformers.
Everyone’s getting excited about wearable banking. I’m often asked about it, and also see many examples appearing around such themes.
The first was Banco Sabadell offering a Google Glass banking app a year ago. In response, one of Sabadell’s Spanish bank competitors, Caixa, has gone a step further and launched both Glass and Watch apps . In fact CaixaBank went a step further and launched a FinApps Party, a competition to find the best wearable apps in the world. This year Garcon! won, a wearable app allowing streamlined checkout, multi-factor authentication, tagging, transaction history and purchase voiding.
PayPal is here with Android Wear ...
Someone was attacking the premise of digital bank change the other day, by claiming it only refers to consumer banking. Nothing is changing in corporate or investment banking, they claimed.
All areas of financial processes, products and services are being attacked by some new start-up company somewhere. I realise this every day when I see so many bright young things creating a new model using direct connectivity over the net, and thus displacing the trusted intermediaries through technology.
Disintermediation is finally happening; it’s only taken twenty years to get there.
I’ve talked for some time about component based banking but what about component based pricing?
Bank pricing is the most opaque part of the industry, and the part that irritates customers the most. Customers get charged high fees for unauthorised overdrafts as this funds free bank services for those who don’t go overdrawn. Banks focus upon packaged accounts and cross-sell because the core deposit account is their loss leader. It is this area of banking that should undergo the most fundamental change over the next years and it is already happening.
I noted the disconnect between the bank community and the technology community sometime ago in my Red Pill moment, and as the year passes it becomes more and more obvious to me that we are going through a sea change in finance.
Almost every day, I encounter a new start-up who wants to change some part of the banking system.
Almost every day, I see news of a successful new business model in P2P lending, crowdfunding, front-end aggregation, PFM, mobile payments and more.
Almost every day, someone tells me how bitcoin is going to destroy the old banking system by working its way around that system.
Then I go to my banking conferences, and the people in suits – 1,000’s of Mr. Smiths here, as someone tweeted at SIBOS this year – spend all of their time talking about technicalities.
We had a revival of the Innotribe from SIBOS on Monday, by gathering the great and the good to discuss cryptocurrencies at the Escalator, an incubator for new fintech start-ups in East London run by Barclays Bank (if you want a primer on this, see Learn Cryptography).
The session was led by Richard Brown, Executive Architect for Industry Innovation, Banking and Financial Markets, IBM UK. Richard has become a semi-authority on the area, educating banks worldwide on the meaning of the technology of bitcoin and the blockchain. His speech was certainly appreciated here.
You can see his slides here:
I had a realisation over the past two weeks of conferences. Having attended Finovate, SIBOS, Innotribe, a Financial Services Club meeting on cryptocurrencies and several dinners with bankers, we are at an impasse.
It’s the meeting of two tribes, and the tribes do not mix well.
One tribe is full of suits, fine wines, Michelin-star restaurants and business class jets. The other is all jeans, beer, pizza and Ryanair. It’s not necessarily quite as extreme as this, but it’s not far off.
For some time, I’ve banged on about banks must redesign for a digital core. It’s no longer a world that can live in a batch overnight update, when real-time everything is here.
This has been shown again and again by outages, and all of the incumbent banks are struggling to move from old world to new. In particular, this world is illustrated by the channel debate. As I keep saying, the use of the word channel is a last century hangover, that describes ‘adding to the branch-based core’.
Channel is from the old world, where we built a bank for the physical distribution of paper in a localised network. Now, we are transforming to the digital distribution of data in a globalised world, we have to redesign that core. Channels are replaced by access points, and the totality underlying these access points is a single, consistent, real-time digital core.
That is the huge challenge for banks: how to move from old core to new core, and how to move from a physical infrastructure to one that is digitalised.
After years of indecision and procrastination, Apple finally announces what they are going to do in the payments space and the world goes wild.
All the media I read seems far more consumed with Apple Pay discussions, than about the iWatch or iPhone 6 with the bigger, flatter screen.
Even when PayPal announce far more interesting things, like processing payments in bitcoins, everyone wants to big up the Apple machine.
So is yesterday’s news important?
I’m a fan of anything that makes life easier and, for me, PayPal is one of those things.
PayPal allows me to make cross-border payments easily.
Even better, it allows me to take cross-border payments easily.
I was reflecting on the number of new companies starting new ventures in financial services, and wanted to quantify the numbers somehow.
This cropped up because almost everywhere I go, there’s a fintech start-up or start-up challenge.
Barclays has The Accelerator, SWIFT has The Start-up Challenge, Finovate highlights the hot new guys, Sberbank and Santander have funds for start-ups, BBVA challenge them all to show their capabilities and so on.
I was asked by a colleague the other day: “can you name two examples of successful strategies used in investment banking to differentiate and win”.
My first reaction was to say that I could name several that were strategies to differentiate but lost, most of them with JPMorgan.
It's obvious that gamification is a game changer - apologies for the pun.
Gamification is huge.
The games industry is bigger than the movies these days, with Call of Duty, Halo and World of Warcraft, leading the charge but we must not forget Angry Birds, Candy Crush and the range and reach of Flappy Bird.
The gaming industry generates around $100 billion revenues per annum (dependent upon whose figures you look at, and how the stats are calculated), and is being pushed hard by mobile gaming (around half of games are now played on mobiles).
This is why banks need to put games high on their priority list for retail consumer banking but, unfortunately, most banks do not have such things high on their agenda.