A version of this post appeared in the Financial Brand on April 14th, 2014.
Game of Thrones: Fintech Power Struggles in the Age of Digital Disruption
The fintech headlines during the past year have been like a drumbeat signaling change in the Game of Thrones. When a notable shift of power occurs, industry sorcerers look among the entrails to try to understand the broader ramifications as flags over territories change, upstarts are crushed, and rulers usurped. Our kings, queens and courts pontificate about the changing landscape and its impact while deploying appropriate defensive or retaliatory tactics. While the financial services landscape may not offer a perfect parallel to the shifting balance of power between kingdoms in the Game of Thrones, if you’re not at least a bit concerned, you probably haven’t been paying attention. This is an industry in the middle of rampant disruption. And it’s only the beginning.
The Genesis of a New Empire
Banking’s new era is fraught with uncertainty and intrigue. Our industry is contracting, power is centralizing, and the intersection of technology and customer behavior only acts to deepen this pronounced march toward further change. How you view the current state of affairs likely correlates to your overall sense of urgency in addressing this wholesale disruption. While some are fighting against economies of scale, compressed margins, and onslaught of new regulation – others seek refuge in the shelter of a larger kingdom – KPMG asserts that a quarter of all community banks will attempt to sell in the next year.
The chasm between industry doomsayers and upbeat pronouncements by the FDIC illustrating the resiliency of the community banking model might be moot – conservative estimates project 40% fewer banks and 50% fewer credit unions by the end of the decade. Not surprisingly, the financial technology ecosystem is following a similar path – both within inner-fintech (firms primarily deriving revenue from partnering with banks and credit unions) and outer-fintech (firms looking to disrupt traditional financial relationships, infrastructure, and revenue streams).
As financial relationships rely increasingly on technology – our internal development, partnership choices, and pace of deployment become more critical. The surrounding fintech universe acts simultaneously as a hotbed of new star creation (newer entrants, startups or breakaway republics that often act as sources of industry inspiration), colliding galaxies (big bank or big fintech meets little fintech, results generally bad for the latter), and deadly black holes (languishing fintech that sucks the life out of once promising ideas). Where is the fintech universe headed? While some analysts point to the influx of investment (and huge exits) in the broader technology market and see a bubble forming, I personally don’t buy into that idea for fintech as a whole. The potential profit is simply too hard to resist.
Inner-Fintech Troop Movement
Consider recent moves within inner-fintech. One of the largest deals saw Fidelity gobble up LPS ($3.88B). Digital Insight shifted hands between Intuit and Thoma Bravo ($1.025B) and then to NCR ($1.645B). Canada’s D + H acquires Harland Financial Solutions ($1.629B), driving further contraction within legacy providers. FIS acquires mFoundry ($115M) + 2012’s pick up of Clairmail ($174M) by Monitise. Jack Henry acquires Banno (undisclosed). Both sets of deals demonstrating the criticality of acquiring established mobile development teams. On the payments side, PayPal acquires Braintree ($800M), seeking to revive developer credibility and mobile payment breadth alongside their aspiring Venmo unit. Early in the year, ACI bought Online Resources ($126M), consolidating increasingly irrelevant bill pay services, as well as acquiring the merchant relationships and IP behind it. Just a few weeks ago, origination player, Andera (itself having swallowed Finovate darling oFlows a few years back), was picked up by Bottomline (which now owns the business banking half of Digital Insight). Then consider what many industry insiders’ called the most compelling deal of the past year: Simple gets picked up by innovation-minded BBVA and causes as much industry navel gazing as Facebook’s land grab of WhatsApp (and now Oculus Rift).
Are these just established players shifting pawns on a board of fintech chess, searching for additional revenue and relevancy like a shark starving for oxygen? Or could this really be tired technology models in search of a boost of innovation while the industry plays catch up to ongoing digital disruption? It’s probably a bit of both. While some of these deals were more meaningful than others within the context of trends influencing the future of banking, they definitely demonstrate inner-fintech’s dynamism. Tracking these acquisitions and the incestuous shift of ownership is critically important to a bank’s strategy for technology deployment. Partnering for most financial brands, in lieu of expanding their internal application development, is now the basis for survival.
Outer-Fintech Offensives – Protect The Castle!
Globally, fintech investment has more than tripled over the past three year — rising from $928 million in 2008 to $2.97 billion in 2013 – with fintech investment increasing at more than four times the rate of overall VC investment.Source: Techcrunch (http://techcrunch.com/2014/03/26/london-fintech-cluster/)
While inner-fintech moves can create havoc for product roadmaps, vendor management and regulatory due diligence, what’s happening in outer-fintech should be more disconcerting. Venture capitalists are investing in banking’s infrastructure – the plumbing and the pipes. APIs and algorithms are driving greater efficiencies for everything from aggregation to money management to payments. In fact, there are now 1,044 payment startups listed on AngelList alone, encompassing 23,113 investors for an average investment of $3.9 million per company. Fintech is becoming an increasingly crowded space – these firms are collectively targeting the grand disruption of a multi-trillion dollar franchise – namely, the financial services system. And it’s just getting warmed up.
Since the beginning of 2013, venture investors committed over $800 million in new funding to develop businesses providing new investment, lending, mortgage and real estate, and wealth management services in the U.S. These startups have had their best quarter so far in 2014, when 13 companies raised $238.2 million in later stage funding — with at least $162 million committed in March alone. Source: Techcrunch (http://techcrunch.com/2014/03/24/startup-financial-services-companies-come-of-age/)
Forging Of Alliances
These inner-fintech investments should be a concern. Financial institutions and fintech players of all sizes must move to form critical alliances as the industry changes. If financial institutions aren’t able to focus on developing applications and efficiencies internally – they must partner to ensure relevancy. These efforts should be mutually beneficial activities – with customer value at the center of the value proposition. As much of traditional banking services become a utility, those that leverage personalized banking experiences for their profitable customer niche segments will thrive. As we move further into digital experiences, the next decade will be even more incredibly disruptive than what we saw in the recent economic downturn. As I’ve said before, there will be blood.
Bradley Leimer leads digital strategy for the Mechanics Bankin Richmond, Calif. He writes about ways to make banking better on his blog, Discerning Technologist. His initial exposure to Game of Thrones was the infamous ‘The Rains of Castamere’ episode (based on the Red Wedding story from the original books). While scared to watch much more of the series, he says he’ll dive right in – right after finishing House of Cards.
A while back, I got into a to-and-fro on Twitter with Marc Andreessen and Chris Dixon about banking, which garnered a fair amount of interest and commentary
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, after Marc declared that he is “
dying to fund a disruptive bank
“.
So far, finance startups have shied away getting their own banking licence, opting to use an existing bank instead. Movenbank and BankSimple talked up their plans to shake up banking but, in the end, both dropped “bank” from their name and partnered with CBW Bank and Bancorp respectively (Simple was subsequently acquired by BBVA). In effect, they built a presentation layer on top of an existing bank. I don’t think that’s the path to the future of banking. Even if you ignore the downsides of building a business on someone else’s platform, I believe that you can’t be truly disruptive unless you build the full stack.
Stories from the Vault: Real Insight from Real Bankers
In this year’s final installment of the BANKNXT exclusive series on innovation in banking, acclaimed financial technologist Bradley Leimer shares his thoughts on what the next wave of technology holds in store for banks in and beyond 2014.
This is the second installment of this interview.
Bradley Leimer, financial services industry technologist, consultant, and commentator, leads digital strategy for Northern California-based Mechanics Bank. His focus is on developing and integrating technology applications and partnerships geared toward improving the client experience and profitability of digital channels. He brings additional perspective from leading marketing and technology efforts within the bank and credit union industry and from a decade driving database marketing and analytic programs for more than 6,500 national, regional, and community bank clients. Bradley is a sought after adviser for startups entering the financial and payments space
“How you view the current environment likely correlates to your sense of urgency and overall disruption in the banking industry. While we may not all agree on the impact, the shift to digital will certainly have consequences. We’re moving toward an era of engagement banking – a marketing, sales and service model that deploys technology to achieve customer intimacy at scale.”
You’re recognized as a leading financial technologist – what are some of your over-arching goals in leveraging technology within financial services?
While people may associate me with fintech, I certainly tweet enough about it, I think I might be more of a social scientist or macro-economist at heart. I’ve always been very curious about consumer behavior and why people act the way they do. Especially why they buy what they buy, how they pay for goods and services, how the movement of goods reflect societal value, and what society gets in return for those exchanges. While there are certainly differences in delivery and scale across social and economic spectrums and geography, there are basic human needs that financial applications help fulfill. Whether that need is fulfilled by an existing bank today, or will be in the future is another story.
We shouldn’t be selling products and services; we’re facilitating daily human needs and enabling people’s dreams. My ultimate goal is to be part of making these functions more inclusive, to really improve the banking system as whole. I think the way we leverage technology in the future will have a lot to do with helping our industry move forward. I also think it’s critical that technologists, and everyone in banking really, strive to be perpetually curious and always working to understand how we can improve the lives of the people and businesses in our communities, to see the bigger picture of where dots are connecting a ways off into the distance. It’s a critical time for banks to review their place in society and in their communities, not just here in the U.S., but worldwide. The traditional banking model certainly has some cracks in it.
Is the difficulty banks have in embracing change one of their biggest obstacles in terms of innovating?
I think it’s about more than just embracing change. Our industry is overly fixated on regulation and risk. We’re too afraid to experiment. And at this point of history in financial services, FIs under twenty to fifty billion in assets don’t have the scale to screw around and not take additional risks to stand out. We start with ‘no’ as our default answer far too often. This mindset leads to a legacy of friction that disruptors are starting to exploit. Our model simply must adapt to changes more quickly. We must keep up with the simplicity, usability and transparency customers now demand. The disruptors see that the future of financial services will be won by removing traditional barriers and rapidly embracing the shift in consumer and business behavior. Things are moving incredibly fast.
Do you think that the digital channels could help community banks recreate that traditional ‘one-to-one relationship’ feeling that was previously the domain of small town bricks-and-mortar banks?
I think it’s incredibly valuable to have smaller, community based financial institutions as a natural economic hedge to promote financial inclusion and drive more equitable financial relationships with local businesses and consumers. I wrote a piece about this question earlier this year as part of American Banker’s Future Model of Banking series called “There Will Be Blood: The Era of Engagement Banking”. In this piece, I tried to make it perfectly clear: The rise of personalized digital financial and payment experiences are the likely death knell for community banking institutions. The next five to ten years is absolutely critical if you are a financial institution with under twenty to fifty billion in assets.
Decades ago financial relationships were much simpler. You put money in a local bank or credit union and you accessed your accounts in person or wrote checks. When credit and debit came along, you had cards linked to these accounts at that local bank and accessed cash through ATMs. We pushed people out of the branch and ‘Oops’, now they aren’t coming back (and branches aren’t convenient anyway, so why should they?). Now your financial life is much broader, your financial relationships have wider scope and are likely at seven or more institutions. With the rise of the app ecosystem, your financials decisions are becoming much more integrated with other decisions you make throughout the day. Decisions that are more likely driven by a national bank, credit card, or third party financial experience than anything else. While every industry is impacted by the rise of highly personalized digital experiences, it’s very hard for smaller banks to keep up without scale and agile development. Ask Blockbuster how they fared as Netflix and digital flipped the equation. The same will go for banking.
While there are an increasing number of digital opportunities to leverage financial decisions before, during, and after payment, which is becoming the crux of what many disruptors in financial services are targeting (the form and frequency of payment and the associated revenue of those decisions), there’s thankfully more to banking revenue than choosing a particular payment rail. In an industry where the top 150 banks control 81% of deposit relationships and 75% of lending relationships, scale is obviously critical. But there’s great revenue opportunity in niches if your technology can deliver, so even though I come across as pessimistic, I’m actually hopeful.
What should fintech companies be doing or focusing on to help banks achieve a more personalized banking model?
I’d love to blame legacy technology partners for every problem we’re facing, but I can’t. Consumers have changed, technology has changed, and financial experiences have changed. We’re the ones that haven’t changed enough in response. The conservative nature of financial institutions’ is stopping them from embracing real innovation. But still, technology is a critical factor, and the smaller the FI, the more reliant they are on external technology partners bringing new innovations to the table. From core banking to digital service delivery, especially as API driven strategies multiply, we’re seeing entirely new business models emerge for building financial applications and legacy fintech players, just like their banking clients, are having a hard time keeping up. What used to take a year of development can now take months; what took months now can take weeks. Application development is becoming cheaper and faster. The fintech partners we choose to do business with need to be more agile and able to differentiate solutions from big bank services. They need to help the FIs drive more digital revenue to create opportunities to better compete.
How do you compete with Chase, or Wells Fargo, or Bank of America? We need to stop the process of just copying their technology and offer differentiation of value through innovative products and services. This sometimes starts with some navel gazing; clearly defining the type of financial services firm you are trying to be and who you are trying to serve. That done, you can begin to focus on serving customer needs by choosing the right technology and service partners, or continue to build out your own teams, in order to be more responsive to the market and your customer. It’s not rocket science, but we often get this step wrong.
You’re an advocate for incorporating social media and networks into banking, would you say that ‘social’ or ‘mobile’ has been the biggest disruptor to date?
It’s the proverbial chicken and the egg question in a digital context. Both social and mobile have fundamentally changed how we communicate and interact with our customers forever. Social and mobile financial applications have combined to form this perfect storm that is fundamentally shifting the financial relationship back to the consumer and in many ways away from banks themselves.
Banks really missed the initial opportunity in social, which was to drive more personal service relationships with their customers across the channel of their choice, along with the transparency and intimacy that goes along with that. Remember, social isn’t just about networks, it’s about something much bigger than that; the change of expectation that has arisen because of social activity. The industry is coming around to
these larger changes and embracing more socialized, personalized services and customer interactions. There are many great examples, from USAA to Fidor to Simple, where social is a primary component of a scalable business model… unless you’re HSBC and don’t know who Brett King is, and you missed the post about closing his account in the Huffington Post. The key is using social to help people understand their own financial picture, let their data tell a personal story. Help them in context when they need you, and work toward developing a deeper customer relationship through both digital and personal means. It can be done and it is being done today.
Mobile is a bit different, I think we’re a bit more evolved there, but I shudder to think that most bank customers think mobile deposit is our most innovative service. We need to get much better at designing more engaging financial experiences through our mobile applications before someone else does, namely payment providers with deep retail partnerships. As it is, less than half of financial institutions have a mobile banking app. Long term, I see the continued rise of financial applications dominated by non-bank providers – maybe permanently. You can see what type of social and mobile technology inspires me a bit here.
The other question around these two topics that I’m interested in is if the rising expectation of immediacy and intimacy will ever really butt heads with demands for security and privacy. Consumers seem destined to share more and more personal information, but is that starting to shift with the rise of temporary messaging and images like SnapChat? With all the NSA news around data snooping, and a perpetual stream of compromised financial data, are consumers going to put the genie that is social and mobile back in the bottle and choose privacy and transparency? I’m not sure they will, and I think there are many opportunities for banks to lead in these areas.
What is your vision for the future of banking, taking into account the rapid advancements we’ve seen in just the last few years?
Technology is simply accelerating an existing shift in traditional relationships with our customers and this is having an impact on the banking industry’s historical sources of revenue. While we may not all agree on the impact, the shift to digital will certainly have consequences. The banking model is moving towards a truly contextual, customer-centric view. Shifts in consumer behavior demand less intrusive authentication, social connectivity and crowd sourcing, hyper-personalization of everything from offers to usability, as well as tailored assistance and support at critical moments. We are now face-to-face with an engaged customer base that expects a completely frictionless experience. As we move further into the realm of digital experiences, the next decade will be even more incredibly disruptive than what we saw in the recent economic downturn. As I’ve said before: There will be blood.
Delivering contextually aware financial services in beautifully crafted experiences is becoming a necessity to maintain relevance with digital natives. Over the next decade we’ll see: an incredible focus on customizing financial data and personalizing interfaces for varied consumer segments; a focus on simplified authentication using multiple forms of bio-metrics and contextual assessments, from proximity to login patterns; attention shifting to real-time money movement at low or no-cost; further integration of social media into both marketing and banking applications; leveraging and connecting offline and online behavior to disrupt the payment and procurement paradigm to serve up personalized insights – just think of how we could use SKU level data; offering service alternatives through proximity awareness such as actionable notifications that prompt users through their mobile device to move money or pay bills to avoid fees or to better manage their current account spending, continuous assessments of financial wellness that prompt the consumer to take a specific action after a transaction, as well as delivering daily or on-demand personalized information around the customer’s financial health and aggregated account status. I could go on, the possibilities are practically endless.
The reality is that banking is no longer something customers just do. It’s becoming an experience they will completely control. We are moving away from a banking relationship defined by the goal of being a customer’s primary financial institution to one where we focus on becoming their primary financial application. It’s no longer about wallet share. It’s about app-driven mindshare – being ready for the moment our customers reach into their pockets for their mobile device, or their glasses, or other form of wearable technology, and start thinking about their financial relationship choices – before, during and after a financial moment of truth.
The question really is, how is your bank or credit union going to survive the next decade?
Prue Duggan is a writer for BANKNXT, a contributor to several other FinTech and innovation related websites, and community manager at leading Bank 2.0 software company, Backbase. With a background in advertising, branding and content strategy, Prue is a passionate observer of how the web is changing the way consumers and brands interact online and the evolving science of UX design. She has worked as a copywriter for large retail brands, from Nike to Tommy Hilfiger and first became interested in the nexus between communication and technology while working at Booking.com
Stories from the Vault: Real Insight from Real Bankers
In the first of a 2-part installment signaling the end of this BANKNXT exclusive series, we talk to financial technologist Bradley Leimer about his experiences working in the financial services industry. Next week we hear what the new year, and next wave of technology holds for banks, and what they can do to adapt.
Bradley Leimer, financial services industry technologist, consultant, and commentator, leads digital strategy for Northern California-based Mechanics Bank. His focus is on developing and integrating technology applications and partnerships geared toward improving the client experience and profitability of digital channels. He brings additional perspective from leading marketing and technology efforts within the bank and credit union industry and from a decade driving database marketing and analytic programs for more than 6,500 national, regional, and community bank clients. Bradley is a sought after adviser for startups entering the financial and payments space.
“In this new era of applications and partnerships driven by APIs, you can practically build a complete banking experience on the rails of a few technology partners. It really points to the need for banks to take control over their entire client experience.”
What has been the road that’s led you to fulfill such a unique and innovative role?
My background really isn’t in banking, but I was always interested in the role of money in society – how it moved, and what deeper meaning it had. Growing up in Silicon Valley, I was also fascinated by computers and the way they let the programmer manipulate the data you put inside them. I was programming basic applications (likely on a TRS-80) before nine. I got my first personal loan, to buy an Apple computer, at age thirteen. I rode my bike down to my local branch to obtain a secured loan against the paper route money I’d saved in my passbook savings account. The community bank I did that with, American Savings, is no longer around. After several waves of consolidation, it became part of Washington Mutual and is now part of Chase. That’s something I think about that every time I discuss the industry’s ongoing contraction.
After the personal paper route business was disrupted by big delivery truck technology, I helped generate leads with direct marketing data while working in my mother’s real estate office. I then spent seven formative years working within public and university library systems at California University and Stanford. During my time at Berkeley, I was also a Haas Business School research assistant – primarily working on projects around incentives and (at the time) innovative, auto-response phone based marketing research. These types of experiences fed nicely into my love of primary research. Learning how to tackle interesting questions – and more importantly, helping find to the answers to the most critical ones.
I’ve always enjoyed big picture challenges that require categorizing and analyzing large amounts of disparate information. It’s like solving a mystery. My first role out of Cal involved manipulating large sets of financial customer data by developing response models for the industry’s largest banks and credit card firms. You might say I was working with big data before they called it ‘big data’. Back in the days of reels and tapes, when mainframes were truly ‘big iron’ and not racks of servers or cloud based computing. Things have changed so much since then, it is simply a great time to be working at the intersection of technology and marketing. And I’m lucky to be right at the tip of the spear.
Why is the type of role you hold such a necessary one in banking today?
Every financial institution needs a catalyst, a person or a group of people ready to kick the beehive, ready to challenge the status quo. Especially so right now because it’s simultaneously the most interesting and terrifying time to be working within financial services. Our industry has to start thinking differently. There is a perfect storm of evolving technology and increased customer expectation that is rapidly changing not only banking, but every industry. We need to focus on inherent areas of friction and start modeling successful, innovative solutions within (and more importantly) outside of our industry. It’s also important for industry leaders to expand their own reference points. I look to social networks like Twitter to be a kickstarter for that, to meet and interact with disruptors that are changing our industry’s thinking. That’s also why I advise fintech startups. It challenges my own assumptions and allows me to contribute to the larger changes within the financial ecosystem. It’s critical that we get our teams more engaged with the impact of technology and changing behavior before we end up with an industry with fewer than a couple thousand – or worse, a couple hundred banks.
Mechanics Bank is certainly a traditional community bank, how hard is it for a small bank to overcome challenges the challenges posed by adopting new technological innovations?
I like to joke that we work at a 108 year old startup. We’re always open to new things yet retain the critical central idea that propels us forward; the needs of our customers. In the past few years, we’ve been open to newer partnerships, especially around technology. We’ve been exploring little experiments around the way that we interact with our customers, from using social channels like LinkedIn to set up meet-ups and foster relationships with business clients, to embracing outside partnerships beyond those we have with core fintech partners. We launched services such as purchase-driven rewards and have added Mobile Deposit, PFM, P2P, A2A, integrated tax services, and more within our online and mobile platforms. The roadmap only grows from there to include payments and more robust treasury services.
Although we’re a conservative, traditional community bank…we’ve really embraced this idea of how we should best position ourselves to last for the next 108 years. That’s what’s great about this brand – it’s always been very well run, willing to move forward with services to assist our customers, and because of this it has always had a reputation as being a leader in the San Francisco Bay Area market. Our bank was the first to do drive up ATMs in Northern California, we added popular services like ATM rebates years ago, and we’ve made big investments in digital the past several years. One of the challenges we face, however, is that as technology rapidly changes our industry, we will need to embrace quicker, more agile responses in the real world as well as the technological, to meet our customers changing needs and expectations. This is what we are doing with new partnerships as we look at acquiring, communicating to, and best delivering services to our clients. With a new CEO and a new CIO, our bank’s leadership is evolving at just the right time to ensure our long term viability.
Do you think that the future of banking will involve banks having multiple technological partners to help them meet their customers’ needs and differentiate their offerings?
It’s a challenge banks are already facing today. The industry already has a complicated web of legacy technology partnerships and the shift towards interesting digital experiences only compounds the challenge of making agile decisions around vendor management and technology sourcing. I’d like to think our allegiance to legacy fintech is slowly shifting but I think that’s an issue for the industry as whole. When you look at the idea of engagement banking in particular, based on the idea of intimacy and personalization at scale, if we can’t deliver that next-generation financial application, then how do we expect to drive experiences that matter? How are we going to reach that next generation of customers at Mechanics Bank? We’ve got clients today who’ve been with our bank for four or five generations, so we need to connect to that next generation using SnapChat, WhatsApp, and Instagram on a daily basis? We do this by delivering the type of value-added personal one-to-one interaction and service, whether it’s in person or through digital, and likely a combination of both. This may mean a shift in our technology partnerships to enable us to deliver these experiences.
In your experience of looking for fintech partners and experimenting with other providers, have you been frustrated at the level input or control you get to have over the functionality that you’re bringing into your own bank?
Absolutely. Show me a financial technologist who isn’t frustrated and I’d say they weren’t really doing their job. Working in social, mobile and digital is like nothing else. As soon as there is something innovative in one industry it quickly jumps to another, raising expectations all along the spectrum. You should never be satisfied with the status quo – things move far too fast.
When we looked at updating our client facing banking services several years ago, we looked at eleven different traditional providers. We had some ideas of developing and defining the user experience with a collection of several data and design partners but back then a lot of these fintech companies weren’t interested in working with community institutions. So we went down a more traditional route. Now so much has changed that if we had the choice today we might have made a different decision. In this new era of applications and partnerships driven by APIs, you can practically build a complete banking experience on the rails of a few technology partners.
It really points to the need for banks to take control over their entire client experience. I’ve been one of the loudest advocates about opening up platforms. But it’s difficult to get legacy fintech partners to open up a SDK, crack open access to the interfaces, or create meaningful APIs to allow for new development opportunities. As far as I’m concerned, they’re a platform and they should look at it as a service we develop to. Open it up so that our development teams or a shared development resource with other institutions can work towards developing a better solution. We’re the sort of bank that will tinker with a solution to get the right fit. A good example of this is how we’ve re-skinned our treasury platform with the limited development tools our partner provides – very few banks take the time to do that. In fact, very few banks take the time to re-name the application that the provider delivers. Come on, you at least have to position things with a better name than what was on the box.
I think our bank understands the importance of a unified experience and we’re doing everything we can to build more agile development and project management processes to deliver better user experiences – it’s an exciting time in the bank’s history.
[Mechanics Bank app featuring mobile deposit, payment, and contextual offers]
Creating a unified experience requires a lot of collaboration between business and IT teams, how do you manage that at Mechanics?
You have to keep the customer at the heart of every conversation. When I started at the bank, I initially was within our marketing and product group, so I sort of brought that customer focused mindset when I joined the team in IT to lead digital strategy. But what I found is that throughout the bank, we’re doing the right thing for the customer every single time. Often to the detriment of our systems and processes. I think that’s honestly why our customers love this bank; we do the right thing. While we’ve improved collaboration between business units, technology, and product teams, I would say that we could do a better, or at least quicker, job of addressing critical gaps. Of course it’s the same case with every bank I talk to, regardless of size. I think generally what’s needed are roles that cross over marketing and technology, specialists who can add deeper understanding around client experiences, find ways to reduce friction and better ways to leverage data. To better collaborate, you need to centralize skill sets with deeper understanding of the technology and service trends that impacts and shapes client behavior.
How are you applying innovation to your marketing at Mechanics Bank?
Our external marketing is broader, more overarching in terms of showcasing our brand and our services as a whole. It’s becoming more segmented, targeting consumer versus business or wealth versus consumer personas. We’re moving, over time, to become more granular within these personas toward more individually focused, more contextual targeting. Our marketing efforts have to become more like one to one conversations, not just A/B tests of different messages. It has to be “π (pi) based marketing” with an infinite long tail of personalized messaging because that’s what consumers expect – relevancy. The challenge is leveraging data to help our potential customers make a choice to build more of a relationship with us within the proper context. While retailers seem far ahead of financial institutions as it relates to personalized marketing, that seems to be changing pretty rapidly too. Capital One, American Express, Discover, and others on the payment like PayPal are getting it, as are some national banks like USAA, Wells, Citi, Chase, and Bank of America but much of it is still a very standardized approach triggered by financial events. In the end, while our industry seemingly has better data, so much of it is being left on the table. If someone has just purchased a house, they may get approached with additional product offers right away, but they still don’t personalize it to leverage the additional contextual information they (should) know about their consumer’s purchase decision. There’s so much more to making offers meaningful.
Banks are notorious for having very siloed internal structures, which makes it difficult to communicate and implement new ideas, how much of that is true for Mechanics Bank?
You didn’t know that bank silos are actually built in a factory in upstate New York? Or that freshly built credit unions roll off assembly lines in Tallahassee? At least these silos are still American made. Kidding aside, you have to blow up silos and legacy processes. Even do a little dance every time you do it. We’re getting better, but I think many banks of all sizes have this silo issue; creaky infrastructures, inherent risk aversion strategies that slow things to a crawl. I think there’s a difference in opinion about how fast things are changing in the industry, throughout our bank and throughout the industry. You need protagonists to point out the sometimes obvious problems, to ask those ‘why’ questions every single day. Sometimes they seem naïve, but often-times they’re right on target. While I’m fortunate to be around a group of seasoned financial professionals, it’s important not to always think like a banker. Think about the needs of your customer. Then decide which beehive to kick first.
Prue Duggan is a writer for BANKNXT, a contributor to several other FinTech and innovation related websites, and community manager at leading Bank 2.0 software company, Backbase. With a background in advertising, branding and content strategy, Prue is a passionate observer of how the web is changing the way consumers and brands interact online and the evolving science of UX design. She has worked as a copywriter for large retail brands, from Nike to Tommy Hilfiger and first became interested in the nexus between communication and technology while working at Booking.com
The majority of this post was written Wednesday night at 38K feet. I held off publishing earlier because Simple’s being acquired by BBVA was pertinent to the conversation.
Wednesday, February 19, 2014. Somewhere Over Wisconsin, Iowa, and Nebraska
I am really excited. Like, too much caffeine excited. Or perhaps sleep deprived excited, it’s hard to tell the difference lately. The past few months have been incredibly invigorating, as we’ve completed important app updates and initiated long term planning for the next few year’s digital strategy at our bank’s home offices. Lots of changes going on would be an understatement. But that’s the financial services industry right now – lots of disruption.
I’ve also been very fortunate to have had weekly engaging conversations with various founders and fintechers, a variety of interesting opportunities to learn from others in the space and contribute ideas and content, as well as what has seemed like a continuous run of good news for so many of my friends in fintech.
The year has been personally rewarding as well. I’m out speaking a bunch more and I’m helping plan a few fun industry conferences. One of the four companies I advise, CUneXus, will present at Finovate Spring and two companies I advise (CUneXus and Nerture) will be presenting at Bank Innovation’s DEMOvation. I’m really excited for them both.
So you can see it’s been a busy year already. This week was no different.
SFO – BOS – SFO NextBank Advisory Board Meeting
In the past day, I’ve travelled between San Francisco and Boston and back (in the air almost as much as on the ground it seemed), read Hatching Twitter cover to cover (about time, right?), saw some snow for the first time in quite a while (I’ll try to send some back home – we need it in California), and spent much of the day with my fellow Advisory Board members planning the next iteration of NextBank (today’s meeting included Brett King, Jim Marous, Beth Lee, and Phil Swisher – and with additional input coming from JP Nicols and Ron Shevlin – a great group to be involved with).
After talking about many great potential topics and speakers and different ways to position NextBank within the crowded conversation of the future of financial services, we got on the subject of external industry innovations. I jumped in by extolling some of my ideas on how IFTTT and actionable personalization may change the way we think about financial services delivery (extending the push toward a Primary Financial Application connecting actionable services through APIs). We talked about future revenue models, the internet of things, the importance of visualization, of the evolution of customer experiences, and how to best engage an audience used to an onslaught of seven minute demos and vendor case study after case study. We even had a bit of a tussle about the future use of bank branches. Imagine that. Overall, a great session meeting to discuss topics, agenda, and planning for the event.
Learn more about NextBank - hopefully we’ll see you in Boston in June.
WhatsApp + Facebook: What’s That Again?
My twitter blew up at 5:08 ET after Techcrunch posted the first of what would soon be dozens and dozens of quickly written articles. This was just about ten minutes before I boarded my flight home to the Bay Area. Great, it looks like I’ll be paying for on-board wifi again while watching the Olympics (thanks VirginAmerica for both options).
WhatsApp Acquired By Facebook For $19 Billion read the first article. Then from the Verge, then more from Techcrunch…it didn’t stop.
Boom. Zuck drops the mic. Nice job Mark.
Not SnapChat. No, the $3 billion that seemed so big was obviously far too small.
After reading on the flight over to Boston about Zuckerberg losing out on his attempts to acquire Twitter, and after SnapChat’s recent very public rebuff, the Facebook founder clearly is trying to re-establish his deal-making prowess, stealing some of the other valley giants recent thunder. Zuckerberg action showed he will do everything to keep Facebook relevant. He wants Facebook to be the first 2 billion, 5 billion, 7 billion user company. I hoped this works to revive whatever mojo he needed recharging after being rejected one too many times in his own living room or while on one of his Jobs-like walks with other young founders (What is it with these guys and walks anyway? From plotting revolutions to coding revolutions, coffee shops are the source of all disruption).
My favorite tweets about the WhatsApp deal came from Box’s Aaron Levie, who said “Zuck is literally the most badass ceo of all time. This guy doesn’t screw around with innovators dilemma” and from Startup L. Jackson “A good founder plays where the Zuck is. A great founder plays where the Zuck is going to be” as well as “And that is the sound of every startup in the Valley pivoting to messaging.” Indeed.
Clearly the valley was abuzz.
What’s Special About WhatsApp?
What likely worried Zuckerberg was that WhatsApp had a more compelling product than SnapChat, a cross-device dead simple chat product that appealed to a much larger and more diverse global audience. One that was mobile only, and one that was on a trajectory to be the first billion user mobile first application (the graph above = hockey stick). After reading Wired UK’s great overview of WhatsApp and its founders, I really get it.
I can certainly relate to the founders message about wanting to build a simple tool that facilitated communication between users across networks that could also be archived, because it was most often used between friends and family (not that I ever bought into the idea that SnapChat was all about sexting teens, but it’s stealth nature of disappearing images with squiggles did rule out grandma using it a little bit). I could also relate to the idea of of the founders not wanting to advertise (I’ll have to create a whole other post about transaction based rewards and alternative revenue paths and transaction based monetization – I don’t think future revenues are obvious…and I think WhatsApp holds some clues). After reading that Wired profile, I have a lot of respect for both WhatsApp founders.
While images (and voice) are a huge part of WhatsApp, it was a very different model than what the narrower SnapChat offered. Rather than focus on deleting your past, WhatsApp focuses on facilitating your present, curating a dialogue of your connections from your contacts across devices, and this simple app helps preserve those communications (and why not integrate to dedicated cloud storage and take that one step further, but I digress).
WhatsApp Lessons For Financial Services?
What are some lesson for banks and payment providers? Really, it’s a continuation of disruption’s course de rigueur. WhatsApp, driving more messages than the entire SMS network and likley more shared images than Facebook and Instagram combined, reflects the larger changes and the simpler needs of communication trends. Other interesting points about the WhatsApp deal (especially for app developers and their UX counterparts) were brought up by Andreessen Horowitz‘s Benedict Evans on the valuation and what it means in the larger picture.
(The WhatsApp acquisition) is interesting in all sorts of ways – it illustrates most of the key trends in consumer tech today in one deal. First, it shows the continued determination of Facebook to be the ‘next’ Facebook….
Second, the winner-takes-all dynamics of social on the desktop web do not appear to apply on mobile, and if there are winner-takes-all dynamics for mobile social it’s not yet clear what they are. There are four main aspects to this:
Smartphone apps can access your address book, bypassing the need to rebuild your social graph on a new service
They can access your photo library, where uploading photos to different websites is a pain
They can use push notifications instead of relying on emails and on people bothering to check multiple websites
Crucially, they all get an icon on the home screen.
Any smartphone app is just two taps away – a desktop site can crush a new competitor by adding it as a feature with a new menubar icon but on mobile there isn’t room to do that. Mobile tends to favor single-purpose, specialized apps.
Third, the sheer scale of the numbers involved is a good illustration of what the shift to mobile means. I produced a presentation here to try to drive home this point: mobile is the next computing platform and it is several times larger than the desktop internet.
There are now roughly the same number of smartphones and PCs on earth – those PCs are mostly shared and immobile or locked-down corporate boxes, while the smartphones are mobile and personal.
Meanwhile, the widely-discussed collapse in the cost of creating a startup in the last decade combines with both the much larger scale of mobile and the routes to market and virality offered by mobile platforms to mean that if you’re very good (and lucky) you can get to astonishing scale in a short time. This scale is at the heart of the valuations we’re starting to see – WhatsApp is probably now sending more messages than the entire global SMS system.
Video, Imagery, Simplicity, And User Focused Design
Brett King brought up another salient point during our NextBank planning session about the future belonging more and more to video (and I’d echo that with the continued onslaught of photos, shared imagery). People want to tell stories, share their own stories, and connect…and more and more that is a visual connection. Where is visualization in banking? What’s the SnapChat, WhatsAppequivalent in financial services? We have a few neo-banks like Simple leveraging embedded images (to provide connections to receipts, or photos associated with experiences tied to transaction level data), and we have some pretty established banks leveraging Mitek and Kofax to leverage the camera, but I think there will be a host of image related financial innovations this year. People underestimate the power of personalized visualization within financial application user experience design.
After more conversation, Brett challenged the group with ‘where is the Elon Musk of financial services?’ Considering Elon helped bring about PayPal, I’ll let him slide a bit on that one…but I get the idea. And I think we’ve already had the Steve Jobs of banking, as the iPhone simply changed everything (and there’s only one Steve Jobs, sorry @jack). I’d be happy if we had a Mark Zuckerberg of banking, or even the equivalent of WhatsApp’s founders as builders of financial applications.
In some ways we do. At least, we collectively have the intellectual fire power being aimed at cracks in the banking system. I meet these people all the time. Founders of payment companies, small teams of developers, corporate rebels pulling innovation along within financial institutions of all sizes. Some of their efforts are getting a lot of traction with small to mid-size FIs (my friends at perennial Finovate Best of Show Money Desktop come to mind), others are being acqui-hired by incubators or venture arms of bigger (often international) banks (from Finovate companies to two person shops, great little applications abound), others are making inroads within banks and larger fintech players.
That’s all great, but it’s still not enough.
With the pace of disruption in payments alone (there are now over 977 payment startups on AngelList alone), talented developers are looking at the possibilities to improve banking in many interesting ways, as I’ve detailed pretty well in what some people call my Manifesto for Financial Services. Why do we make financial related experiences so difficult? Why is the U.S. the most backwards, least innovative financial landscape in the world? OK, that’s a little harsh, because there are a lot of great financial innovations slowly moving this great battleship, but come on. Signature cards, three day transfers, complicated product sets. And as you move from retail to small business to corporate and wealth, it only gets worse.
Fintech Investment Starting To Heat Up
The amount of fintech deals by VCs last year was around what, $2 billion? And the industry we’re talking about disrupting is multiples of trillions? There is a disconnect. Maybe disappearing images and multi-national multi-network chats are sexier, but I’m thinking 2014 is going to see a lot more investment in both fintech and ancillary services in the financial ecosystem. Just like enterprise apps, financial services may not have the glitter, but when you’re talking about experiences that touch multiple billions of people on the globe, there’s a lot to potentially tackle…albeit with plenty of profit for embedded players and niche disruptors. While the amount of movement toward larger disruptions in the financial space is moving toward simpler experiences that benefit the customer, that enhance the customer experience, it’s still not fast enough. Not at the speed driven through changes in customer behavior driven by social and mobile experiences.
Like Facebook, payment providers and financial giants will be making more investments to acquire people and truly build great experiences. (When I talk about Simple a bit later, this tweet came to mind - click through and follow this thread…VCs are very interested in financial services…expect a lot more interesting deals in the coming years).
@pmarca @cdixon @rabois Does the Simple sale to BBVA make you more interested in funding a bank, or less so? Why?— Michael Boeke (@mvboeke) February 21, 2014
My last tweet before I boarded my flight to Boston:
WhatsApp. Meh. We'll stick to this banking disruption thing. Who needs $16B anyway when you're talking trillions. 😏 Wheels up. BOS-SFO.— Bradley Leimer (@leimer) February 19, 2014
You don’t have to be a twenty-something founder (or thirty or forty year old founder as in the case of WhatsApp) to be excited about that. It’s not about a billion dollars (or 16 billion) being cool anymore, it’s about changing the role of money in society. Like the power of social, mobile, and technology trends enabling and wrapping themselves around changing human behavior, this revolution is already happening. Most of us are merely foot soldiers in this great endeavor, but change in the financial services space is only starting to accelerate.
We ain’t seen nothing yet. That’s exactly why it’s exciting.
And then the next day we woke up to the news about Simple.
Thursday, February 20, 2014. Somewhere On Highway 80 With Simple
I’m driving into the office and my Twitter feed erupts again with the Simple news. Here we go again. Different valuation, different model, different scale, but the inevitable comparisons and navel gazing. Obviously very different topics, but almost as interesting to those of us who have rooted for Simple from the start. For me, a sort of melancholy ending.
What should we learn from Simple-BBVA partnership? Start at how the company was formed. Like many people involved in fintech and digital strategy, I was very excited and supportive when Simple was first announced. I always felt they could carve out a successful niche in banking, whether they partnered with a bank (or even several), established their interface as a white label offering, or if they took the time and considerable effort to get a full banking license.
What the team at Simple likely discovered is what everyone in the industry already knew: it’s hard to be a bank (or even a payment provider due to the regulation and transmitter license requirements), it’s hard to partner with banks of almost any size and get beyond their risk aversion, and it’s even more difficult to start a de novo bank with the capital requirements and regulatory burden. This is the case even for a branchless digital only de novo. So their pivot to partner with Bancorp Bank made perfect sense.
Simple’s journey in building out a savings focused application with limited negative customer impact was inspiring. As was their focus on simplified onboarding (with a cheeky waiting list to boot), welcoming Apple-like debit card packaging and delivery, trickle of application updates bringing thoughtful touches of user-focused innovation (Safe to Spend, debit card toggle, user embedded transaction based images, Dropbox integration); it was all there, with much more in the hopper. Then you add a non-bank like transparency and personally engaging un-bank-like social media strategy on top of customer focused simplified experiences – this was a winning combination.
I know very few people I truly respect in the industry that didn’t appreciate what Simple accomplished in the past four years. Josh and Shamir simply made banking a better place.
While critics took their swipes (and some things could have certainly been improved), Simple customers didn’t care. Nor would they even know, because critics were generally from the industry Simple was attempting to disrupt, and average consumers outside of industry weren’t going to find much disparaging coverage in the mainstream press.
The eventual issue likely came down to running out of money as Simple required additional investment to grow. Burning through their initial $15-16 million investment, the revenue model needed to expand as much as their team in Portland. With a transparent goal of reducing bank fees, credit products and traditional loan income needed to be bolted
On. A deposit focused NeoBank could not live on interchange alone.
Do I think Simple had been quietly shopping itself for much of the past year? I’ve had several people tell me that, but I don’t know for sure. They needed additional investment to grow, that’s all but certain. They needed an expanded customer base to grow profit from key credit segments, and a critical flush of cash or outright purchase made perfect sense. I’m surprised it hadn’t happened earlier to be honest.
Something needed to change.
Enter BBVA.
BBVA + Simple: What Next?
What should we learn from BBVA’s acquiring of their new trinket? That the cofounders are great salesmen for one. They got one hell of an valuation for such a small customer deposit base in my opinion (update: more people seem to thinking was too low). There’s been plenty of coverage of their price per user, and far too many comparisons to WhatsApp this week. It’s just a little silly to compare the two, but in some ways the lessons are the same: building simplified digital experiences, especially in financial services is critical to institutional survival.
Is BBVA trying to build a global direct bank brand through Simple? Possibly, at least they’ll now need to work with the Simple team to figure out how to scale this in multiple markets. Would this compete with BBVA Compass? Certainly, but who cares? Let customers choose their own flavor. Markets will do the rest.
Was it an acqui-hire for the 90-plus Portland based Simple team? With the rise of more and more direct digital only versions of foreign banks, BBVA is smart to lock in this talent for a while and learn from their efforts. My only fear is that with the inevitable departure of the founders, what has really been gained? More in that in a minute. The team at BBVA is a technology forward, aggressive minded Spanish bank with a broad global footprint. Like Citi Ventures, Amex, NAB, Standard Chartered, and countless other bank incubators and innovation arms, early development fintech firms and leading technologists are being courted and constantly evaluated. The Simple team was a valuable prize.
We’ll likely see much more acquisitions of this type in the next few years.
There Will Be Blood: Part II
Simple’s acquisition further proves to me that the coming contraction in the banking industry is not only real, but this reality should drive bank’s primary strategy to focus in building scale and profit through digital (this contraction is here to stay, whether through unprecedented M&A, mass customer migration toward larger deep pocket national and super regionals, or the rapid influx of foreign banks like BBVA, Santander, and BNP Paribas. Will BBVA + Simple become a new powerhouse bank, challenging top 10 global financial brands? Maybe. But does it matter when in less than ten years time, most banks in our market will have to be over $50 billion in assets just to compete for relevancy? That doesn’t leave very many financial institutions from the sub-14K we have today. Moving right along.
Other quick lessons from Simple’s acquisition: Reducing friction, adding transparency, and driving toward customer focused design within beautifully crafted applications is critical not just for messenging or social media apps, they’re a necessity for financial institutions as well. Social media in financial services should be fun, and focused on solving a customers problems, engaging customers in personal ways, and is a 24/7 role. Banking can be inspiring as long as the people building the bank are as well.
You know from this blog (and from Twitter) that I am a huge Simple supporter. I’ve had several conversations and countless chats on Twitter with Simple’s co-founders Josh and Shamir over the years and I always found them incredibly genuine, passionate, focused, and acutely aware that Simple shifted some of the conversation around innovation within financial services. Whether the story of Simple will go down as part of their founder’s myth, or whether they continue to make a dent in the banking universe remains to be seen. I, for one, see their influence in the financial space as only beginning. And we should be inspired and thankful for it.
My congratulatory tweet said something to this effect: Thank you @i2pi (Josh) and @shamir_k and the @simple team for building a bank that ‘doesn’t suck.’
We should all be focused on a similar mission.
The email that started Simple…hopefully something that will be tacked up on the wall at BBVA (and a few startups I can’t talk about).
People within banking have a lot of opinions around where financial services are headed. Your bank or credit union may have just completed their 2014 planning sessions and had some lively debates about the future model of banking and its impact on your initiatives.
While you might be on the side of Brett King and go all-in on the forces around digital disruption (I tend to be on that side of the fence, with a hint of hey-community-banks-and-credit-unions-wake-your-asses-up urgency), you might have seen and agree with several points from a recent American Banker post from Katya Grishakova entitled “A Return to Old School Banking.”
More on that in a minute. Katya’s post was part of a recent American Banker series on what customers want – and it’s worth a long look because I think we don’t put ourselves in the shoes of customers often enough. Here are American Banker editor Jeanine Skowronski’s introduction to the series and a link to the entire series of articles.
“…today BankThink introduces a new series, entitled “What Bank Customers Want,” in which people from different demographics will provide firsthand accounts of what they are looking for from the financial firm they do business with.
Contributors were asked to comment on broad issues – for instance, mobile versus brick-and-mortar banking – but also encouraged to get specific.
Our fundamental pitch, however, was: “If you could design your perfect bank, what would it look like?”
Getting back to Katya’s article on returning to old school banking, here’s an excerpt:
Let me put it this way: I prefer the old-fashioned banking model. I don’t care for mobile banking. I don’t own an iPhone. I like my BlackBerry and I’m fine banking in a physical branch. The absence of mobile banking will not prompt me to change my bank.
I pay my bills online, but prefer to make deposits and withdrawals (over $500) with a person.
I don’t like to be hustled….In short, a good bank has to be there when I need it to be, no more or no less.
I’m generally suspicious of any banking innovations. Any creative banking is an automatic blinking red light in my book. New products and services rarely are directed at making my life easier. Instead, they are meant to improve a bank’s bottom line at my expense.
The two primary functions of banking should be to take deposits and to make loans. All other services should be supplementary to these two primary activities. I wish banks would refocus more on traditional services.
Does any of that resonate with you as a financial services customer? Maybe in the same way in how you think about how travelling via plane was in the 1970′s perhaps? Or maybe you recognize that because the majority of financial services still have echoes from those roots? Either way, I encourage you to read Katya’s entire piece on what she wants from banking, because I feel it represents a sizable chunk of your existing customers who feel banking needs stick with its simpler roots and commitment to personal service.
Even as we shift toward digital experiences, we must remember to have the customer’s viewpoint throughout our design process and in mind as we craft simpler experiences (see Jin Zwicky’s fantastic piece today in Jim Marous’s Bank Marketing Strategy blog entitled Simplicity In Banking Is Anything But Simple).
This post must have struck a nerve because I saw a flurry of responses on Twitter the day it came out, reminiscent of the chatter a few months back when Slate writer Matthew Yglesias published his piece suggesting we kill of community banks.) Here were some responses from that piece in the Federalist, American Banker, and from Aite Group analyst Ron Shevlin.) As with the Slate piece, Ron decided to respond to Katya’s longing for traditional banking as well. And that’s where this topic gets interesting.
My take: The views expressed by the author of this particular editorial do not reflect what “bank customers want.”
Bank customers–OK, not all, but many of them, and especially those in the Gen Y and Gen X age groups–want to avoid talking to people at banks. They:
Do not want to make deposits “with a person.” They’re happy to have their paychecks automatically deposited in our accounts, they’ve become increasingly comfortable depositing checks and cash in ATMs, and they’re looking forward to using our smartphones to use some ridiculously-named service called remote deposit capture.
Do not routinely withdraw $500 or more on a regular basis. They pay with debit cards, credit cards, prepaid debit cards, and our mobile devices. They do not carry around $500+ of cash.
Do not need a live teller when they manage their brokerage and retirement accounts. First , because many people in this age bracket don’t have those accounts to begin with. Second, because many do not have nearly enough money in their brokerage and retirement account to warrant having a person assigned to “oversee” the account. And third, because nobody (OK, except maybe the author of the editorial) wants to talk to a “teller” about their brokerage and retirement accounts.
Are not OK with going into bank branches. They (think they) have better things to do, regardless if there’s a line in the bank or not.
Ron goes on to take on many of Katya’s points – again, I encourage you to read the entire post for context, lest I interject myself to any target list for this debate.
Naturally, American Banker had a response to Shevlin’s post.
I wanted to hold off on drawing conclusions from BankThink’s ongoing What Bank Customers Want series until we heard from more people of different demographics. But Ron Shevlin forced my hand.
We launched “What Bank Customers Want” after noticing a divide among pundits regarding what is currently driving and what will inevitably determine customers’ banking choices.
Each op-ed is admittedly anecdotal and not meant to represent the be-all-and-end-all of how customers collectively feel about banking. The aim, instead, is to solicit direct customer feedback that could, in the aggregate, point to trends, particularly among demographics, and supplement other research or oft-conflicting statistics on consumer sentiment towards banking.
Something else which, based on the comments on Grishakova’s piece, may have gotten lost in translation: Unlike our earlier Future Model of Banking series, contributors weren’t asked to predict what the banking industry will look like five-to-ten years from now.
Grishakova isn’t analyzing trends. She’s not approaching the op-ed as a banking/fintech expert (even though she used to work in finance). She’s simply commenting on how she banks and how she would like to bank, under her ideal circumstances.
Jeanine goes on to talk about several of Ron’s point’s, and defends Katya’s point of view quite well, but adds some flourishes to fill in Shevlin’s thinking that (again) derived a response from Ron in the comment section.
Again, my point in writing about this at all isn’t to provide a blow by blow of each piece. Please read all three pieces, finishing up with Why Assume Old-School Banking Is Old-Hat? and the comment section, because I actually think each one of these three pieces make some great points. So maybe each author is right.
Why do I say that? It’s the same reason I have been quoted as saying that today is “simultaneously the most interesting and terrifying time to be working within financial services.” Here was my response to the American Banker article (as posted in the comment section):
Wow. Quite a back and forth here. I think this is a good ‘debate’ to be having, because I think it’s more than a discussion about old school vs. new school preferences (ask Blockbuster’s reliance on brick and mortar worked out for them). I think it’s a discussion about the future of the financial services model itself.
While there are too many points in both pieces to really address in a comment section – and honestly good points on both sides – because you’re both right in a way – the banking model is shifting – and quickly. There are certainly plenty of customers that still want traditional banking services delivered – in person, in branch, with people they form a relationship with and trust – but the financial services model, like so many industries around us, is profoundly changing and shifting due to changes in both consumer behavior and expectations due to the ability to deliver complex services through digital. Concepts of loyalty, convenience, and value are in a state of tremendous flux.
Our 108-year-old bank (like most community financial institutions I’m assuming) derives its historical reputation via our in person service – not necessarily through our technology (though we’ve been working to change that of course). What is happening more and more though, as we add new self-service channels, digital is very quickly marching to replace traditional in-person experiences – deposits, lending activity, transfers, account opening, and even financial advice. As we’ve built out digital table stakes like A2A and P2P, PFM services, mobile apps, mobile deposit, integrated tax services, and other digital service channels to mitigate the need to visit brick and mortar – we are reacting to changes driven by shifts in customer behavior and competition from big banks, NeoBanks, and non-traditional players like Walmart and T-Mobile that bring scale. Not to mention the competition for app-driven mind share that payment providers are working toward (there are over 930 payment startups now – doesn’t that keep you up at night?).
It’s not a matter of if traditional brick and mortar services are out of touch with today’s consumers, it’s how your financial brand will react to and append service delivery options to derive customer satisfaction and value across the product and service spectrum – and how to do so profitably. You should be very worried about how are we going to reach that next generation of customers – while still maintaining services critical to customers today. We’ve got clients today who’ve been with our bank for four or five generations, but it’s critical that we connect to that next generation using SnapChat, WhatsApp, and Instagram on a daily basis. We’re doing this by delivering the type of value-added personal one-to-one interaction and service, whether it’s in person or through digital, and often a combination of both. This involves a huge shift in thinking in order for us to deliver these experiences.
As I wrote in my “There Will Be Blood: The Era of Engagement Banking” post last year as part of American Banker’s Future Model of Banking series, technology is accelerating the shifting expectations of traditional financial relationships with our customers as well as the banking industry’s historical sources of revenue, growth, retention and customer loyalty. What is the future of the financial services model? As much of traditional banking services become a utility, those that leverage personalized banking experiences for their profitable customer niche segments will thrive. As we move further into digital experience, the next decade will be even more incredibly disruptive than what we saw in the recent economic downturn. By the end of this decade there will be 40% fewer banks and 50% fewer credit unions. There will be blood indeed.
I don’t think Ron was really attacking the original poster. I see his efforts as part of a continuation of an ongoing wake-up call for the industry. I truly appreciate Jeanine’s defense of the original article – these type of customers may indeed be in the majority still – but that is really starting to change as digital marches forward. Traditionally delivered in-person financial services may not be moving toward complete extinction, but we need to be prepared for changes ahead. Personal relationships in banking will always be involved, but delivering contextually aware financial services in beautifully crafted experiences is becoming a necessity to maintain relevance with digital natives.
Who’s right? Who’s wrong. Maybe everyone is. At least for now.
I, for one, will be looking forward to Brett King’s next book, due out April 14th. This one will be centered around content from his radio show Breaking Banks, and will likely cause some more discussion at your bank or credit union’s boardroom. I can’t wait.
Happy new year. How did it become (almost) February already? So much going on.
I know it’s been a long while since I’ve posted anything to the blog, so here are some links and recent content to get you up to speed on what is catching my interest early in 2014.
I had a chance to review the material for the Technological Future of Money along with some of my friends in fintech and finsvcs. This presentation comes from Envisioning. They describe themselves as an independent technology research foundation based in Brazil that has a mission to raise understanding about the implications of accelerating change. They study emerging tech using research, technology and design. The content is very well done so I wanted to pass it on. As it relates to changes impacting financial services, it just reminds me that big changes are happening to financial services in every corner of the globe – especially in how we interact with financial institutions and view the role of money in our lives. When you view it, hit that full screen button on the bottom right or go out to Slideshare and download the deck. Here’s the primer for the deck:
A tide of technology — cryptocurrencies, P2P economies, payment APIs — is reshaping the world before our very eyes. We rarely memorize, wait in line, rewind, unfold, print or phone anymore. There has never been a better time to map the phenomenon of human innovation, and there is no better place to start with than with money.
Hats off to Michell Zappa and the crew at Envisioning to produce this work.
What else have I been up to? What have I been talking about?
My focus for much of the past year was on updating our mobile apps, adding mobile deposit and expanding related services in mobile and online, helping redesign our bank’s web content and user experience, as well as directing efforts toward mobilizing our client facing technology to drive direct revenue through digital channels. I’m still amazed how mobile app usage and mobile deposit are tethered. I have called mobile deposit (and mobile banking through apps) the gateway drug to mobile payments – something banks need to keep on pursuing – the idea of driving financial relationships through a Primary Financial Application really resonates with me, so expect more writing and developments on that topic in the coming months.
I’ve spent a lot of time kicking the tires on finsvcs technologies, especially as it relates to potential partnerships with smaller/growing fintech firms and startups. The financial services revolution may not be televised, but it will be driven by APIs (Stripe, Standard Treasury – what financial services can’t be facilitated and made more efficient through APIs?). I am currently looking at business applications now, from SME to corporate, really trying to better understand opportunities to make these services more efficient, resonate more with end users. The problem is that there is a dearth of really good (traditional fintech) core client facing business applications – especially in regard to mobile offerings. Let me know if you are using (or have developed) something we should see. It’s been a busy year at the bank, and with a new CIO and CEO, and focus on growth and gaining efficiencies, I think we have another great year ahead of us.
While not directly blogging, I’ve tried to be active in at least commenting on and contributing to what’s been happening in the space. I’ve participated in several conferences in the past quarter and continue to be amazed at how quickly things are changing in financial services. I’ve expanded the breadth of companies I am advising, including working with Meniga out of Iceland, Nerture out of Canada, and CU Nexus out of Northern California, two of which will be part of Demo at Bank Innovations conference in Seattle in March (info here). CU Nexus just announced a partnership with Digital Insight, so I am very excited about the year ahead for their team. I’m learning from each of these experiences, and look forward to hearing what you’re focused on this year. There’s a bit of a bubble brewing I’m afraid, as we see 930 payment startups on AngelList alone (that number seems to increase daily), but there is plenty of opportunity left in fintech, especially in creating new payment experiences going after what I call the Holy Payment Trifecta: Consumers, Merchants, and Developers.
I was also very fortunate to take part in an interview on banking in the trenches discussing the future of banking and innovation. Here are the links to that two part interview on Backbase’s BankNXT blog:
Breaking Banks – Innovation In Small To Mid-Sized Banks
A few weeks back I had the great privilege of joining Brett King’s radio show Breaking Banks speaking alongside JP Nicols on innovation in small banks (the audio can be found here - suggest you subscribe to the Podcast via iTunes).
I’m going to have to step it up if I want the blog to get another honorable mention from the Financial Brand for best bank marketing blog. I know this is more of an update on what I’ve been up to over the past few months, so I’ll see what I can do about a more consistent posting schedule. Let me know what you’re interested in seeing.
I feel fortunate to be working within this space, trying to make a difference in the financial lives of the average consumer each and every day. So much of that journey has been learning from and sharing with my extended network. As always, connect further. Let me know what you’re doing to make banking and fintech better. Let me know how I can help.
Wishing you and your development teams all the best in 2014.
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