Then how do you innovate?

I’ve been researching several fintech and banking topics for an upcoming presentation around opportunities beyond our typical product, service, and technology stack. We’re discussing banking’s value paradigm and how we could conjure innovative paths that drive both new sources of revenue and new types of client value.

Here are some of the things I am addressing. What is banking going to look like in 2020? What will impact our traditional model of financial service delivery? What type of new services or opportunities are being delivered by alternative providers today? How could we leverage alternative financial business models and how could they impact future revenue generation?

If you had to pivot the traditional banking business model, what would that look like? What are the primary ways banking is being disrupted – what are the key areas of vulnerability?

Those sorts of things.

The topics discussed might end up ranging from simpler consumer market expressions, like the power of social data and influence on conversion across related verticals, leveraging changing demographics in our marketplace and how attitudinal shifts impact traditional product positioning, along with likely coverage of low-hanging fruit (and personal pet-peeves) around under-utilized portions of online and mobile channels (including suggestions to improve PFM, deals, mobile transaction capabilities), lost opportunities across mobile payments and proximity based rewards, and how we better leverage transactional payment ‘big data’ in new ways to offer expansive client value.

My field for topic discovery is still fairly open, so I welcome your feedback on your vision of banking’s future. Where will we derive future revenue from, and how does that revenue pie look different than today?

Or are we already firmly planted in a multibranded-multi-channel-banking world? Some great dialogue related to this comes from Chris Skinner’s the Multibranded Bank and Brett King’s the Economist Debate on Are Bank Branches Obsolete?

One topic I am digging into is really intriguing to me.

It’s leveraging on what Innotribe’s Peter Vander Auwera calls the Digital Asset Grid or DAG. DAG presents the idea that as the banking model evolves, people will look to leverage the trust they hold in financial institutions (and related infrastructures) to evolve from the protection of monetary (and in many cases physical) assets and the facilitation of payment transactions, to a much deeper level of protections for every aspect of our digital lives.

The premise is that we offer our personal (and business) information too freely – and corporations are leveraging (and making large sums of money on) the information we share. Consumers (and businesses for that matter) should have a stake in not only the protection of this shared data, but in the revenue associated with it. In essence, start valuing what is currently devalued. At the heart of the DAG concept, is the ability to better (or ideally completely) control ones digital assets.

Can a secure, bank-built network enter into this Digital Asset Grid equation and offer value to all parties? Conceptually, I find the idea fascinating, and am reviewing several paths where this makes sense from a revenue standpoint. But DAG will serious investment and a huge amount of faith to become reality.

What’s more interesting about DAG is that Innotribe plans to walk through their business model next month in Belfast.

I’ll dig into this in future posts, but for now, get familiar with this topic because I think it holds some promise for banking beyond 2020.

First, view the excellent post from Kosta Peric, Co-Founder of Innotribe, the innovation arm of Swift (Society for Worldwide Interbank Financial Telecommunication): The Castle And The Sandbox: How To Innovate In Established Companies

Next, watch the video below that includes an introduction of the concept of DAG, along with the challenge of innovation.

This video comes from the TEDxNewWallStreet-FinOlympics presentation by Peter Vander Auwera (aka @petervan), Innovation Leader at SWIFT. In this video, Peter discusses a story about babies as a metaphor for ideas, sandboxes for experimentation for financial institutions.

Here are some related posts around the concepts of innovation in banking, Digital Asset Grid, and more:

What Banks Can Learn From Silent Movies…And The Titanic

A Global Exchange For Personal Data

“Global Data Banking”: Are the Banks Really Ready?

How Banks Might Transform Their Businesses and The Future of The Internet

Who Do You Trust More with Your Data: Facebook or a Bank?

In finance, facebook is just a phase we’re going through

Banks should follow Google’s approach to privacy

Digital Asset Grid Concept

Our traditional banking model is being disrupted because of many factors, including a) key industry players underestimate (or worse taking a blind eye to) the changes to core revenue areas within the business model, b) our inflexible infrastructure makes us less able to quickly capitalize on recent shifts in consumer and business behavior (as well as the flexibility needed in this new era of changing demographics, new economic realities and regulatory environment) and c) our lack of champions make it nearly impossible to achieve scale and derive return on even the simplest of innovative applications.

In order to facilitate long term change, we need a sandbox to innovate, we need to be able to learn from failures, and take on additional risks to see which new planks with the traditional model may stick.

Take some time to watch more industry players discuss innovation, and how it’s often necessary to pivot your business model to succeed.

Scott Anthony tells #NBASG12 how companies need to confront transformation (below)

Read Reid Hoffman On PayPal’s Pivoted Path To Success Watch the video.

As always, let me know your thoughts…here or through twitter.

That’s the current Oxford style debate going on at the Economist right now.

It’s Brett King vs. Mark Weil

Here’s the argument and my response on the site below.

Graphics Source: Economist.com

Read the rest of the arguments for and against branches being obsolete here. It’s also an amazing magazine to get every week. Always insightful. You can learn how to subscribe here.

Below is my response in favor of Brett’s argument.

Like what I have to say? Please recommend it on the site.

My numbers come from my recent Backbase presentation.

Dear Sir,

Branches will eventually succumb to the fate of books and media outlets. As we saw in the U.S. market with increasing numbers of Barnes and Noble and Best Buy locations, we’ve hit that peak in banking. In the U.S., we had 98,201 bank branches in Jan 2011, up 21% from the 81,273 in Jan 1994. But the largest institutions have plans for a mass liquidation as the market contracts.

By the end of this decade, it’s projected that there will be 40% fewer banks and 50% fewer credit unions. We’re seeing mass consolidation of services, as our largest 100 banks (1.5% of the total number of financial institutions) hold ~ 80% of deposits, 75% of all loans. The total number of banks, in fact, declined from 18,000 in 1984 to 7,357 at year end 2011. 2020 projections show only 4,490 banks remaining. The consolidation of credit unions is even more dramatic — virtually a straight line 27 straight years. There were 15,193 in 1984 but only 7,094 at the end of 2011. This number will drop to 3,500 in 2020.

Brett King proposes that a major and disruptive shift is occurring to banking’s distribution model. Banking is now something you do, not somewhere you go.

Something does seems different now. Recent innovations in mobile, in payment, are coming from more than just Paypal, payment issuers, and traditional non-bank rivals. Disruption is coming from within established financial networks, and from well funded startups like Square and Dwolla. They are shifting bigger and bigger payment volumes every month, poking into bank’s income streams, and more importantly into the way bank customers access and move their money.

Are banks going to end up like movies, music, and books? Are banks going to simply offer financial advice in 99 cent downloads? Are banks going to become “dumb pipes?” Ubiquitous mobile payments are not only possible but almost inevitable. Can banks change their model enough to justify the number the size of the existing branch networks?

Like the airline industry, the number of “banking” players will likely get much smaller, and with that the need for so many physical locations.

It’s inevitable.

What’s your view? Post a comment for or against at the Economist

About the Economist Debate series and Oxford Style Debating

Economist Debates adapt the Oxford style of debating to an online forum. The format was made famous by the 186-year-old Oxford Union and has been practised by heads of state, prominent intellectuals and galvanising figures from across the cultural spectrum. It revolves around an assertion that is defended on one side (the “proposer”) and assailed on another (the “opposition”) in a contest hosted and overseen by a moderator. Each side has three chances to persuade readers: opening, rebuttal and closing.

In Economist Debates, proposer and opposition each consist of a single speaker, experts in the issue at hand. We also invite featured guests to comment on the debate’not to take sides, but to provide context and informed perspective on the subject.

Those attending an Oxford-style debate participate in two ways: by voting to determine the debate’s winner and by addressing comments to the moderator. The same holds here. As a reader, you are encouraged to vote. As long as the debate is open, you may change your vote as many times as you change your mind. And you are encouraged to air your own views by sending comments to the moderator. These should be relevant to the motion, the speakers’ statements or the observations of featured guests. And they must be addressed directly to the moderator, who will single out the most compelling for discussion by the speakers.

Source: Economist.com

Finovate, Simple, and Re-Imagining Banking Applications

What problem are most banking applications really trying to solve?

That’s what I have been thinking about for some time.

I thought maybe last week’s Finovate would help me understand what we’re all trying to achieve. But I think I was wrong. It seems most innovations are coming from a place where founders are looking for exits, or established players are protecting their turf.

In other words, it’s still all about the sliver of money on the edges of every transaction.

Hasn’t Apple already proven that a simple, user-driven experience can drive not only profit but user delight? But I digress.

Maybe it’s too much to tackle here, but maybe, just maybe, it’s time to re-imagine our applications.

What real problem do most banking applications try to solve? Seeing where we spend money? How we are doing against budget? Well, most Americans at least seem to be doing a good job of avoiding that just fine. Most online banking applications are focused on data from past events, rather than solve the need to understand the implications of certain spending behavior that is truly meaningful to future actions. Beyond the transaction, most applications outright ignore the important larger implications of how we spend, the matching of that data with lifestyle changes, or further refined life-changing needs.

This is why we need to move forward with the notion of solving issues related to ‘banking activity,’ like payments. But it goes beyond payments as well. It’s also inclusive of what banking is moving toward – technology driven butler-like services with human intervention when needed for further understanding of one’s financial condition. Let’s solve the real-world problem of maximizing budgets by minimizing expenses, by driving very specific rewards and offers that actually mirror user data, both on the consumer and business side. We have blatantly ignored the value in ‘big data’ in our industry for some time. It’s time ‘simple’ applications solve some big problems for our clients, before startups figure out a better way and truly reduce traditional banks to a serious of dumb pipes. Oh wait, maybe too late.

Finovate Best of Show winners included BehavioSec (security applications that leverage user pattern recognition), BillGuard (which now includes crowdsourcing of credit card transactions to help resolve disputes), Dwolla (Adding FISync which lets banks and credit unions originate cheaper real-time ACH based payments), iQuantifi (interesting financial planning tools), MoneyDesktop (great new tablet (iPad) UX for PFM functionality, additional proximity-based deals platform which has a lot of promise), Personal Capital (portfolio PFM iPhone app that (finally) includes PFM interbank funds transfer), and SoMoLend (SBA/Business based P2P lending and interesting use of alt-credit data).

One of the things that stood out was that, outside of a couple of interesting interfaces, there was a real dearth of focus on design and overall user experience from the field of 63 companies.

Maybe it wasn’t all that bad (or maybe it’s because I am posting this on the Monday after), but only a few UX things stood out for me in the field of demos related to payments, deals, security, and B2B applications.

The best summary of Finovate (outside of the official Jim Breune feed at finovate.com) probably was that from Eric McCune of Glenbrook for their PaymentsViews.

The #Finovate twitter feed did pump praise out for at least two of the eventual Finovate winners, MoneyDesktop and Personal Capital, mostly for making PFM interesting again, but much of what the crowd of nearly 1,500 bank, fintech, and valley money folks saw was kind of the same old stuff when it came to design.

Here are additional links and summary of Finovate Best of Show Winners.

It’s time to re-think how we design banking applications.

Maybe we should re-imagine ‘banking’.

I say this because even Simple’s UX seems old to me now. And it’s not even in general release. And no one I know is actually using it yet.

Many of my contacts at Finovate seemed to feel the same way.

While many of us in banking are rooting for Simple (and Movenbank, etc.), after 18 months of alpha and beta testing, are they going to deliver a truly simplified banking experience? Maybe we expected too much.

When do the rest of the 100,000 people on the Simple waiting list get to take a test drive to see what $13M in funding has built? When will Simple break through and show us that good design alone can disrupt banking? Here’s what we know about what you can do with Simple’s new iPhone application so you can decide for yourself:

View your transactions. Real time refresh of transactions (this should be in all mobile banking applications by now, right?). Are any of our systems still relying on batch pushes of data to our mobile apps? No (OK, I hope not). I get real-time updates from several banking applications, so nothing seems new here, but the video below makes it feel somehow superior – so an A for the marketing effort on this feature. Overall though, I’d give this a C because every application should update once a transaction has occurred.

Send payments. Add payees and schedule one-time or recurring bill payments. OK, some news here, as real-time ACH is sort of embedded. But shouldn’t all applications that include bill pay and P2P simply mirror this type of payment application natively? That’s the problem, the most obvious use of payments (P2P through existing contacts via the mobile device) isn’t application ubiquitous. But it’s thankfully on every provider’s radar, as mobile payments are seen as the next holy grail to banking, so were seeing mobile P2P applications in every form (Amex’s Serve & Pre-Paid, etc.) so there is hope that mobile both P2P and Bill Pay will be tied together in a single simplified payment mechanism. I’ll give them an A- for this with hope that more people will copy what’s here. At least let people initiate a simple P2P/merchant payment to a established payee. Then move to sending money to anyone, anywhere with a mobile number or email address.

There is so much low-hanging fruit in payment applications. But I digress.

See each transaction in detail. Simple will categorize and map it for you.The one thing Simple gets online (and presumably in mobile) is the ability to review transactions via location, or proximity. Why aren’t more applications leveraging their proximity tagging, whether inferred from the transaction data stream, ACH, or proximity tag at payment? Simple gets an A for that, but shame on more developers for not leveraging this data out of the box. If you have the location of a transaction, you should be able to map it and then leverage that data lookup in the presentation layer. But what do you do for an online payment to Amazon? I’d have a lot of payments in Seattle, and I haven’t been there in a few years.

Organize your transactions. Edit description, category or location. Another thing that should be embedded in every application – this is finally starting to become commonplace. So a B here for additional tagging capabilities. We need to see this grow, since PFM categorization, even those that are automated, fail too often when aggregation connectivity and transaction data break.

Write a memo for any transaction. Keep track of what you buy. Simple gets an A here, and while I imagine the UX is pretty streamlined, I want to see how consistent this is across platform. The biggest problem with memo posts are the transition of this data between devices and applications. I’m assuming this is centralized at Simple, and bravo for extending a historical business need to consumer (this should have occurred over five years ago, especially around payments). What we aren’t seeing as often is the ability to add several tags to the same transaction. If we could do that to photos for years, why not financial data. Oh wait, that would make Simple a billion dollar startup.

Search transactions. Find all your transactions from a particular restaurant. Nothing really new here, but again, the overall UX and simplicity is key to this being done right. B for he inclusion, and probably higher for the overall user experience.

See your Safe-to-Spend Balance. Know your spending cushion immediately. An obvious A for the marketing around this, but several PFM providers have been providing this data presentment in different forms for years – the problem is that Mint, FinanceWorks, Geezeo, MoneyDesktop, and others have their PFM functionality relegated to another tab or link within Online Banking. To me, this is the fintech space’s big fail. PFM isn’t really just PFM, it should be front and center and simply replace online banking. So an F for everyone in fintech in the end. Real time money management with every swipe, every NFC transaction, every alert (simplified actionable alerts like Clairmail has had for years)…where is fintech’s true money management for mobile? That’s the type of user experience we’ve been waiting for. Look for the innovation in this space to come from the merchant reward side of mobile payments. That’s kind of unfortunate, as I would rather see the innovation in helping someone manage their personal and business expenses, but fintech developers are chasing the money and I don’t blame them.

Find nearby ATMs nearest your current location. Every application should have this. PNC gets an A for their efforts with PNC Finder, but overall we should do more. Show me all ATMs, and let me sort the data and decide if I want to pay a fee to get cash. Simple gets a B here, as I am assuming it works well, and allows for some interesting ways to display the data.

Contact customer service. Customer service is just one button away If this also includes their social contacts from Twitter and other social media, they get a B+. Most mobile banking applications fail at providing anything but a phone number. We need links, FAQs, mobile optimized demos, social connectivity, click to call, appointment set up, and so much more. Same goes for the more robust online and tablet applications. I think this is an area we need to completely re-think. Spend some time in a call center and you’ll know what I mean. Or better yet, personally answer emails from your customers, as Josh and the team at Simple have. They get upgraded to an A for that alone.

Unless I missed it, I’m glad we don’t see mobile capture in their app. Even if it’s planned, why are we spending so much energy on mobile capture when paper checks are dying? The same goes for capturing paper receipts. We need to move every step of the payment process beyond the legacy of paper.

What might be next? Where are the tools to help a small business owner who leverages their consumer accounts to manage their business? Where are simplified goals to tie to that Safe to Spend Balance? Where are the Notifications to alert a user of a transaction or to ask a simple yes/no to an automated bill payment? Where are proximity based merchant rewards? Where is merchant based bill payment? Where is a tie in to NFC or alt-payment providers like Square if someone wanted to send money to the user? There are a lot of applications that can be added, that can still be part of a simple banking application.

Just today we’re seeing a new focus on the ‘Spend Graph‘ data from American Express. We need to see more of this embedded in our applications, as well as a renewed focus in leveraging aggregated data to the benefit of our consumers and business customers. There’s promise here to solve one issue – present offers based on real time spending habits, and deliver value for consumers and business partners. But it can still be so much more than this. I think PFM providers have the keys to the kingdom, but I’ll save that for another post. It has to do with some Groupon like functions around preferences, and some writing I’ve done around hunch.com and the ‘Taste Graph.’

If Simple can (and I imagine will) do even more when it comes to overall application design (meaning function) and overall user experience, how does the rest of what we saw at Finovate stack up? How will Movenbank’s mobile-only approach stack up? I really am a fan of what Josh and his team are doing, as well as Brett and Scott and the gang at Movenbank, but we’ll have to see. I’m hopeful. For now, I say it’s time to take a long walk and think about how we can re-design from the ground up. Keep it simple, but design your banking applications without “banking” in mind. Let’s focus on solving some real problems.

Here are some more links on what people thought of the Simple app. Like the rest of us, these articles are just reporting the promise of the application, not an actual review of what it’s really like using it.

Hopefully I’ll get some more out on Finovate in the next few weeks.

From FastCompany: BankSimple has gotten a lot of buzz since (Fast Company) first wrote about its user-friendly design philosophy back in March. With good reason: The user experience of online banking is wretched. As BankSimple CEO Josh Reich tells Co.Design, “Banks make the most money when you make mistakes.” His bank is designed for the opposite purpose: to help you better understand your personal finances so that you can actually accomplish your goals. He gave Co.Design a tour of BankSimple’s soon-to-launch iPhone app, which was so important to BankSimple’s strategy that they designed it before the desktop browser version.

Read More At Fast Company Co.Design

Bank Tracker

TechCrunch

From Mashable

Gizmodo

Finextra

Verge

The Next Web

Betakit

Dwolla’s CEO, Ben Milne, explains how his company’s alternative payment system affects incumbents in banking and payments. From American Banker.

I saw it today Google+ via Zee Kane. It’s surprising to see what grasshopper.com was all about, but I liked the overall message at the end.

We can’t forget to approach problems differently, remove our filters now and then.

Every single person can have a positive impact within their business, their industry.

Make something better today.

Or make a video with flashy graphics, use an overused sound clip, and drive traffic to your business. That’s the American way.

Originally discovered through Techcrunch

Bonus: If you didn’t see this interview with Square COO Keith Rabois earlier this month…it’s worth checking out here.

On the heels of the Bank Innovation Conference in San Francisco, the Bank Innovation team has shared a great presentation Brett King made for the Social Mobile Payments Conference, produced by Bruce Burke.

Learn more, and sign up for the next wave of banking at Movenbank.

Learn more about my own thoughts on bank 2.0, banking industry disruption, social media, mobile payments, and other engagement banking technology in my recent Backbase webinar 10 Key Trends from the Community Banking Trenches (webinar recording at lower left, complete slides from Slideshare at right).

Original source: Bank Innovation