Month: January 2017

Disclaimer: this will sound obnoxious to a greater extent than my articles usually do, so let this be a warning.

Incumbent banks are in a bind and need to undergo rapid change. I don’t think anyone who knows anything about the ways in which the financial industry is going to be challenged thanks to technology, who would argue otherwise.

I am not going to re-list the threats here – the list is not extensive but sufficiently powerful and compelling.

I am not even going to bemoan the pace with which banks react to these very serious enemy-at-the-gate signals, which is indeed, alarmingly dismal.

What I am going to do is break down who it is that is in charge of this change.

Banks are complex organisations with indescribably many (and occasionally highly nonsensical and useless) departments. At the core of them, like in any other company, you will have on the one hand, the business side and on the other, the technology/ “IT”/operational side.

For the purpose of this exercise we should leave the “IT side” out of it. While they certainly can help by sharing into the big ideas they are typically already further ahead in understanding what could be done but have little in the way of power to make it happen. The myth of the solution architect (or even the compliance guy for that matter) sat in the corner of the meeting rooms where exciting ideas fill the air only to shoot them all down at the end because “that’s not possible with our technology/regulatory framework” – has been dismantled by the past few years when he is often the guy suggesting big changes.

Another side of the bank to leave out of this, is the BOD/Strategy/Big Wigs layer. Not because they should not be responsible for change obviously, but because the horse of how old, stuck and inflexible the board members of banks are, has been flogged to its unsavoury demise and it’s now a truism that brings nothing to the discourse. Do I believe the voices calling for new or at least improoved blood are wrong? Not necessarily – but I believe change can ripple towards our existing structures if it starts in the middle layer.

This leaves us with the following players who need to roll up their sleeves:

1. Digital
2. Innovation
3. H.R.
4. Marketing and Sales

When it comes to Digital whether it’s Product and Service design, Experience, Strategy or any other name of any other department and team that offers the consumer a bank product in any other way than by phone, ATM or branch, they have been shouldering the brunt of the need to change burden of every bank for the past 8-10 years and while yes, they are the future, and a bank’s best bet in winning any of this, theirs is a tough role too busy responding to rapid change while trying to balance sheets to ask them to do more in changing the culture of the organisation.

The Innovation teams – the Hubs, the Labs, the Funds and so on they have their sleeves rolled. Whether their efforts trickled down to consumers and their existence should continue in a bubble or be firmly woven within the fabric of the bank’s organisation is another story for another day but it’s undeniable that they have been trying hard to show that the ship is sailing straight for the iceberg of sudden, devastatingly powerful competition over the last few years. Sadly, when they now warn the powers-that-be, in even stronger terms, of the imminent nature of these changes and how banks will become pipes if they ignore the need, theirs sounds like a “Boy-who-cried-wolf” moment.

H.R. in my opinion firmly holds the key to meaningful and lasting change and to my delight, some banks now recognise this and are starting to make the moves to show that “it’s all about the people and the culture and not the technology” is more than just a nice slogan. Personally, little excites me more than my work with one of Europe’s leading banks who not only empowered H.R. to lead fundamental organisational change but allows them to explore topics that cut deep such as language, knowledge, courage and passion. As much as I love what they are doing and how I think it’s future proof work, it’s a long arduous road to seeing it aid the other players in immediate shake-ups.

Which brings me to Marketing. I’ll come right out and say it: the marketing departments of banks are the weakest link and they need to wake up now. While there are good explanations as to why they are de-facto stuck in 2002 in terms of practices and output and while we can blame the Big Wigs for confining them to a corner where they manage budgets and create ads while thinking of the colours- plenty and of the core of what they’re doing – none; we can not excuse it forever.

It’s no secret I am militant about the fact that Banks are the only consumer industry unconcerned about being a beloved brand and unless that radically changes it will be the reason for their demise.

A true brand creates powerful connections to the people who believe in it. A brand lives and breathes. It’s introspective and organically innovative. It spurs ideas and change and aims to ensnarl its customers with yet more expected awesomeness at every opportunity. A real brand is addictive.

Who should be the creators and guardians of the brand? You guessed it – the Marketing department. The gap between that fundamental job and the job they are performing today is staggering. The mere fact that Marketing departments of banks call a document which details what fonts and what shades of colours should be used when talking about their company “Brand Assets” is ironic no less because it shows the full contents of the notion of “brand” as they use it.

In other industries Marketing and Product are fusing. Customer Experience and Design have become the hub of strategy. Retail is recognising that surprising and delighting consumers is an every day imperative in this new reality of rapid innovation through technology, and they’ve long known that having an extremely strong brand is the only way to hold a relationship with the consumer enough to have the opportunity to continue to surprise and please them.

None of this is happening in banking and much of it is the Marketing’s department’s fault.

There are pockets of better where a bank has marketeers avidly inquisitive about their consumers and intensely interested in creating and upholding a brand but these banks are the mBanks, the CheBanca!s, the INGs and not the big heavy incumbents that need it the most.

So dear Marketing – you must know that your job as it is today, stripped of the human element, devoid of creation of lasting value, will be one of the first ones to go as soon as machines take over in the not to distant future. You must also know that you could be the key to this intensely needed change if only you imagined this was Ugg not RBS you work for, so please, for all our sakes’ – put down the Press Release and grab the Brand.

I posted this yesterday and got a lot of response. Interestingly, most of it non-public in emails and DMs but why that is, warrants another analysis.

My tweet refers to this article I wrote many moons ago warning that brands will become banks if banks won’t become brands themselves in light of this Techcrunch article highlighting Facebook’s newly awarded European Payment License and the comment belongs to Christoffer who works for a bank I know intimately – Skandiabanken, which is the original challenger bank of the Nordics. -By the way, when these guys say “digital ecosystem” and “disintermediate” they are not using empty jargon like others may, they have been through the rings trying to understand engagement – consider they started as part of the group who did all the other components of long term investment and none of the day-to-day banking before they created them.-

FACEBOOK *IS* A BANK

First of all let’s get this out of the way – there is no “will be” or “intends to be” about this. They have acquired an eMoney license, PSD2 is happening and they are already doing in-app transfers in the US. Between these factors there are no “if”s and “but”s to be considered – that is a bank. Many FinTech-years ago we could afford to play naive and doubt it, but I trust these days anyone reading this knows that a banking license is superfluous if you combine those elements.

Secondly, over the past few years, they made no secret about this being their next step. Take this article about the then newly acquired PayPal superstar David Marcus

“It’s the job of Marcus, a gently spoken 42-year-old French-born fintech guy, to turn a proprietary messaging app into this all-encompassing platform – essentially, an operating system on which third-party apps, and entire businesses, can be built in ways that lock them into the Facebook ecosystem. The Chinese have already shown what’s possible: social media giant Tencent enables 600 million people each month to book taxis, check in for flights, play games, buy cinema tickets, manage banking, reserve doctors’ appointments, donate to charity and video-conference all without leaving Weixin, the Chinese version of its WeChat app.”

With that said, just because Facebook is a bank it doesn’t automatically follow that it will succeed. As any other new entrant in any market what they need is:

• An audience
• A product
• Trust
• Brand

THE AUDIENCE

There is little to dissect about this. They have the audience. Facebook’s numbers in terms of adoption and usage are unquotable, theirs is now a model of customer acquisition used in business schools as an example of successful platform building and relationship creation.

It is also only from hereon that they are starting to get serious about monetising on their huge numbers. Let’s face it, no one buys nearly 2Bn users if they don’t intend to make money off them, although of course, becoming a bank is not the way to do so.

THE PRODUCT

Facebook’s is not the most beautiful digital product we use today. Or the easiest to navigate. Or the most surprisingly delightful. It doesn’t win in any of those categories but it is certainly in the top echelon of all of them.

Not only that, but Facebook constantly and -some would claim unlike Google- constantly upping its own game product development wise, and features that we all would have bet would be a flop end up polished and widely adopted. Just look at the ease of integration of Facebook Messenger into Slack. Do you know why that is? Because teams use it for work communication over serious/secure/etc competition such as Skype for Business. And if their features don’t win the consumer over they are certainly not afraid to go out and buy them ready-made from elsewhere as they have done with Whatsapp although they claim they need them both.

Just because they haven’t yet made a big fuss about adding a “show me my balance and a few ideas of how to do better next month please, M” feature or you can’t see the “MyMoney” tab in your Facebook app’s menu it doesn’t mean it isn’t being cooked. If one looks at UK’s many heralded challengers, most are missing an evident offering as well so far and only time will tell who has come a longer way in designing the end product behind closed doors.

In fact, if we are to judge by the obscenely easy-to-use money transfer feature US clients are already enjoying, it is one worth waiting for.

THE TRUST

In 2010 this was the tune to which we hated FB – today all or at least most of those have been either sorted, or the perception changed, so the trust capital Facebook is building is on the increase. Not to mention they have the money and patience to wait out an entire generation of disbelievers if need be.

There is an interesting dissonance between how much people believe they trust Facebook when polled (not at all) and how much information they freely deposit into it through daily usage (GB of intensely sensitive data). The theories as to why this occurs all come back to how a cerebral privacy concern will not stand in the way of instant social gratification. In a way, it is a subconscious identity value exchange. We are aware our personal information is valuable and potentially misplaced but the risk is worth it as the emotional reward is great enough.

Privacy concerns are nonetheless, the main reason quoted as to why the Facebook Bank may not succeed. Who in the industry has not heard the following reaction of incumbents when discussing this topic? “Oh c’mon, who wants to bank with Facebook?!? I never even post photos of my kids!”

Generalisations aside, people do trust Facebook. Maybe not “your people” or “my people” -whatever segment you identify with-, but enough people of the total to make up one of the word’s largest bank. Overnight.

We choose to read the above as “94% of users do NOT trust Facebook”! but look at the first segment. 3%.

What’s 3% of 2Bn? Two Lloyds banks is what.

THE BRAND

On the plus side, bank already have by comparison an immense trust capital even if according to EY’s latest findings it is diminishing.

Also on the plus side, banks could buy 2 Bn users. Not with ease and not likely, but conceivably, a few of them could poll their resources and do so. Similarly, enough common conviction to spur that could also, hypothetically, power them to build a product that people truly wanted and enjoyed using. Hypothetically.

What can’t be easily matched and what all banks -new or old- should fear is this: Banks are not brands. Facebook is a real brand – deeply life embedded and intensely emotionally relevant.

23% of world’s total population has it today as the hub of their social lives. 1 in every 5 humans use it as a primary communication method, a photo repository, a news outlet, a virtual shopping mall. An intrinsic part of our everyday lives that highly matters to us and is inserting itself deeper and deeper into our subconscious. Take the effect of the sentimental value that Facebook Memories announced in 2015 is exerting over its users – it is nothing short of monumental and it will prove itself a cornerstone in Facebook’s unbelievably scintillating engagement strategy.

What could banks bring to the table to match that when they will not even take a close look at the customer’s data?

“BUT WHY?!?”

A common reassuring mantra about the Bank of Facebook one can hear in the industry is the old – “Why would they even want to be a retail bank? There’s no money on it!“adagio, as if the social media giant has ever been instant ROI driven.

Facebook knows being a retail bank doesn’t pay off in itself, but they also know how intensely personal one’s relationship with their finances is and how powerful of an engagement play this is, and while they may not want to be our cashier they certainly want to be our life management console.

Will my child be using this life console when he grows up and implicitly be banking with Facebook? No doubt in my mind. The only question is “Will he be banking with HSBC as well?” Maybe. Whether it will be “with” HSBC or “on top of” HSBC – a relationship partner or the invisible mechanism powering Facebook Bank’s experience is what is at stake.

This is it, the year that a real brand becomes a bank. There’s no more time to waste to stay in the game.