Ctrl-Alt-FinServ: Rebooting Retail Banking

I’ve decided to write a book about the financial services industry. Surely, Brett King must be tired of traveling around the world every week, speaking at conferences about Bank 2.0. The poor man has small children, for g*d’s sake. I just nominated myself to take his place.

Here’s a sneak preview of the book:

Ctrl-Alt-FinServ: Rebooting the Financial Services Industry for the 21st Century
by Ron Shevlin

That’s all I’ve got so far. I’ve got no book, and it’s breaking my heart. But I’ve got a title, and that’s a start.

The book will be about three things: Economics, Technology, and Demographics — and most importantly, the intersection of those three forces.

Here’s why the intersection is so important: Technologies that could drive significant (I hate to use the word “fundamental”) change in financial services have been around, and in development for the past 15 years. Yet, the industry really hasn’t gone through any “fundamental” transformation (despite the years of blathering from technology vendors and consultants).

Why not? Because the other two forces weren’t in alignment. About nine years ago, I wrote a report asserting that FIs that were perceived as doing what’s right for their customers and not just their own bottom line–I called it customer advocacy, you can call it trust–would have the most loyal customers, and be the most successful in the market.

I got a fair degree of pushback from a lot of bankers at large banks, who asked–quite understandably–why they should change what they’re doing when they were making money hand over fist.

Advocating a shift away from branch and call center investments to online (and, heaven forbid, mobile) technologies just didn’t jive with the fact that in 2003, the oldest Gen Yers were barely in their 20s, and hardly a force driving demand for financial products and services.

In other words, although the technologies were in place (or could be in place with some investment), the economics of the industry, and the demographics of the consumer base forced the status quo.

—————

I’ve been a consultant for the better part of the past 25 years, and I’ve been fortunate to work with a lot of really good senior executives from a range of companies and industries. One of the things I’ve observed is that good ones are able to take a broader view (i.e. longer term, both in terms of looking back as well as looking ahead) of what’s happening in their market.

While the young hotshots all proclaim the death of this and the death of that, the seasoned execs know that business cycles go up and down. They also know that although technology is constantly changing, and that they have to keep up with those changes, that technology change in and of itself does not mean fundamental structural change to their industry.

Sometimes it does. I wouldn’t have wanted to be an exec at Polaroid in the mid-80s.

But for the past 20 years, despite all the calls for the transformation of financial services, it hasn’t happened. And it hasn’t happened because the three forces weren’t aligned.

—————

Increasingly, a lot of the smart financial services people I talk to feel like maybe–just maybe–those three forces are becoming aligned.

The advent of mobile technologies, the assault on the economics of the industry on the part of government, and the emergence of a new, sufficiently-large generation (sorry, Gen Xers, you just weren’t that large of a generation) may be the impetus required to turn today’s banks into Polaroid.

—————

Here’s what I anticipate the premise of the book to be about: 1) Economics. It isn’t enough for FIs to be “more transparent” or “improve usability”, etc. It’s going to require new business models. The existing business model: Discrete deposit and credit products that generate revenue for FIs through “penalties” isn’t sustainable. The fees that consumers pay must be in line with the value they receive. 2) Technology. Maybe I’ll devote a page to social media. But the real story is mobile. Today, many people talk about mobile as a new channel. But it isn’t really a new, discrete channel. It combines voice, online, video, and wholly new capabilities. That’s the real story. 3) Demographics. I don’t know about you, but I’m feeling like Gen Yers are into the 20th minute of their 15 minutes of fame. Time to look past the Gen Yers to see what’s next.

—————

OK, I got a book to write. Nobody steal my title. And move over, Brett.

 

 

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14 thoughts on “Ctrl-Alt-FinServ: Rebooting Retail Banking

    • BK: I’m well aware of the hurdles I must overcome. But times are changing, my friend. Short, fat, snarky men wearing Grateful Dead t-shirts will soon be fashionable.

  1. I’m in– let me know when I can pre-order. The more I write about the ‘intersection of leadership, advice and innovation’ (and the more I read from each of you), the more convinced I become that the future of wealth management (“v3.0″) will look a lot different than prior eras. That’s been a recurring theme in recent posts, and the working title in my head is “The Convergence Zone: How High Tech and High Touch are Converging to Change Wealth Management Forever.” A round of shameless log-rolling back cover endorsements anyone?

  2. I have pre-ordered your book on Amazon.

    I had the opportunity to work for an executive of Kodak in the 1990s. Should Kodak engage in a PR campaign to promote its side of the story in a trade case against Fuji? The gentleman heard a proposal from our group of political campaign operatives, picked up his briefcase, and stated as he was leaving, “The brand image of Kodak is one of the most valuable in the world. That reputation is worth [I forget exactly what number he tossed out, let's say it was...] $100 million dollars. Do you think I am going to jeopardize it over a campaign on this issue?” He was right, would not have been worth it. And Kodak’s brand image is now worth not so much.

    http://www.brandingstrategyinsider.com/2011/12/brand-management-the-last-kodak-moment.html

    Xanadu!

  3. In the World of Diginomics (“digital economics”), the key buzzwords are “economics” and “technology.” Anybody who brings those terms together with a glimpse into the future has got my attention. So, Ron, you succeeded in getting me to stop by. After reading your post, I remembered what was announced in the Nov. 24, 2011 UK Business News: “Next Generation to be Born into ‘Cashless.'” The opening sentence read: “Today’s younger generation will trade in their cash, credit cards and cheques for mobile digital wallets by 2016, new research claims.”

    Thanks, Ron and Brett, for keeping the discussion fresh. Looking forward to receiving fresh input from your book about diginomics.

  4. Excellent idea! I was about to do the same, but I just might be willing to pay for oversees’ rights ;)

    Have fun at it, good luck & keep us posted about your progress here :)

    Wim

  5. I strongly believe that major distruption of the financial services industry is on the way, and a lot is at play when attempting to create an innovative business model.

    Im really interested to see how you will analyse the economic principles and perhaps provide some insight into how a new product (savings or credit) can be developed to suit the new landscape of cloud and mobile technologies.

    All the best!

  6. So if you have to extract more profit per customer in order to survive. Surely, the only way to do that is provide more value to the customer? Fee’s actually decrease the perceived value of a service (statement without a study behind it, but I’m reasonably confident in it as an assumption)…

    So what are the value drivers for customers?

    Simplicity. Banking is hard, and tiresome. Make it simple and easy…

    Human. I have goals, share them and help me get there. Figure out how to make this more profitable than plunging me into an endless spiral of debt.

    Open. If you’re going to charge me, tell me everything up front. Make it simple, make your fee structure flat. Remove legalese wherever possible and speak English!

    Personal. I’ve been a customer for 10 years. Recognise me when I call you without having to get me to say secret passwords and pass codes. I’m not James Bond, I’m your customer. Yes I want you to be secure, but hide how you do that from me and make sure things never fall over.

    Setting up SHOP will be key… but I wonder if there are more. How can the industry reverse the trend of selling on packaged debt being the most profitable thing the investment arm can do? Without breaking up banks this will be tough.

  7. RE: Economics. It isn’t enough for FIs to be “more transparent” or “improve usability”, etc. It’s going to require new business models. The existing business model: Discrete deposit and credit products that generate revenue for FIs through “penalties” isn’t sustainable.

    This is the central tenet of the book I still need to write but I don’t event have a title yet, so you are way ahead with the best title ever!

    I just don’t see how banks can get to “there” from “here”. They are immersed in combinations of old and new technologies, organisation and risk management beliefs. Online and mobile just provide a friendly facade over the real spaghetti that lies behind. I fully expect we will see many more outages as we have recently seen at rbs. bmo and others. But we will also see outages in the areas that erode trust, such as LIBOR.

    So back to your ctrl-alt-finserv metaphor – maybe you will get the blue screen of death on reboot!

    • Colin: Totally agree that a new business model is needed. I’ve got some thoughts on what a potential model could be, but you raise the right point by mentioning the “how to get there from here” problem. In the history of business, plenty of companies and industries themselves have made painful transitions to new business models. I guess it remains to be seen if banking (and/or banks) can do it.

  8. Congrats on being part of the top 10 Banking Blogs. I admire your articles, they offer a new angle to the existing ideas in the financial arena.
    This is turn, ignites my thought process!!

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