Digital Behaviour – FINthinkers

The new currencies of trust

What’s the foundation of banking and how is it affected by digital transformation?

A bank in the past provided physical safekeeping services. As it was hard to keep money safe at home there was a case to build a fortified building with specially protected safe to keep valuable assets. The fortified building, aka bank, could now take deposits and keep books to understand the ownership of the deposited assets. One element of trust came from the people and the other is bookkeeping and from the quality of the building and safe. At the time it was no doubt that an impressive building was a good selling point.

Today banking happens in the cyberspace. The quality of the accounting is still a key aspect. On top risk management becomes much more important mainly due to the way banks create new money. Cybersecurity has replaced the physical security of buildings. All these factors are facilitated by technology which becomes the dominant factor for success and failure. People are still important but today’s banking is no longer computer-assisted – it is human-assisted.

People start to realize that the digital transformation is progressing fast and affects their daily life. It is great to have a talk with an adviser but the people factor has become much more an empathy interface or the voice of a set of algorithms running in the background. If the underlying system is outdated or the user interfaces are bad, then this is results in a poor experience for the client.

In the digital era many of the physical trust factors like buildings and people loose relevance. A big and expensive building no longer suggest trust but rather the bank is wasting client’s money or seen as being high cost. In the past, people had a look into the safe room to gain confidence but now they may soon want to understand how technology is set up and ensures the safety and management of the deposited assets.

Many banks have very nice buildings with a technology landscape full of legacy. The tech giants and many of the neo banks are in a much better position to gain trust in this new norm. They are ahead of the digital transformation curve and ready to take over more and more business from companies which have not yet understood the new normal.

While apps and web pages have replaced the buildings, transparency and openness have become the new currency of trust.

Emotional trust in an hyper-connected world

Digital Transformation – today’s future is tomorrows reality

Technology is changing fast. What was state of the art a few months ago becomes outdated today. The majority of change today is enabled by the advancement of digital technology.

Significant technological changes have always triggered major social and cultural changes. The industrialisation era introduced engines amplifying human forces, transforming society from agricultural to industrial workers.

In the current transition, humans get amplified in many ways. This leads to many opportunities but also challenges as many simple and routine tasks and activities will become automated.

Complex activities will be exposed to automation as machines excel in processing the vast amount of available data. Machines are also entering the realm of white-collar workers like lawyers, managers and various professional service industries.

Areas where empathy counts or creativity matters will remain human-dominated but become increasingly machine assisted.

The digital transformation will likely be a much bigger challenge than the previous step changes in history. Reason due to the higher speed (within a life of a person) of change while prior changes happened over generations in the past.

In the past access to information was difficult – educated people typically accumulated a lot of knowledge and information. Today the access is rather easy, information is evolving rapidly and key skills have become to know how to use and combine various information sources and to gather and apply the collective knowledge. There are also creative elements and intuitions which become very important.

These changes are big challenges for countries that use to evolve slowly or try to preserve the past. All those who created big and complex structures will have increasing problems to keep pace. Companies with distributed and flexible structures outperform centralized ones.

If a country decides to move slowly, it can but others will not wait and continue to evolve. A chasm is opening between the ones who move with the time and others which become digital developing countries.

But also within a country, many things have to change such as education. The focus must move away from extrinsic to intrinsic motivation. Doing things well and being creative becomes more important than trying to be the same as all others. Education needs to amplify skills and passions rather than pressing all into one common scheme.

While the past may have been great it is only the future which matters as today’s future is tomorrows reality.

Digital to replace the human touch?

Can technology/ intelligent machine replace the human touch? While a machine can perform a given task, often more efficiently than we can, what it lacks is the creativity in the activity, a uniquely human ability to cater to the needs of the individual. What is creativity? What are the needs of the individual? Even if a machine could determine an appropriate plan humans will still want to interact with another who has the creative expertise/ experiences to talk us through, one who understands that creativity in that context.

How much of this effect is real, how much of it is specific to our generation? Will the next generation or future generations after have the same distrust and longing for such “human” touch? Especially digital natives who grew up with the internet and social media as part of their everyday world.

Technologies of the industrial revolution (steam power and machinery) – largely complemented human capabilities. The great question of our current time is whether digital technology will complement or instead replace human capabilities…can digital technology replace human capabilities especially the understanding and judgement – let alone the empathy – requires to successfuly deliver services such as social care; or that lead us to enjoy and value interacting with each other rather than with machines.

Faster isn’t wiser: Intelligence is defined in terms of the ability to acquire and apply knowledge and skills, but what is often missing is the act of taking decisions base on the ability to choose objectives or hold values that shape it.

Values are experience, not data: As we use increasingly powerful computers to create more and more sophisticated logical systems, we may succeed in making systems resemble human thinking, but there will always be situations that can only be resolved by humans employing judgement based on values that we can empathise with, based in turn on experiences that we can relate to.

Artificial life, experience, values:

Intelligent machines can make choices based on data available to them but this is very different than a judgement based on values that emerge from our experience of life.

Information dissemination ethics

Digital technology encourages the dissemination of knowledge and know-how. Its ability to influence socio-economic structures also means it confers power and a competitive edge on those who design its applications over those who merely use them. Ethics, a form of critical thinking on social structures and traditions shaping the lives of societies. Aim at questioning moral biases and opening new choices. Digital libraries belong to an emerging digital culture. New questions concerning production, collection, classification, and dissemination of knowledge arise. How is the integrity, validity, and sustainability of these digital collections guaranteed?

Information technology is now ubiquitous (Ubiquitous Computing) in the lives of people across the globe. These technologies take many forms such as personal computers, smart phones, the internet, web and mobile phone applications, digital assistants, and cloud computing. In fact the list is growing constantly and new forms of these technologies are working their way into every aspect of daily life. Have we allowed the digital medium to grow chaotically and carelessly, lowering our guard against the deterioration and pollution of our infosphere. Is it due to the desire and reflection of only what we wanted – entertainment, cheaper goods, free news and gossip – and not the deeper understanding, dialogue or education that would have served us better.

During prior mediums of disseminating information (e.g. newspaper, physical mediums) there was concerned with maintaining standards, adherence to accuracy and an informed public debate. We now have the same problem with online misinformation. These kinds of digital, ethical problems represent a defining challenge of the 21st century. They include breaches of privacy, of security and safety, of ownership and intellectual property rights, of trust, of fundamental human rights, as well as the possibility of exploitation, discrimination, inequality, manipulation, propaganda, populism, racism, violence and hate speech. A lack of proactive ethics foresight thwarts decision-making, undermines management practices and damages strategies for digital innovation. The near instantaneous spread of digital information means that some of the costs of misinformation may be hard to reverse, especially when confidence and trust are undermined (Emotional Trust in an Hyperconnected world).

How do we establishtrust through credibility, transparency and accountability – and a high degree of patience, coordination and determination. Will this be fulfilled with an ethical infosphere to save the world and ourselves from ourselves?

Emotional trust in an hyperconnected world

Trust is an often used term in financial services. What is trust, how is it built, gained or lost? Has trust building changed in the last few years of emerging digital hyper connectivity and will this have an impact on banking? (see “Banking evolution: Service Innovation,” “No Off Switch“) Let’s together explore this a little bit …

There are at least four dimensions of trust:

predictability – ability to predict actions of others and situations which might occur
vulnerability – giving others the chance to take advantage of vulnerabilities
value exchange – exchange of values even though there is no full knowledge about the peer
delayed reciprocity – giving something now with the expectations to be compensated at some future point

The trustor has logical and emotional expectations against the trustee. The logical expectations are often contract related. In case of a loan a payback including interests is a logical expectation. The emotional expectations include the level of comfort and the experiences made during the time where the loan is granted and beyond.

The following little example explores these dimensions. Let’s assume you want to make a ride home and you call a cab.

An ordinary cab arrives with a smiling driver. Before you enter the cab you need to trust the driver that he knows the place, has serviced the car properly and will not crash the car while you are in. This quick assessment is nothing simple but humans have developed senses during the evolution which support this interpersonal check.
The cab arrives – but nobody is in. There is a screen showing a friendly face in an office telling you that he is your driver. The cab is remote controlled in a way that it feels for the driver like being in the car. You can again perform the quick assessment described above based on the reduced amount of information and available senses.
A self driving car arrives with a smiling man in it. He has been mandated by law to sit in the car to intervene in critical situations. You may be tempted to make the quick assessment as in the first scenario but then you notice that this person has limited chance to intervene and influence the sequence of events in an emergency situation as the available time to react would be to short. In essence you notice that you need to trust the system, its sensors and the algorithms.
A self driving car arrives – completly empty. That’s a different story – the interpersonal element and the usual base for quick asseementis is completly missing. Maybe you should do a short ride first to see if this is safe and then, once you gain confidence into the car, its sensors and algorithms go for longer trip. With good experience, trust is built.

There are futher factors influencing your final emotional assessment – the taxi could be dirty, the driver may have an unpleasant driving style or the climate control may be broken. Even when the target is reached on time, the experience may not great and you may decide not to rely on the services of this company again.

I guess it is rather clear what follows now. All these situations also occur in financial services today. The chance that you meet a banker which is an entrepreneur and personally engages in the trust relationship with you are rare. Such a banker would stand up with his name for the agreement made and would do the best to meet the logical and emotional expectations.

So let’s explore the other three scenarios in a little bit more detail.

The secenarios have all one thing in common – the ‘driver’ has limited skin in the game.
Remote meetings with specialists who can come up with creative solutions for complex problems are quite the norm in business and personal live today. Finding the right specialist may already be a challenge and arranging a physical meeting may be close to impossible.
You may have an assigned employee representing the bank as a sales clerk or relationship manager. The relationship manager will talk with you and then key in the data into some engine which finally processes the agreed business. You may build up a personal relationship to your relationship manager. If this is strong, then you will be tempted to follow him if he moves to another bank. If you trust more the brand, its system and processes, then you will stay and engage with a new relationship manager.

You may also be routed to a customer services desk which is used to deal with requests like the one you have. With each call you get to know another person – building an interpersonal relation is not intended.
You may also interact through an electronic channel with the system. A hopefully cool user interface guides you through the necessary steps to get things done.

The objective of most companies is to operate with standard processes leaving the relationship manager very limited flexibility. Hyper connectivity leads to more transparency, the logical element of the trust relationship is performed by an engine and the emotional one is more and more an outcome of the digital experience.

Trust is still a key element in many things. In banking the logical element of trust is more defined by processes, algorithms and infrastructure while the emotional aspect becomes more and more a result of a great digital engagement.

Trust is shifting from personal relationships to systems and experience.

The challenge of (financial) mobility of the future

I had the great pleasure to join the “Impulse Apero” on Feb 6th organized by Kellerhals Carrard and Implement Consulting Group featuring the head of the SBB’s board of directors Monika Ribar. Monika walked the audience in her inspiring presentation through the challenges and opportunities of mobility of the future.

Transparency is the new currency – people estimate transparency. Its about enabling people to reach their goals independent of the provider and about being informed in good and in bad times.
Openness is the new norm – we are living in a network economy. Openness is the key to unleash the combined potential of all services in the network. Closed and monolithic systems are relicts of the past.
Holistic services – users want to have an end to end service and an broad overview. There is just the choice of providing it or let somebody else do it.
Simplicity – the different pricing schemes used by the various service providers are hard to understand for the consumer. But all this complexity can be hidden using smart technology – either by offering a flat rate scheme which enables general usage or by simply billing the actual consumption with the optimal price for the consumer.

These points are very true for a mobility provider and also for financial services and other industries as the relate to big shifts in society. There is one huge difference – the SBB has a huge logistic challenge with a lot of infrastructure which is required to realize the desired degree of mobility. Financial services companies in essence just deal with information and have a simpler problem to solve.

I also would like to highlight a few other aspects which I found very interesting:

Empowerment – the people who are in contact with the users must be empowered to solve problems in creative ways. They see the problem and they can directly engage and solve them with their creativity. The SBB has allocated a budget at discretion for the ‘railway companions’ – this are the people in the train who make sure that the travelers have a smooth journey. This empowerment of employees at the point where the company engages with the clients is just cool.
Team – the rail clean organization is now a part of SBB again and wears he SBB logo. In more an more automated railway stations they are often the only people. Now the wear an SBB logo again and can help support travelers in case of problems. This is a win-win situation as the job has become more interesting and as clients have a further human touchpoint with the brannd.
Development – all roles are changing due to the evolution of the environment and the technology. It is of strategic importance to think about the roles and their evolution paths. SBB grows and moves together with its employees into the future of mobility.
Data – SBB as a provider collects a lot of data about its users. Monika stressed that the data belongs to the client and not SBB. So the client decides when and how this information is used.

Again four aspects which can be translated very well into financial services. The empowerment of the staff is key, every employee is a part of the brand management and client data belongs to the client and not the service providers.

Be Aware of your Digital Self

The ongoing digitization of our environment makes us loosing our direct contact to it. We cannot digest the wealth of information anymore because our capabilities are restricted, to slow, or the relevant ones are even not available at all.

Life, the environment we are living in, is being transformed, is being enhanced into a digital dimension. And we are already part of it. The information about us and thus our personality and how others perceive it is also enhanced and accessible in this new digital space.

Are we aware of these facts? Do we still have the overview of what others can and do see from us? Are we still in control, can we still intervene and action as effective as we could in the physical world?

In the same way as our world is being enhanced it is necessary for us to also enhance our capabilities and learn new tricks so we can persist in this changing environment with its new opportunities and requirements and regain control. For this we need help. We cannot access the digital world directly, we need new senses, the mass of information extends our processing capabilities, we need helpers. And these helpers are already underway. They help us organize our emails, capture appointments, translate web sites, remind us to leave on time in order to catch the train, tag our pictures, and so on. This is only the beginning. They learn about our taste and preferences while they are watching us and currently only carefully and subtle provide their advice and proposals. While interacting with them and being surprised by the accuracy and convenience of their services we are building up the trust that is necessary to also consciously delegate tasks to them. First small distinctive tasks then more and more complex and entangled issues to solve that require to ‘know’ us and our behaviors.

There are (at least) two perspectives regarding the ‘digital self’ to consider: We sense our amplified capabilities to act in the digital space and cope with the demand and rules valid there. We experience the ‘amplified me’, our extended powers. That’s one side. On the other side, there are the other actors on that stage who interact with us – be it other people, their digital selves, companies, robots, devices in the IoT, whoever and whatever is connected – and their perception of us. Like in real life there is sense of self and awareness of others and both of them comprise the digital world.

The digital self is much more than just an avatar that we can shape and present to others. It is the result of all our actions, the product of our history in the digital world. Our traces are like footprints in the sand but they get never washed away. The net cannot forget.

It is more than just a funny game. Digital is part of the real life. Be aware: The digital self is precious, it must be developed and needs protection. You have to care for it as if it was really a part of you. Because it is really part of you!

Banks used to be the place where you could store your valuables, the things that need protection beyond your own abilities. Few things are more precious than your reputation emanating from your digital self. It will soon be part of the master key to unlock the services you want and need. How to protect it? A vault will not do, that’s for sure! Do you have a solution?

Multipurpose Traverse

As today’s business challenges span across boundaries within and external so too must leadership. The ever-increasing complexity of today’s world calls for a critical transformation in leadership from managing and protecting boundaries to boundary spanning ( see Never fail to fail, Giving Direction, Dance on the VUCAno) With that it’s business model reflects towards a multipurpose traverse offerings supporting the client’s dynamic behaviors and journeys ( Banking evolution: Service Innovation, Banking Today)

Under the context of digital offering(s) is its simplicity of a single-purpose business model/ offering/ app the wave of the future?

WeChat, or Weixin in Mandarin, is quickly becoming one of the most popular multi-purpose platforms, not just in China, but the world. Released in 2011 by Chinese internet giant Tencent, With nearly 800 million active monthly users, its user base has grown consistently in every single quarter to date. More importantly the point that I would like to focus is it’s actual embodiment of the app.

It’s safe to say that the most ardent of technophiles have at least 100 apps on their smartphone e.g. Facebook Messenger, WhatsApp, Telegram, Skype, Google Hangouts and Duo for instant messaging. Uber, Lyft, Citymapper, Waze, Tripadvisor, AirBnB and Skyscanner for directions/maps. In addition for gastronomy related: Deliveroo, Just Eat, OpenTable, Zomato, Yelp or Urbanspoon. That’s 19 apps to cover three essential functions. WeChat includes capabilities above and more.

WeChat lets users do everything you’d expect it to – instant messaging, sharing life events and chatting to family members. But its feature list extends far beyond custom emojis and profile pictures. WeChat allows you to arrange a catch-up with a friend, pre-order food from a restaurant, book a taxi to the restaurant, get directions on foot, pay for the meal (or split amongst your friends at the time of payment), check movie times and book tickets, and also purchase other items. All without hitting the home button.

The possibilities for brand-to-consumer engagement on WeChat are almost unparalleled anywhere else in the world, and this is almost entirely due to the way the app manifests itself in as many aspects of daily life as possible. By knowing a person’s current location and when they usually have dinner, all in one app, fast-food brands can hyper-accurately target consumers when they’re most inclined to purchase. And by tapping into the app’s data on payments and money transfers, marketers can get a good idea of when, where, how and why users spend their money, before using this to hyper-accurately target their audience when they’re most likely to buy. With such understanding of a client’s behaviour enables to proactively provide financial wealth services be it from suggesting dynamic relevant payment methods to making recommended investments, wealth management and advisory, etc…

The need for banks to traverse beyond its current boundary is imperative to regain expediency with the new paradigms ( see Digital Tur Tur).

Banking evolution: Service Innovation

Not so long ago we introduced banking capabilities (see “Towards a digital barter economy?”). Then came the pursuit of product offerings from basic to highly exotic types. With globalisation and increasing market competitiveness banking institutions must now drive innovativeness in their operation to gain sustainable competitive advantage. We are now in an era of competing, not only with incumbents but new challengers outside the financial sector, on the basis of services rather than on the basis of physical products as it is hard to distinguish between products of competing brands in a given product category. It is the services offered by the banks that manifest true value. Differentiation in services must be based on the need to have a vision (see “Giving Direction“) … and not ‘just’ innovation but with the sense of purpose.

Service innovation involves intangible resources for a more innovative service(s) that challenges the conventional attribute-based view of services delivery designs. This requires going beyond current restrictions of product innovativeness that involves assimilation of improved service processes by means of designing and redesigning service delivery capabilities. The pervasive influence of information and communication technology has revolutionised the means of social interaction which will impact how banks will integrate in the client’s ecosystem.

As services become more important for society and customer’s demand more complex and personalized solutions the need to understand and build up innovative processes is vital. Globalisation, information on demand, and ubiquitous communications are pushing innovative services to become more open, flexible, integrated, complex, multi-actor, and networked-oriented).

There are various models of service innovation:

“4Ps model by Bessant and Todd (2011)” – 4Ps represents product innovation, process innovation, position innovation, and paradigm innovation. All four aspects formulated for “innovation space.”
“Six Dimensional Service Innovation Model by den Hertog, van der Aa and de Jing (2010)” – this defines services innovation as a new service experience or service solution that consist of one of the following six dimensions: new service concept, new customer interaction, new value system, new revenue model, new delivery system and technological.

Can banks use these models as a baseline to evolve future service innovation models?

Nevertheless we need to work towards sustainability competitive advantage and embracing service innovation as an integral part of the bank’s strategy in order to move continuously towards being customer-centric and services-centric. Although there will still be a wave of financial product innovation based on programmable money we should not be limited to product and/or related process innovations but we must emphasise on business model innovation, market innovation, and most importantly paradigmatic innovations.

Ubiquitous Computing

The term is not at all a new trend or technology. Previously known as pervasive computing where due to technological advancement and cost feasibility the trend of embedding computational capabilities into everyday objects. This makes them effective in communication as they are network interconnected and performing activities of the end users without a centralised system.

Ubiquitous computing integrates via different devices, industries, environments, applications (e.g. wearable devices, appliances, fleet management, sensors). The goal of it is to make devices “smart” in the form of creating a sensor network capable of collecting, processing and sending data via the context and activity that it is under.

We had seen first phases of such capability involving wireless communication and networking technologies, mobile devices, and RFID tags. With the exponential advancement in internet capabilities, usage of voice recognition and artificial intelligence, the growth and adoption of embedding ubiquitous computing significantly increases now often associated and known to be the internet of things (IOT)

Gartner predicts approximately 8 billion connected objects to be use by the end of 2017 and it appears to be growing. In order to cope with the growth of IOT a heavy incorporation of artificial intelligence (AI) fueled autonomy will be required. An AI-driven era of IOT becomes the key building block to herald an increasingly seamless experience and hyperconnectivity as users and their digital counterparts concurrently transpose from one medium/device to another, between multiple environments, the physical and digital ecosystem.