Banking Today

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The word bank immediately depicts the picture of queuing in branches, limited quality products, and legacy processes ( e.g. time to process transfer or payments, etc…). The list goes on and on whether it is overdraft charges, processing/ service fees, overseas call centre. Although in the past, prior to the digital revolution, communication and processing were performed physically and was an important valued service appreciated by its consumers (Change is inevitable, Importance of a brand’s digital behaviour). However in the digital age, this will change with the introduction of financial capabilities not through new capabilities from existing incumbent banks but by new players outside the financial sector.

What will these players offer? Will they offer radically different products, new approach(s) to customer service and radically different ways of integrating to the customer’s ecosystem offering customers genuine and value added financial services? Or will these new ventures, like many of our existing banks, simply pay lip-service to such ideas?

What would we expect these new ventures to provide? To say the least the following:

  1. Fewer but relevant and value-based products base on the customer’s preferences. Keep it simple, make it fun, empower the customer.
  2. Financial services anywhere anytime (Omni-digital). Ubiquitous and available when we need any forms of financial services through the customer’s ecosystem. Services that interstate with their connected life.
  3. Personalized services and recognition. Knowing the customer personally. Listening to the customer
  4. QR code a standard for payments where payments happens instantly with limited to no infrastructure required
  5. Work the way customers work. Be where they are, be there all hours, respond now.
  6. Be the kind of financial services that I want to work with: be involved.
  7. Rate and fee sensitive/ free
  8. Be the overall financial caretaker. True advisory relationship.

What are your expected capabilities?

Giving direction …

The world continously evolves and changing exponentially (see Change is inevitable ….). Not long ago the pace in companies was much slower. Propagation of information took time and the production of goods was typically labor intensive. The main challenge was organizing processes and workforce efficiently towards maximal outcome. These mechanisms which used to work well in the industrial age increasingly fail to produce beneficial effect in the information age.

Today’s environment routine work is automated and commoditised whereas engagement and creativity have become major assets of organizations. Great organizations have a shared goal, a state they want to reach. This reason d’etre has become more important than ever before. The vision is the mechanism to create a pull into one direction. A practical guide for creating plans, setting goals and objectives, making decisions, and coordinating and evaluating the work on any project, large or small. It is the source for motivation within the organization.

A vision captures clear and inspirational long-term desired change(s) resulting from an organization or program’s work. The vision is important – it expresses why the organization is required and provides guidance and direction to all who engage.

  • Alzheimer’s Association: A world without Alzheimer’s

It is obvious that the people engage here want to contribute to a world free of Alzheimer. They can do this however as they want as the vision does not say what has to be done. Everybody can contribute with his skills and abilities. People will have different perceptions on the importance of this organization,  but nobody will be against this vision.

You may now say that this is just a simple and straight forward special case. Indeed – it should all start with a ‘why?’ which leads to people sharing the idea forming an organization. The vision is what makes this organization special and different from others.

Below is a list of vision statements of some other organizations

  • We create the technology to connect the world
  • We believe in what people make possible
  • Organize the world’s information and make it universally accessible and useful.
  • To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online

You engage and be part of only if you agree with the vision . Shaping a vision is not easy – it requires creativity, setting standards and enforcing clear decisions. People may like it, dislike it or find it irrelevant.

Many incumbent companies in the financial sector started with a clear vision. Some of these goals were reached and the companies just continued to do what they are doing. They just repeat what they have done in a better and more efficient way. Without having a vision it becomes difficult to be innovative and cost efficiency starts to become the main goal.

As a little exercise look at the web pages from incumbent organizations in the financial services industry and try to find their vision statement. It’s interesting that only a subset of the companies have one.

  • XYZ’s vision is to be recognized as a leading manufacturer of protective materials for high reliability applications throughout the world.
  • XYZ’s main commitment is to provide its customers with the best solutions possible
These two examples sound really trivial and the vision can be used for most types of organizations. Or is there a company who does not want to be reliable or provide the best solutions? This lack of purpose is dangerous – as there are many organizations with the same aim there is no evident reason, why this specific one is really required.

This lack of a vision is also dangerous as the new organizations all have vision – typically not talking about themselves but about the state they want to reach.

  • We believe everyone should be able to enjoy a healthy financial life.
  • We’re building this bank for you. We’ll learn and adapt to you, celebrating your individuality in every way.
  • By solving your problems, treating you fairly and being totally transparent, we believe that we can make banking better.

Compare the examples – which one is more appealing? Where would you like to engage as an employee or become a client? The incumbents benefit from their history as people are quite slow in changing their habits. But “time to change” is not the factor we should rely on in this “game” as when change happens it will be instantaneous.

Many incumbents relax on the fact that they are today systemic relevant – but the system could change and the relevance vanish with it. It feels much better to have a clear vision of the future than to rely on the past.

So it’s time for many incumbent organizations in financial services to hit refresh …

 

FINthinker’s Predictions for 2018

2018 will bring …

2017 was an interesting year where many developments started to get real traction. Just think about blockchain, bitcoin and artificial intellgence.

2018 will be even more interesting and substantially more challenging.  A few predictions for 2018 are as follows:

There will be three core changes for financial services:

All three aspects levitates a shift towards a distributed decentralized financial system. This affects the core and challenges legacy status quo and its existence in the future.

In addition fueled by the increasing tokenization and availability of blockchain based systems there will be a shift towards

  • Mobile Payments
  • Holistic mobile wallets
  • Global Solutions

There will be no other options for incumbents to integrate into the evolving mesh than to provide API’s to access information and services and to start to rely on others to provide crucial information. Self contained and closed financial services companies as well as local solutions will increasingly face headwinds.

  • Open Banking / API’s
  • Global solutions

Last but not least – user interfaces will become much more natural and transparent. The users will be amplified with new sense and access to information supported by intelligent agents.

Regulators will start to come up to speed with the changes. They will find ways to agree with business changes but also ethical standards across borders acknowledging the global nature of digital eco systems. A big challenge will be on the very old tax systems which are not ready yet for the shaping economy.

  • Tax System

These changes are fundamental – there is a ongoing paradigm change where inherent distributed digital approaches start to outperform the automated legacy processes. There are two big dangers out there

Many of the current developments seem to turn time back and bring up systems again which were used in the past but difficult to apply as physical distance was a limiting factor. Digital changes this – the world becomes some sort of a global village. Have a look at Yap, The Island Of Stone Money  – the first productive blockchain system.

More:

Simplicity in a complex environment possible?

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In all of our sophistication(s), humans react to the world in simple ways as our ability to cope with its complexity is limited. Do we seek simple solutions that hide or ignore the complexity?

Human senses are constantly producing far more data than their brains can process. Our brains cope with complexity by identifying important features and filtering out unnecessary detail(s). An example such as on seeing that the space you enter has four walls, a floor and a ceiling, you know you have entered a room and usually ignore the details. As individuals we deal with complexity by removing or hiding it. Our mental schemes are one way of doing that. Habits are another.

We also simplify complex decision-making by using received wisdom (e.g. advice of others, conforming to the beliefs and attitudes of what we may be associated to).

Society has many ways of managing complexity, one common approach is “divide and rule” approach to management which leads to hierarchical division of large organisations. Hierarchical breakdown introduces its own issues as the need to define early what are the decisive factors. Although structural changes can take place but only of rather limited value. Such systems have a tendency to go for the local optimum in each branch (see “The first step is key…”).  Another approach is to define laws, rules, commercial standards which creates limits and restrictions.

New technologies are usually introduced to simplify our lives, but inevitably they have unexpected side effects on society. An example is the introduction of robotics/ labour-saving systems set off cascades of social change, such as the decline of the nuclear family. In addition instead of addressing and replacing the complex systems with more efficient adaptable ones, we add additional layers of complexity by keeping legacy systems and integrating them with the so-called new and simpler ones. On top of that there is a continuous addition of business process which makes consolidation almost impossible. It makes life simpler to rely on others to provide solutions to complex problems.

This inability to fathom complexity leads to a belief that any worthwhile solution to a situation must be simple. Any change introduces complexity into people’s lives. Rather than face issues that are complex, some retreat into denial, preferring to believe in a simpler future in which there is no change and continue with their paradigms.

In an era of post-truth and pseudoscience, avoid dismissing uncomfortable facts out of hand. Complexity arises from the richness of interconnections between things. Can we continue to ignore the wider context and the side effects of actions and ideas? The continuous adoption and extension of programs are vital to humans over time.

“Our brain is not to think – it is to keep us alive”

 

The first step is key …

In the previous post we looked at Getting in and out of the box at will …. Thinking and acting outside the box is not easy at all.

The post Three Things You Need To Know About The Brain To Build Great Teams by Everett Harper shows some reasons for this based on Ellen Leanse book, The Happiness Hack. We all want to be happy. Our brain experiences two forms of happiness:

  • One, “hedonic” happiness, is associated primarily with fast reward dopamine cycles
  • The second “eudiamonic” form seems to rise from longer, slower reward cycles associated with serotonin

The post states that we have been hacked and are now flooded with hedonistic fast reward happiness. We must break free when we go out to explore the boundaries of our box to finally start thinking and acting outside of it. Once we manage to leave the box this triggers new insights causing ‘eudiamonic’ happiness but also fear.

Fear is the natural response of the brain to new experiences. The brains main purpose is not to think but to keep us safe. Keeping us safe works best by following routines and patterns. So the safe place is in the box where we follow what used to work. To get outside and break with routines and habits requires explicit action, it’s hard.

And finally once you have left the box it will be hard to convince others to move. They comfortably sit in the box. The perceived good place is in the box, talking about better alternatives is perceived as negative. But routine tends to be boring – a convincing and exciting vision may help to get things going.
People often say that execution makes the difference. Maybe it is the decision to make the first step ….
References:

Towards a digital barter economy?

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Barter is a system, used since many centuries ago, of exchange where goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money.<

Thus a barter economy is one where money does not exist or has ceased to be functional. It means consumers have to gain goods or services through exchange. Limitations introduced are:

  • Difficulty to produce or find the demand of specialised goods only wanted by a proportion of the population
  • Indivisibility of some goods/services
  • Seasonal; perishable
  • Subjective means to judge how much good and services actually are

Then came the development of using commodity money whose value comes from a commodity of which it is made (e.g. cigarettes, gasoline, precious metal, etc). The system of commodity money eventually evolved into a system of representative money as gold/silver merchants or banks would issue receipts to their depositors – redeemable for the commodity money deposited. Eventually these receipts became generally accepted as a means of payment and were used as money. To date most countries adopted fiat currencies that were initially fixed to the U.S. dollar as it was fixed to gold. However in 1971, the U.S. government suspended the client convertibility of the U.S. dollar to gold and many countries have thus de-pegged their currencies from the U.S. dollar. In our current state most of the world’s currencies became unbacked by anything except the government’s fiat or legal tender and the ability to convert the money into goods via payment.

Can the use of fiat currencies continue to sustain in the forthcoming digital ecosystems? Would money evolve to become cryotofiatcurrencies? There is the notion of “private money” set out by the noted Maltese “lateral thinker” Dr Edward de Bono which he argues that companies could raise money just as governments now do – by creating it from thin air. The idea of private currency was treated as a claim on products or services producers by the issuer. An example is company x can issue “ Company x currency” that would be redeemable for its products and services but also tradable for other companies’ currency or for other assets in a liquid market. According to Dr de Bono, to make such a scheme work, the company needs to learn to manage the supply of money to ensure that the monetary base and its capacity to deliver are matched and that inflation does not destroy the value of their creations.

This will introduce a new financial market where companies instead of issuing equities, it issues money that is redeemable against future services. In the case of startups, this money would trade at significant discount to take into consideration the risks inherent in the venture. But once it passes this state, the value of the money will rise provided products/services are available and more importantly used and preferred by consumers. With potential tens of millions of such currencies in circulation either being traded on futures, options, foreign exchange markets this leads to the question of usability and extremely complex transactions that people can not comprehend. The notion is that an individual’s “digital me” will be conducting these transactions with other digital representation of the physical individuals.

“Digital me” (see Be your digital self …) will be entirely capable of handling complex transactions and/or negotiations with other such as matching demands and supplies of financial assets, determine prices, or make settlements. Communications will be in real time and activities take place instantenously.

Will digital tokens be the form of “private money” described above to be the defacto in the marketplace? There will not be any centralisation to manage new forms of money. Tokens won’t only be issued by companies and tokens that implement on the values of communities will become prominent in the transactional space.

“Every day, in every way, the future of money looks very much more like its past” – Dave Birch