Bank 4.0 Read online

  Banks that still require signatures on a piece of paper to onboard a customer should be very, very nervous right now. FinTech [start-ups] are built to deliver every product imaginable in real-time, without a signature.

  —Accenture Perspectives, 2016

  Onboarding and relationship selling in the new world

  In a world of experience-based banking, there’s no such thing as cross-selling as we’d describe it in today’s world. Given the dramatic shift in behaviour regarding preferred banking access, the likelihood is that banks are going to have to adapt to this new normal. In the short-term, if you can’t deliver a product or service in real-time over digital, you will be losing customers and revenue by 2020. By 2025, there’s a better than even chance that you’ll be hunkering down in survival mode.

  Figure 6: Preferred Banking Methods in the USA (Source: ABA 2017).

  Figure 7: Preferred Banking Method in Latin America (Source: Statista 2015).

  Figure 8: Preferred Banking Methods in the UK by # of interactions, 2010–2020 (Source: BBA).

  If you look at this data from different geographies, while the timeframes are slightly different, the trend is the same—branch as a preferential day-to-day channel has declined between 50–80 percent since 2008. Surveys from Novantas, Statista, CACI, BBA and others all suggest that this trend is likely to continue or even accelerate over the coming years.

  Again, this data doesn’t suggest every branch is going to close—that’s not what I’m getting at here18. The data, however, absolutely shows that preference for branch interactions on the whole is continuing to decline (as it is in retail storefronts broadly). Therefore, multi-channel revenue capability is not optional anymore, it is a matter of survival for a retail bank beyond 2020. FinTechs are already onboarding new customers at 1/20th and even 1/50th of the price of their forebears with non-branch acquisition. So it can and is being done. We’ll talk more about this shortly.

  The addition of voice-user interfaces (from 2016–2022) and the representation of advice and feedback in an augmented reality head-up display (estimated from 2025–28), are both technologies that will further detach the branch process from daily engagement and sales. The more serious issue is that acquisition, cross-sell and upsell capability in this new world is based on an entirely different competency to that before.

  “Alexa what are my options to invest this money?”

  There are no demographics in Kansas anymore, Toto

  Today we measure key segments based on demographics and behaviour that is exhibited amongst their peers. In today’s banking world when someone measures that a segment like “Mass Affluent” can achieve a ratio of, for example, three to five products per customer, we aim for that average as a proficiency benchmark. It mostly comes down to sales targets and marketing spend, rather than platform capability.

  In tomorrow’s world, your ability to upsell or cross-sell to a customer will be based on actionable data and customer behaviour intelligence. Your ability to anticipate when and where a customer needs your bank to solve a problem or fulfil a need will be the trigger for a real-time, or near-time, highly relevant cross-sell or upsell engagement. Differentiation will be based on your data pools, partners and sensors that lead to the right trigger at the right time, and your ability to deliver that contextually with the least friction.

  While some might be tempted to see this as an evolution of database marketing, the key here is going to be behavioural models and not segmentation and targeting. It is a pretty significant shift in underlying capability, because most marketing departments don’t have that skill. It’s a data modelling problem, not a targeting problem. It’s data science, not market research.

  And yet…this is where the relationship revenue is coming from in the future. If you only have branches and traditional marketing capability trying to pull customers into a branch to sign a piece of paper, you are massively hampered in this experience-led world, and you simply won’t survive.

  Endnotes

  1And I think you’re probably a resident of Colorado, Oregon or Washington State smoking legally.

  2That is, if they visited a branch, withdrew cash, applied for a credit card and for a CD or term deposit on the same date—it still just counts as one visit for that day.

  3Maybe you wouldn’t…

  4I have a banking relationship in Hong Kong where this is still the case today.

  5See Pulse news, “Kakao Bank attracts more than one million accounts in its first five days”, 31 July 2017.

  6“A Hundred Apps Bloom in China as Millions Bank on Their Phones, Bloomberg Markets”, August 2015—https://www.bloomberg.com/amp/news/articles/2015-08-19/wechat-baidu-and-alibaba-help-chinese-embrace-digital-banking.

  7Source: Industrial and Commercial Bank of China—Annual Reports.

  8“In Urban China, Cash is Rapidly becoming Obsolete”, 17 July 2017, The New York Times.

  9Source: Fox Business, June 2016—“Uber’s Leasing Program Is Changing The Auto Loan Market”.

  10Source: Marriott Press Release—http://www.digitaltransactions.net/news/story/Marriott-Will-Accept-Alipay-As-Part-of-an-Ambitious-Joint-Venture-With-China_s-Alibaba.

  11See article below: “Future Vision: Your Personal Voice-Based AI Banker”, by Brian Roemmele.

  12See Amazon Go.

  13Source: InfoTrends Worldwide Consumer Photos Captured and Stored, 2013–2017. See also: http://mylio.com/true-stories/tech-today/how-many-digital-photos-will-be-taken-2017-repost.

  14See ATM Marketplace “Mobile vs. branch: Beyond the tipping point”, March 2016.

  15Shout out to Greg Mitdbo who came up with this one.

  16Source: TD 2016 Q4 Quarterly Earnings call with CEO. MySpend had the fastest ever growth to one million customers of any of the TD products/platforms in their history. MySpend was also the only TD app ever to hit #1 on the Canadian Apple iTunes and Google Play app stores.

  17See Ant Financial Investor Day Report—http://www.alibabagroup.com/en/ir/pdf/160614/12.pdf.

  18Settle down Ron Shevlin and Kevin Tynan.

  From the introduction of the ATM machine in the 1970s to the web-based interfaces of today, banks have been famous for their love/hate relationship with technology. The early days of the ATM was nearly curtailed by the insistence of banks to charge patrons for ATM usage, even though there was ample evidence that many basic functions would save the banks money and serve patrons faster. When the ATM was finally adopted, it started a trend away from full service branch visits, offering the opportunity for the local banker to become closer to regular patrons, to know them personally and their financial needs and goals. The technology began to push bank patrons away from their bank, and this started a break in the relationship.

  Today the chasm is wider than ever, most people under the age of 35 could, perhaps, count the painful times they have ventured beyond the ATM lobby of a bank. Those older customers remember the bank visits, but it falls into the category of a post office visit, or worse—a Department of Motor Vehicles visit. Much older people may be able to remember buildings and loans and savings and loans, with the essence captured in the classic movie, It’s a Wonderful Life. In these memories of the past we can see the arc of the future.

  There is now a generation that has been raised with financial services that are 100 percent self-service. Of course, some of this was needed, yet what now appears elusive is a personal, almost human connection. In the old days of banking, in most medium to small towns the banker knew the customer, they watched them grow up and meet the milestones from first savings account, college loan, car loan, wedding ring finance, first home finance and so on. In between all these banking milestones there are thousands of points of guidance and advice. The relationship with the banker was almost raised to that of a family doctor. The advice was welcomed, there was trust and confidence and the patron was more friend than customer.

  This may all sound old fashioned and quaint, yet today we have a generation of younger people coming
into the financial system with no real trusted confidant from which to ask financial advice. Certainly, one could search the internet or call a toll-free number and get simple answers read off of a screen by a person that might be mildly interested in helping you, or who wants you to apply for their product so they get a sales commission. The rise of the smartphone app has, however, started a trend that now allows for a deeper connection of personalized services with banks. The app ecosystem evolved us from the isolated ATM days and set up a foundation for the next shift, voice-controlled AI.

  As it stands today Alexa, Siri, Google Assistant and Cortana are already becoming very useful question and answer systems (Q&A). Q&A systems are limited in that they do not recognize a continuity and a context between you and the AI system. Continuity has many elements, but the most simple element is that at the very minimum it understands the questions you asked before and is able to establish how questions are connected with previous conversations. Context has even more elements, but the simplest element is recognising who you are and what you are trying to achieve during this moment of interaction. This is the next stage of what I call the “Voice First Revolution” and it sets the stage for even more advanced interactions we can truly call a dialogue or conversation.

  This is all mediated by a contextual form of AI that rests upon knowing the user to a degree not achieved by current AI systems and voice-first platforms like Alexa. This will change in a remarkable way. There are many new and innovative techniques and protocols we can use to achieve continuity and context. It will form the basis of a true digital personal assistant, something that will become more useful and more powerful over time. There are many things our true personal assistants will do; one of them will be financial advisement custom-tailored for you, based on your deep context and your goals.

  Your personal assistant will be a voice-first AI system that never leaves you. Over time the context it establishes will be with your clear permission and with the highest security. You will also form an alliance with your personal assistant in a way previously unseen in technology. This will allow for the rise of the new automated, personal banker powered by your personal assistant and integrated with your banks and other financial companies.

  The interactions will even surpass the advice one would have received from a family banker in 1950s’ United States. The tremendous ability to compare your current context and continuity with proactive interactions on your behalf will form the new voice-first AI personal banker. This personal assistant will know all past, current and potential future financial events down to the minutest detail. Your AI-powered banker will know details that cannot be found in banking statements, investment statements or credit card statements. It will ultimately know it all.

  Here is an example of a typical interaction with your personal assistant AI: “Lesley, can I afford this new VR system? Is this the best time to buy it? Is it the best price?” Your AI banker can respond based on how you have curated “afford” over time against the other purchases you have made or plan to make, and create a contextual insight specific to you. You may not be able to afford this purchase; however, there may be many other suggestions and options. Let us assume for this purchase that $2,000 is the best price and the best time to buy. The next question is: how do you pay for it? Your AI banker can establish on-demand credit to be issued or a payment plan. There can also be a real-time banking auction that can use your current financial context and type of purchase to be bid on in a private way, giving you far more options than ever before. The system can also establish the best possible loyalty and bonus points.

  Consider this interaction: “Lesley, when can I afford to buy my first house? What can I do now to shorten the time it will take to get a deposit ready? What investments will help me get there?” Today, answering these types of questions would require the insights of financial planners, as investment advisers and bankers working together. Yet with your new AI banker—a single point of contact that understands all of your context—a simple conversation will give you a useful answer that would otherwise have taken hours to derive. Your AI banker won’t be selling you a mortgage, it will be helping you understand what you have to do to buy a home. This is already an improvement on a mortgage advisor who can only really suggest different types of mortgages.

  With our ever-persistent AI banker working for us 24 hours per day, seven days a week, this will form a dedicated intermediary between you and the financial world. In this world “advertisements” will not be aimed at you directly, but to your AI banker. Banks and financial service companies will develop technologies that will allow them to become the service your AI banker chooses and prefers. All of this will be performed with your oversight; however, at some point you will forge a trust with your AI banker to always do the best thing for you.

  The power of voice-first AI allows for the rise of this new personal banker that can be summoned by voice whenever we need it. The deep knowledge and deep context will create a “relationship” that would rival that of a personal banker for the very wealthy. The ability to have an ongoing, perhaps life-long dialogue with our personal AI banker will create a relationship that may become the single most important business relationship we form in our lives. This relationship will weave into just about every aspect of your life. Once you have the power of a personal AI banker, there is no chance that you would want to contemplate a world without it. There’s also no reason to go to a branch to speak to a human, either.

  5 DLT, Blockchain, Alt-Currencies and Distributed Ecosystems

  Dubai is a frontrunner in adopting the latest technology and has set a goal to become the world’s first government to execute all implementable transactions on the blockchain by 2020. The government initiatives in this direction present tremendous business opportunities for the private sector in the UAE.

  —Ahmad Al Mulla, chairman of CIOMajlis, 24 July 2017

  Now before I start, I’ll make the obvious observation. By the time this book comes out, whatever I’ve written here about blockchain and cryptocurrencies will be out of date. News about China and their Bitcoin exchanges, regulatory responses to initial coin offerings (ICOs), bankers talking about a bubble or Ponzi scheme, are daily occurrences. But that should also tell you something. I’ll also be clear that if you’re looking for an exhaustive essay on how blockchain works, consensus versus private versus public, etc—you’ll be disappointed—this is not the book for that. What I want to discuss is how technologies like blockchain will force banks to evolve and how cryptocurrencies and ICOs may signal an evolutionary change in the way we think about capital markets, commodities and capital flows themselves—a futurist’s perspective on the whole ecosystem, if you like.

  Prior to 2008 we hadn’t heard of Bitcoin, blockchain or distributed ledgers. There was scattered talk of digital currencies, like the early QQ coins and Linden dollars from SecondLife™, but DLT1 was nowhere to be seen.

  Today the total capitalization of cryptocurrencies is measured in the hundreds of billions; ICOs are exceeding early venture capital investments in start-ups; while major banks, governments and firms are deploying blockchain technology. Blockchain, Bitcoin, alt-coins and ICOs are hot.

  This shouldn’t be news. Neither should it be all that surprising. Today, five of the top six stocks in terms of market capitalization in the United States are tech companies (Apple, Alphabet, Microsoft, Amazon and Facebook). It wasn’t that long ago people were debating whether Facebook’s IPO was a total bust. And before that people were debating if the internet was a fad. Technology is transforming every sector today, from EVs and solar that are obliterating the future of fossil fuels, to Apple’s app ecosystem that has created some of the fastest growing companies in the world today (such as Uber and Airbnb). We’ve even had to invent new language to describe these shifts, like the “sharing economy”, the “gigging workforce”, “unicorns”, “social media”, etc.

  If you can step back from the heavy regulated banking sector and observe the
changes taking place in the world writ large, the view from the bleechers is that we are simply replacing all the old infrastructure and value chains with technology-first constructs. In the world we are moving into, old regulated systems on old rails can’t survive—even with protectionism—because they simply aren’t fast, flexible and scalable enough in a world where 200,000 internet-enabled smartphones are sold every hour of every day2. If you can look out from the tree branch you’re sitting on, you’ll see a forest of change that is inexorably forcing a rethink in the way we do things: how we send money from point A to point B, how we grow businesses, how we create brands, how value is exchanged, and more.

  Emerging digital currencies

  Bitcoin, and the blockchain it sits upon, is what inevitably emerges when you have to retrofit money, value stores and payments systems to a real-time world sitting on the IP layer, directly accessible by the user rather than through a gatekeeper. This sort of solution emerges when you realize that a single banking core system sitting in a single data centre somewhere can’t possibly deal with “deposits” and transactions happening simultaneously everywhere in the world where a mobile wallet might exist. It emerges when you realize that a single database accessed by potentially millions of computers simultaneously couldn’t possibly handle the security requirements you need to keep secure custody of digital money. When you realize that having to first jump through KYC hoops just to get access to a payments system doesn’t work when the transacting device is an AI or an autonomous vehicle with its own autonomous payment capability for road-tolls and charging stations. When you realize it’s no longer just a transaction you need to execute, but all the other data (geolocation, biometric, behavioural, heuristic) that goes with the transaction, that will be just as critical for building the future of your business.