The future of banking?
It seems like there has been a major disruption in the personal banking space as services have been digitised. But has it really been that disruptive or transformational?
As a customer, what has really changed? I can now see my statement online on my laptop or on my smartphone. I can make my own electronic payments. I can even secure an immediate overdraft or loan without having to speak to anyone or another human being having to be involved. It’s all automated.
Sure my day to day customer experience has changed and banks have reduced the cost of providing services as they need less people and less branches, but the underlying banking model hasn’t fundamentally changed. My bank still manages my current account and tries to cross sell me other products and services that will make them some money, they have just digitised it and made it more efficient. Even the Digital poster child CommBank still offers this traditional banking model.
Peter Thiel, the serial billionaire entrepreneur, talks about transformation and genuine value creation as going from Zero to One. What we have seen in banking to date is a shift from 1 to 1 plus a bit. Even the challenger banks seem to be following this well trodden path, only without the legacy IT systems.
So what do I want my bank to do for me and how can they go from Zero to One and create a new set of services, products and ways of working that will truly set them apart from the competition? Well, personally, I’d like my bank to be my personal financial assistant. I want them to work for me and help me get the best financial deals possible to meet all of my financial needs. I also want them to secure my data, certainly not to sell it, and not to cross sell me products and services. I want them to have a service model that has me at the centre.
Fundamentally, I want them to be my trusted financial advisor that I can rely on.
A single advisor that offers a range of services in one place. Sure I could get those from multiple players, but like most consumers, I can’t be bothered to keep shopping around and I want them to use their brand and their scale to work for me. I want a bank I can trust to act on my behalf and can go head to head with other large organisations to get me the best deals and I’m prepared to pay for it!
Here are some of the services I want from my 21st Century bank:
- On a monthly basis I want them to scout the market for the best insurance premium for my car, my house and my life and to make the transaction on my behalf. To save me money.
- I want them to constantly monitor the gas and
electricity markets and make deals for me that will save me money.
Automatically switching providers so save me cash.
- I want them to learn the kind of restaurants I like from my spending habits and to make recommendations to me based on my preferences. I don’t want them to make recommendations to me based on what restaurants want. As I said above, I want them to secure my personal information and not share it with other organizations.
- I want them to manage my investments for me. I’d like them to actively monitor the market and trade my assets for me based on deep insights and learning about the market. Please make me some money by actively managing my assets and avoid me making losses when the market goes wrong.
- I’d like them to optimise my tax saving opportunities and to fill in my tax return for me to review and approve.
- I want them to provide me with insights into where I can buy stuff cheaper. They have all of the data about where and when I spend my money. I’d like them to learn from that and other people like me and negotiate on our behalf for better deals
- I want them to improve my credit rating by learning about me, my behaviour and the market place. Helping adapt how I borrow and spend money to ensure I get the best public credit rating.
Buy my monthly insurance cover
OK, so I’ve got to wait for the insurance market to catch-up, but hopefully the laggards in that industry will get with the programme or be disrupted by some start-ups and we can start to buy insurance with automated robots acting on our behalf. I’m not talking about legacy platforms like the comparison websites, I’m talking about a brand new marketplace offering cheap monthly, weekly or daily insurance products that are easily bought and sold. We already have the technology to bring this service alive; electronic markets with automated matching and clearing are common place and insurance companies already expose their products and prices using APIs (electronic interfaces) and automated robots acting on our behalf are already main stream. We need a leader to make it happen; either one of the big insurance companies, who can see the writing on the wall and the benefits of taking call centres and other administration staff out of the business model, or a consumer champion, acting on behalf of its customers; like my bank!
Save me money on my gas and electricity
Less than 3% of UK consumers switched utility providers in 2015. Partly because there’s very little between the dominant energy providers and partly because people just can’t be bothered. The two things are circular. With little churn in the market there is little incentive for the big players to be competitive on their pricing. They’re more interested in maintaining their margins than entering a price war and ending up like the supermarket trade.
For the consumer, it’s a hassle and intuitively it doesn’t seem like a big money saving exercise. Something needs to change. Clearly we need the government to change the rules to encourage more entrepreneurial start ups to challenge this oligopoly, but we can also automate customer switching to make it hassle free and zero cost. Again, we already have the technology to do this; there is no technical reason why we can’t make this happen. I’d like my bank to do this automatically for me on a daily basis. I want them to continually check the market so that I have the best price.
Enlighten me about restaurants people like me go to
Google, TripAdvisor, OpenTable and a bunch of others already offer this kind service; from the basic ‘people like you, liked these’ recommendations to more sophisticated algorithms. However, they make their money through marketing restaurants to me. I don’t like that and nor do a lot of other people. I’m fed up with being sold to and marketed at, I want the market to be turned on its head and put me at the centre. I want my bank to use these same technologies to analyse which restaurants I go to and correlate my likes and dislikes with other bank customers to recommend new places. I’d also like them to find offers and opportunities and to tell me about them. They can aggregate my data and use it to negotiate better deals, like Groupon might, but on no account do I want them to sell or share my personal data. The clue is in the title: it’s personal and I don’t want to share it with everyone.
Be a Robo Advisor
A big trend in the US in 2015 was the Robo Advisor. Organisations like Betterment and FutureAdvisor offer automated wealth management to the masses. They offer to automate your investment portfolio based on your personal objectives and risk appetite. They use Modern Portfolio Theory (MPT), powered by advanced analytics to recommend and place your investments with a range of diversified traditional, regulated funds. The portfolio automatically adjusts depending on market conditions and the performance of asset types and individual funds. It’s tax efficient (they optimise that for you too) and it’s cheaper than traditional investment services. They aim to keep risk in the middle ground and hence returns remain there too.
You could argue that it’s not that disruptive. It has made it cheaper and easier for the general public to access wealth management services, but it’s not really turned the market on it’s head. Modern Portfolio Theory is the standard portfolio investment method and it has a major flaw in that it doesn’t deal with a major systemic scenario like the one we saw recently. One of the characteristics of the recent financial crises is that the crowd went over the edge together.
Hedge Funds typically take a more active investment approach, but are high risk. The returns can be amazing, but so too the loses! There are one or two Robo Advisors, though that are challenging the status quo of using MPT whilst not going to a full hedge fund model. Hedgeable, for example, is a Robo Advisor that uses a Dynamic Investment Model to manage it’s clients’ portfolios. They’re using advanced data analytics and data science to increase the profitability of their customers’ portfolios and minimise potential losses.
My point is that this is exactly the type of service I’d buy from my bank. As my trusted advisor of all things financial, I’d like them to make my money work for me. They have the scale, the customer base and they need to find new ways to make money as their investment banking divisions continue to scale back. Personalised wealth management based on advanced analytics should be right up there!
Take away the boredom of the tax return
There can’t be anyone in the World who enjoys filling in their tax return. As my single financial advisor, my bank now has all of my spending and income data. With a few adjustments to incorporate the tax I’ve paid, filing my tax return should be pretty straight-forward.
Actually, I’d like them to go a bit further: I’d like them to recommend ways I can save tax in the coming year. For example, perhaps I haven’t optimised my tax free investments, or my pension contributions. I’d like to have recommendations based on what other people like me have done and opportunities I’m not taking advantage of.
Use the power of the crowd
One thing that Digital technologies and the Internet, especially Social Networks, are good at is leveraging the power of the crowd. Companies like Groupon have helped consumers obtain better deals through the power of people.
Some banks have already partnered with other organisations to offer discounts on third party products and services. A step in the right direction, but what I’d like my bank to do is to be a bit more personal and community focused at the same time. I want it to learn what its customers are spending their money on and use its leverage and insight to get us (me) a better deal on the things we buy. For example, if my bank has half a million customers who buy a morning coffee in Starbucks by contactless everyday, I’d like them to negotiate a collective discount with Starbucks based on that volume and pass the savings back to us.
People like the power of the crowd, you just have to see the rising success of apps likes Waze. It’s a community based traffic and navigation app that is out-performing Google maps in major cities around the world. Banks have almost unrivalled scale in terms of their customer base. A huge crowd just waiting for some leadership.
Help me improve my credit scores
There aren’t many people I know who actively monitor and try to improve their credit rating. From what I’ve seen it’s pretty straight-forward if you understand the rules and how the credit agencies are making their calculations, but it’s one of those things that seems to take quite a lot of effort and I can’t be bothered as I’m not currently looking to borrow money, but I might do in the future and I really should be building my profile.
So I’d like my bank to passively provide me with insights into my behaviour and what I might do to improve my score. I don’t want to have to do anything myself; I want them to make recommendations and maybe even take small actions on my behalf in order to improve my credit rating. For example, maybe I keep missing my credit card repayments because I haven’t set up a direct debit and my bank informs me of this and completes the electronic form for me. All I have to do is review it and press send.
Dear Bank – don’t be a plus one!
A lot of what I’ve talked about relies on big data, data science and analytics as well as open, service based architectures. All of these technologies are readily available today, what we lack is the vision and the will to make it happen. We’ve all gone online and adopted self-service, but the underlying retail banking model remains the same. Retail banks have a unique opportunity due to their scale, investment funds, data, brand and customer base, if only they can re-imagine what a bank does.
#artificialintelligence #bigdata #virtualassistant #datascience #dataanalytics #roboadvisor #innovation