Category: innovation


ALFI Fund Distribution Conference 2016 – Innovation

Here are the slides I used to accompany my story at the ALFI conference. The fund industry must really think about and action their innovation strategy to ensure their businesses are properly positioned to cater for the tomorrow’s world.

A member of the audience asked me a question related to regulation and the constraints it puts on their firms to innovate.

I have worked with and hired many lawyers in my time. The ones I liked best are not the ones who point out all the problems and issues, but the ones that took what I wanted to achieve and found legal solutions to make it happen. I think this is true with most things – we prefer proactive people to negativity. Regulation is a critical component of financial services, but don’t use it as an excuse, work with it to find solutions to achieve what you must.

Accelerating Change

Winning With Apple Pay: Transforming Banking

apple pay

If we were the exec board of one of the UK banks, we would be on the phone this morning speaking with Apple and network providers.

If you missed it (not sure how you could), amongst all the glitz and wow of the apple launch last night (09/09/2014) Apple Pay, Apple’s foray into mobile payments was announced and showcased. It looked good. It worked great.

There are, as always, those that chose to find the flaws and felt misplaced pride in arguing, mainly through twitter, with anyone and everyone that Apple Pay fell short of what it could be. “Bah Hambug” they say.

We disagree with the killjoys. Although we have generally been less than positive on the existing mobile payment solutions and their potential impact on payments, we are happy to have changed our minds:

Apple Pay will fundamentally revolutionise the banking  industry.

If we ran a UK bank, our eyes would be lighting up. Opportunity is what we see. Apple Pay will come to these shores sooner rather than later. Rather than be a follower and adopter, we would want to lead the revolution, to drive our customer acquisition and make our stamp as a bank for the future.

Apple Pay is not like previous mobile payment solutions. It is delivered by the handset manufacturer, not by a 3rd party. And we have all witnessed the power this particular manufacturer wields when it comes to consumer adoption and behaviour. Yes they have made a few mistakes in the past, but Apple Pay will not join them.

If we ran a UK bank we would want to be the first bank to distribute the iPhone 6 and Apple Pay instead of cards to our customers.

We are deadly serious; we believe this strategy would spur a massive drive in customer acquisition as well as light the fire for new and improved product development processes within our institution. Innovation would be ingrained to our brand.

Today, we are tied to mobile phone contracts to subsidise the cost of handsets. We pay these bills from our bank accounts. The device is independent of the financial services we receive. We can chose to use it to assist our financial management, banking, payments, but there is no real compulsion. Everyone sees the potential of mobile in relation to financial services, but the implementations have not yet fulfilled.

By issuing the phone instead of a card, we believe we would intrinsically tie the phone to banking and drive the use of services, none more so than payments and the supplemental and valuable loyalty and rewards that are overlaid.  We would take ownership of the contract for the device, still delivered and serviced by the network providers, but channeled through our bank.

The cost for the handset could be met through fees (paid to the bank rather than the network provider) or perhaps even through minimum spend or balance obligations; nothing onerous and inhibiting (these are usual even today in many countries, including the US). Given data, we may look at our customer acquisition costs and see how our new strategy may allow us to contribute to the cost of the handset without increasing our overall spend.

Of course, we would be silly to just provide the handset to our customers without bundling some  apps into the package. User friendly (The key) account view/management, offers/rewards, FX, wealth management, PFM….. An opportunity not to be missed; pre-supplied and ready to use on a device that is is psychologically tied to our bank in the eyes of our customer.

We would need to brainstorm, test and build these apps; fast – ready for launch. Well, build them faster and better than we have previously been able to do. All those proposals for new process and methodology that we have discussed to death; Lean, RAD, prototyping, outcome driven and disruptive innovation…. the transformation of our business and the implementation of new and better product development would be driven forward by our handset strategy.

We will emerge a better, more capable bank. We will have changed the way the industry competes. We will have improved services for our customers. That is real innovation.

If you would like to talk through our proposition; contact us.  There is a lot to discuss around this intricate and groundbreaking proposition. But it is worth it; we can help you define, implement and win.

Where Next? Evolving Financial Services Through Customer Understanding

Originally published in the FinanceEstonia International Forum 2014 E-Journal in June 2014. As last year, this publication is a treasure trove of insight on the future of the financial services industry from leading industry practitioners. 

Sharing ideas


Prior to the FinanceEstonia International Forum, Aare Tammemäe, Chairman of FinanceEstonia spoke with Nasir Zubairi, Founder and Principal of New Buckland. The discussion considered financial industry consumers and what they really want,  the newest disruptions in the FinTech industry and how the “old” and “new” in FinTech can play together.

Aare: Considering the financial industry, what does the consumer really need? Do we even know?

Nasir: That is a big question and there are a broad set of requirements because the mass market is so heterogeneous, both in a big population such as the UK (a core financial market) and within the small population of Estonia.

One conclusion I have reached is that the mass market does not want a fragmented set of services, nor do they want something particularly “disruptive”. To affect the most people I believe the service has to look, feel and behave like a bank – we are not ready to accept a drastically different model for financial services but we are ready for improvements in the quality of service we receive.

We want our money to be stored safely, we want to use our money to pay for goods, we want ways to access credit and investments to increase our purchasing power, we want to perform transactions both domestically and inter- nationally with the least amount of friction and cost possible. And we want it all through a single channel – banking as an enabler of transactions today and trans- actions tomorrow, not a set of products in their own right. That is how we need to frame the business strategy to come up with the right solutions.

Today we have a very fragmented system. Though FinTech firms are doing the right thing by focusing and building core capability in specific niches, the overall friction for customers is arguably getting worse and acting as a barrier to wholesale adoption of the new services. For example, I access TransferWise to perform international payments; I separately access Zopa to make investments and, if needed, borrow money; I access my bank to deposit money and use my card to make payments. Each service has its own access channel and sign-up process; it is too much.

Banks are sticky, the top 5 UK banks still share 85% of business banking and 90% of retail banking. The reason? Even though they are more expensive than the set of FinTech challengers and their user experience is still far behind, they are a one-stop shop for services. Easy, simple, frictionless access is absolutely critical to winning. We have all these brilliant FinTech projects but they need to be homogenised, delivered as a single service to customers.

What might be the concept of financial services in the future? Do you think these new banking-like ventures will be more TransferWise type initiatives or will they merge into this complete service package?

TransferWise has done fantastically well, but is there really any competitive advantage and uniqueness in their technology product? Not really, what they have is great marketing. A number of the new FinTech challengers to traditional banking are not really delivering anything more than innovation in process and some innovation in business model.

If you want to go large and change the game in a mature market such as the UK then something more creative is needed, something which changes the basis for competition in the industry and delivers product and business model innovation that is defensible. I don’t think the current wave of FinTech firms have quite the right model for sustainability, I doubt they are the firms that we will be talking about in 5 or 10 years time.

I think it is still early days in the evolution of financial services. Great things are happening and will continue to hap- pen. I think we will see greater collaboration in the future between financial services firms to deliver better access to customers and reduce friction. I believe we will have more clarity on the industry’s development within the next 3 years.

Are there any other technological ideas around which might change the way we interact with the financial industry?

I believe the insurance and asset management/pension fund sectors are in need of a hack. The insurance sector in the UK is essentially a peer-to-peer network, it works, but in an almost hysterically inefficient manner. The UK asset management and pension fund sector makes billions in profit each year but there is cataclysmic crisis brewing in people not having enough funds for retirement. Obviously there is also still a lot going on in the e-money and payments sectors. I’ve been reading about Facebook’s potential entry into e-money and international payments; that would be an interesting move.

Can you elaborate a bit more on asset management and insurance please? What could the possible disruptions and their impact be on today’s financial industry be? 

The overarching problem is that there is a complete lack of transparency in both sectors. I don’t really know why am I paying X amount of money to insure my house, the only thing I know is that it seems like a lot and the price goes up each year. The average man on the street has no idea how it actually works and why the costs are what they are. Likewise in the pension fund sector, no one really understands what is being done with their money.

Transparency sounds very simple, but it’s always quite difficult to achieve. How could it work in reality?

It doesn’t matter if customers actually delve into how each business works, what is being done and why the costs are what they are, but it’s important that customers can easily find out if they want to. It’s about a company’s willingness to show and explain to us how it’s done.

Take the pension fund industry, I’ve had a fund for many years and even I, as an ex-banker, trader and finance professional, get very confused. Why does my pension fund go down at times when there are portfolio management techniques to protect the capital invested and provide a minimum return each year? Why am I charged a 2% administration fee?

Once in a while I receive a written report about what’s been happening with my pension. I don’t understand why I can’t access this information online in real time at my leisure and why it can’t be written in simple English? A rule of thumb for all this financial literature should be that an 11 year old can read and easily understand it (see the Flesch Reading Ease test). My fund has billions under management so I wonder how many customers they have and how many of these glossy reports are being sent out. It is very inefficient and costly in this modern day and guess who pays?

Workplace pensions in the UK are a key channel for retirement savings. People go through multiple jobs during their career and each new employer will undoubtedly utilise a different fund manager for their pension provision. Most people I am sure, as I, would like to consolidate their pension funds at each step to the pension provider of our newest employer. However, transferring funds from one pension fund provider to another is a ridiculously opaque process and the fees charged for consolidation are staggering. I understand there are costs involved in fund redemptions but, again, there is little transparency on why the costs are so high.

Many pension funds, such as mine, invest in overseas assets to spread risk. Each time they purchase or sell these overseas assets they require foreign currency. The funds, due to lack of diligence and specialism, are often charged up to 10bps on the currency exchange by their custodian (Russell Research report 2012) – think about that, it’s crazy! I am certain there are other areas where costs can be significantly stripped out to benefit the customer. Saving 1% in costs and increasing performance by 1% in the UK pension fund sector as a whole would lead to a 25% increase in the total value of pensions, that’s something worth striving for!

Should we wait for the insurance companies and pension fund providers to figure it out and make changes themselves?

Just as in banking, large firms in the insurance and fund sectors have stopped caring about the customer. They have delivered innovation but the value of these innovations has been captured internally and boosted profits. Innovating for profit is fine, but you should always share the profit of innovation equitably with customers to protect market share for the long-term. No business is ever safe.

There needs be an incentive for change to occur. The government in the UK is pushing for some reform and this could be a catalyst for innovation and improved service. New entrants also pro- vide an incentive for change by providing more competition, pushing existing participants to deliver more accountability and transform their practices. However the barriers to entry into the insurance and investment sectors are significant – can any new entrant make a dent big enough to start a wave of change within the industry?

I believe in starting small. Resolving any large problem starts from focusing on a small piece, fixing that piece and moving onto another piece, eventually you solve the whole problem. Like a big jigsaw puzzle – start with one corner, solve the corner, move onto the next corner, etc.

It’s an open opportunity for FinTech then, there is no one battling this cause.

As most people, I just want to see my pension fund go up and have confidence that I will have enough money to enjoy my retirement. The service providers’ job is to fulfil this need.

I am sure there are ways to better fulfil this need. The Government needs to be more actively involved in fuelling new innovation and ideas in the sector. We are sitting on a ticking time bomb – what will happen to society and the economy in 20 years when people cannot afford to retire? The problem is actually even more acute in the US, the average American only has $10,000 saved towards retirement.

Is there an opportunity for the “old” and “new” players to work together? As you said, the newcomers’ impact today is still very small.

They will absolutely work together. Spanish banks are doing some interesting things with innovative FinTech firms; Morgan Stanley is actively looking to partner with best in breed FinTech firms to enhance their capabilities and State Street partner with FinTech firms to broaden the range of services they offer clients. HSBC have just set aside £200m to invest in new innovation projects and partnerships.

Traditional firms will not disappear as long as they adapt and embrace new ways. I can see a world where a number of banks focus on being the “smart pipes, the plumbing of financial services” providing a foundation for other industry participants to sit on top, in turn allow- ing them to focus more on servicing customers.

If banks decide to innovate in their business then shouldn’t they find the companies out there which are already solving these problems?

They need to develop a capability regard- less of whether they build in-house or look for partners outside, they need a skill set in innovation. Experts need to be brought in to build the capability. All banks need to be investing in new talent that understands and can implement innovation processes. I have no doubt that we are nearing a fundamental change in the way customer’s use and access financial services, nobody really knows the entirety of what that change is yet, but it is coming. Banks need to be prepared to respond to the new threats, to have agility in process and, ideally, be the ones driving the change. Those that do will be the businesses of tomorrow.

In relation to Estonia, could that possibly be a small Estonian bank with good marketing and other tactical skills? Could such a bank become successful in Europe if it had the right offering?

Of course! With an aggressive and well thought through strategy there is no reason why an Estonian Bank couldn’t be the next generation leader in financial services across the world. In this day of technology businesses can scale so rapidly it is shocking. There are many examples from other industries where small firms, largely ignored initially, have quickly risen to lead.

Honda is one of my own favourite case studies. Though they had quickly become a large domestic producer of motorcycles nobody outside of Japan had heard of them. In the early 1960’s they began mass producing the Super Club, a 50cc moped now considered the “Model T” of motorcycles and the biggest selling motorcycle in history. They exported this model to the US, a country dominated by big bikes and by a big manufacturer, Harley Davidson. American Honda Motorcycle Company took control of the US motorcycle market by the end of that decade by really understanding their customers and using that knowledge to drive innovation in product, process and business model that blazed them past incumbent industry participants.

FN Fintech 40: Nasir Zubairi named as one of the top Financial Services influencers in Europe

Financial News 23rd June 2014 Cover

New Buckland founder Nasir Zubairi has been named one of the top 40 movers and shakers in financial services within EMEA by Financial News and the Wall Street Journal. He’s in good company with a raft of major players from London and abroad, including:

Eric van der Kleij (Head of Level 39)
Taavet Hinrikus (Founder of Transferwise)
Sean Park (Founder of Anthemis)
Nick Hungerford (Founder of Nutmeg)
Oliver Bussman (Group CIO at UBS) and
Jan Hammer (Partner at Index Ventures)

to name but a few!

Read all about the FN Fintech 40 in Financial news and in the Wall Street Journal.


Winning With New Products; A Theory of Normalcy

Originally published in The Huffington Post on 02 April 2014.

Fact: The more we understand about the lives and environment of our target customers the better we are able to market our products to them and accelerate adoption.

Focusing on the use of technology by a market and their “Normal” level of technology sophistication can provide significant insight into the likelihood of that market’s adoption of new technology products and services, allowing firms and stakeholders to better define their target market and to refine their product offering for greater customer take-up.

Markets are complex and fascinating. Understanding how they work and how they pertain to and define your product or service are critical to the success of your business. “Will customers buy my product/service?” “Why will they buy?” The concept of “adding value” is core to any business case.

Generally and particularly so in the tech industry, your peer group – the guys you hang out with in Tech City, the guys you sit next to in your shared workspace – are not the right benchmark for your product to succeed. They are not representative of the mass market. If they think your idea is great and they are likely to use it, you really really need to double check whether less tech orientated consumers will adopt your product. There are early adopters but there are also too-early adopters. Niche products proliferate amongst tech folk, many of which will never get to the mainstream. There is a “market perception bias” due to peer group and the pressure to deliver cool innovation relative to localised behaviour. The product/service misses the mass market as it is too cutting edge.

Normalcy cartoon

The Adoption Curve

Most people are familiar with the Adoption Curve (The Bass Diffusion Model to give it its proper name – find out more on Wikipedia) that describes the penetration of a new product in a population. Be it subconsciously, it defines our forecasts when launching new products and, by inference, investment decision-making and capital allocation.

An issue with the model: keeping all parameters constant while varying the size of the market, the length of time to fulfil 100% market potential is always the same.

Estimates of the key parameters are made on existing sales data or synonymous comparables data. The size of the market variable is arbitrary – there is no prescribed science behind it. You can make it 1000 or 100 million and the key output, the estimate of customers, do not change except in scale relative to the initial input.

I hope you agree, this does not make sense. A firm launches a product, it is selling well. They then incorrectly assume that their existing customers are a sub-set of a very large market and build marketing strategy and estimates on sales revenue on this misplaced market definition. It will take them forever to “own” the market; it cannot be that the length of time to saturate a large, more heterogeneous market is the same as a small and more appropriate one.

Market segments are defined by habits and behaviours as well as in many cases, law. They are not defined by demography – age, location, density….though, in certain cases, demographics may act as a good proxy.

Banks don’t sell mortgages to the “UK market” they sell mortgages to people in the UK that are looking to buy property, a need driven by the behaviours the people within that group and in this example, the laws that apply, which further segments the broad market; commercial mortgages, investment mortgages, first-time buyers, etc. More granular still, individual mortgage “products” are defined to appeal to specific customer groups that are driven by even more granular behaviour; e.g. their level of risk aversion, their accumulation of wealth, their use of time.

Broadly (and maybe controversially?) speaking, I believe it is good practice for young businesses or for any business launching a new product to focus on a very small market segment, really understand it, own it, then broaden the market definition and leverage their experience and brand credibility from previous success to sell to new target customers.

Understanding your customer’s normal level of technology use is key to marketing and success

First, lets get everyone on the same page with a couple of definitions:

“Technology”, does not just relate to computers or electronics. It is more broadly defined as “The application of scientific knowledge for practical purposes” this could relate to machinery, pipes, a saucepan and even a comb.

“Innovation, is not just invention, is not just a new product or service, I define it broadly as “something new that adds value”. This could relate to a process, a product or service, a business model.

Combining the two, “technology innovation”, therefore is the application of scientific knowledge to create something new that adds value.

Lets say there is an arbitrary line that represents the technology innovation that is available to us. The further along the line the more “high-tech” the product and service. We can benchmark a “Normal” (mean) for the sophistication of technology people within homogeneous groups are comfortable using on a regular basis. Either side of this Normal, is a range that represents the inferior and new technology that we are willing to utilise today. For a very large market definition, this is, unsurprisingly, normally distributed.

base model

As time goes on and users accept and use more innovative technology, the normal shifts to the right, i.e. the normal level is at a level of more sophisticated technology tomorrow than it is today. This is usually an incremental transition and takes time. There are very few “disruptive” products or services that have led to a large shift in the normal level of technology utilised by a market. “New and Improved” trumps disruption every time. To ensure you acquire rapid acceptance and use of your service or product, you need to target somewhere to the right of the normal line. Excellent – all fits well with the adoption model.

But wait, we know there are more distinct groupings within the population. What if we were to consider the habits and behaviours of “technophiles” and “technophobes” as exogenous to the mass market?

To generalise, technophiles are more likely to adopt new technology innovations and will be less accepting of inferior technology, while technophobes are less likely to adopt, relative to the mass market. The chart is likely to look like this, with technophile and technophobe adoption of technology skewed appropriately.


Now let’s make this more useful; let’s multiply the y-axis by the size of each market segment to give us a representation of the number of consumers likely to use the product:


Where do you want your product to sit?

To me, it’s fairly obvious that, for a product to be successful in the mass market, a business should be targeting the technology sophistication of the product to be slightly inferior to the normal level of technology sophistication acceptable to a market of technophiles. I.e. if the guy sitting next to you in google campus or a.n. other tech workspace thinks your product is cool and innovative (for them), it should ring an alarm bell in your head – check, re-check, and check again what is normal for your mass market.

Banks Must Catch the Innovation Bug

Originally published in The Huffington Post on 5th March 2014.

Although I agree that Banks and Financial technology firms should be looking to partner and work together where possible to improve the proposition for customers, I don’t necessarily believe that this strategy will make banks more innovative and provide better services for you, I and our businesses.

As I have stated before, innovation occurs at 4 levels correlated with increasing returns for the business and customers:

  1. Process
  2. Product/Service
  3. Business Model
  4. Industry – changing the way participants compete

My experience in financial services is that banks are pretty good at Level 1 – by buying in tech to improve process – and not too bad at Level 2 in certain areas.

Just look at the advances in process and products around capital markets such as electronic trading, algorithmic trading and prime brokerage. They are pushed to be innovative in these areas as the buyers, other financial institutions, hedge funds, etc. have significant power.

Downstream, in commercial and retail banking, there is less evidence of innovation in practice; chip and pin was a startling improvement that put the UK ahead of most other countries, but then we look at areas such as international payments, where the correspondent banking system from the 70’s is still in place, or invoice finance, where I have personally seen green screen terminals in a bank that run core processes.

It is still far too common that banks, rooted in tradition, try and keep the benefits of innovation for themselves rather than sharing with the customer equitably. This has to change; when it does, it will be the foundation of a new evolved industry.

For banks to become more innovative requires them to adopt a change in approach (be it slow and adaptive) to the way they do things, to the way they frame their role as a service provider, to they way they define and then execute their strategy.

This change requires buy-in from the top, from the board. It will take time and needs to be planned and controlled to fit with the bank’s culture and to avoid widespread disruption. Openness and collaboration with the rest of the bank is key; not just for others to see the benefits in the new approach, but to be inclusive and create a stakeholding. Segregating the (innovation) team is the biggest mistake that can be made – it will stir resentment that will lead to failure.

The CEO of one of the larger European banks I have worked with put it to me quite eloquently,

“Our business is like a large oil tanker, it takes a lot of effort to make it change course. What we need are a few agile speedboats that buzz around the tanker. Eventually, as more speedboats catch the tanker, the wake of these boats will help make the tanker turn more easily.”

We have not really seen a major bank challenge the industry with innovation at Level 3 and 4. Saxo Bank and Well Fargo are recent examples of business model innovation, but it has not called the larger players to account.

I am certain that, as has occurred in other industries over the past 20 years, a new entrant or existing player will grasp the reigns of innovation, be it organically, or, more likely, acquiring capability through external talent, so wholeheartedly that it fundamentally changes the way the industry competes – Level 4. This is where real value is delivered to all – Apple (Music industry), Ryan Air (airlines), Skype (communications). We are on the verge. I am so excited to be involved in the new dawn of financial services.

FinTech Estonia March 2014

The following presentation was given in Tallinn, Estonia in March 2014 at a conference that brought together UK and Estonian financial services and technology practitioners to discuss the issues and opportunities in FinTech and UK-Estonia collaboration.

A big thank you to Chris Holtby (@HMAChrisHoltby), the UK Ambassador to Estonia, and his team for their hospitality, their enthusiasm for promoting Financial Technology, and for arranging the conference.

There are an amazing number of great tech businesses in Estonia and we look forward to working with some, if not all, in the future.

New Buckland will be back in Tallinn in June to present at the FinanceEstonia International Forum.

FinTech Estonia Mar 2014 Presentation

Disruption of the vanities

disruption cartoon

Banks must prioritse technology now


I read a good article on Forbes Online yesterday by Chris Skinner, titled: Fixing “The Gothic House Of Horror” In Bank Back Offices.

To summarise, the article talks to the lack of investment by banks into back office IT infrastructure. Given the very public issues with payment networks of recent months (lloyds, RBS to name but a few) the article is timely and points to a concerning issue – although the big banks have (finally) realised that they need to invest in technology driven user experience, they are still lagging, critically so, in upgrading their core banking infrastructure, which may have devastating consequences to their customers and, ultimately, to their own competitiveness.

The article echoes some of the issues I addressed in a piece I wrote for Entrepreneur Country magazine several years ago when I was beginning my entrepreneurial journey within financial services. My concern is that the bigger issue of incentives within banking still need to be addressed before we see the major banks put the right emphasis on IT strategy as a core driver of overarching business strategy and competitive advantage.

The analogy of “spaghetti” used to describe the state of bank systems within Chris’s article is one I have myself used in presentations describing bank IT and is appropriate. The front office (revenue generators) in a bank rule – they are the decision makers and define business strategy and tactics. IT managers are expected to implement what the front office says – the faster they do it, the more praise they will receive and the more likely and faster they are to progress  in their own careers. Bolting on/fudging code to deliver new IT services yesterday becomes the norm as the IT leaders respond to the incentives put in front of them. Dare they suggest to do things properly? No, as it will lead to them being sidelined and suffering significant barriers to career progression until they conform.

The front office managers have no desire to suggest an overhaul of IT systems for the greater good of the firm. Although the cycle of promotion has lengthened since 2007 and managers are staying in their posts for longer, the average is still 3 to 4 years before a manager moves on. Do they want to be the ones seen to suggest and preside over massive capital investment in IT, in the 10’s of $millions (given the still prominent waterfall project methodology), without clear and tangible uptick in revenues? Unlikely, if they want to keep going on their trajectory of pay rises and increasing responsibility.

Pressure to conform and address the issues must come from the business leaders on the board. IT strategy must come to the fore and their team must be made to feel that they will be rewarded, not penalised, in their careers by making the right investments in technology. Changes in approach –  agile, lean, experimentation – to ensure failure is fast and cheap, should be gradually cascaded through a bank to ensure capital is spent wisely.

The simple fact is this; my kids, our kids, will not want a bank branch, will have higher expectations of the e-services they receive from banks, and will be more likely to penalise a bank for inferior services by changing their provider. We ourselves, as we progress in life and increasingly become the core target market for capital markets, commercial and retail banking, will have moved along the line of normalcy in terms of the technology we accept and use and will demand and expect more from our service providers. Banks will become less sticky; they cannot rely on an apathy to change going forward. There will undoubtedly be more competition for services; pushing for change now, acquiring new knowledge and experience in best practice for technology design, development and delivery, investing in building a true competitive advantage and core capability in technology will ensure the  longevity of a bank and its future competitiveness.

Re-Wired: Financial Services Evolution

Originally published in The Huffington Post, 05 November 2012.

Its been brewing inside me for a while and I need to shout it out; “BANKS ARE USELESS AT TECHNOLOGY”.

Its not the people that work there that are at fault – given the salaries paid to technologists, product managers, project managers and the like, banks probably do have some of the best and brightest talent. No, its not their fault, well, not directly anyway. It’s the incentives; conflicting objectives between teams and departments lead to bureaucracy, bureaucracy leads to inefficiency, inefficiency leads to costs and long delivery time frames leading to poor projected and actual returns…leads to anger, anger leads to hate, hate leads to suffering. Yoda kind of got it, I am sure you do too.

Please bear with my statement of the obvious – we live in a remarkable digital age. The evolution of technology, the invention and innovation, over the past 15 or so years has been astounding. Do you remember the computer you had as a child? A Commodore 64 or Amiga? An Amstrad CPC? Do you remember your brick of a first mobile? Do you recall sending your first ever email, MSN messaging someone for the first time, the introduction of Google, Facebook, Twitter and Skype?

It really is staggering when you think of how technology has moved forward at such lightening pace and the way that services you could not have dreamed of (and did not, or else you would be filthy rich) have been enabled to enhance our lives.

Today, our needs in relation to services are fundamentally shaped by technology. We explicitly and directly infer what is possible through innovation in analogous services. Implicitly, the way our lives have been re-structured as a result of technology enabled services gives rise to irritation and frustration when we are slowed down by core services that lag way behind in terms of usability. Technology enabled services have helped service providers reduce their costs, the benefits of which, in turn, are passed on to customers in terms of lower prices – we expect most apps/services to be low cost or even free.

If you haven’t got it yet, wake up – financial services, to a troubling degree, are dominated by banks, Banks, particularly commercial banks, don’t do technology at all well. We want user friendly, intuitive, low cost and value added technology enabled services. Pigs might indeed fly before I get an online solution from a leading bank that actually gets close to what it could and should do.

Let’s take international payments as an example. At present, 85% of all international payments are still conducted with a bank. Making a cross-border payment is complex and time consuming; the process lacks transparency on pricing and has unnecessarily high operational risk – over 30% of international payments run into “problems” that are costly to repair, both financially and reputationally.

The infrastructure designed to support the hundreds of thousands of transactions taking place each day is archaic – developed in the 1970’s. Shockingly a lot of the process is still manual. All of these inefficiencies are passed on to the customer as a cost; SMEs in particular often pay through the nose for a service that is far from satisfactory and consumes too much resource to manage. The most ridiculous thing? A bank cannot tell their customer when the payment is going to arrive in the beneficiaries bank account, nor tell the customer how much the full cost will be.

We have gotten used to lacklustre service, become apathetic to the status quo.

In contrast, non-bank cloud-based platforms – whether Software-as-a-Service (SaaS) or Platform-as-a-Service (PaaS) — connect businesses more effectively to a host of currency exchanges and deliver optimisation across and within international payment networks, delivering more transparency on fees and reducing the incidence of failed payments. The level of automation across processes and the use of cloud services, enables low cost operations and scalability, enabling them to lower their fees. It goes without saying that these technology led businesses make the lives of customers easier by delivering user friendly and intuitive solutions that significantly improve the customer’s workflow and reduce administration overheads.

We need banks, but the way in which use them has to change in order to receive better financial services.

I believe that the future of financial services has parallels to the evolution of the telecoms market or the way we use electrical power. There are utilities that deliver and manage the “plumbing” – the lines and power stations etc. On top, sit a plethora of service providers that can package these services in an effective way to meet the needs of their customer niche. Focusing on a core set of capabilities at each level such as this allows the operators of the pipes to benefit from massive economies of scale that they then pass on to their subscribers, who in turn share the benefits with their own customer base.

If banks focused on the “plumbing” – capital markets and their operations, deposit taking and making decisions on the allocation of capital – rather than trying and failing to compete in technology enabled customer services, they would unquestionably be more efficient. Customers can be better and more cost effectively serviced by the raft of “New Finance” firms focusing on packaging specific services, such as international payments, loans, asset finance, cash management etc, that are emerging and sit on top of the bank’s plumbing, These firms are principally technology businesses and marketing specialists. They are focused, they are agile and they are the right way to access financial services. Of course, just as in other industries, some of the banks will evolve exceptional capabilities in servicing customers, but only if they change their approach to product development and innovation; they need to stop focusing on delivering products that they think the customer needs and start delivering products that customers actually want – pull demand rather than push supply.

Imagine the benefits of logging-in to an independent personal finance application in a new world of financial services. The application connects directly to a host of banks. Aside from getting a better more useful view of your finances and budgets, you would, for example, be able to request a new loan and you would get the best rate for which you were eligible and qualified for, across all banks, click a button to accept, and its done. No forms, no applications, no bank names – you interface with financial services through the application provider, not the underlying institution. It doesn’t really matter where your money is held as long as its safe, it does not matter who is lending you money.

We need to re-wire our minds, re-think what is necessary and what is not. Better understand the pros and cons of one way over another. Actually, scratch that – we don’t have time to think. Just listen to me. New Finance services are here NOW. The more customers vote with their feet and switch to use these services, the more innovation will take place and the more customers will benefit. I am not talking about industry disruption. I am talking about industry evolution. The time is right, the stars are aligned, the writing is on the wall…yadda yadda yadda. Just go make the switch for goodness sake.