Category: New Finance

 

Oh Dear……

April Fool

April Fool!

Fintech verticals – Payments, Lending & Wealth Management

A graphical summary of three key Fintech verticals – Lending & Credit, Payments and Wealth Management. Useful?

Fintech Lending Fintech Wealth Management Fintech Payments

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.

 

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

Supply chains: solving payment delays and working capital woes

The original article was published by Entrepreneur Country on 01/11/2013.

Cash flow problems account for a huge percentage of corporate bankruptcies and are a major cause of financial distress to UK businesses. £36 billion was owed to UK SMBs (small and medium sized businesses) at the end of 2012 due to unpaid and overdue invoices. More than 124,000 businesses said they have come close to shutting their doors permanently as a result of cashflow problems resulting from extended invoicing terms and late payments from their buyers.

Cash flow worries have led to a surge in adoption of alternative financing services. Crowd funding, invoice financing, angel investors and even government grants have emerged as options for businesses struggling with cash flow concerns. However, though easier to access than traditional finance such as bank overdrafts and loans, these forms of credit are more often than not relatively more expensive for SMBs than for their larger customers.

Championed by the UK government, Supply Chain Financing (SCF) is quickly emerging as the best alternative solution for low cost working capital finance for businesses.

In many ways SCF is the same as Invoice Financing/Factoring – the practice of receiving short-term credit against the security of an invoice as yet unpaid.

The critical difference between SCF and Invoice Finance (IF) is that it is the customer not the supplier that works with the lender, historically a bank, to enable seamless early payment of the invoices to its suppliers. Suppliers are offered the opportunity to receive early payment and can choose to opt in to the scheme or not. The “credit” comes in the form of a discount on the value of the invoice. For example, if a customer typically pays on 60-day terms, a supplier could receive immediate/early payment if they accept a small discount on the face value of the invoice.

The benefits of SCF to both the customer and supplier far outweigh those of other working capital solutions.

Firstly, the credit risk and thus the cost of the financing are related to the customer, not the supplier. Due to the direct relationship with the customer, the lender’s fraud risk is also reduced – there are no “ghost invoices” to worry about, no worry around disputes over payment or returned goods. These factors help make SCF the lowest cost option for working capital finance for a supplier. Suppliers can receive early payment on close to 100% of their invoice value. With IF, early payment is generally around 60%-80% of the invoice value.

Furthermore, SCF provides for total transparency in the use of the credit facility; the relationship between supplier and customer often becomes strained when a lender is chasing the customer for unpaid invoices in an IF solution. Invoices are pre-approved for financing as opposed to a supplier struggling to obtain the evidence they need for IF.

For the customer, SCF helps cement a robust supply chain and can actually make their cash work harder, enhancing their own working capital, and can potentially help generate a new and small income stream.

Win-Win for all involved.

SCF has traditionally been targeted at large corporates with a large supplier base.  This is changing as technology and processes to assess risk are improving. New services, such Tradebridge, aim to facilitate SCF for medium sized businesses, helping them, and their suppliers, to access the benefits of SCF.

Mark Coxhead, Managing Director of an innovative new SCF business called Tradebridge said to me, “We utilise proven technology to help us deliver a simple, easy to use solution designed for medium sized businesses, typically with between £20million and £100million in revenues.

Our goals are to allow these businesses to realise the benefits of SCF without adding any friction or cost to their existing processes and to help their suppliers overcome cash flow worries. Our service also gives more control to the supplier, allowing them to get cash early for their invoices when and as they need.

Our technology enables us to cut out a lot of the overhead that larger lenders/banks have to cover in their lending rates. As such, we are able to offer market leading finance that is lower cost than that of other providers.”

Automation around invoicing is core to optimising the SCF process, and to invoicing in general. E-invoicing should, particularly in this age of technology, be the defacto method of billing between the supplier and customer; many solutions, such as Invoiceable, are free, others are in-built to common accounting packages.

Paper invoicing is the source of a great amount of confusion on invoice status. Paper invoices are difficult to track and thus create inefficiencies in the invoice approval process. PDF attachments to emails are not much better; they are invariably at risk of being ignored.

A clear, robust and automated process around invoice handling can even free up previously hidden cash within an organisation. For customers, greater clarity about what has been spent, what’s outstanding and invoice status can lead to more rapid processing, helping them to avoid late payment. A transparent system also fosters greater collaboration between suppliers and customers, leading to new opportunities.

Invoicing terms are the main driver of cashflow issues facing SMBs in the UK today. The lack of cheap and accessible credit further exacerbates the issues SMBs face. Managing finances does not need to be so difficult; Supply Chain Finance offers a myriad of benefits to both suppliers and their buyers and is now accessible to a wider community of businesses. Technology has made SCF relatively pain free to implement and use and has helped to lower the financing costs. Implementing SCF should be a top priority for any Financial Director.

What do financial industry consumers really want and how are these demands met by the industry?

The following is a reprint of an interview for Finance Estonia/UKTI as a preliminary for their Disruptive Technology in Financial Services Conference. The Interview was published in an e-journal.

The e-journal is a must read  – a fantastic collection of thoughts on the future of financial services from the likes of Rohan Silva (former senior policy adviser to David Cameron), Edward Lucas (The Economist, International Editor), Dr Christopher Sier (Director of The Financial Services Knowledge Transfer Network (FSKTN)) and Gavin Cleary (COO for the Financial Services Investment Organisation) amongst others.

How does the technological evolution shape demand for financial products?

Technology is becoming a core component of our habits and behaviours and therefore a driver of our needs. Looking forward, the young are growing up in a world that is ruled by iPads, smartphones and other touchscreen devices, Facebook, Twitter and other social media are an important part of their every day. My own two children are constantly on a screen of some sort. Their lives, our lives, are increasingly ruled by technology and it is hard to imagine a world going forward where the services we engage with, such as financial services, are not delivered through digital channels.

However, we are still only at the dawn of financial services digitization; mass market adoption of digital financial services will take time. I often hear the calls of Financial Services disruptors who say that the branch is dead, I disagree – branches will exist for quite some time yet; the “normal” level of acceptance and use of technology innovations in the mass market has not shifted far enough yet. Too many people still want to have a relationship, to go into a bank, talk to people and manage their financial requirements. Perhaps it is the physical branch that is the substance for the trust between the customer and service provider.

Things are changing, and rapidly, but we still have a way to go and need to be constantly looking at changes in consumer behaviour and habits along the way. I doubt we can even imagine the way we will engage with Financial Services in 15-20 years time, the major industry participants nor the role financial services will play in our lives.

I’d argue that in smaller societies, like Estonia, the traditional branch banking model is closer to expiration than in countries like the UK and USA. The crux is in REALLY understanding market segments – Estonia has a relatively small and concentrated population thus there is more correlation in behaviours and habits among that population and therefore more homogeneity in needs. In the UK there are approximately 46 million people with at least 1 bank account.

London has become a beehive for disruptive financial services, both those types that compete with banks and those that seek to service and enhance the traditional participants in the industry. With the former, I feel there is some level of myopia that results from their peer group – a bias to technophiles they cross paths with in London’s exhilarating tech community. Hearing that your service is innovative and cool from peers may be a danger sign that you are too advanced for mass adoption now or in the near future. Fine if you can build a business targeting a technologically savvy market, not so great if you need massive scale, as is often the case to be successful with financial services.

If you go outside London there is much more diversity around digital acceptance. From a financial institution perspective, the big consumer revenue generators have been found to be less accepting of tech than the norm, they still want to engage with the physical bank. Virgin have launched their bank in the UK – Virgin Money. They chose a strategy that involves an extensive branch network when they could have sought to build a digital-only bank, a pitch I myself made to them a few years ago. Virgin is a very smart company, they have a lot of people who worked really hard on analyzing the market and constructing the strategy to enter the industry and they concluded that branches were needed.

Small steps in banking evolution are occurring in the branch, slowly shifting the norm of technology acceptance along the right path. HSBC has rolled out some very high tech features within branches focusing on less interaction, reducing waiting times and generally engaging more efficiently with their customer. Personally, I do not see branches disappearing from the UK within the next ten years, potentially considerably longer. Yes there will be reductions in numbers as more people accept and use online/mobile services and engage less with the branch, but branches are still a core requirement.

Do consumers know what they expect from the industry and what are those expectations?

That is an interesting question because the word “expect“ is very different to “require” and the expectation, at the moment, is very low and is largely moulded by the current state of the banking industry. People’s expectations of banking are not high because the service delivery has been really poor. The gap between what people need and should be getting out of the banking industry, and what banks are delivering has widened significantly, particularly in the past five years as banks have focused inwardly. I think that will change, the requirement is a lot higher.

So expectations are very low but requirements are high; this has created the opportunity for a lot FinTech innovators – there was really nobody looking to challenge the banks 5 years ago, the “new finance“ industry has exploded since 2009. The banks are simply not providing the service consumers deserve.

Will telecoms companies participate in the financial industry more significantly in the coming years?

I don’t believe that large telecom companies, such as the mobile operators, have the core capabilities/skillset to enter the financial services market. Rather I see partnerships being the strategy of choice for telecoms to successfully enter financial services in developed markets and, perhaps more interestingly, servicing developing markets.

Developing markets, such as in Africa, are embracing innovation and technology in mobile banking beyond countries such as the UK as they do not have to battle with existing infrastructure. They can take a step change approach to solutions to meet market needs.

I see mobile becoming increasingly useful in terms of managing finances. My personal belief however is that, in the UK, mobile payments will not take off in the near future. I don’t think there is a strong enough proposition yet relative to the lack of trust in mobile devices and the mobile wallet. I see innovations coming in areas that offer marginal benefits over what we have today and require less behavioural change. For example, The Touch2pay Card is taking off but people are not really ready to do that with their mobile.

In what areas do you believe old economies and financial centers are still strong?

Ultimately the old economies (London, New York and I would add Singapore, Hong Kong and Tokyo into that batch as well) are very difficult to compete with in terms of accessibility to the capital markets’ core infrastructure, the pipes and connectivity on which banking is facilitated. London is a powerhouse of finance; we have a concentration of skill, resources and knowledge. New economies don’t have that.

New financial centres do benefit from not being burdened by existing infrastructure and by “shadow of the past” thinking – I cringe when I too often hear the phrase “this is the way we have always done it”. Agility is another key advantage in new centres.

I do feel that new centres could benefit by bringing in the right management and leadership expertise from traditional centres. For example, one of the big problems China has is the lack of highly trained and skilled white-collar workers of a senior management level; their development around management skills has only occurred over the past 10-12 years. They are learning fast, and this education is coming from senior managers brought in from Western economies where the management skillset is significantly more developed.

One of the highlights of rising economies is their ability to come up with creative ideas and actually implement these ideas with agility and success. Reiterating what I said previously, the mobile payment/mobile money revolution in Kenya is phenomenal – a leap in terms of innovation beyond the UK and US. For us in the UK to go from a fairly effective and efficient chip and pin card payment system to mobile payments is going to be extremely costly and the incremental benefit, as I say, is not quite enough to motivate consumers and merchants to adopt yet.

Do you think that Africa will skip some stages of development in the financial industry that the older economies went through, especially due to the fact that they are very heavy users of mobile?

Absolutely. African nations have the benefit of looking around to see what has and has not worked in the past and use this knowledge to help create the right solutions for their market based on current habits and behaviours and the likely path of change. They are essentially starting with a clean slate. Given that a lot of the population is under banked, the solution that they have come up with is targeted to, and facilitates the needs of, that market.

Where do you see that emerging economies could excel in terms of financial services?

I think there are a lot of shining lights in the emerging economies. If you look at Africa, Russia, Eastern European countries and what is coming out of these countries, there is a lot more creativity around solutions. They are almost becoming case studies for ‘this is what banking can become’. What comes to mind from Poland is mBank who are delivering a fantastic online user experience. Fidor Bank in Germany have a virtual online wallet that allows their customers to manage multiple real and virtual currencies from a single portal. They also have a very innovative approach to marketing, wherein the more Facebook likes they receive the higher the savings rate on their current accounts. They have the ability to create and implement at relatively low cost compared to large, traditionally bureaucratic banks in the UK.

The market here in the UK unique, we have five banks controlling 85% of banking. It is very hard to make inroads against the oligopoly. What is interesting and right is that the new finance world is focused on very niche products and on specific elements of the financial services value chain. There has been relatively rapid adoption of new services however ,one of the issues that may be a stumbling block in the growth of banking alternatives is that easy access is core to consumer needs. It is not pricing that matters to UK consumers in financial services (as long as it is in the ballpark), it is all about access to make it easy.

Banking utopia would be that banking services are invisible, consumers choose when to engage and we would not need to do so often. Although individually all new finance services coming to market are easy to use and access, they are each just a part of our overall requirement and therefore making the act of engaging with financial services on the whole more complex. We want something which looks after our money, can facilitate payments, do foreign exchange, lending, help with our investments, etc – having to engage with a different provider for each part is far from ideal. The less friction the more popular services will be, the people who can deliver that are the people who will win. Perhaps we will soon see a consolidation of multiple new finance services through single access points, a virtual bank. That will be VERY interesting.

Time for New Finance

Originally published in The Huffington Post, 05 July 2012.

No more excuses; this is a broken record. Credit crisis, moral hazard, payment protection insurance, taxpayer bailouts, mis-selling, bumper bonuses, rogue trading, “Muppets”, collusion, lending…..the scandals hitting the banking industry roll on and on. The time is now to shift the balance of power away from the banks, to make them sit up and listen. It is time for customers to take control and vote with their feet for better and cheaper services and for transparency and fairness.

Fixing LIBOR and EURIBOR. Mis-selling interest rate products to SMEs. “You have been a naughty boys,”say the FSA, a slap on the wrist for Bob Diamond and some fines. We, consumers and SMEs, will ultimately bear the cost for the penalties handed down, not the bank’s big business or institutional customers. We let the banks get away with it. We continue to fill their coffers.

We can’t rely on policy makers or regulators to improve the banking industry. They are applying sticky tape to the gaping fractures that have been exposed and I guarantee the tape will eventually be stretched and ripped apart exposing again the hazard beneath.

If we were to design the financial services industry today, anew, what would it look like? An industry based on the world today, on a fresh understanding of incentives and needs, on technology and new business models, is what I see as the true solution to the crumbling system that surrounds us. A solution that we, as consumers of financial services, are capable of making a reality through our actions and choices.

The banks see us as the least price sensitive segment – we are their goldmine. The big 4 banks in the UK control 85% of SME banking services and about the same percentage of consumer financial services. This oligopoly has hardly been dented since 2007, even though the number of viable alternatives has risen sharply. Entrepreneurs have been drawn to solve the obvious issues and to deliver better services. The next generation of firms are spawning, focusing on specific niches within the chain of financial services.

We are unfairly taxed by the banks for our loyalty. The price discrimination applied to small business and individual customers is staggering and totally unjustified in an age of digital processing. We need the banks to hold and look after our money but we shouldn’t then be handing them disproportionate levels of our hard earned income for a range of bolt-on financial services, especially given the inferior quality of the service we receive.

It is unquestionably cheaper to access the services we need through independent next generation providers. It will get even easier too, as “New Finance” firms come together to form complementary ecosystems that deliver services through a single customer interface. These firms look to analogous financial technology businesses to supply the building blocks for their solutions. New Finance firms recognise, as we all should, that the real competencies of banks are in deposit management, back-office operations and capital markets liquidity – the rest is better done elsewhere.

Firms such as Funding Circle, the peer to business lender, Money Dashboard, Zopa, Tradeshift and Fidor Bank are working hard to be excellent at fulfilling customer needs, delivering business model innovation to lower cost with high quality technology based services that provide a more fulfilling customer experience, all wrapped in the required layers of security.

It is too late and too expensive for banks to bridge the massive gap between customer needs and the services they deliver. When the banks should have been taking risks with their adoption and use of technology, they took risks with our money instead. It is time we punished them for being below par; we wouldn’t use a cowboy builder twice, so why do we stick to our cowboy banks? We must help the next generation of financial services firms succeed. The power is in our hands; we must embrace New Finance for our own benefit. Shrug off the apathy – take action.