The Bankwatch

Sometimes when I read the debates on chip, PIN and EMV I feel I am listening to the Flat Earth Society.  America is home to some home truths including gun ownership, religion and mag stripe in ways that just seem contradictory to common sense.

That said, when it comes to chip there are aspects that payment security adherents are probably not addressing in sufficient clarity otherwise one would think logical thinking people would come around even if they are American.  (I love America by the way)

So what is the issue ?  Why is it so hard to make the coherent case for chip?

US chip card debate heats up

But at a payments conference organised by automated clearing house Nacha in San Diego this week, three of the nation’s largest retailers hit back, arguing that the move to EMV will impose huge costs for a minimal reduction in fraud rates.

There are multiple issues which confuse the technologists seeking that optimum single solution.

• One device;  The Single Solution Problem
• One Law; The Border Problem
• One Customer Preference; The Customer Problem

The Single Solution Problem

Internet is largely to blame for the incoherence of solutions.  Internet creates a natural desire for a common solution and common approach for things, whether banking, shopping, or reading.  However criminals are adept at finding specific attacks for whatever solutions are developed.

The basic chip card concept is rock solid provided you follow the chip card rules.  Stick your card into a secure card reader and boom … you are secure.  However take that same card and buy something in a web page, and the chip security is gone.  The security is based on what you type, and the chip security is irrelevant.

Then when you travel to a non chip country, such as US you must use your chip card by swiping the mag stripe.  Immediately all the benefits of chip are gone.

The Border Problem

When travelling with your secure chip card, that security is compromised by the strategy employed for your card which is the lowest common denominator of security.  That is the mag stripe mentioned above.

The Customer Preference Problem

Finally the card must be designed to accommodate all customer needs.  The card is the centre of the universe and must be dead secure when required, but also flexible when that security is not available.

The real solution

The current chip card is an obvious choice that tries to satisfy all needs yet satisfies none.  I have worked first hand with chip people at my bank and many do not see the obvious.  We need multiple solutions.

1. The chip card ought to be just that;  a chip card with no mag stripe.  This card will only work in ATM’s and card readers that are chip secure.  End of story.
2. Online Solutions;  here we must forget about the credit card metaphor.  Lets design a payment method that fits the online environment.
3. Mag Stripe:  Never put a mag stripe one a chip card.  I have preached this for 10 + years and will never stop.  Mag strip and chip on the same card is just stupid.
4. Travel cards:  Banks must offer separate cards for travel.  Remember Travellers Cheques – when customers travel they will accept the idea of a different card with a different credit limit for travel.  Many people have credit cards with $40K credit limits but that card is not needed for drinks at the resort.

The new CapGemini/ Efma World Retail Banking report is out today. This is the 3rd annual. 

A link to the full report, press release and infographic can be found here.  Its 40 pages and worth the study for anyone in bank channel strategy and management.

Paris, New York – April 23, 2013 –  Within the next six months, ten percent of retail banking customers surveyed globally will likely leave their bank and an additional 41 percent of customers say they are unsure if they will stay or go finds the tenth annual World Retail Banking Report 2013 (WRBR 2013) released today by Capgemini and Efma. To re-build the customer-bank relationship, opportunity exists for banks to become more customer-centric by leveraging vast amounts of customer data and by further developing mobile capabilities to create more personal interactions. The cornerstone of the WRBR 2013 is its extensive customer survey and Customer Experience Index (CEI)[1] which measures perceptions of 18,000 customers in 35 markets about the factors that matter most to them across channels, transactions and products.

The report is an interesting of assessment of banks customer experience around the world, and development of potential solutions.

The is a great definition of the problem banks face in the commoditization of their products.

Banks have historically had difficulty distinguishing
their products from one another, and in recent years the
problem has only intensified. The look and feel of basic
banking products has remained largely the same, with
very little innovation forged in terms of linking products
or developing them outside their traditional silos.
Attempts to differentiate on price too have been curtailed
in recent years due to regulatory and cost pressures that
are keeping rates universally low.

As new channels have become available, the industry has
moved in lockstep to add them, creating an environment
in which most banks have at least a presence in every one.
The sole exception may be mobile, which the industry
is currently in the process of broadly adopting. The
retail delivery ideal has evolved into being able to make
any product available through any channel at any time.
However, banks often bolted on new channels instead of
fully integrating them with existing ones.

It then goes on to  speak about what interests me and the various channels and how banks can improve their customer experience there, versus what many have done and merely bolted on new channels, particularly mobile and merely presenting similar offerrings.

Where the Customer Experience Index (CEI) improved the most, credit is given to improvements in mobile and telephone. (Philippines & Portugal).

Next is the positive correlation between understaning of customer needs and customer experience.

Finally the link is made between knowing the customers needs through data and using that data to support the channels appropriately.

The focus really turns to mobile and rightly so.

The correlation between age and positive experience seen
for branch and internet banking does not hold true in the
case of mobile banking. Because they are less familiar
with the full array of mobile functionality, customers of
all ages have a lower tendency of positive experience with
mobile. In addition, increasing age appears to have little
relation with more positive outcomes in mobile as in the
other channels. In North America, for example, 34% of
older customers have positive experiences with mobile,
compared to 41% of younger ones. As banks continue to
make investments in improving their mobile capabilities,
the overall number of customers with positive experiences
associated with the channel is expected to grow.

There is determined to be a direct correlation between Customer Experience and Product Channel fit.

The report assesses the digital maturity of banks based on their finding that:

The study found that a firm’s level of digital maturity
is strongly correlated to its profitability and efficiency.

Banks rank high with 35% in the upper right quadrant.  Mind you that means 65% are not there.

Interestingly the challenge facing banks is quite similar to that facing FaceBook and Google.  But banks have an important asset that those two do not … customer specific data.

The next frontier for mobility is to use the mobile
platform to enhance marketing and sales. Banks already
are using mobile messages to welcome customers and
inform them of new products.

Finally the report follows through to the logical conclusion

Becoming a Customer-Centric Bank by Leveraging Data

Banks have access to more customer data than ever before and this must be more effectively
utilized for relationship-building to succeed in the future.

• ƒƒBanks today have tremendous amounts of customer data available to them, but are able to
  successfully leverage only a small fraction of it for delivering actionable business insights.
• ƒƒExtraction and cleaning of data is as important as analyzing it to gain customer insights.
• ƒƒBefore technology investments are made, firms need to be more successful at defining business
  objectives and aligning the necessary technology to support those goals.

The remainder of the report provides a useful discussion on the nature of data that Banks’ possess and makes the case for a more rigorous and scientific data driven strategy to support customer experience in the channels, and particularly mobile and online.

It is not unusual to have economists debate how to manage inflation, growth, and employment.  The solutions vary from extreme Keynes supported by Government spending, to extreme austerity and we have seen all of those especially since 2008.

A guiding light of clarity that appeared in 2010 was the Reindhart/ Rogoff book entitled ‘This Time is Different”.  The title implied with irony that in fact it is never different, and that it went on to empirically prove that over 800years of data it is proven that countries with excess debt suffer low or negative growth.  I have quoted the book here on numerous occasions after the crisis.

Well, 3 years later some Professors at University of Massachusetts Amherst (Herndon, Ash and Pollin – HAP) managed to acquire the original spreadsheet used by the authors and were the first to do so after much coaxing.  This is potentially as damning in the economist community as the Lance Armstrong debacle was in the cycling community.  The result is devastating, and still the full implications will need to be analyzed and reviewed by experts.

Bottom line they have three conclusions:

1. Spreadsheet coding error;  since acknowledged by Reinhart Rogoff, that certain critical averages (@AVG) missed some cells in their range.  While acknowledged by Rogoff and shrugged off as not meaningful, spreadsheet errors are devastating to credibility.
2. Unconventional weighting of summary statistics;  this one is more subjective and strenuously rebuffed by Rogoff.
3. Selective use of date;  some countries were excluded in certain data sets.  Again and strenuously rebuffed by Rogoff.

Two of the Amherst professors write in the Financial Times today with the heading “Austerity after Reinhart and Rogoff” A main policy plank is riddled with faults, write Robert Pollin and Michael Ash”.

The central issue here is that the countries and defenders and implementers of austerity include IMF, most European Governments at the behest of the IMF, UK, and US Republicans.  This makes for a very awkward moment as politicians from all these groups have relied on “This Time is Different” as a backstop to make the argument for them on austerity.  I am in that same camp finding the book makes the argument that makes sense to me.

We are in for some deep debate as this new paper will be used for political gain, and I look forward to some reasonable debate and clarity about the real true impact of the papers conclusions, the central one being that countries with debt exceeding 90% of GDP will suffer harm to GDP.

FT analysis:

http://blogs.ft.com/ftdata/2013/04/17/the-reinhart-rogoff-response-i/

The functionality of linking the QR code to streamline bill payment is a smart idea.  QR codes have become the de rigeur addition to all marketing materials in North America, but they are functionally useless.  I have written about this before.

The original use of QR in Japan by marketers was tied to specific offers and coupons for restaurants and the like.  There was a point.  Meanwhile in North American the codes generally link to a marketing page or a home page. 

Back to the BillTrust idea.  By tying the QR code to a useful function that bypasses clicks will provide much better success.

BillTrust

HAMILTON, NJ – (March 19, 2013) – Billtrust, the leader in Customer Centric Billing, today announced the immediate availability of QR codes for biller statements. The service lets consumers and businesses pay their bills online in a single step, simply by scanning the QR code with a suitably-equipped smartphone.

With this new addition to their suite of payment services, Billtrust can imprint a QR code on any outbound billing document. When the recipient scans the code they are taken to a mobile web page for instant electronic payment. Pertinent billing information is already entered on the page, making payment a streamlined process.   The QR code can also be used to bring a user to an online billing site where enrollment is easily initiated.

A lot has been said on mainstream media about Mayers decision at Yahoo to eliminate working from home as a regular term of employment.  The standard media line goes something like ‘Yahoo does not get it’ and ‘this is counter directional to the direction technology companys are supposed to be going’.

Even Richard Branson chipped in saying he would never work from an office.

The two themes that leap out are:

1. technology produces the capability to work from home, and
2. working from home is empowering by allowing employees to operate on their schedule, banishing commuting, and commitment to the schedules of others

I think Mayer has it right.  As compelling as the two points in favour of working from home are, they fail to account for the synergy that arises from working together.  They also fail to consider the unintended consequences of losing workplace synergy and creativity.

That’s not to say that some jobs that are individualist in nature may not be better working remotely.

Arwa Damon the Senior International correspondent who I was watching on CNN tonight spends a lot of time away from the office, but even she is not working alone, with camera and other people along with her.

And the Branson example is laughable.  Does he honestly think the Virgin investment banking crew in New York for example would really create better decisions if they operated apart all the time?

1. Technology provide the capability to work from home

Something the media have missed is that the technology has created a world where work occurs during normal work hours then continues in the evening just because it can.  This is far more disruptive to family life, than working from home capability is good for it.

What work needs is some rules that provides for home/ work balance but still provides the synergy from a properly functional office environment.  Technology has provides a quite dysfunctional, environment for most information workers, and they feel guilty if they don’t verify that last email before a late bedtime.

Sensible rules would provide for smart integration of the work tools that we have gradually integrated into our work life over the last 18 ~ years without due thought to how to properly do that.  From the first laptops in the early 90’s, internet access, Blackberrys in late 90’s and now smart phones the evolution has been (quite) long and gradual.

This means that some adopted quickly, others more slowly, and more others were born into it in the middle of all this mayhem.  Then layer on the adoption of social tools (Facebook etc), information management tools (Evernote etc) and cloud tools (Dropbox, Google Drive etc), and we have enormous sophistication that has evolved from employees emailing work to their personal web mail 10 years ago to literally hundreds of other ways to permit that last minute change to the powerpoint presentation.

All this to say we there are limits to efficiency, effectiveness and value of work.  More is not necessarily better, and technology has provided more for most office workers in large corporates but not necessarily better.

2. Working from home is empowering by allowing employees to operate on their schedule

You wake up early, put on the coffee, and check your email.  Maybe there are school kids, errands, back to email but you are in charge of the schedule.  Perfection.

Meantime the others working from home are working to their schedule.  Each working to their own perfection.

The corporate opposite sees everyone in to work at the same time, and the first meeting at 10am after everyone has the same preparation time having arrived at 8:30am.

I recognise this is overly simplistic, and the dramatic differences weigh heavily towards either corporate or personal priority.

The Yahoo model allowed for people to work from home all or most of the time so Yahoo was heavily weighted towards the personal balance and therefore heavily away from the corporate balance.

Its no wonder Mayer made the change.  for similar reasons Google has reduced the 10% personal work time.

Relevance to Bankwatch:

All this goes to tell us that workplaces have integrated technology as a tool with zero education or intelligence about how we manage that integration.  Many smaller company’s have this right but not large ones.  They just did it because they could, it was cool, and they (rightly) felt they were being left behind.

But large corporations and Banks have have absorbed the technology and new home work practices by assuming the standard stated benefits without thinking it through.  In fact I would argue this explains why large corporations and banks have been so slow to absorb new tools because they know they have not thought it through, and are therefore scared of the implications to brand, information control, and worker efficiency.

Today we are probably in an evolutionary stage of technology integration rather than the revolutionary stages of the last few years.  Its time for all large corporations and Banks to step back and consider what is their right balance of technology tools and work practices.

Listen to Marissa Mayer.

____________________

Yahoo Memo (courtesy of allthingsd.com)

YAHOO! PROPRIETARY AND CONFIDENTIAL INFORMATION — DO NOT FORWARD

Yahoos,

Over the past few months, we have introduced a number of great benefits and tools to make us more productive, efficient and fun. With the introduction of initiatives like FYI, Goals and PB&J, we want everyone to participate in our culture and contribute to the positive momentum. From Sunnyvale to Santa Monica, Bangalore to Beijing — I think we can all feel the energy and buzz in our offices.

To become the absolute best place to work, communication and collaboration will be important, so we need to be working side-by-side. That is why it is critical that we are all present in our offices. Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings. Speed and quality are often sacrificed when we work from home. We need to be one Yahoo!, and that starts with physically being together.

Beginning in June, we’re asking all employees with work-from-home arrangements to work in Yahoo! offices. If this impacts you, your management has already been in touch with next steps. And, for the rest of us who occasionally have to stay home for the cable guy, please use your best judgment in the spirit of collaboration. Being a Yahoo isn’t just about your day-to-day job, it is about the interactions and experiences that are only possible in our offices.

Thanks to all of you, we’ve already made remarkable progress as a company — and the best is yet to come.

Jackie

- See more at: http://allthingsd.com/20130222/physically-together-heres-the-internal-yahoo-no-work-from-home-memo-which-extends-beyond-remote-workers/#sthash.aYZ1zelW.dpuf

I wrote in July 2012 that “Libor is the Catalyst of the next banking crisis” and while that unfortunate prediction is coming true the fines suggest it will be basically shoved under the rug. 

Rate-fixing scandal shakes three continents | ft.com

The fallout from the interest rate manipulation scandal hit three continents on Wednesday as Royal Bank of Scotland paid £390m ($612m) and admitted criminal price-fixing charges over Libor-rigging. A series of lurid emails cited in the settlement laid bare a culture where employees would readily alter rates in exchange for steak dinners.

So far LIBOR fines have been relatively small (amounts are approximate as we add up sterling and dollar fines):

• RBS                     $   612 million
• Lloyds                $   450 million
• UBS                    $ 1,800 bn

but are expected to become quite large once financial authorities complete their investigations

• More to come       $22,000 bn (Morgan Stanley estimate)