The Bankwatch

We have had all the ballyhoo about FB’s new ad network, and now MySpace is predictably moving ahead too.  I say predictably because clearly the economics of internet is destined to lever off advertising.  Online advertising spend is predicted to double by 2011.  However I continue to question whether Ad networks will be the right deployment for online advertising.

I see very few ads.  Google Apps (gmail) turns of Ads, and gmail spam filter eliminates most spam (+95%)  The Ad blocker extension in Firefox eliminates the rest of the ads from web pages.  I might be a little unusual there, but I like it.  Those who don’t seek out that approach, must contain many who are just not aware those tools exist.

News Corp (NWS): Launching An Ad Network, Too – Silicon Alley Insider

Easy enough to pooh-pooh the move as me-too. As Saul Hansell points out, ad networks now strike everyone as a sure-fire winner, even though only a few are likely to co-exist with Google in a few years. But FIM’s MySpace property alone gives the network-to-be a shot.

And if/when it can be combined with Rupert Murdoch’s other Web properties — most intriguingly, of course, the Wall Street Journal and Dow Jones — it could be a home run.

Clues from Cluetrain

The Cluetrain Manifesto, written in 1999, holds clues to the real future, and we can see it being acted out now. 

Markets are conversations.  Cluetrain said this in the theses:

1. There are no secrets. The networked market knows more than companies do about their own products. And whether the news is good or bad, they tell everyone.

2. What’s happening to markets is also happening among employees. A metaphysical construct called “The Company” is the only thing standing between the two.

Eight years later, 1. is now well underway.  The notion of customers speaking about products online and sharing that information exists, and as social networks evolve no doubt that trend will continue.  Tara wrote today about Get Satisfaction, a new service in beta, that exemplifies the conversations about products. 

Meantime the employee conversation in 2. is no-where yet.  Enterprise 2.0 holds some of that promise, but the big service providers, Banks, Telco’s, retailers, are still pretty much embedded in telephone call centre land, based on principles established in the 80′s and 90′s. 

“Most corporations, on the other hand, only know how to talk in the soothing, humorless monotone of the mission statement, marketing brochure, and your-call-is-important-to-us busy signal. Same old tone, same old lies. No wonder networked markets have no respect for companies unable or unwilling to speak as they do.”
Extract:  Cluetrain Manifesto

But the actual trends towards 1. is promising for the full evolution of Cluetrain.  Sure, Corporations are turning off access to FaceBook and webmail, but that strikes me as a sign that the dam is bursting.  Who will be be the first large Bank to engage with an Enterprise information sharing capability?  [And no, the CEO blog, monitored by Cororate Communicataions does not count.]   One that permits employees to speak watch and speak about current customer trends and needs.  The final evolution would be those informed and empowered employees speaking with educated and empowered customers.  

Companies that don’t realize their markets are now networked person-to-person, getting smarter as a result and deeply joined in conversation are missing their best opportunity.

What intrigues me, is the role of advertising in this people networked future.  With everyone, both employees, and customers, approaching ideal information on quality and scope of products and services, the role of advertising to push product is less relevant, and in fact just plain annoying.  

1. We are immune to advertising. Just forget it.

2. If you want us to talk to you, tell us something. Make it something interesting for a change.

It presents a somewhat idealistic view of the future, but it makes sense. Empowered customers, and employees, combined with tools that support them.  While the old way relies on advertising to generate awareness of products and services, we will have tools that follow the Vendor Relationship Management (VRM) approach.  VRM is the converse of CRM.  CRM places management of customer contact in the hands of the Corporation.  VRM reverses that, and places the management of the Corporation(s) in the hands of the customer.  

In a VRM world, sales calls would occur when the customer initiates it, overtly or otherwise, but entirely based on the customers preferences;  and those calls would be much more productive because of relevance, and informed conversations.  

Sales calls outside of VRM would be screened out by people who adopt the VRM concept.  

Oh well, we can but dream.  Meantime, which Banks are willing to bet that they don’t need to get engaged in use of the tools associated with Web 2.0.  Thats the bet that 95% of Banks are making right now.

Technorati Tags: VRM

Alex and the smart folks at Arvetica do a great job of capturing comments from thought leaders in Private Banking.  I met Alex and his colleagues at LIFT earlier this year, and they are doing good stuff.

This particular interview rang a chord for me, with comments that can be applied to any Bank model.

private banking innovation : Blog Archive : Karl-Matthäus Schmidt, CEO of quirin bank Presents their Innovative Private Banking Business Model

The business model of quirin bank can be described in one sentence:
we are the first bank in Germany that can honestly and truly call
itself a ‘Customers Advocate Bank’. What does this exactly mean?

• First: we are completely transparent. The costs of our services are
  clearly communicated to our clients: they pay a flat-fee of only 75
  Euros a month plus profit sharing. We do not take any hidden
  commissions like the usual banks do. And also there are no unprofitable
  transactions on clients bank accounts, which get us money but not the
  client! We strongly believe that with this approach we create much
  better value for money for our clients than is usually the case.
• Second: we are completely independent: we are not dependent on any
  commissions this is why we are not obliged to sell our own
  house-products. On the contrary: we advise our clients objectively and
  independently and advise them on the most intelligent and economically
  efficient products – we do financial consulting and not product-selling
• Third: we are a ‘Customers Advocate bank’ serving our clients
  interests 100 percent. Only if we earn money for our clients we will
  earn money as a bank. This business model creates a real win-win
  situation for both: clients and bank
• Fourth: Making clients assets grow is our first and foremost
  target. We are the first bank in Germany which writes back all
  commissions to its clients. Furthermore we allow interests on clients
  deposits that are often the best you can get in the market;  these are interests, which banks grant to each other and which are
  normally higher than the interests that banks grant to their customers.

Technorati Tags: arvetica

In a follow up to this Fridays post on the sub-prime situation, it appears that certainly in Canada, the markets remain dysfunctional, as the impact of three record days of liquidity injection by the Bank of Canada, failed to create the desired result.

reportonbusiness.com: Third BOC injection in three days reveals ‘clog in the system’

The trickle-down effect does not seem to be functioning.
…

Banks are reluctant to lend to each other, and credit spreads are abnormally wide as a result, he said.

Relevance to Bankwatch:

Its clear that the Banks’ have a serious problem, and the degree of the problem will vary by institution.  Here we have the ideal opportunity for a Bank to take a lead and speak to people about the situation.  Clearly they are hoping that they can ‘ride this out’ and get past it, but the  facts suggest otherwise as we earlier reported on the large bulge of ARM resets still to hit. 

This is the ideal opportunity to engage in customer communication using social tools, such as blogs.  The conversation is already occurring as evidenced from this search.  Customers are not too nervous yet, but they will be as the effect filter through in lending restrictions.

Technorati Tags: sub+prime

Great article in this weeks Economist on algorithms.  The theme lies in the mind numbing amount of data avalable now, and how mathematics can help solve complex problems, varying from the UPS driver and plane scheduling to Tesco product targetting.

Algorithms | Business by numbers | Economist.com

It works by assigning attributes to each of the products on Tesco’s shelves. These range from easy-to-cook to value-for-money, from adventurous to fresh. In order to give ratings for every dimension of a product, the rolling-ball algorithm starts at the extremes: ostrich burgers, say, would count as very adventurous. The algorithm then trawls through Tesco’s purchasing data to see what other products (staples such as milk and bread aside) tend to wind up in the same shopping baskets as ostrich burgers do.

Products that are strongly associated will score more highly on the adventurousness scale. As the associations between products become progressively weaker on one dimension, they start to get stronger on another. The ball has rolled from one attribute to another. With every product categorised and graded across every attribute, Dunnhumby is able to segment and cluster Tesco’s customers based on what they buy.

Relevance to Bankwatch:
Banks have enormous amounts of data, including transactions, merchant usage, and products used, both at their own bank and at other banks (from the transactional analysis).  Instead of the usual demographic analysis, analytics to solve for patterns within that data could be illuminating, particularly if it is shared with customers, to help them understand themselves, and their own behavioural implications.

Interesting and thought provoking post here on the value of Net Promoter Score (NPS).  This is one of those topics that generates much debate.  The general theme in that debate, lies in the value of a relatively simple metric, and the extent that will drive appropriate behaviours, that will translate into improved customer loyalty, and revenue.  Detractors might suggest that a simple metric cannot provide detailed actionable ideas.

Laura Brooks, VP Research & Consulting, Satmetrix: Building Value One Customer at a Time

1) Net Promoter is simple but not simplistic.
2) Net Promoter tracks to growth.
3) Net Promoter is actionable.

I would argue in favour of NPS.  This example from the HSBC reference on the site, sums it up nicely.  The flaw in detailed surveys can lie in the assumptions that a series of detail can deliver.  I have seen this, and the sense of all is well, or the sky is falling that derives from customer satisfaction surveys.  Invariably what happens next is that the organisation focusses on correction of the individual questions that suffered the most.  When there are 100′s of questions, the likelihood that tactic will work is up there with lottery odds.

Satisfaction survey – good measure, but NPS more powerful. Only “delighted” were likely to be promoters. “Satisfied” were more likely to be detractors. This
surprising finding upset some people who thought they were doing a good
job with a 70% satisfaction rating, but their NPS didn’t tie up.

What I like about the NPS is that it shows the numbers of detractors, and forces you to consider why they are detractors, and not advocates.  Similarly those who are advocates, is it because they really are, or just that they haven’t experienced a service disruption.  Again the HSBC example refers to the high volume of call centre calls emanating from detractors. Speaking from my experience, the outcome of the call centre experience often creates detractors, from previous advocates.  Ditto for online banking service.

So, I fall on the side of NPS, because of the introspection it will drive, to achieve the three goals mentioned above. 

Relevance to Bankwatch:
For Bankers, I recommend reading HSBC example above.  It speaks in language from HSBC personnel that we will understand. 
[For Dr Laura, I would like to see more external specifics in the research made available, rather than blog references back into their own site.]

Technorati Tags: NPS, net+promoter+score

Web 2.0 shows up in odd ways, but a common theme is people being able to voice their opinions in a way that is meaningful for companies, and the smart ones listen.

What I find odd, although a sign of the times, is the phrase ‘web interest’ in this quote.  I think they mean ‘people interest’.  Hat tip JP.

Consumers have voice on Web 2.0 – International Herald Tribune

“We have noticed the Web interest for some time, and the consumer passion has undeniably swayed our opinion to relaunch Wispa,” Cadbury said. “This is the first time that the power of the Internet played such an intrinsic role in the return of a Cadbury brand.”

Technorati Tags: cadburys, social+networks, facebook

Good discussion starting here on the framework for web strategy, and over here at Jonathans site.  A set of related posts going on here from JP at Confused.

Web Strategy: The Three Spheres of Web Strategy (and the skills required)

The Web Strategist must understand (by using a variety of techniques and tactics) what users want. This is commonly known as User Experience Research which will create and craft a ‘mental model’. In addition, the strategist will need to be in tune with the community in which their website is part of, this is greater than just users, as it will include competitors, partners, and prospects.

My thought is that the community/ fourth element aspect needs more work.  Here is my comment on Jeremiahs site.

I would suggest a modification to the community view, and to
Jonathans 4th element. More and more its becoming evident to me that
the old term customer centric might hold clues to how to think about
people beyond the UI aspects of your site.

People interact with their own sites through their own unique ways;
call it the peoples general web lifestyle (GWL). What becomes vital is
to understand how your site will fit into their GWL. A traditional UI
view is the opposite of that, and trying to slot the person into your
firms web lifestyle.

The GWL includes web, social networks, portals, RSS, email, mobile
etc. Understanding how that works and how people want it to work,
facilitates a more people process oriented view that can be engineered,
and included in the UI design of your site.

I keep coming back to something that Bill Gates spoke of exactly 10 years ago, and included in the tagline of this blog – the Web Lifestyle.

“Within
a decade, the majority of North
Americans will be living a Web Lifestyle.”
– Bill Gates, chairman, Microsoft, 1997

I accidentally gave it an acronym now – General Web Lifestyle (GWL).  To expand on GWL, everyone interacts with the web slightly differently, and those interactions are not exclusive to the web.  The fact that the prediction included the word web was probably an error, but it doesn’t matter now.  The GWL is here, and evolving in new ways as we speak.  We have evolved from standalone sites, to portals, to social networks, and now to application ready social networks;  more to come.

That overused and misunderstood term, ‘user centric’ is a clue as to where to begin. Broadly speaking people are finding more and better ways to use the web, but the undercurrent is about control;  gaining control over their time, and their information.

Everyone is inundated with too much information, and filters are important.  Of course not everyone thinks specifically in those terms, but its one way to characterise how people make choices, and how they determine the best ways for themselves to interact with people and services.  

Once we begin to think in terms of the evolution of peoples interactions, then we can begin to see how our own site(s) will fit into that interaction.  To me, this is the future of marketing, and it has no room for ‘interruption marketing’.  Lots more to come.

Trey asks the right kinds of question here, and while I commented, thought I would throw up here too, for the record.  While this particular housing situation is unique compared to others, its not the first crisis ever, and won’t be the last.  My thought, is that this kind of situation is what should drive serious introspection in all Banks/ CU’s to consider not how they will react, but how they will act over the next few months and years, as the situation plays out. 

While Trey asked the question about CU’s my answer equally applies to Banks, although it is harder for Banks, and will require even greater introspection in many cases to achieve the right level of customer focus.

Open Source CU: Credit Union Blog

If the bubble bursts (just talking worst-case scenario here), what actions should a credit union take? Is there a responsibility on the part of credit unions to warn/educate members if the economic indicators signal the worst-case scenario is inevitable?

And my comment:

Some insightful comments here, and I liked Tony M’s in particular.  Some of the comments have an undertone of panic.

I think there is lots of room for sanity in this situation.  Look on the bright side, that its not like the 80′s interest driven crisis, when interest rates peaked in the teens.  

Talk of bubbles bursting  tends to overlook the fact that every house has some value even in a crash.  The crash only relates to values dropping, not value being eliminated.

The other point is that by and large, as someone pointed out above, the neighbour on one side is a policeman, on the other someone in pharmaceuticals, etc … in other words, peoples lives generally goes on.  There will always be pockets where that is not the case, say in the event factories close down, but much of that occurred already in the 80′s and 90′s.

To my mind CU’s are in a perfect position to recognise the overall situation of each customer.  To continue to provide education, guidance, and importantly, support, to their customers, to allay fears, and to continue to recognise the overall customers circumstance, and not get fixated on home values.  Home values will experience some shock for some time, as the financial industry sorts itself out.  Customers will remember who worked with them forever.

The always clear and succint Economist sums up the current financial crisis in next weeks leader here. I say crisis advisedly, because the markets are carefully saying nothing, or alternatively, focussing on the sub-prime market in the US, while the reality could be broader, and in any event a signal of a need to get back to basics.

First this from the Economist leader; as you read this, think derivatives and securitisation. The least understood methods, yet that which have largely been credited for the efficiency of global capital markets over the last 20 years. Incidentally, the correction we are seeing is a good thing for those markets, a good thing for social lending, and open source banking, but more on that later.

Risk and the new financial order | Surviving the markets | Economist.com

But there is a price that is only now becoming apparent. Because lenders expected to be able to sell on the risk of default to someone else, they lent too easily. After all, they would not have to pick up the pieces. In theory, that risk should have been borne by the people best able to carry it. But with everybody having sold on the risk to everyone else—and the risk often being carved up, repackaged and sold again—nobody is sure where the losses are. The fear is that some risks ended up with those who least understood what they were getting into, and fear is a potent force in this disintermediated world. In the interbank market, every counterparty was potentially vulnerable. Even small amounts of bad credit can drive out good.

I posted the other day about ‘know your customer’. The world of derivatives and other financial vehicles take financial instruments, such as bonds, currencies, commodities, mortgages, and divide them into different components, then re-assemble them as financial contracts that are traded amongst Banks, and investment houses. The nature of that division, and re-assembly means that the original debtor, the final person who must pay that debt is lost in inter-bank transactions. Know your customer is lost.

In simple terms, thats what has happened with the example of sup-prime loans. BNP in France who froze three of their funds this week, own some component of mortgages in homes in the US. The fact that a Joe Homeowner, hypothetically, in Main Street, Witchita, Kansas, is three months overdue on their mortgage payment after their interest rate and monthly payments rose by 3% is transparent to BNP. All BNP know is that the debt instrument they purchased and rolled into their fund(s) is no longer worth what they expected it to be worth. Worse still, they do not know how many Joe Homeowners there are, to what extent they will default, to what extent the home value will cover the foreclosure, and how long that will take. BNP thought they purchased an income stream, but actually they purchased an overpriced bad debt.

Back to Basics

This will take some time to sort out. There will be short term improvements, but there will also be significant reluctance to purchase obscure instruments, where the underlying credit quality is not guaranteed, so that will result in tighter credit conditions that Banks impose on their mortgage and loan activities.

It is incumbent on all social lenders to watch this carefully, and appreciate there is an opportunity to provide a valid and financially sound alternative to borrowers and lenders. Social Lenders still use the common approach of credit ratings to signal likelihood of payback on a loan. But they have the added advantage of additional factors that can be brought into the mix, the secret sauce of social lending, that traditional Banks can never replicate. Social Lending is highly transparent, and hiding is much harder in the open. The quality of lending that can occur within a well run social lending operation can greatly transcend the ‘by the book’ transaction that occurs in a one on one application and approval process typical of Banks.

Incidentally, as as aside, recently Prosper have been having issues, bringing out phrases such as ‘lender revolt’ and Prosper need to get that under control, and eliminate the emotion. Their issues go back to problems embedded in their early offerring, of lending to people with poor credit. That have since been corrected, but long time Prosper lenders are bearing those costs associated with that lending. Such lending has been eliminated from Prosper since early 2007. They saw the problem, learned and eliminated it.

Social Lending by definition carries the promise of at least eliminating the problem that the financial markets experienced this week. A promise of a simpler financial process, one that is easily understood and explainable. It won’t replace the worlds capital markets, but if it can provide at least a small alternative to those who choose, then mission accomplished.

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Background:
It is such a powerful piece, here, is the full leader from The Economist. I strongly recommend you buy it, and read the other related articles:

Risk and the new financial order

Read the rest of this entry »

During the LIFT conference sessions on “Cities of the the Future” sessions, these trends came up repeatedly – consumers as entrepreneurs (think eBay sellers) and desire to not own everything (Transumers is a new term to me but we can go with that). Thanks for Springwise for this excellent link.

New Zealand-based Hire Things, which is currently in public beta, ……

Think of it as eBay for renting goods. The company is an enterprising mash-up of two major trends: minipreneurs (consumers turning into entrepreneurs) and transumers (consumers becoming less interested in owning).

Source: Springwise: new business ideas for entrepreneurial minds.

Transumers are of particular interest for financial services, and would not be captured in typical segment models. At the core is a desire for experiences and less so for goods.

TRANSUMERS are consumers driven by experiences instead of the ‘fixed’, by entertainment, by discovery, by fighting boredom, who increasingly live a transient lifestyle, freeing themselves from the hassles of permanent ownership and possessions. The fixed is replaced by an obsession with the here and now, an ever-shorter satisfaction span, and a lust to collect as many experiences and stories as possible.* Hey, the past is, well, over, and the future is uncertain, so all that remains is the present, living for the ‘now’.

Transumers look for surprises.

We spoke before of the Experience Economy, but perhaps a better name for it would be the Surprise Economy: not only do TRANSUMERS want freedom, they also want to be surprised, moving from one ephemeral experience to another, constantly trading in the fading for the blossoming.

Transumers and the Eco-system:

There are now more than 2,000 carshare organizations and initiatives in 600 cities worldwide. From Zipcar and Streetcar to Greenwheels and Car City Club. Chicago-based I-GO Car Sharing deserves special mention, as their entire fleet consists of hybrid vehicles.

The eco-leasing lifestyle doesn’t stop at car sharing: check out the following eco-TRANSUMER services, that also tie in with the aforementioned auction culture:

• UK-based Cahooting is a free service for people who wish to find or advertise items for rent.
• Freecycle is a grassroots and entirely non-profit movement of people who give (and get) stuff for free in their own towns. The number of Freecycle communities around the world currently stands at more than 3,500, with more than 2.7 million Freecycle members.
• Bankwatch Note: – I would include likes of Vancity changeeverything.ca, Wells guidedbyhistory, and yourpointofview.com here as early financial services examples.

Context, next and opportunities:

The otherwise excellent article kind of dies off at the online point.

Where new content can be sampled by the gigabytes, where identities can change in a heartbeat, where casual encounters are arranged for in mere minutes (for example, (link removed – adult site) has over 20 million members looking for transient connections). To truly cut ties with the fixed, head for virtual worlds. Make sure you check out our YOUNIVERSAL BRANDING briefing to find out how to cater to online TRANSUMERS, or ask the guides at Synthravels, the world’s first travel agency for virtual worlds, to give you a tour!

Other and obvious examples would be SecondLife, and Habbo.

Relevance to Bankwatch:

For this group:

• Branches are irrelevant
• internet experience integrated with mobile phone is essential
• self service must be seamless, and be available wherever the transumer is … the service availability must follow them around
• free ATM for an all inclusive banking package would be essential
• banking and credit card integration is essential
• by definition this group have disposable income, and are attuned to fees (rental) provided the experiential value and “coolness’ factor exists. Note – latter is their definition, not yours
• If you can grab their attention, this group will be the best customer advocates known to Banks – its all about the experience

Technorati tags: transumers, banking+strategy, customer+engagement, customer+experience