The Bankwatch

Tracking the consumer evolution of financial services

Archive for the ‘Non bank competition’ Category

Comment on “Beyond the age of leverage: new banks must arise” | Niall Ferguson

Niall Ferguson nails the ultimate irony in the world today.  Every government is set on increasing debt as a means to solve the current crisis, however the reality is that they are potentially sending good money after bad, and not addressing the core issue. (emphasis mine)

Beyond the age of leverage: new banks must arise |

Call it the Great Repression. The reality being repressed is that the western world is suffering a crisis of excessive indebtedness. Many governments are too highly leveraged, as are many corporations. More importantly, households are groaning under unprecedented debt burdens. Worst of all are the banks. The best evidence that we are in denial about this is the widespread belief that the crisis can be overcome by creating yet more debt.

He goes on to offer specific ideas on how the great deleveraging could manifest:

  • bank debt write offs with terms designed to give banks time to sort themselves out within a fixed time – he proposes 10 years.

“There are precedents for such drastic action, notably the response to the Swedish banking crisis of the early 1990s. The critical point is to avoid the nightmare of a state-dominated financial sector. The last thing America needs is to have all its banks run like the rail company Amtrak or, worse, the Internal Revenue Service. State life-support for moribund dinosaur banks is an expedient designed to avert the disaster of a generalised banking extinction not a belated victory for socialism. It should not and must not impede the formation of new banks by the private sector. So recapitalisation must be a once-only event, with no enduring government guarantees or subsidies. There should be a clear timetable for “reprivatisation” within, say, 10 years.”

  • “The second step we need to take is a generalised conversion of American mortgages to lower interest rates and longer maturities.”  He goes on to highlight systemic changes to debt and terms of debt contracts over the last 150 years that were used as vehicles to bring the economy back in line.

Point for economists and Keynes.  Ferguson says:

Today’s born-again Keynesians seem to have forgotten that their prescription of a deficit-financed fiscal stimulus stood the best chance of working in a more or less closed economy. But this is a globalised world, where unco-ordinated profligacy by national governments is more likely to generate bond market and currency market volatility than a return to growth.

Relevance to Bankwatch:

All in all another thoughtful piece directed at broad based solutions that deleverage the world.  His argument that the approach of all world governments to borrow and create government based stimulus is not directed at the problem crisis symptoms, and sounds common sense.  When asset values have collapsed in the world by 40 – 50% and debt remained unchanged, how is more debt a solution?

It strikes me there is an opportunity here for banks’ to consider new and innovative products that alter terms, conditions and rates of existing debt that relieves pressure as suggested in Fergusons 2nd point above.  I would add that not just ‘New banks must arise” per Ferguson’s title, but that financial alternatives must arise too.

Banks have to understand the ‘cloud’ and solve their security concerns

The latest report from PEW offers Banks something to think about.  The reality of cloud computing already exists, with a clear majority of internet users taking advantage of the convenience of cloud computing.

PEW – Use of Cloud Computing Applications and Services

Some 69% of online Americans use webmail services, store data online, or use software programs such as word processing applications whose functionality is located on the web. Online users who take advantage of cloud applications say they like the convenience of having access to data and applications from any Web-connected device. However, their message to providers of such services is: Let’s keep the data between us


And while the usage of cloud computing is heavily skewed to youth, it is still heavily used by 50 and above.


However the most important point in the report should be lost on no-one.  The reason people use them is nothing more esoteric that convenience.


That’s convenience that can be summarised from three key aspects.

  1. Easy to use
  2. easy to share
  3. Information is not lost in event of computer failure

The corollary to #3 is that people trust cloud computing.  Speaking personally, the number of times I have had to change laptops, has been dramatically simplified because of the cloud.  Another example of convenience is cross devices.  I have been in a meeting, and needed some information, with no laptop or wireless connection handy.  I can search my gmail from the Blackberry gmail application.  The implication of my information being in the cloud is that its simply retrievable anywhere.

Another example:  At CommunityLend we are building an application with developers and editors in multiple locations and timezones.  With the use of Github, we are able to maintain version control, yet share an entire application with everyone working locally on the latest version, without concern for overlapping versions.  Take that scenario, and apply to business documents.  Establishing true version control, and maintaining convenience is hard, and the future of productivity for business users must be in the cloud. 

Relevance to Bankwatch:

For consumers, cloud implications for their financial data might be:

  • use of wesabe or mint
  • how about an open API for online banking that negates the need for customers to provide their usernames and passwords to other services

In other words Banks have to get their head around the cloud, and solve their security concerns, not hold them up as roadblocks.

Written by Colin Henderson

September 13, 2008 at 15:57

Goldman Takes ‘Private’ Equity Goldman Sachs takes ‘Private’ equity to a new level

Interesting shifts in the equity markets characterised by rise of hedge funds and investment alternatives for very wealthy only, and closed to individual investors.

Goldman Takes ‘Private’ Equity To a New Level –

These markets will generally be closed to individual investors. For instance, Goldman’s market is open only to large institutional investors with assets of more than $100 million. That is because the stocks traded on GS TRuE aren’t registered with the Securities and Exchange Commission and issuers aren’t subject to SEC regulations designed to protect individual investors.

It represents the latest step in the creeping exclusion of individual investors from a growing proportion of financial-market activity. For instance, giant private-equity firms are busy buying public companies and delisting them from stock exchanges. The growing importance of hedge funds — which are generally limited to wealthy investors, institutions and endowments — also excludes individuals.

Written by Colin Henderson

April 10, 2008 at 23:22

Two years on | Which banks understand the web lifestyle?

When I started this particular blog, my impetus was the lack of creativity amongst Banks in getting beyond automation of traditional transactions, and sticking them online [online banking].

Introduction « The Bankwatch

Introduction Saturday, 28 January 2006

Welcome to Bankwatch. The purpose of this blog is to monitor banks around the world for their online capabilities, and the strategies they are adopting with online. Consumers are web savvy now, and most banks aren’t, so I will point those out, and I will also recognise best practices too.

It might be useful to just take a look and see what progress has been made in just over two years. My general sense is not much progress amongst Banks, but enormous progress amongst non banks challenging the status quo.

Whatever progress, is now laid against the backdrop of threatened new regulation in UK, North America and others to place a cost on the political consequnces of bailing out Banks, and in particular investment banks who until now have been largely left to live and die on their own sword.

Disruption within financial services will not happen simply. The topic of regulation is always controversial, being one that Governments immediately leap to because it offers the pretense that they are making things better, even though the current credit crisis that the Banks are sufferring is one that occurred despite existing regulation and accounting guidance on the topic of off-balance sheet lending.

Banks are running scared at the moment, lacking trust to lend to each other, and simultaneously being concerned about revenue and expense growth at precisely the time they need increases in the former, and decrease the latter.

Yet customers are evolving and will continue to expect more and better online self service from Banks. No amount of denial can alter that. More and better in quantity, and quality. Services and offers that are more engaging, and work the way customers want to work.

Nothing about this time offers promise for customers from Banks. There is much promise in new startups, and we have the regulation cloud right in the centre of this epic battle.

So which Banks [or Credit Unions] show signs of life, and look to break out of the pack? That’s my question de jour. As I develop this meme, what suggestions and examples of Banks that ‘get the web lifestyle’ can you offer? [In particular Europe & Asia where language makes it harder for me to source.]

Written by Colin Henderson

March 30, 2008 at 17:16

Wesabe release simple tool that works for any Bank or CU

Wesabe have released a tool that works in Firefox browser to update your Wesabe information. 

Wheaties for Your Wallet » Blog Archive » The Wesabe Firefox Uploader

“We’ve just launched a great new feature to make uploading your data to Wesabe a ton easier — but not just that. Along the way we’ve improved just about every aspect of getting your accounts into Wesabe. This marks the first release of the Wesabe Firefox Uploader …..   “

The key advantage is that Wesabe works for any Bank or Credit Union now, when you use this tool.  It also runs on any operating system, including Mac and Linux.  it includes capability to attach payment documentation.

The browser add-on also has asnapshot capability that captures screenshots of electronic receipts andconfirmation pages.  Members can send these images to their Wesabe accountand attach them to the corresponding line-item transactions from theirchecking and credit card accounts.

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Written by Colin Henderson

July 25, 2007 at 13:05

How should Banks react to web based application providers?

Duncan at Techcrunch, posts a thought provoking view of FaceBook’s potential. The key that he has zeroed in on, is ‘open vs closed’, and whether FaceBook risks becoming obsolete as Microsoft has.

Could Facebook Become The Next Microsoft?


It’s difficult to be against Facebook at this time. The platform strategy and now the move into Web Operating Systems are fairly lauded as being smart business moves, and of course the Facebook product itself is constantly improving. From a users perspective, a centralized one-stop shop of applications has great appeal, particularly in a marketplace where choice can actually be overwhelming.

Yet Facebook is a closed shop; there’s no open source in Facebook and every app built for it will not work with other sites. Facebook could easily become the Microsoft Windows of tomorrow. Microsoft will tell you how better the world is for having their product, and little doubt that Facebook will spin a similar line; yet it’s not unreasonable to question whether uniformity and centralized control ultimately delivers better outcomes for everyone. Of course Facebook isn’t at Microsoft’s level yet, but we are better asking these question today and tomorrow rather than 2-5 years time when by that stage it may well be too late.

A while back I posted the thought that FaceBook looks like the old AOL. The catalyst for that thought at the time, was that F8 requires its own markup language. Now its probably not the end of the world, and a subset of xml, but thats the point. Duncan notes that F8 applications are not transferrable to other platforms.

Google and Yahoo are apparently preparing to produce their own web social aggregation, and web based application layers, with Google being furthest ahead. We can only speculate, but lets have some fun and do that. This is important for disaggregated financial services, because they will need to run on one or more platforms. Its my bet that Banks won’t bet on one being a winner. Betting on more than one, makes anything remotely proprietary, a high risk from an investment perspective.

However, as open as open standards are, the devil is always in the details, and as each participant develops their Web operating system standards, a degree of proprietary-ness is likely to creep in.

Socialstream is work being done with Carnegie Mellon

Socialstream is the result of a Google-sponsored capstone project in the Master’s program at Carnegie Mellon University’s Human-Computer Interaction Institute. This project was guided by three goals that built upon each other:

Initial Task: Rethink and reinvent online social networking

Refined Focus: Discover the user needs related to social networking and explore how a unified social network service can enhance their experience.

Prototype Goal: Create a system for users to seamlessly share, view, and respond to many types of social content across multiple networks.

Yahoo is a bit of a mystery, but something is coming there. TechCrunch post this from a Yahoo job description.

Project overview and job responsibilities:
– Develop go-to-market tactics for new social communication service
for young adults

I think they don’t know yet, but they will do something.

I will go back to Duncans post, and use his educated speculation.

Imagine that in 2-5 years time Facebook has become the No. 1
destination on the web. Facebook as a Web OS is the leader in online
storage, online applications, email, blogging and of course social
networking. How people interact with Facebook has changed; Facebook OS
has absorbed Facebook F8, all previous Facebook applications work under
Facebook OS, but they work more like Windows does today; Facebook has
become your desktop and not just an internet site.The Facebook Paint
application substitutes Photoshop, Facebook Email is a superior
offering to Outlook, Facebook Office (Facebook having acquired either
Thinkfree or Zoho) provides the market leading word processing and
spreadsheet platform.

FaceBook have taken the strategy lead over the last few weeks, but the overall direction towards web based applications, and social networks was already happening. What is now clearer is that the future will hold providers, who offer capabilities to users to manage their web lifestyle, from word processing, to blogging, to financial services, to communication (not necessarily email, or IM).

Relevance to Bankwatch:
Whether financial services are offerred by Banks, or P2P providers, or ???, its a reasonable bet that consumers will want their online financial services to come to them, within their aggregator. Consumers will be able to log in once and access their life online in one place, or at least thats the promise. Lots of things have to be solved before we get there, specifically identity management in particular, but thats the promise.

Those services will need to be offerred in a way thats flexible enough to work in their standalone site, but also be shareable (replicable) within all of the main aggegators. They will also need to be able to interact with other services on a defined basis.

This has implications for how services are built … openness, and accessible API’s (or next big thing after API) will be key considerations.

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Written by Colin Henderson

July 20, 2007 at 22:52

A new asset class for investors – unsecured personal loans (Zopa)

Zopa pushes the boundaries and introduces more disruption within financial services, by bundling loans granted through its service, into Self-Invested Personal Pension (SIPP) eligible investments.

Social lender Zopa is offering Sipp investors the chance to make between 6% and 14% on their cash in the run up to retirement.

Last week, Zopa revealed it was agreeing operational details with a number of specialist self invested personal pension with the view to offering its lending facility as a separate asset class within a Sipp wrapper.

James Alexander of Zopa noted:

‘It will be very attractive to those over 55 who want to draw down their pension assets to provide an income and need good returns from a low risk asset. Zopa lending has to date paid out an average return to lenders of 6.75% and up to 14% on money lent to date.’


Written by Colin Henderson

March 12, 2007 at 10:08

Bankwatch predictions – Banking 2007

Christmas and New Year are always a good time to take stock, and reflect on the year past, and what we might expect next year, so here are my thoughts in the Banking space, based on what I have seen, and expect. This is largely a North American view.

  1. statement and cheque presentment will be table stakes. If you don’t have that capability it will be noticed by your customers, and you will lose customers.
  2. Banks will start to worry about internet evolution, and some tangential attempts will be made by baby boomer executives who genuinely want to make a change. Bank blogs will be big, and disastrous. Reason: Banks have not integrated their internet ‘people’ into their ‘corporate’ people, so 2007 is still too early. Thought for 2007 – “Blogs have to reflect the business model”. First look at your structure. Sticking with the positive examples, I believe Bank of America have the structure right.
  3. Credit Unions will lead the way in use of blogs and community spirited internet activities. They will continue to lead the way in customer loyalty. They have a natural advantage being local, and community minded from the outset, but they have something deeper that perhaps results from the non profit motive, that means customers believe CU’s care. Internet and Credit Unions match. On a similar note, I see an opportunity for the smaller small/mid size Banks in the US. They have some of the same attributes as Credit Unions, and can lever that, instead of worrying about the large Bank of Wells Chase’s. Bank exception: Wells Fargo – they get it.
  4. online banking generally will undergo a state of crisis. First we will have the next “phishing”, possibly “man in the middle attacks”. But at a deeper level, Senior Executives will ask why all customers have not been “migrated” (internal bank jargon for the uninitiated). This will result in dysfunctional Bank behaviour. [Note those customers have not “migrated” because Banks (largely) haven’t moved beyond transaction automation]. Bank exceptions: more this time – Wells Fargo, Bank of America, ScotiaBank, and TD Canada Trust.
  5. Quietly, web 2.0 offerrings will start to chip away at the traditional banking business model by levering social internet to eliminate costly bank processes. Social lending, brokerage models, account acquisition models.
  6. Tied to 5. Open Finance will resurge and expect some big Bank(s) to sell other Banks products and services on a commission basis. This is an opportunity for 3. above. No prediction here – I would just be guessing who might do this.
  7. Online account opening will be table stakes, and generally associated with high interest rates to prime acquisition. 2007 will see a plethora of new brands out in front of the mother Bank brands. (2008 will see entrenchment though)
  8. Certain Banks will stand out from the competition amongst customers by
    1. offerring online product comparisons with other Banks
    2. online planning tools as Wells have already done.
    3. online financial planning
    4. cross channel integration: branch employees connected directly to online banking customers
    5. call centres for some, will encompass the entire Bank; some employees just happen to be centralised.

That’s enough for now. Each of these could be a post by themselves, and likely will be.

Your thoughts for 2007? – comments encouraged!

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Written by Colin Henderson

December 21, 2006 at 22:46

A future without revenue | less GDP is the norm

Just read this article at Fast Company, (Courtesy of David). Reading this at the same time as “The Spider and the Starfish” (which I am going to bore you all with over next few posts!!) lots of things come into focus.

In essence the FC article talks about how newspapers are having problems, when someone like Rob Curley can come along and dominate the local markets with localised internet sites for everything between restaurants to sports.

Which leaves them with one last problem: Once you’re online in a big way, what exactly do you do? Ten years in, most papers are still struggling to integrate digital and print journalism. “By and large, newspapers are in a panic,” says Jan Schaffer, the executive director at J-Lab: the Institute for Interactive Journalism at the University of Maryland at College Park. “They don’t have a clue what they should be doing with the Internet. They’re stuck in the old definition of news and how they cover it. There’s a need for drastic experimentation.

Source: Hyper-Local Hero

The article finishes with the usual panic picture for newspapers.

The News: Bad and Good

Total ad revenue 2005
Print | $47.4 billion (+1.5% since 2004)
Online | $2 billion (+31% since 2004)

Blacker Than Ink

Percentage of newspapers reporting profitable Web sites
In 2002 | 62%
In 2005 | 95%

Papers Thin

Daily newspaper circulation
In 1980 | 62.2 million (U.S. population = 237 million)
In 2005 | 54.6 million (U.S. population = 296 million)

Number of daily papers
In 1980 | 1,745
In 2005 | 1,452

The articles focus is the newspapers panic, and how they are rushing to solve that panic. The natural assumption is that the newspapers merely have to get online, modify their business model, and everything will return to a new normal.

Switch to the book:


Lets go straight to principle #6 in the book:

  • as industries become decentralised, overall profits decrease

The newspapers are looking at the $ 49.4million in ad revenue above, and trying to figure out how they can ensure they continue to get their share of that revenue.

Reality check!

What if the total ad revenue dropped from $49 million to $25 million? This is the basic question.

The book rightly points out that in the decentralised world of internet, profits don’t just shift from old channels to new ones – they disappear. It speaks about CraigsList that diverted enormous amounts of classified ads from paying newspaper ads to free internet ads. Revenue disappeared. Recall that classified were a mainstay of newspaper revenue.

To place this in context for banks, here are the long term results for the big 6 Canadian traditional Banks, whose information is nicely summarised at the Canadian Bankers Association.



Results 1998 to 2005 for the six big banks:

Loan growth: + 33%

Deposit growth: + 49%

Interest income growth: – 3%

Banks have survived by adding non interest revenue otherwise know as fees. These are tough numbers. Traditionally banks made money facilitating depositors and borrowers, yet that equation produced a drop in interest income over the seven year period.

Strategic question: what if non traditional competition can facilitate the deposit/ loan relationship without the fees?

Relevance to Bankwatch:

Banks can’t assume they can capture reduced profits that they attribute to squeezed margins and non-traditional competition, by being creative in creation of new fees, and alternative channels. A key component of survival will be elimination of core processes, and associated costs to compensate for reduced revenue.

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Written by Colin Henderson

November 23, 2006 at 20:58

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