The Bankwatch

Tracking the consumer evolution of financial services

Archive for the ‘Non bank competition’ Category

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

More on Wal-Mart and their Canadian banking entree

I started to reply to a great comment question to this post on Wal-mart, and realised this deserves a post.

The question from Jeff was “Can this in any way be used as an end run around the opposition in the United States?”, and Jeff started it off on his blog here.


I have to think it cannot be a co-incidence that Canada and the US are right beside each other. However Canada is tiny (32 million pop) at 10% of the US in population.

When I listened to Jane Thompson speak she went out of her way to demonstrate that the Wal-Mart efforts were intended to provide synergy with their business model, that included, the “unbanked consumer”, and transactional efficiency to support their own payments. The argument being that this is not a space the banks are active in anyway. Of course the American Banks’ don’t buy that.

So the Canadian effort could be an effort by Wal-Mart to demonstrate to the American regulators that the American Banks’ fears are misplaced, and no need to worry.

Time will tell, but these are fascinating plays. My take would be that anything which dilutes the Banks’ efforts is bad for Banks but good for consumers. Its not that I think Banks need to go out of there way to encourage competition, but its a fact that competition will drive efficiency and effectiveness. And its no co-incidence that CitiBank are currently peddling their international payments capabilities to the home countries of North American and European immigrants. Banks everywhere recognise that the demographic shifts arising from immigration require strategy changes.

So bottom line, and just my opinion, but Wal-Mart is a machine.  With sales closing in on $ 350 billion annually, and net profit closing in on $12 billion annually, they can dictate the markets they play in, where the regulations allow them.


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Written by Colin Henderson

November 1, 2006 at 18:56

Wal-Mart eyes banking in Canada

 At the Forrester conference in May, I blogged about Wal-Mart trying to get into banking in the US, which has successfully been lobbied into submission.

So here comes the Canadian angle.

Wal-Mart Canada Corp. is looking to expand into the financial services business, a potentially lucrative growth area as the retailing price war intensifies over food, clothing and other consumer staples.

The big-box giant recently hired Trudy Fahie as vice-president of financial services at Wal-Mart Canada, a role created for assessing the retailer’s options in the sector. Ms. Fahie is the former vice-president of financial services for American Express Canada.

“We will be looking at a range of possible financial services to enhance our offering to our customers,” Andrew Pelletier, a spokesman for Wal-Mart Canada, confirmed yesterday, calling the next six months to a year an “exploratory” period. “It’s too early to speculate on what those services will be at this point.

Source: Wal-Mart eyes banking

Numerous Canadian retailers have leveraged their customer bases by offering house credit cards or some banking services.

Canadian Tire, which acquired a banking licence in 2003, announced earlier this month that it would start offering high-interest savings accounts in the test markets of Calgary and Kitchener, Ont. The retailer is expected to later roll out products including mortgages and GICs.

Sears Canada Inc. obtained a banking licence in 2003, but did not extend it beyond credit cards before its financial services division was sold last year to JP Morgan Chase & Co., which is expected to use Sears as launching pad to offer consumer banking services in Canada. And grocery chain Sobeys Inc. has been putting small Bank of Montreal branches inside some stores from Ontario to the East Coast of Canada.


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Written by Colin Henderson

October 31, 2006 at 23:47

Enterprise Decision Management: Automating and improving pricing in banking

 James lays out a methodology for automated pricing for Banks based on a set of characteristics that are individually specific to each customer.  The premise is that banks lack of price competition is an outcome of the lack of appropriate customer information.

Banks’ disinclination to compete on price is generally tied directly to the paucity of analytics and rigor in their pricing computations

Source: Enterprise Decision Management – a Weblog: Automating and improving pricing in banking

I agree with the statement, but would argue the the connection is not direct.  There is another element at play and that is commoditisation.  I commented on the post with:

“If all bank products look as identical as copies of the same book, then the only differentiation is indeed price”

I plagiarized this quote from Aneace’s Blog, because its perfect description of commoditisation.  While I absolutely agree with the characteristics of the decisioning mentioned above, I worry that this approach would need to be combined with creative development of innovative banking packages, that look different than the competition.

Without differentiation, and the value that brings, the price of commoditised products and services will be market driven only.

As much as pricing needs to be personalised, Bank services need to be personalised too.

Relevance to Bankwatch:

Its really hard to differentiate on a product by product basis.  A mortgage will always be a mortgage.  I believe differentiation must come from the organisation itself and the value it provides to the customer.  That value must be more and broader than a better rate.


Written by Colin Henderson

October 26, 2006 at 00:34

BarCamp / BarCampBank

 Chris introduced this to me today, so thanks for that.  I knew about BarCamp, but BarCampBank! Who would have thought. 

This page is dedicated to any project related to imagine the future of a bank for BarCamp and any other interesting disruptions related to money

Source: BarCamp / BarCampBank

In any event, its just getting going, and I really like the concept.

Mission Statement :  (being peer reviewed)

  • thinktank about the future of the bank (PeerInvest, WikiVenture, ethics, reputation, open-process and money, transparency, identity, KarmaInitiative karma-trusting….)
  • promote and drive innovation on free software/culture/community projects
    • detect innovative projects via BarCamp international networking
    • select them via an OpenProcess of community-decision-making
    • seed-money from a piggy-bank dedicated to BarCamp projects (from 30K USD to 100K USD)

So I am in, and will see where this goes.

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Written by Colin Henderson

September 26, 2006 at 21:07

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