What should we expect from our banks?

As I have written elsewhere, bank bashing is a favourite Australian pastime. In recent months, this has struck a new crescendo. There have been various allegations, legal cases and regulatory investigations surrounding such misconduct as mis-selling of products, rate fixing, over-charging and money laundering, all culminating in a hastily announced Financial Services Royal Commission.

Cartoon by David Rowe, sourced from the AFR, published November 30, 2017

The banks had tried to get on the front foot, by abolishing ATM fees, reigning in some of their lending practices, and appointing a former Labor politician to help them navigate the growing calls for a Royal Commission (largely coming from her former colleagues in the Labor party). But the (Coalition) government clearly decided enough was a enough, and sprung their own inquiry into the industry.

For the benefit of overseas readers, Australia has a highly concentrated banking sector, which is also highly regulated, highly profitable, and in some ways, a highly protected market oligopoly. There are only four major banks (also know as the four pillars, as they cannot acquire one another, nor can they be acquired by foreign banks), and a few regional banks. There is a smattering of non-bank financial institutions, but by their very nature, they don’t offer the full range of banking products and services. As an example of this market concentration, the big four banks traditionally account for something like 80% or more of all home loans.

Aside from the Royal Commission, there are a number of policy developments in play which will inevitably change the banking landscape, and the dynamic between market participants. In addition to the growth of FinTech startups aiming to disrupt through digital innovation, there are four key areas of policy that will impact traditional banking:

  1. Open Banking – giving customers greater access to and control over their own banking data
  2. Comprehensive Credit Reportingmandating the hitherto voluntary regime among the big four banks
  3. The New Payments Platform – designed to allow real-time payment and settlement between customers, even without using bank account details
  4. Restricted ADI Regime – to encourage more competition in the banking sector

The major banks have tried to laugh off, rebuff or diminish the threat of FinTech disruption. They believe they have deeper pockets than startups and just as good, if not better, technology processes. Moreover, customers are traditionally so sticky that there is an inherent inertia to switch providers.

But with banks having to set aside more risk-weighted capital to cover their loans, they may be vulnerable to startups focussing on very specific products, rather than trying to be a full service provider. Banks no longer have the technology edge, partly because of the legacy core banking systems they have to maintain, partly because they lack the know-how or incentive to innovate. And changing demographics will influence the way new customers interact with their banks: “mobile first”, “end-to-end digital”, and “banking for the gig economy” are just some of the challenges/opportunities facing the sector.

So what should we expect from our banks? I would say that at a minimum, a bank should provide: trust (but with Blockchain, DLT and trustless, zero-knowledge proof solutions, banks are no longer the sole arbiter of trust); security (linked to trust, but again, with biometrics, digital ID solutions and layered encryption, banks do not have a monopoly on these solutions); capital protection (although no bank can fully guarantee your deposits); reasonable fees (still a way to go on account keeping fees and some point of sale transaction fees – while disruptive technology will continue to challenge legacy costs); and an expectation that it will not bet against the direct interests of their customers (like, shorting the housing market, for example). The latter is particularly tricky, when banks are mainly designed to deliver shareholder value – although of course, most Australian bank customers also own shares in the banks, either directly, or indirectly through their superannuation.

In recent months, and based on personal experience, I think a bank should also know its customers. Not just KYC (for regulatory purposes), but really understand a customer as more than just a collection of separate products, which is how most banking CRM systems seem to work. Given how much banks spend on consumer research and behavioral data, and how much they talk about using big data, artificial intelligence and machine learning to anticipate customer needs, it’s a constant frustration that my bank does not really know me – whenever I contact them, for any reason, I always feel like it’s a process of “product first, customer second”.

Moreover, I can’t think of a single new product that my bank has launched in the past 15 years of being a customer. Sure, they have rolled out mobile apps and online banking, and they may have even launched some new accounts and credit cards – but these are simply the same products (accounts, loans, cards) with different prices and a few new features. Even the so-called “special offers” I get for being a “loyal” customer bear no relation to my interests, or even my spending patterns (despite all the data they claim to have about me). And because banks are product or transaction-driven, rather than relationship-driven, their internal processes fuel silo behaviors, to the extent that the left hand very often does not know what the right hand is doing.

Finally, with more and more of the working population becoming self-directed (self-employed, freelance, portfolio career, contracting, gig-economy, etc.) banks will have to innovate to meet the financial services needs of this new workforce. Bring on the disruption, I say.

Next week: Box Set Culture 

 

 

 

 

Australia Post and navigating the last mile

Over the years, Australia Post has featured in this blog. And here. And over here too.

You would think I had no more to say on the topic. (Believe me, I’d prefer to have something else to write about – but it’s the summer, it was a long weekend, the weather is frying my brain, etc.)

But Auspost just loves to keep delivering poor service (see what I did there?).

From direct personal experience, four times in about as many weeks Auspost have failed to meet their own service levels for parcel delivery. In short, on each occasion their drivers claimed to have attempted delivery, but did not leave any notification. As a result, the parcels were delayed, and it was only when I received the “Final Reminders” from my local post office that I had any idea these items were awaiting collection.

Each time, I have lodged a formal complaint. In fact, I was encouraged to do so by the counter staff, who indicated that my experiences were not unique, and that they were as exasperated as I was. They also suggested that the front line staff are not being listened to by management.

With each complaint, I have been advised that “the relevant people will be spoken to”, and I have been assured “it will never happen again”. But it keeps happening, and nobody at Auspost can adequately explain why.

OK, so once could be a genuine error. Twice sounds like poor performance. Three times, and it starts to seem like a regular occurrence. But four times, and it points to a systemic problem, a failure which Auspost seems unable or unwilling to address.

So pervasive is Auspost’s reluctance to engage in genuine, honest and open dialogue with their customers (remember the National Conversation?), that at one point, a supervisor I spoke with refused to confirm the address of my local parcel delivery office. During another call, when I asked for some basic information as to whether other people in my area had made similar complaints, I was advised to submit a Freedom of Information request to obtain that sort of data.

After the second occasion, and sensing that Auspost was not getting the message, I also submitted a complaint to the Ombudsman. However, the latter said that “twice was insufficient” for their office to take any action. Ironically, the exact same time as I took the call from the Ombudsman, the postie was delivering yet another “Final Reminder” card, in respect to a third parcel for which there had been no evidence of a previous “Attempted Delivery”. I’m still waiting for the Ombudsman to get back to me….

More importantly, I’m still waiting for Auspost to notify me of what specific steps they have taken to resolve this pattern of poor service.

Meanwhile, Auspost keeps boasting about all the parcels they are delivering, thanks to the boom in online shopping. It’s just a pity that (from my experience), they are doing a really poor job of it.

Next week: What should we expect from our banks?

 

 

StartupVic’s E-commerce #Pitch Night

A new venue, and a new theme – last week’s Pitch Night organised by Startup Victoria was hosted at Kensington Collective, and featured four contestants each working in different areas of e-commerce.

With some high-profile judges (including Ahmed Fahour, outgoing CEO of Australia Post, and Kate Cornick, CEO of LaunchVic), and an audience warmed by hot soup and mulled wine on a very cold and wet Melbourne night, it was not surprising that the event was packed out, despite the weather.

In addition to hearing the competing pitches, attendees were also able to meet with a number of other e-commerce startups exhibiting in “silicon alley”, including: VolStreet (a new market place for consumer goods), Liven (a loyalty program for restaurants), Buying Intelligence (data on retail trends from the fashion industry) and Straight From Farmers (a D2C platform for agricultural produce).

As per the usual practice of this blog, the startups appear in the order in which they pitched (and click on the startup names for their website links):

 Passel

Passel’s business model is built on a crowdsourced solution for same day deliveries, so that shoppers can get their purchases quicker from omnichannel retailers. According to the founders, a high percentage of online cart abandonment is due to freight costs, and delivery times.

Using something akin to the Uber model, retailers will book a delivery that could be fulfilled by one of their own staff on the way home, or by another shopper if they are in the vicinity. Same day delivery is apparently more secure, and with a registration process for delivery “agents” and no charge to the retailer until proof of delivery, Passel is also designed to de-risk the delivery service. But, not quite delivery drones across suburbia!

Currently running a limited trial at Bayside Mall in Frankston, Passel is putting most of its efforts in to training staff at the stores they work with, to make sure the process is bedded down.

The judges had a range of questions and observations about the business proposition and assumptions behind the pitch, such as: Retailing can be quite a separate function to distribution and fulfillment, and for larger retailers stock management may cover several stores, or be handled by core distribution centres – so how will shops retailers be able to match orders and deliveries on a same day basis? Within large outlets, the time taken for delivery staff to actually locate an item may become burdensome, so has Passel considered geo-coding within stores? What is the opportunity outside Australia?

My own observations about this pitch included: what are the issues with insurance, what is the fit with click’n’collect services, and is there a bigger opportunity in solving current problems with the use of contract couriers on demand?

Vesta Central

Describing itself as “a marketplace for destination partners“, Vesta Central is also one of a growing number of Product Data Distribution Platforms (PDDP), between suppliers and retailers. Essentially, it offers an API to allow manufacturers to upload their inventories to support downstream distribution and sales.

Citing technological, time and cost barriers for product suppliers and retailers to upload and distribute product data, Vesta Central’s main proposition is to help move from physical to digital, via a centralised master data platform. From here, retailers can pull product data in real-time.

I’ve seen similar startups and businesses that also provide product manuals, technical specifications and even product training to sales staff, so the judges also felt that the founders need to gain a better knowledge and understanding of the competitor landscape. Another word of advice they had for the pitch was, “Let go of the PowerPoint…”

To Me Love Me

With a tag line of “Fashion Tech – Made To Measure“, this startup is trying to address the issue of incorrectly fitting clothes which is creating retail dissatisfaction.

Using key measurements and six data points, the service develops personal profiling
based on a proprietary algorithm according to body shape and style preferences. In return, it can offer curated, personalised, and even some custom-made suggestions and recommendations – but mostly ready-to-wear brands.

Aiming to help brands bond with their customers, the service also introduces social elements via peer/customer feedback. The service provides a seamless experience and offers a level of control to customers – but essentially, it’s a data play: collecting, aggregating and distributing customer statistics and profiles to the industry.

Although the pitch mentioned a SaaS model (with three tiers of service and pricing), the economic model was not fully outlined. However, the judges were clearly impressed by the founders’ international contacts in the US, UK & Europe, and their global ambitions.

CableGeek

With one simple sales proposition (“selling trusted mobile accessories at low prices“), CableGeek aims to address three common problems in this retail product category: Inconsistent product quality, high retail mark-ups, and difficulties in buying online (especially the shipping costs on lower-price items).

The CableGeek solution includes: free shipping from Australian suppliers, offering global brands, a focus on mobile (ApplePay), and key partnerships (instant pickup via Blueshift’s IBP, and fulfillment via eStore Logistics).

With a Google customer review rating of 4.8, CableGeek must be doing something right. Asked about what sets it apart from the competition, and how it will fend off competition, the founders cited the end-to-end automation plus their own full stack development – so any challenge is more likely to come from large retailers (who don’t necessarily have the focus or the in-house technical capabilities?).

However, given that the business was started by Ryan Zhou, who is also a co-founder of CoinJar, the judges wondered whether he would be over-stretched, or unable to commit 100% to this new business – especially as in this type of retail business, the only way to succeed is by dominating market share, which requires full-time commitment.

The judges were obviously won over by To Me Love Me‘s approach, as it took out first place on the night. There was also a sense that it was the only pitch that clearly had a real eye on international opportunities, and had demonstrated some serious industry credentials.

It was also interesting that a couple of the pitches referred to issues with delivery costs in Australia, especially for smaller, lower value items – something that the incoming CEO at Australia Post might want to address?

Finally, it was disappointing that there was no opportunity for questions or input from the audience – with one of the largest turnouts ever for a regular pitch night, Startup Victoria needs to think about how to incorporate more audience participation – these events should not just be a spectator sport.

Next week: Law & Technology – when AI meets Smart Contracts…

 

Building a Global/Local Platform with Etsy

In a recent and very informative fireside chat, Linda Kozlowski, COO of Etsy was in conversation with Sarah Moran, CEO of Girl Geek Academy. Key themes of the discussion included the challenges in building a “global/local” platform, making sure you are addressing the right audience needs, and in a two-sided market place, knowing how to balance the interests of sellers and buyers.

etsyOrganised by StartupVic and hosted by inspire9, it was yet another example of how fortunate Melbourne is to attract and host so many leading global figures in the startup world, willing to share their insights (as well as learn more about the local startup scene – which probably does not get as big a rap as it should, especially in mainstream media).

With previous operational roles at both Alibaba and Evernote, Linda brings a strong combination of experience in tech and market places, and describes her current position as covering “CX and revenue from end-to-end”. Her primary focus is on product development, global expansion and addressing sellers’ problems.

At Etsy, the aim is to develop a global product platform that is culturally diverse. There is a natural tension between fully localised customisation (which can be costly to maintain – translation, version control, managing updates), and a “best of breed” model that can serve most users (which can lead to too many compromises). So instead, Etsy pursues a strategy of locally originated products and features, combined with open APIs.

Etsy has also identified sellers as their core audience. This means that so much of the CX is actually determined by sellers’ needs, to whom Etsy then serves up customers to the platform via social media, content marketing and SOE. Etsy sees this as a point of differentiation when considering traditional retailers who often end up squeezing their suppliers on pricing and margins.

In balancing the needs of two-sided markets, again Etsy focuses on the seller first – because buyers want to see depth of inventory and a range of quality products, so get sellers on-board and the buyers will come.

Asked how Etsy avoids buyers going direct to suppliers, Ms Kozlowski commented that it all really depends on where transactions happen: make the CX is so sticky that sellers want to stay on the platform, offer great seller features, and bring in quality buyers. On the other hand, it’s a healthy market place, so there is no mandating or exclusivity – because of course, successful sellers will sell in multiple places.

Etsy believes in investing in the right technology and the right marketing at the same time. For example, although the business was started in 2004, Etsy only began brand marketing in 2016. The types of marketing deployed include storytelling, identifying key differentiators, understanding customer influences, extensive content strategy, plus performance marketing (site traffic, SEO) to see what else customers may be looking for. According to Ms Kozlowski, a retail site should spend about 20-30% of revenue on marketing, otherwise you are buying traffic and customers (red flag to investors!) Alternatively, establish some ROI goals for marketing costs, especially performance marketing, and during the startup phase (up to 1 year) begin with 15-20% of revenue.

At the heart of Etsy’s business model is an evolving technology and e-commerce platform that allows micro-businesses to run at scale. The USP is a community of network effects: 1.7m sellers, 27m buyers, 40m products, 12,000 “teams”, whose “captains” recruit other sellers. (Australia is actually in Etsy’s Top 5 markets.) In addition, Etsy aims to act with integrity in respect to dispute resolution and addressing fraud – they use machine learning to detect rogue sellers (although often, buyer disputes are a reflection of seller inexperience, rather than fraudulent behaviour). Etsy also offers training and support to resolve disputes, and the community is very good at policing itself.

What are some of the unexpected challenges of market places? When it comes to distinguishing between commodity items and unique creative products, technology will under-price and displace commodity goods that are easily made. It’s also important to build human-to-human connections, and to have a global perspective – for reasons of quality and diversity, and not self-limiting your business, especially when it comes to managing different market and economic cycles. Remember to “follow the data”, and anticipate demand and trends. Among some of the technology challenges, dealing with different devices in different countries can be an issue.

In conclusion, Ms Kozlowski offered some advice for anyone thinking of launching a market place:

First, consider why there are very few local e-commerce markets in Australia (from my personal perspective it’s a complex mix of retailers getting burned in the dotcom boom/bust, cosy market duopolies, and perpetual geo-blocking…). But let’s not forget that Alibaba has just opened its Australian & New Zealand HQ in Melbourne, likely to ruffle a few feathers in the retail sector.

Second, embrace a local/global mix (for the reasons mentioned above)

Third, don’t price too low (although Australia is notorious for being a “price-sensitive” market…).

Finally, the conversation ended with a tantalising glimpse of “the future consumer” (Gen Z) where makers connect directly with buyers.

Next week: Spaceship launches the future of superannuation