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?

 

 

Big Data – Panacea or Pandemic?

You’ve probably heard that “data is the new oil” (but you just need to know where to drill?). Or alternatively, that the growing lakes of “Big Data” hold all the answers, but they don’t necessarily tell us which questions to ask. It feels like Big Data is the cure for everything, yet far from solving our problems, it is simply adding to our confusion.

Cartoon by Thierry Gregorious (Sourced from Flickr under Creative Commons – Some Rights Reserved)

There’s no doubt that customer, transaction, behavioral, geographic and demographic data points can be valuable for analysis and forecasting. When used appropriately, and in conjunction with relevant tools, this data can even throw up new insights. And when combined with contextual and psychometric analysis can give rise to whole new data-driven businesses.

Of course, we often use simple trend analysis to reveal underlying patterns and changes in behaviour. (“If you can’t measure it, you can’t manage it”). But the core issue is, what is this data actually telling us? For example, if the busiest time for online banking is during commuting hourswhat opportunities does this present? (Rather than, “how much more data can we generate from even more frequent data capture….”)

I get that companies want to know more about their customers so they can “understand” them, and anticipate their needs. Companies are putting more and more effort into analysing the data they already have, as well as tapping into even more sources of data, to create even more granular data models, all with the goal of improving customer experience. It’s just a shame that few companies have a really good single view of their customers, because often, data still sits in siloed operations and legacy business information systems.

There is also a risk, that by trying to enhance and further personalise the user experience, companies are raising their customers’ expectations to a level that cannot be fulfilled. Full customisation would ultimately mean creating products with a customer base of one. Plus customers will expect companies to really “know” them, to treat them as unique individuals with their own specific needs and preferences. Totally unrealistic, of course, because such solutions are mostly impossible to scale, and are largely unsustainable.

Next week: Startup Governance

 

Gigster is coming to town….

Melbourne’s Work Club recently hosted Gigster Senior Project Engineer, Catherine Waggoner, in conversation with Venture-Store’s George Tomeski. Part of Startup Victoria‘s Fireside Chats, it likely herald’s Gigster opening an office in Melbourne, to service local clients and to tap into the local developer community.

gigsterFor the uninitiated, Gigster describes itself as the “world’s engineering firm”, that helps clients scope, design and build software, apps and digital products. Using an established product development methodology, and drawing on the resources of a 1,000 strong network of freelance designers, developers and product managers, Gigster is taking much of the pain out of the costing and requirements process for new projects, as well as building a growing client base of enterprise customers.

Not mincing her words, Ms Waggoner opened her remarks by commenting, “The software development industry model is f*#$ed”, because:

  • Requirements are poorly defined
  • Scoping is laborious
  • Development costs blow out, and
  • The whole process is not very transparent and not very accessible.

As a case in point, she mentioned the significant cost disparity between what some digital design agencies or app studios might quote for building an iOS product compared to what Gigster would estimate. By: breaking projects down into the distinct stages of scoping, design and pre- and post-MVP; only engaging the “best of the best talent”; using proprietary tools both to estimate fixed rate costs (rather than billable hours) and to define and source solutions; and re-using content from a library of “Community Software” resources, Gigster is able to deliver quality projects in shorter time, and on more modest budgets. For example, based on the large number of projects that they have fulfilled, their “Gigulator” estimating tool incorporates 5,000 possible features.

From an investor perspective, Mr Tomeski mentioned that the “VC inflexion point is getting much earlier” in tech startups. Meaning, with lower development costs (and potentially, reduced valuation multiples), investors are looking to get in sooner, with lower exposure, but still generate reasonable returns on exit, thanks to cheaper establishment costs.

Of course, Gigster sits at the heart of the gig economy, a huge issue when it comes to discussing the Future of Work. Interestingly, many of Gigster’s contractors are themselves startup founders, who freelance while building their own businesses. But such is the strength of the network, something like 35%40% of their contractors work full-time for Gigster – they like the flexibility combined with the continuity. Many of the contractors are referrals from existing team members, and a number of teams (known at Gigster as “houses” – presumably a frat thing?) have bonded to such an extent that they get allocated specific projects to work on together, even though they themselves may be working in different locations, based on previous projects.

Working for Gigster is probably a career choice for some contractors, because there is a variety of projects to work on, and the opportunity to be involved from start to finish. Which may be the opposite if working in a more corporate or enterprise environment, where work may be routine, repetitive and reasonably narrow in scope.

If Gigster does decide to set up shop in Melbourne (with encouragement from
InvestVictoria) they will be joining the likes of Slack, Stripe and Square, tempted by financial and other incentives. Such a move may challenge a number of local digital agencies, who will face even more competition for talent and customers.

According to Ms Waggoner, enterprise clients represent 40% of the business, and should comprise 60%-80% very soon. Not only that, but the average deal was initially $15k, now it’s more like $100k. However, enterprise clients have a much longer sales cycle. Plus, many innovation teams within enterprises are more like loosely formed groups of niche experts, so they need training on how to think like a startup. When you consider the greater dependency on legacy software by corporate clients (where it may make financial sense to retire some assets and build afresh, but the emotional disruption can be huge…), combined with the greater emphasis placed on after-sales service, Gigster has had to adapt its business model accordingly.

But Gigster must be doing something right. They’ve stopped outbound marketing and prospecting, relying on in-bound leads, repeat business and client referrals. There has been a shift from a sales focus to a customer focus, complete with a dedicated customer success team.

A number of audience questions related to getting VCs interested in your idea: What do they look for? How do they assess opportunities? How far should you go in building a product before you can attract funding? What’s the best way to validate an idea? etc. Much of this is about product/market fit, building the right team, getting customer traction, and executing on your strategy (aka Product Development 101.) As part of her closing comments, Ms Waggoner noted that unlike some of the high-profile VC funds (e.g, Y-Combinator, Techstars and 500 Startups) many VCs are becoming more sector specific, because they prefer to invest in what they know and understand.

Next week: Building a Global/Local Platform with Etsy