Saturday, February 18, 2012

Social Media Intelligence – A Disaster?


Just read this piece on Bloomberg about how retailers are shutting down their Facebook shops.  I have written in the past about how many companies are using social media to glean actionable intelligence about customers. Very specifically I had discussed how social media has the potential to provide risk intelligence to credit risk managers in banks and financial institutions. While there was flicker of interest, it has not actually picked up for several reasons.

For starters, social media sites like Face book are more an online venting of personal idiosyncrasies and little nonsense we all like to indulge ourselves when our guards are down. Personally I think it is more akin to street corner gathering of teenagers who hangout more for social companionship rather than any serious discussion. Of course, there are serious discussions at these hangouts, but they are heavily outnumbered by the day-to-day sharing of simple trivialities. That is the nature of Facebook transactions.

The most obvious reason seems to be the inability of many leading companies / brands to monetize their huge followings or “likes” on Face book. Many companies opened Facebook stores because they did not want to lose out. However, these initiatives have not provided the expected return on investments and many leading brands -  JC Penny, Gamestop, Gap, Nordstrom, just to name a few – have shut down their Facebook stores. See article for more details.

Banks and financial services, on the other hand, have been more cautious in their social media strategy. Credit Risk Managers were not blown off their feet by Facebook’s ability to provide risk intelligence. While collection agencies are using Facebook to locate delinquent customers, it is a far cry from replacing Credit bureaus as a primary source of customer data. I think we have to wait and see how this evolves in the coming months.

Current social media strategy has hurt companies in other ways too. Many companies that bet on Facebook and have invested heavily are already seeing negative returns. Poor revenue streams from these strategic decisions will show up in the balance sheets of many software companies as early as 1Q of 2012. It will be interesting to see how the markets respond to the poor results.

I am not prognosticating a complete failure of social media strategy. Rather, it is a time for introspection and realignment for future course of action, given what we are learning. As always, I believe failure is a great educator and leads to innovation; innovation is the key distinguisher in a competitive business environment. I believe when the dust settles, it will lead companies to engender a more compatible and sustainable social media strategy.  Definitely, the current social media strategy a.k.a “Facebook Strategy” of many companies does not seem to be working.  Stay tuned folks.

Monday, January 16, 2012

Power of Analytics


I was reading this book “Competing on Analytics –The new science of winning”; It is a must-read for number crunchers and ambitious bankers in particular. The authors (Davenport & Harris) have delightfully brought out how analytics can turn a company into a winner. According to the authors (Davenport & Harris) the following four factors are vital for successful “analytical companies”
Supports a strategic capability
Enterprise wide
Commitment of senior management
Company makes a strategic bet on analytics

Analytics – as any number-cruncher knows – has always played a key role in decision making in banks and financial services. It is not something new. However, more and more companies are leveraging this today to propel themselves into big league.

The obvious example of use of analytics in banks and financial services is in the development of custom scorecards to predict default. The larger banks have dedicated “decision sciences” teams to handle this. While smaller banks buy credit scores from the credit bureaus, the larger banks develop and deploy a  wide array of  score cards that are designed to serve specific business purposes.

But the larger more prevalent deployment of analytics is in performing ad-hoc analytics to find answers to specific business problems. These vary in complexity and the type of problems they are trying to address.
For example credit risk departments in retail banks have used the power of analytics in approving/providing lines of credit to customers.  In making these loan decisions, banks usually compute debt to income ratios, number of other loans, regularity of repayments, any unpaid and past due loans,  membership on rewards databases, loyalty to the bank etc.  to help make prudent credit decisions.

Marketing also is a key user of analytics. An example is how banks monitor existing customers who shop to refinance their mortgage or auto loans. This is helped by “triggers” from credit bureaus. So if you have your home mortgage financed by bank A but would like to shop for better rates, Bank A will get a trigger from the credit bureaus that your credit was pulled by Bank B;  Now Bank A , using analytics can and provide a counter offer to you.

Technology impact on analytics
Analytics is now helped in a big way by new developments in IT and Business Intelligence. The new buzz words in technology - Big Data, Cloud, Social media & Mobility have greatly impacted analytics.  For example new BI tools that leverage the 64-bit architecture can help process huge volumes of data in-memory that has not been possible earlier. This enhances the speed and depth of analytics.  

Mobility adds a key dimension to delivery of analytics. It can now reach top management 24/7. The iPad is rapidly changing board meetings by providing depth and ease to business leaders. New visual analytical tools can help managers perform scenario analysis during meeting and provide useful insights almost instantaneously.

Social media analytics is now emerging as a new discipline by itself. For example bankers are finding out that people with similar credit risk “like” similar friends on Facebook.  While this definitely needs more empirical data to be broadly accepted, it is making significant inroads and will be closely watched in the coming months.
The US economy is slowly emerging from recession.  I think analytics will be a key player in helping Banks to find their way back to profitability.

Friday, December 9, 2011

Moody's Downgrades 3 French Banks

In a continuing march of gloomy news from Europe, Moody's have downgraded 3 French Banks - 
  1. BNP Paribas
  2. Societe Generale and 
  3. Credit Agricole SA
All of them had exposure to Greek bonds...

It took action a day after a regulator said European banks have to raise about 115 billion ($154 billion) more than expected to meet a new standard meant to shore up the lenders against market turmoil. 

Read more  

Friday, November 25, 2011

Mobile Payment volume picks up onThanksgiving Day And Black Friday


Here are some latest stats on mobile payments

·         PayPal  -  Thanksgiving saw a 511 percent increase in global mobile payment volume over 2010

·         Mostly  shoppers in New York, Houston, Los Angeles, Miami and Chicago used mobile payments  via Paypal

·         Mobile traffic visiting retailer’s site

1.    iPhone  - 6.77%

2.    Android - 5.37%

3.    iPad – 4.6%

 More at ….

Wednesday, October 19, 2011

Are bank branches becoming obsolete?


http://www.americanbanker.com/bankthink/Are-bank-branches-becoming-obsolete-Brett-King-Movenbank-1043219-1.html

Great article by Brett King;  But I dont fully agree ; Here are my thoughts

Brett - I think as you have pointed out internet and mobile technology have greatly changed customers' banking experience. Yes , there has been a big drop in customer traffic as also banks have closed a lot of their branches. But I am not sure that this is due to customers moving away from branches. Here are some of my thoughts -
a) BoFa, HSBC and JPMC have closed their branches or have put off plans for branch expansion; this is largely due to the economy ; Branches are the first casualty in cost reduction;

b) In Europe and UK in particular, the conditions are not that different. Overall bank profitability is in the dumps.

c) Overall branch activity in the last 3 years or so has been on the decline due to a variety of reasons - most important being credit contraction. 

d) Branch traffic is also geographical; warmer states see more people going to branches to transact business

e) As you have pointed out, branches continue to provide great cross sell opportunities to the banks.

I think given all this, I certainly do not believe branches will be history; Yes , banks will continue to close them in poor economy; Will they open more branches if the economy improve - well I don't know; But certainly we have not seen the last days of branch banking;

Thursday, October 6, 2011

Mobile Banking hits Critical Mass


This week industry observers saw Mobile banking reach key milestones. According to Javelin Strategies, consumer adoption of mobile banking jumped 60% in 2011. This is because a large number of banks and financial institutions launched their mobile apps for their customers.  Bulk of these apps has been in retail banking – helping customers manage their checking and savings banking. The chart below shows customer used their mobile devices for checking and savings transactions – like viewing their balances, bill pay and simple fund transfer.


The second important milestone is that in 2011, 50% of US cell phone users will switch to Smartphones. This is a very key development because it offers unprecedented opportunities for banks, credit card companies and other players in financial services to reconfigure their service offerings to their customers.



Expansion in Mobile banking is also happening globally.  According to TNS MobileLife, global use of mobile finance surged in the past year as the spread of new technology and mobile banking infrastructure drove a huge increase in take-up rates around the world. In the UK the proportion of people using mobile banking increased from 9.7% in 2010 to 20.4% in 2011, while in the USA the rates from 11.4% to 21.9%. In Sweden it was greater still: 8.1% to 20%.

What is the takeaway for Banks, Financial Services and other key players in the sector?  What are the implications for technology companies that offer mobile technology and sell solutions to their financial services clients?

My personal view is that the data that we have seen above is only the tip of the iceberg. We are witnessing a paradigm shift in Banking and Financial services offerings.  Mobile banking offers a big opportunity for small and mid-tier banks to leapfrog into big league by offering better customer experience. Banks that do not provide mobile services or are late to hit the market will be left behind.  

For technology companies, this represents a golden opportunity.  Companies like MicroStrategy who have invested in mobile solutions - both financially and built key vertical expertise to scale - are in the sweet spot to exploit the huge surge in service opportunities. 

As the saying goes, success happens when preparation meets opportunity.

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