Mobile Banking – Can Analytics help banks innovate?

Bank of America COE Brian Moynihan recently disclosed that its mobile customers grew by 2 million, touching 70 Million this year. Wells Fargo and JP Morgan Chase have already reported robust growth in mobile customers in 2014.

This rise in mobile banking users is welcome news for the banking industry. This growth is not limited to the US alone. Britain also, in the recent past, has seen an uptick in mobile banking users and the number is expected to reach 32.6 million by 2020 as per a study by Fiserv.

Mobile banking is widely used in emerging economies of the world – especially where traditional banking services have not taken deep roots. For example, Sub-Saharan Africa, Kenya and Bangladesh have huge user base in mobile banking.

But the spread of mobile banking here in the US has taken a different route - even arguably slower and maybe even a scenic route. Nevertheless, the growth of mobile banking offers exciting opportunities to banks that are in the throes of massive digital transformation.

A recent study by the Federal Reserve Board has made several far reaching findings. The study examines trends in the adoption and use of mobile payments and shopping behavior in the US and how the emergence of mobile financial services impacts customer interaction with banks and financial institutions. In my view, three key findings of this study stand out because of their larger impact.

 

Source : Consumers and Mobile Financial Services 2015, March 2015, Board of Governors of The Federal Reserve System

 Firstly, the study reported that 87% of the adult population has a mobile phone, with smartphones making up 76%.  Secondly, this widespread usage of mobile phones is changing the way consumers access their banking and financial services. Thirdly, mobile phones are impacting the way customers make payments.

But the big question is how will all this impact banks? How can banks monetize this boost in mobile customer base?  Has it really benefitted banks bottom line? Where do they begin?

A recent study by McKinsey has pointed out that non-bank players are increasingly threatening the supremacy of banks in the payments business. PayPal, Square, M-PESA (promoted by telecom giant Vodafone) – just to name a few - are some leaders who dominate this space through continuous innovation and delivery excellence.  In fact, I would argue that they have the advantage currently.

Banks must reformulate their mobile payments strategy. For example, Ebay expects to reach a transaction volume of $300 billion in 2015. Given the size of the opportunity in mobile payments, we can expect banks to enter in a big way. Banks entry and dominance of this space can potentially redefine the payments industry.

Analytics is another area where banks have traditionally enjoyed clear advantage. As the customer base increases, mobile analytics will take center stage. Mobile analytics apps can provide real time analytics on financial products, investment options etc.  Further, analytics can help banks identify payments business segments best suited for them and craft a long term mobile payments strategy.

Many banks have already seen the opportunities coming. For example, BBVA, a leader in mobile banking, is seeking to offer a “complete banking experience” on the mobile phone. Other banks are experimenting with the use of biometric facial and voice recognition apps.

This surge in mobile customer base is a positive and timely development for banks. It provides a great window of opportunity for banks to innovate and create new opportunities to boost their bottom line. In many ways, it is a reiteration of the customers trust in banks.

Cloud Based Analytics - Coming Clash of the Titans

From all indications, 2015 is well on its way to becoming the year of cloud computing. The feverish pitch of activities at key players on one hand and the data as well as observations of industry pundits affirm this. There are apparently a handful of reasons to keep the IT industry leaders awake at night.  

For starters, per NASDAQ, 2014 revenues for cloud services grew by 60 percent.  The global cloud computing market, per Forrester, is expected to grow to over $191 billion by 2020. IDC also foresees a robust market for cloud computing services.

The cloud computing stacks - Infrastructure as a service (Iaas), Platform as a service (Paas) and Software as a service (Saas) – are all driving the healthy cloud computing market growth. But Saas appears to be the winner with the highest projected growth in the medium term, with Goldman Sachs forecasting global SaaS software revenues to reach $106 billion by 2016.

Analysts believe the cloud analytics market will grow at a CAGR of 26.29% percent over the period 2014-2019. Cloud based analytics is at the center of this growth. This is obvious. As the layer that harvests insights, the analytics layer will always be preeminent and reside on top of the information value chain. It will continue to reap the benefit from the immense innovations in the underlying technology and data layers. It has also immensely powered this robust growth forecasts.

Cloud computing offers innovations – a new way of doing things for companies; it offers tremendous operational flexibility and the opportunity to cut down expenses. Further it provides users the ability to use software from any device, either via a native app or a browser. Hence, users will be able to carry over their files and settings to other devices in a completely seamless manner, which is a big bonus. Companies no longer need to maintain huge teams to manage their technology assets and their upkeep.   It can now be outsourced to the cloud and/or vendors.  The companies can now focus on what they do best – run their business with renewed focus.

It is no surprise that the market leaders – Amazon, Microsoft, Google, IBM, Salesforce, Oracle and other majors - are stepping on the gas. Amazon is the market leader with the biggest share of the market. Analysts have valued its web services business alone at $40-$50 billion.  IBM has announced that it will invest $4 billion on its cloud services, data analytics and mobile businesses to reach targeted revenue of $40 billion by 2018. It would not be a hyperbole to state that the outcome of this dogfight to win customers will decide the future contours of IT business.

How will this impact the Analytics business?  How will the banking and financial services sector be impacted? How about other industry verticals? Admittedly it is tough to predict the future; however, if past performance is any guide for the future, the impact would indeed be big. That is not to say the cloud analytics adoption and hence revenue accrual would be easy.

It is well known that banks and financial services institutions have taken a cautionary approach to cloud.They have been slow and deliberate in adopting the technology - for good reason. The main concerns have been around data security and discomfort in sharing private and often sensitive and confidential financial data. The periodic high profile hacking of customer data, including those on cloud, have not help boost confidence. However, innovations such as hybrid cloud and new data security tools are changing mindsets.  Banks and financial institutions are projected to adopt cloud and more specifically cloud based analytics in a big way.  Other industry verticals – particularly life sciences, heath care and insurance are already showing strong signs of resurgence in 2015.

Many IT industry analysts, particularly the analytics and insights industry watchers will be surprised at this optimism and robust projections. It is true that 2014 was not been a great revenue year for analytics for IT Majors. Many have already restructured or initiating this exercise. However, as pointed out in an earlier essay, it is more to do with leadership than business opportunity. It may not be surprising to find that these majors may not even have a spot in the boxing ring in 2015 for cloud based services; they have to be content to watch as bystanders as their future is being fought and snatched away right in front of them.

The coming clash of the titans in cloud computing will hog the spotlight for most of 2015 and beyond. The clash will have profound impact on the industry and the outcomes will seek to reshape it. This will be keenly watched by the pundits and all. Stay tuned folks.

Digital India –Technology for economic transformation

Prime Minister Narendra Modi came to power with a massive mandate in May 2014. His m

antra has been good governance and economic development. Given the massive scale of poverty in India - in spite of the impressive growth witnessed in the last decade – the path to economic salvation is

complex and merits serious thought and policy initiatives. As Modi seeks to put the Indian economy on a high growth trajectory north of 7%, his government is betting on deploying a broad spectrum of cutting edge technologies as the catalyst to enable this massive economic transformation. Digital India initiative will play a pivotal role in facilitating this transformation.

The reliance on technology rather than ideology is a refreshing paradigm shift. Unlike the socialist ideology forced upon the nation for over six decades that resulted in stagnating poverty and measly growth rates, technology has proved to be a reliable catalyst in economic transformations of nations. More importantly India, where a majority of whom are under 35 years of age, is impatient and in no mood to suffer economic hardships any longer.

Industrial Revolution of yesteryears is a striking example of how new inventions and technology spurred western economies.  In more recent years, the advent of mobile phones has enabled widespread reach of telecom and mobile enabled services to remote areas in poorer economies of Africa and Asia.  Kenya’s mobile banking is a shining example. Hence the reliance on technology is prudent and has the highest odds to success in enabling this massive transformation.

Digital India will provide both government and non-governmental service providers a platform to co-create and co-share a transparent, leak-proof – read corruption free - and efficient delivery of services to every nook and corner of the country.  This connectivity will hasten a feedback loop to the federal and regional governments by providing instantaneous data on various program implementations and other vital data.

In fact Prime Minister Modi, in his recent address at the NASSCOM summit on 1^st March , 2015 stressed the importance of digital technology in service delivery, governance, transparency and  effectively deterring corruption. Even at a minimum, this will be a phenomenal achievement that will set the stage for rapid economic resurgence. The benefits are immense.  

However this reliance on technology is fraught with the obvious risk of obsolescence.  Rapid changes in technology can render huge investments redundant and can hurt developing economies badly. Hence the window of opportunity for deploying extant technologies as an agent of transformation is minimal to small. This is precisely why we find the almost obsessive pace with which the government is working to execute the digital India initiative.

Leveraging digital technology as a transformational catalyst envisages three key prerequisites – technical knowhow, ability to consume digital technology and capital. They will dictate the success of Digital India campaign.

Unlike cryogenic engine technology of the yesteryears when the country was held to ransom by western technology, India has access to the best in class digital know-how via its very own home grown IT majors.  Hence access to know-how and skilled human assets would not be a problem.

Secondly, mobile usage in India is at a record high and growing and consequently the ability to consume services via digital technology is high. India currently has approximately 90 crore mobile users!  This is a vast user penetration and an incredible service delivery platform for the government.

However, availability of capital could be a major challenge. The Modi government has been investor friendly and has produced the right sound-bytes to attract fresh investments. Many analysts who have followed the Modi government for the last nine months believe that the government may not face serious challenge in raising funds externally.  Internally, the recent auction of coal blocks that netted over rupees 1 lakh crores points to new financial muscle and determination of the government.

That leaves the execution and delivery of the project which may be the weakest link in the chain. While PM Modi has the right credentials in delivering, as seen from the Gujarat experience, he is on test as to how these lofty ideas are translated on a broader canvas to benefit the country.

 It is, however, imperative to point out that for the first time in over six decades, the Indian government has mustered the courage to dream big - a clear vision rooted in pragmatism and not on empty ideology or rhetoric. This has gladdened the heart of middle India. For starters, the Digital India initiative has prevailed over its biggest obstacle – selling the vision and winning hearts; it is a major victory at that. But risks persist in  making this dream a reality.

India today stands at the cross-roads – a poor nation with lofty dreams that has squandered away its resources and treasure to corruption and a perverted politico-bureaucratic ecosystem bent on exploiting the country rather than serving it. It is this very same system that will help execute and deliver on Modi’s lofty vision for a digital India.  Modi will need all hands on deck since Digital India is fraught with high risks, but the rewards are huge too.