Potential: Revealed

Strategic Thinking, Innovative Ideas, Growth Marketing, and Revealing of Potential

Recent Commentary: Person-to-Person Payments (P2P)

For a client recently I published some commentary on recent news in the financial services technology (Fintech) market.  Just sharing the publicly available portions here for your interest – and of course comments!

Here’s the second one (the first is here):

clearXchange P2P Next in Long Line of Mostly Unsuccessful Mega Bank Consortiums

On May 25, 2011  Bank of America, JPMorgan Chase and Wells Fargo announced the launch of a joint venture — clearXchange — which will enable their customers to move money using just a mobile number or e-mail address. A direct competitive move versus eBay’s Paypal unit. And threatening Person to Person (P2P) offerings from Fiserv (NASDAQ:FISV) (ZashPay), PopMoney (CashEdge), as well as money transfer players such as MoneyGram (NYSE:MGI), Western Union (NYSE:WU), Obopay and Fundamo.

The announcement garnered significant attention of course due to the banks involved.

Previous bank consortiums as mentioned in the article (e.g., Spectrum, Pariter, ISIS) have a lousy track record for a reason. Innovation and market success requires many characteristics such as capital – which the big banks have, of course – plus nimbleness and persistence in the face of inevitable challenges and failures along the way — which the big banks generally lack on an individual basis. I never see how the latter gets overcome if a group of mega banks simply band together as a “committee”.

P2P payments as the author notes have found success only where some friction in the marketplace could be reduced for a price the market would pay – providing for a sustainable, relatively defensible revenue model such as Paypal did with small/micro-sized merchant payments (e.g., eBay sellers and their auctioned merchandise).

I am unclear that this requirement is met with P2P where the P’s are really that, “persons” — indeed as the author points out this is a sort of last mile problem/opportunity in the payments market place. But is there enough friction with current methods (e.g, checks, cash) and processes (e.g., the infrequent incidence of paying another person such as a baby sitter or repaying a friend for picking up the drink tab last night) to offer sufficient latent demand that is ready to be met?

If successful in some way though, clearXchange would provide a positive force if they are a “network amongst networks” which interconnect to facilitate the critical mass reach that will eventually be required for P2P to become more mainstream.

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Recent Commentary: E-Banking

For a client recently I published some commentary on recent news in the financial services technology (Fintech) market.  Just sharing the publicly available portions here for your interest – and of course comments!

Here’s the first one …

Online Banking Increases Lead While Mobile Banking Continues to Lag

Online Banking (OLB) is far ahead now — 55% v. 28% for branch v. 2% for mobile — as the most satisfying channel for retail banking consumers according to May 2011 study from Foresee. Cautiously good news for leading providers like Fiserv (FISV), Intuit (INTU), Jack Henry (JKHY).

OLB’s main competition (or complement) is the branch. Together they make up nearly 75% of the channel preference for retail consumers. Financial services (FI) firms should continue to see these channels as complementary, driving as much customer interaction as possible to electronic channels but integrating the experience with the branch and other personal touch points rather than trying to fully replace them.

Mobile continues to lag because it is often erroneously sought as an OLB or branch channel replacement (to further drive out service costs and serve younger demographic segments). Since it is not a replacement at all, it falls naturally short of retail banking customer expectations and needs, and in turn harms its value proposition.

Mobile is more likely a successor (or complement) to the ATM and call center – and at best a complement to the online channel. Until some day far in the future, if a killer mobile device form factor emerges, mobile banking is likely to be over-hyped and under-performing. The aforementioned FinTech firms plus others such as ClairMail, FireThorn (Qualcomm (NASDAQ:QCOM)), mFoundry, the telcos are heavily invested in mobile banking technologies and apps — and their strategies need to be well crafted or they’ll continue to miss the mark and expectations.

This will mean for foreseeable future mobile banking will at best grow to 15% penetration as the “preferred” retail banking channel. A better strategy is a focused and integrated set of functionality centered around payments and customer service.

An online bank — as a stand alone or as the flag ship of retail strategy for a brick and mortar FI — done right has a significant and receptive market awaiting it. . .

Payments Evolution Continues

Sorry for the delays between posts. Much has been going on for me. Recently I was working with a client on an assessment for where payments, especially online bill payment offered particularly by financial institutions. I turned part of it into a white and will share that here. Thanks for giving it a read and providing feedback!

The Digital Transformation – The Evolution Continues In Electronic Bill Payment

The digital transformation is changing everything – how we obtain and consume information, how we interact with one another and how we conduct business. The digital transformation has been evolving for several decades and it is easy to lose track of its impact in various parts of our personal lives and business dealings. Its impact is so pervasive that it requires stepping back and focusing to see the particular impact in any one area since pervasive does not equate to uniform. For example, in the area of bill payments the impact of the digital transformation has been profound but is still evolving and hardly complete.

One way to see both the impact and the evolution is to focus on the payments value chain. As a simple framework, think of it as a chain starting with payors (Originators), ending with payees (Receivers) and in the digital realm, passing through and facilitated by intermediaries such as Payment Networks. This payments value chain is changing at each stage. Players in this value chain, particularly financial institutions and payment network firms, will need to understand the current situation, clearly understand the developing changes across the value chain, and make wise choices in order to be relevant, competitive and win as the digital transformation plays out.

The Current Situation

The digital transformation is changing how consumers listen to music, how they shop, how they plan vacations, how they manage their money and how they make payments. As evidence, according to a recent Fiserv consumer research study, Internet Banking (36%) handily tops Branches (25%), ATMs (15%) and all other (24%) interaction channels as the preferred channel for U.S. financial services customers. The widespread adoption of mobile phones is further accelerating change. An emerging factor is the rapid growth in use of Smartphones. In 2010 there were nearly 60 million adults in the U.S. with a Smartphone and by 2014 this is expected to more than double to 129 million according to a recent Javelin Research study. Smartphones are a possible game changing device with their ability to provide an intelligent but easy to use user experience, always-on access and capabilities that facilitate several options for making payments while on the go. Altogether the digital transformation places increasing demands on financial institutions, businesses and their financial technology partners to both meet the expectations of consumers and to take advantage of the possibilities these changes may offer.

As expected these digital channels and devices are transforming payment options and choices. Overall they have driven the move from paper (and offline) models to electronic and online. Over the past two decades bills paid with checks, stamps and envelopes have been replaced by electronic bill payments made directly at biller sites or at consolidated sites such as a financial institution. Cash at the point of sale has been replaced by debit and credit cards and all sorts of pre-paid cards. Cash and checks used to pay friends, relatives and the babysitter is being replaced by electronic person-to-person payments. All of these developments, though, continue to march ahead, going mobile and making them ever more convenient and available on-demand. Correspondingly this further raises the bar on the level of intelligence, service reliability and security required. Clearly the move to electronic payments continues but is hardly complete. A recent study by a payments research and consulting firm estimated that from 2009 to 2014 over 11 billion paper (cash and checks) payments will move to electronic payments. Where those payments will go and who will benefit depends upon choices made by the players in the payments value chain.

Opportunities in the Payments Value Chain

Fleshing out the reference earlier to the payments value chain, a simple, traditional depiction begins with Originators, such as consumers, businesses and governments with an obligation to pay some other party. It also includes Receivers which are the “other party” and can also be consumers, businesses and government. The payments made by Originators are facilitated in some way by a Payment Network which connects the Originators and Receivers, moves information and money to handle settlement, and provides various levels of required security. Specifically in the electronic bill payment arena, value was initially created by giving Originators – largely consumers — more convenient options versus the routine of writing checks, purchasing a stamp and putting an envelope in the mail. The value to Receivers – also called Billers – came mainly from more timely payments, and cost savings due to reduced risk and more efficient processing with electronically received payments. The Payment Networks in the middle have been the drivers of these benefits enjoyed at the ends of the value chain. Through reach and scale they have offered low cost yet fast, reliable and highly secure payment services. The value provided however is limited and as electronic bill payment has emerged into the mainstream it has become commodity-like in growth and margins. 

Relative to potential value, the consumers who have adopted electronic bill payment have received a disproportionate benefit; saving substantial time, money and increasing their security. Despite this, still less than 50% of online banking users – those showing a clear interest in dealing with their bank electronically – use their financial institution’s online bill payment service. Over 60% of the electronic bills that could be presented to those who use online bill payment go unsubscribed and are never viewed each month.

The Billers have yet to receive, at least in significant proportion, a number of potential benefits such as richer and more standard information flows and as just noted with the lagging adoption of bill presentment, the elimination of paper from billing side of the payment cycle. The value potential, however, is real and substantial. A study done for a very large cable company identified over $100 million in annual savings from the application of intelligence available from the mining of bill payment data (e.g., understanding payment channel and type choices and precisely guiding subscribers’ choices), and an equally sizable amount of savings from elimination of monthly paper bills.

Financial institutions, which have been the allies of the Payment Networks have arguably benefited more so than the Billers but have also borne most of the cost of providing the service. Compounding the challenge, the benefits the Financial Institutions enjoy are indirect and soft since bill payment is typically provided for free and generates no direct revenue.

While the Biller benefits are lacking and the Financial Institutions find the benefits to be soft, the value to consumers is on a new, upward trend – driven largely by developments such as those described earlier with the widespread adoption of Smartphones. In turn these enhanced services are likely to further raise the costs of the Billers and the Financial Institutions and their Payment Network allies as they scramble to keep up with consumer demands, making the precise ROI even more elusive.

Winning Strategies

Returning then to the depiction of the payments value chain as a three part process, consumer and billers at the two ends and the payment network and financial institutions in the middle, going forward the opportunity for new value creation calls for a focus away from the middle and outward toward the two ends where emerging and unmet needs clearly exist. For consumers as the Originators there are still unmet needs in making basic electronic bill payment compelling for mainstream households. While a majority of households now pay at least one bill online at either the Biller or through their financial institution it remains a minority that have made the commitment to paying most or all of their bills this way. As mentioned earlier, a far larger number of electronic bills could be presented to online customers which would eliminate paper and further enhance security (with reduced identity theft).

The winners in the race to capture these potential consumer users and their transactions will recognize that existing choices must be expanded both in terms of where online bills can be received and paid, particularly on Smartphone devices and generally everything mobile, and choices about how the payment is made such as expanding to include as many payment options as possible and moving to even faster payment speeds. There are information-based opportunities as well, with examples including enhanced financial management tools and alerts, which can help consumers better manage and increase control over their household cash flow. The stepped up value proposition may in turn provide a firmer foundation for charging a fee for online bill payment and creating a more intense electronic relationship. A relationship which offers richer data that can be tapped for deeper insights financial institutions can leverage to improve cross-sell and enhance customer profitability.

On the Biller side, unlocking latent consumer demand for electronic bills is a clear opportunity. In addition, Billers today face a complex array of payment streams coming to them which are neither uniform in their quality nor the quantity and value of the information that accompanies them. Billing and accounts receivable systems while obscure are the life blood of consumer oriented companies such as energy and telecom, cable, insurance and financial services and any improvements made by payment networks that reduce errors and speed revenue collection cycles will be eagerly received. The winners will recognize this opportunity and work to streamline their information flows to Billers and provide easier ways to integrate and facilitate straight-through processing. They will also enrich the data that is transmitted including pre-processed analytics that Billers can act upon directly or integrate into their own data analytics engines and customer marketing systems for use in up-sell and cross-sell, risk and fraud management, and improving customer loyalty.

Together these types of improvements offer the promise of a more widely adopted and active value chain where richer payment and information flows move more quickly, nearing real time. In turn, latent and highly valuable demand at the ends of the payment value chain can be unlocked and monetized by those that compete in the race to provide the winning value proposition.

Hammer in search of a nail?

With this post I will give a bit of plug to a good, relatively new blog on all the latest in the world of Payments.

There is plenty of buzz (and spin!) regarding Apple’s foray into “contactless payments” and how it might validate and accelerate an emerging trend. When I read CNN.com’s headline  “The end of credit cards is coming” my natural skepticism went on high alert. A post on Payments.com by Karen Webster, partially in response to CNN’s article and the issue overall, really hit the nail on the head.

It is fun and compelling to learn about a heretofore unmet – or better yet, unknown! – consumer need that has been splendidly filled by an innovative and heroic entrepreneur. Even better if it is Steve Jobs and Apple – the darling, so far, of the first decade or so of the 21st century. The foreseeing of the unforeseeable is often referred to as unlocking “latent” demand. Demand we didn’t even know existed or in ways we didn’t foresee. Sometimes it happens and I’ve written about it on this blog and elsewhere.

The Payments.com post, however, pointed out that both unlocking latent consumer demand for mobile, contactless payments may not have arrived just yet. Karen pointed out many industry factors, ranging from too many competing approaches to too few points of sale (POS) for acceptance (and daunting costs to enable the millions of POS devices functioning perfectly well today across the country without “contactless” capabilities).

The most glaring thing missing in my opinion is less technological and more fundamental: the lack of a compelling value proposition to the parties involved (made up of consumers, payments processors & networks, and merchants). Is there a compelling value proposition to be had? If not, is there really any latent demand? Are we all really, unknowingly so far, just waiting for a way to ditch our current payment methods (e.g,. cash, debit and credit cards, gift cards, checks) for one that uses our mobile phones instead? While none are perfect are the available methods broken and of low enough utility to be replaced?

My comments to Karen’s post (you can find them here):

“It should be noted that Apple’s business model and track record is to be closed (a profitable strategy, no doubt), and another key player the mobile networks are notoriously closed and seeking a way to corner any market for themselves and control / disallow other alternatives.

Along with the sheer steepness of the adoption Karen points out, I think these forces will make it hard to see any widespread adoption soon. Forecasts so far are mostly hype.

Personally I also don’t see the creation of a compelling value proposition which is always required to unlock the so-called latent demand for a mobile & contactless payment alternative (other than the “cool” factor, and for certain high traffic environments where checkout speed might have high marginal value). Current consumer demand for payment methods is well satisfied without NFC (Near Field Communications)-enabled phones.”

Spouting opinions is fun. I gave mine – what’s yours?

Teamwork at work

Teamwork, and probably more importantly, how teams work is an enduring and important topic. Much of how things get done in business, families and other societal groups, and life in general is through teams. 

There is an interesting recent blog on Forbes, by Inder Sidhu who is a Senior VP of Planning and Strategy at Cisco, on the results of a study done on a charter school in Minnesota. The Avalon School has many characteristics that set it apart from other public schools: it has no principal, no full-time administrators and no director. They do not answer to a superintendant or district supervisors, rather the school’s educators make all decisions regarding budgeting, hiring, curricula and more.

In terms of individual team member satisfaction, evidence indicates working in this environment produces teachers that are more satisfied than peers at other schools. This is consistent with studies of other similarly run charter schools. This is a possibly important finding — the job satisfaction of teachers would logically have some impact on their performance in the classroom and possibly extend to the performance of students in their classrooms. This effect on students though had not been studied or shown until the Avalon School study.

The research was done by Claremont Graduate University professor Charles Taylor Kerchner. The study compared academic achievement of Avalon to other schools in its area. It found that Avalon was producing high performing students and also multidisciplined teachers. The evidence included outperforming other schools on federal Adequate Yearly Progress (AYP) requirements, in reading proficiency, and graduating a very high percentage of its students – 87% – with many going on to attend top tier universities such as Northwestern and the University of Michigan. There is much more but I’ll leave it to you to read the study (link above) if you wish.

There seems to be much that can be learned about the team working environment at Avalon. In a typical school a teacher’s job is clearly defined and their activities and routines are often overly prescribed. At Avalon, teachers are largely unrestricted and develop new skills in budgeting, hiring, marketing, recruiting, conflict resolution, and project management. Having to rely upon each other for goal setting, decision making and problem resolution rather than job and work rules and a central education authority and bureaucracy, the Avalon education team finds it easier to develop a common vision, set of objectives and hold themselves collectively accountable. In a charter school, lack of performance as a team can lead to the revocation of the charter and the school — and team — returning to the standard public school approach and work environment.

The teamwork atmosphere extends to the students. Seemingly taking the business management concept of “self managed teams” into a school setting, Avalon students discipline themselves. If an Avalon student gets into trouble, they are sent to a council of their peers — who have received training in peer mediation — for a hearing. Additionally, the students at Avalon determine most of the rules for the school. For self directed teams to work effectively, they must have this combination of lattitude in rule setting and governance, and accountability for group performance to the rules and standards.

It would be my belief that beyond the improved education the students at Avalon are getting, a powerful additional benefit is their learning about and experiencing a positive team working environment that will serve them well into their life and careers beyond Avalon.

Recently I had the privilege of teaching some classes at Emory University in the business school. I did a lot of preparation and reading about teaching in the university setting and particularly using the case method. One approach I read about and then adopted was to maximize the students’ participation by “orchestrating” the class, rather than lecturing or using a firm agenda and prepared questions (and prescribed answers).

We set some goals for what we wanted to get from the case, what we thought were key issues to be discussed and deliverables to be generated. Then I turned really into a conductor or director whose job was to facilitate, to keep us moving toward the goals, but not otherwise dictate. I found that like the Avalon experience, and experience where I’ve seen teams perform at their highest, the class thrived on the freedom and self-direction and had strong, innate drive to work together toward the goals.

What do you think? Do you have similar or varying experience with teams and teamwork?

Beyond First Impressions

There are many stories that fascinate me about the tremendous potential of individuals being hidden behind personal peculiarities and foibles. Even more interesting are when two or more of these individuals are put together and become creators or catalysts of a great breakthrough.

This is fascinating to me for a couple of reasons. One is a common theme I like to write about which is the failure to see the potential of each individual when preconceptions or prejudice get in the way. The other is related: sometimes it takes individuals who are subject to the preconceptions or prejudice, thrown together for some reason (purposefully, through serendipity or other means), to mutually unlock the potential and power its fruition.

These individuals can often have singular talents which consume them in some way and lead them to ignore more mundane social or personal needs and habits. Think of Einstein, the brilliant theoretical physicist, who often could not recall how to get home after walking about and pondering a problem for hours, who didn’t bother combing his hair … or to wear socks.

Perhaps this ability (or inability?) to pay much attention to personal or social issues and norms – and further, not giving them attention in others — clarifies and focuses attention on some hidden potential buried in outside-the-box thinking, ideas, and visions.

One example is Johann Kepler and Tycho Brahe. Who are these guys? Tycho Brahe was the court mathematician and astronomer to King Frederic II and known throughout scholarly Europe at the time as the most knowledgeable person in the realm of the sky and the stars. He had meticulously and obsessively documented the movement of the planets, the moon, and the positions of all the stars that populated the nighttime skies. This repository of data and knowledge Brahe put together was in and of itself a marvelous feat of that or any time. He was a man of some means and had a world class observatory and institute of science and mathematics that he oversaw. It was home to many scholars and served to advance and spread knowledge about the heavens.

One young man who came to work with Brahe was Johannes Kepler. Where Brahe excelled in the detailed and meticulous world of scientific observation, Kepler was a theoretician who excelled in the world of conceptualizing and synthesizing many points of observation and fact.

Interestingly and by contrast, Brahe was an imposing figure – physically and in demeanor. He was seen as aristocratic and despotic, passionate and very eccentric. Kepler was thin, almost sickly, very near sighted, neurotic and disheveled. His father had been a solider for hire and his mother was an accused but acquitted witch who was said to enjoy psychedelic drugs. Perhaps the one common trait both had was a driven nature that conveyed to others arrogance and self-centeredness.

Kepler came to see that the observed facts Brahe had cataloged about the position and movement of the objects in the sky did not support the still widely accepted model of Aristotle and others that said the Earth was the center and the Sun and planets revolved around it. Nor did Brahe’s data support the newer model of Nicolas Copernicus (that Brahe believed in), developed by Copernicus a century earlier. Copernicus’ model rightly put the Sun in the center and Earth and the other planets orbiting around it. Copernicus’ model while correct generally, was flawed however, as it said the Earth and the planets traveled in perfectly circular orbits.

Kepler’s irritable and confrontational nature though made it difficult for him to get others to listen to his views and ideas. It was Brahe, for less than altruistic reasons (he feared his pupil might surpass him), who framed a challenge and focused Kepler on a part of the problem which led to a breakthrough model of the universe. One that is used to this day.

Brahe challenged Kepler to determine a model and equations that would accurately predict the path of Mars’ orbit. He knew that since Mars was close in proximity to Earth that a very precise model would be required to make accurate predictions. Mars would be the true test of Kepler’s ability to prove what he had been grumbling about. Kepler boasted it would take him 8 days to meet Brahe’s challenge. 8 years later, Kepler was still working out the solution.

Eventually, Kepler did come up with the model and equations to prove that the orbital path of Mars about the Sun was elliptical, not circular. Indeed the orbital motion of all the planets in our solar system can be described as elliptical. An interesting footnote is that Brahe died not long after issuing the Mars challenge to Kepler and did not live to find out whether his pupil met the challenge – and find out that indeed the student far surpassed the teacher in fame and stature.

Johannes Kepler is a key figure in the scientific revolution. His work provided one of the foundations for Issac Newton’s theory of Universal Gravitation. Imagine though if Brahe and others would have let their impressions of him lead them to disregard or sideline him. It can be argued that what he discovered might just have been found later and if so, today, 400 years later, we would hardly notice the difference or care if someone other than Kepler got credit.

It should be noted however, that in Kepler and Brahe’s time they were just emerging from a time well known as the Dark Ages. A time of scientific repression and repression of many other insidious sorts. A time in which someone of Kepler’s mind and approach would have been summarily dismissed – or worse – declared heretical.

The Dark Ages lasted more than 1000 years.

Odds are you nor I are currently working with or know the next Johannes Kepler. Yet we’ve all known or know people who have talents, sometimes singular and amazing, that fight to shine beyond personal faults and social awkwardness. Many of us have failed to recognize these talents. Either in hindsight or in the moment we chose the easy path of discarding the whole person, along with their potential, to avoid dealing with their perceived negative traits. As a leader, colleague, friend, and mentor I for one want to do a better job of dealing with others on their merits, even when they are hard to see, and resisting the easy path of avoidance or disregard.

Working Together: Great Potential Revealed

Spring and summer have been busy work-wise, and lazy otherwise. The combination of hard work and the opportunity, through abundance of summery weather and a relaxing time away with family, to do nothing much has also given me time to read some interesting books.

Recently I’ve gotten hooked on science and history – in particular the rise in the early 20th century of quantum mechanics in physics. I have been amazed at how individually brilliant these scientists were and how incredible their vision and discoveries were. Imagining and then doing the math and experiments to prove what they imagined, in a time with no computers, little funding, and few sophisticated laboratory tools is the epitome of the human spirit and thirst for knowledge and understanding.

What I’ve also learned that was true and critical to the discoveries made was the collaboration and sharing that occurred. There were plenty of rivalries and some conflicts but given the stakes – and the potential for fame – there was more openness than secrecy. These remarkable men and women – Einstein, Curie, Fermi, Szilard, Meitner, Oppenheimer, Dirac and many others – were of varying nationalities and located across Europe, plus America and Asia. Again in a time of no computers or internet, they made a conscious investment – which was non-trivial given the communication challenges of the age – in publishing their discoveries, writing to each other regularly, and attending formal and informal gatherings where theories, approaches and findings were presented and debated.

 
They seemed to know that their ideas were worth far less if they hid them. They knew they’d be more valuable if they invited others to learn about them, debate or challenge them and add to them. Or perhaps that their individual ideas and theories were just small parts of a huge body of unknowns that one of them could not possibly explain alone. If they wanted to be successful – be part of explaining the universe – they had to cooperate with others.

Together they were discovering more deeply how the universe works, at the atomic and then sub atomic levels. Imagining and then proving that atoms existed and contained electrons, protons and neutrons. Imagining and then proving that even smaller things existed such as quarks, gluons and other interestingly-named particles. Imagining and then proving that atoms could be split – and fused. Some, such as Einstein, at times wished they’d never had their great thoughts or published them — since it led in 1945 to the deaths of more than 100,000 Japanese citizens in a matter of seconds with dropping of bombs. Bombs with innocent sounding names like Fat Boy and Little Man.

Yet there is no denying that there have been many positive aspects to what these people discovered and helped the world to understand. It has and continues to change the world as we know it.

And their approach to innovation and knowledge sharing can teach us a great deal about what can happen when the potential of new ideas is fueled by a spirit of cooperation and sharing for the common good.

If you are interested at all in what I’ve been reading, here’s a few selected titles:

The Story of Science: Einstein Adds A New Dimension by Joy Hakim – actually a great middle school to early high school text book. If all children had books written by and teachers like Joy Hakim, we’d have more kids interested in science. Her writing is fun and informative.

Einstein: His Life and Universe by Walter Isaacson 

A Short History of Almost Everything by Bill Bryson