Collaborative consumption and financial services

From The Social Cost of the Loss of Job Stability and Careers

McKinsey had Yankelovich survey the attitudes of young people a decade ago, and even then, the results were pretty disturbing. Yankelovich projected that college graduates would average 11 jobs by the time they were 38 (!), yet found they were demanding of their employers, wanting frequent feedback (as in lots of attention) and quick advancement. But if you are not likely to be around for very long, no one is likely to want to invest in you all that much (McKinsey, which was competing for a narrow slice of supposed “top” talent and not offering Wall Street sized pay opportunities, might have been more inclined to indulge this sort of thing than other employers).

But these rapid moves from job to job, and now a much weaker job market, are producing behaviors that old farts like me find troubling. One is rampant careerism. I’ve run into too many polished people under the age of 35 where the veneer is very thin. It isn’t hard to see the opportunism, the shameless currying of favor, and ruthless calculations of whom to help and whom to kick, including throwing former patrons under the bus when they are no longer useful (I can cite specific examples of the last behavior). The world has always had its Sammy Glicks, but now we seem to be setting out to create them on a mass basis.

While I do not share the idea that this new behaviour is by choice only, the current job instability is probably here to stay.

In the same time, probably not uncorrelated, we are seeing the rise of collaborative consumption:

Collaborative Consumption describes the rapid explosion in traditional sharing, bartering, lending, trading, renting, gifting, and swapping reinvented through network technologies on a scale and in ways never possible before.

WHAT’S MINE IS YOURS from rachel botsman on Vimeo.

Leveraging assets’ idle time makes a great economic sense, especially if incomes are becoming less constant than in the previous career framework.

The impact for financial services is major. If we take the example of the 2 major purchases that require credit : house and car, the current credit score system is based notably on stability of income over time as a way to measure reimbursement capacities. However the current career instability will have a negative impact on lending, making it less easy to access property.

However, if you consider the supplemental income that could be generated over the life time of an asset (House via Airbnb or Car via Getaround), then the decision for lending could be made using another basis than stability of the main source of income. Especially if these assets are built around the possibility of collaborative consumption. Taking the example of a car, Ford could pre-equip cars with the necessary equipment for sharing, allowing a wider population the access to car ownership.

Calculating risk and evaluating value over time is at the core of financial services. Applying those to new behaviours is not innovation, it’s just servicing customers.

Accounting and Banking: design issues

I am no designer, nor a marketing specialist but as a bank customer (with different banking relationships) I can tell you I think my banking experience is pretty bad. Because I switched to a more corporate finance job, I finally realised what could be the root cause of this issue : accounting.

Accounting to be honest is not the most sexy topic, though it serves its use. It allows keeping track of a corporation financial situation by embedding control in the way it is done (double entries) as well as allowing a common language for several people working on the same topic or transitioning. Also in pre-computer era, it was built in relation with its support : books. Accounting on paper makes sense.

Good design (at the time)

But since I am not a corporation / nor an accountant by trade / nor doing my personal finance on paper, why are banks sending me banks statements in the format of accounting statement?

This makes no sense. Accountants must represent 0.01% of the population of bank customers.

Mint is a good example of design applied to financial information (while not the first and the best one). This makes much more sense than the previous statement.

Other startups, such as Simple [Note: Anthemis is an investor] are trying to redefine how financial information should be presented to customers. The first difficulty is to bring understandable information to each spending transaction. A better identification of the vendor and its category is key, notably for searching past transactions (also keeping more than 2 months of transactions helps).

Additionally, presenting not only an historical account of financial transaction, but also a forward looking view of a customer financial situation is moving from an accounting statement to a personal finance overview. This is not new as startups such as Rudder (http://mashable.com/2008/10/13/rudder/), have tried to show forward looking information. The concept of Safe to Spend balance used by Simple is in the same concept.

Fast Company has an interesting review of Simple design decisions: http://www.fastcodesign.com/1665303/first-look-banksimples-iphone-app-aims-to-reimagine-your-money

Other interesting design choices used by financial services that could be added to this post?

[Ember] – Predictions for 2012 (and beyond)

Most of the people in the world still don’t have a personal computer, whereas in three to five years, most people in the world will have a smartphone…. If you’ve got a smartphone, then I can build a business in any domain or category and serve you as a customer no matter where you are in the world in just gigantic numbers–in terms of billions of people.

Marc Andreessen: Predictions for 2012 (and beyond)

http://fnd.gs/rxoITt

[Ember] – A new social model?

This GigaOm post: My 10 years of blogging: Reflections, Lessons & Some Stats Too: http://gigaom.com/2011/11/26/10-years-gigaom/ made me think I should blog more / differently. While the frequency of big posts will probably be the same, I will publish daily links, picture, quotes that are part of the creation of the longer posts. These posts will be tagged as Ember, short form (twitter like you could say) but as important.

Does technology allow for sustainable large scale P2P model?

The receipt revolution!

I am mad about receipts. As I have written before:

- The receipt is the perfect example of a broken experience, as defined by Seth Godin.

Seth Godin at Gel 2006 from Gel Conference on Vimeo.

Look at any typical receipt and you would have a hard time understanding most of it. Batch numbers, RRN, Terminal Id, Merchant #, and other random pieces of numbers and letters. In most cases the product name is not even recognizable and the merchant name is broadly defined. If you try to remember where you bought a product, how much it was etc, chances are al receipt will not help you because it is not designed for the customer.

But improving the receipt is not just about making it more clear, sending it by email, putting it on the web… Making receipts an experience may become a key aspect of mobile payments. The question is : what needs to happen when payments disappear?

One of the goals of Square (and Card Case is a first step in this direction) is to change the payment experience:

“This is truly the most seamless way to pay,” said Megan Quinn, director of products for Square. “It becomes more about the interaction between customer and merchant and that relationship rather than the actual act of the payments. We want to make payments fade away. People don’t appreciate that; they enjoy making a purchase and feeling like a regular at places they shop.”

Square’s “magic” has nothing to do with its dongle but is with its capacity to be the first coherent and complete link between the merchant and the customer. Controlling the all experience is key to extract the most benefit from the payment graph : always accurate product catalog, real identity, metadata on payment (localization, time, previous payments and patterns), all these elements create a rich data set for each payment, that can benefit both the merchant and the customer. In the middle of this, as a memento of each purchase made, is the receipt. But a purchase is not/ should not be a static event. If your best customers are regular customers, you need to maintain a constant relationship with them and they may be interested as well in engaging more with your business. Receipts could become implicit social graphs.

The first and most obvious use of social in receipt is for guarantees, support and repairs. No more digging around for a piece of paper when your computers fail, no more search for cryptic reference numbers (most people have a printer at home, not a HP Laserjet P2015-G). This becomes even more important for companies that aim at sustainable product management such as Patagonia: Patagonia Asks Its Customers To Buy Less.

“We realized that what was really needed was a mutual responsibility between company and customer for the full lifecycle of stuff,” Rick Ridgeway, Patagonia’s environment VP. “So we would try to reduce the amount of stuff that people buy, fixing products if they were broken, and asking people to clean out their garages and closets, so that if you have clothes you are no longer using, you put them back into circulation.”

Receipts are also the best resource to create community of users around products. These communities already exist, in a relatively unstructured way, in forums, blog posts … a central point of reference per product would help structure this content, link it together or link to a platform maintained by the producer. Receipts could also be used in collaborative consumption to track the use of a product when it is reshared, recycled with others.

In VRM, intelligent receipts could play an important role, as it empowers customers with data that represent their relationship with a merchant. This information could be leverage by them to reverse their relationship with merchants.

Using this data is not new … some digital companies have been doing it for some time. Tripit is a good example. It mines data contained in flight / hotel receipts to create a travel plan or even share this information with others. In theory, it could also mine price data to determine if you are overpaying for your trip.

Interest in receipts is growing and several companies are trying to position themselves in this market. Onereceipt, Lemon, Slice are all trying to aggregate users receipts and transform them in usable data. Most focus on expenses management for users, but I am not sure this is the best angle to adress this market.

Hopefully these will be soon definitely something of the past.

Snap & Deliver vs. Pick & Go: the future of mobile payment?

The last few weeks have been really interesting if you are following the ongoing battlefield of mobile payment. Paypal, Square notably have made big announcements on their vision the future of payment. Behind all these players, there is an elephant in the room that doesn’t say much: Amazon.

Online retail as been making constant progress and seems to have a lot of room to progress even further more.

Source: http://kpcb.com/insights/internet-trends-2011

Mobile Commerce is “lifting off” (to take Mery Meeker’s wording)

Source: http://kpcb.com/insights/internet-trends-2011

More importantly, search while shopping in retail stores is becoming a tool for price transparency and retail competition. The saying that Amazon has the best showroom of all retailers is becoming a reality. Search and its proxy for products (barcode scanning and Prime) is becoming the new mobile checkout. No stop at the counter, no cashier, no paper receipt:

Note: the same survey also indicated that 50% of USA smartphone users have used their smartphones to find a nearby store. So while mobile Internet is helping drive foot traffic to local stores, it is also helping make pricing info more transparent for the consumers

Source: http://kpcb.com/insights/internet-trends-2011

=> Snap & Deliver

On the other hand, the recent update to Square Card Case as well as Paypal’s proposal for its future of payment show what I think is viable alternative for retailers.

With Card Case, Square offers one of the only (the only?) fully integrated experience from the retailer to the customer. They control the “wallet” experience, the POS experience as well as the entire data chain in the middle: payment information / product information and all relevant metadata around it. It is therefore significant that their first upgrade took the core decision of making the payment disappear.

“This is truly the most seamless way to pay,” said Megan Quinn, director of products for Square. “It becomes more about the interaction between customer and merchant and that relationship rather than the actual act of the payments.  We want to make payments fade away. People don’t appreciate that; they enjoy making a purchase and feeling like a regular at places they shop.”

From GigaOM : With Card Case, Square launches hands free payments on iPhone

Paypal offers a similar vision, even if it seems less realistic in its Future of Payment vision (see at 1:45)

Rumours have also been surfacing that Apple could propose a similar checkout system soon. BGR has a detailed “exclusive” on the future solution: New Apple Store app launches Thursday; here’s how it will change Apple’s retail operations

“Here is how this will work: after you find the item you want to buy, like an accessory, you launch the Apple Store app on your iOS device and there will be an option to buy a product in the store. You scan the product with the camera on your device in the app, click purchase, and it will charge whatever credit card is associated to your Apple ID. You then just walk out of the store.”

=> Pick and Go

 Apple has slowly transformed its in-store experience toward less square footage for retail and more for support / classes / events. With Apple Genius running around with Ipod equipped for Credit Card acceptance, they seem to be able to combine delivering the Apple experience while maintaining a strong retail activity. The other possibility to buy online and pickup in-store should help drive foot traffic.

For businesses that are facing increasing competition from online retailers via the mobile web, this seems like a possible solution for their future in-store experience and mobile payment solutions.

…

Price discovery, a key for financial services disruption

What do Zillow / SecondMarket / Ebay / Square / Financeacar (Anthemis is an investor) / Betterment (as well)  have in common? They all play a part in solving the important issue of price discovery: how much does it cost / how much should it cost?

Financial services products tend to suffer from complex pricing syndrom:

- First because asserting their price is sometimes difficult ie what is someone’s risk profile and how much premium it implies?

- Second because providers of complex pricing offers have incredible opportunity for excessive margin (ie bad long term behavior)

This presents an amazing opportunity for startups in financial services. Either by innovating on business models that allow simple pricing in a market using complexity or by creating efficient marketplaces to force price discovery.

Simple pricing: Pricing is an essential component for Simple as a Service companies (see previous blog post on the topic). When Square announces a 2.75% fee on their services or Betterment 0.9% management fees, they may not be the cheapest providers on the market but they are for sure the simplest.  In a similar way, Finance a Car, by proposing monthly cost as the comparison point of various financing offers, serves as a translator between ancient-greek speaking financing services and their customers.

In a non-scientific guess, I believe being simple could allow these companies to maintain a premium on their price. Certainty has a value.

Square fee comparison courtesy of Feefighters 

Market places: While it may have cost a cumulated gigantic amount of money to create viable stockmarkets (though they may have become broken : ), the internet / powerful computational powers have made it relatively cheap and therefore viable to build market places for other services. Zillow’s recent announcement of the integration of Mortgage offer in their app is a good example. After disruption price discovery for the actual property, they are creating a market place for mortgages inside their own app, making an important step is answering the actual question of “how much will it cost to buy this house?” (luckily on the other end of the spectrum, other companies are working hard on helping answer “Can I afford it and how?”). In a different field, Ebay’s move to implement barcode scanning on their mobile commerce application is key to extending their market advantage to brick and mortar retail.

In this case, this is not a premium but a traffic model. More flow goes through them because of their capacity to offer price comparison.

I can’t wait for more startups to innovate their way through simplification of pricing in financial services. Not only it’s good business, but I believe it is also a good business model.

What do you think?

Why we need brilliant banks

I have been a strong advocate of disruptive startups in Financial Services on this blog, dismissing some of the banks effort to try and move as quickly as more nimble competitors. But in all respect, for these innovative startups to launch their services, we need brilliant established banks and payments players. That is why I was surprised to read Finextra’s post Citi slaps down Bank 2.0 rivals in Innotribe face-off.

Banking is, as it should be, a highly regulated industry. After all, its all about money:

Money
It’s a crime
Share it fairly
But don’t take a slice of my pie
Money
So they say
Is the root of all evil today

More than banking only , its Financial Services that need to be regulated, for the best interest of all parties (and no the bankers are not the most important one). There is no better example than seeing the young UK P2P lending industry calling for regulation on their activities http://blog.zopa.com/archives/2010/07/26/need-for-regulation/ and proposing a self regulating framework http://blog.zopa.com/archives/2011/08/17/we-proudly-present-the-p2p-finance-association/  while waiting for the regulator to define its own. P2P Finance Association

Financial Services, to work in a global way also need a level of coordination only achieved through mature players and global coordination. Swift is a prime example. The Society for Worldwide Interbank Financial Telecommunication, is a cooperative owned by its members. It operates the pipes that allows banks to communicate with each other. The most known feature is probably payment, but other messages types are supported, from buying securities, to informing of the merger of 2 companies. In most of the world (the US being one exception). Swift is the common language of most financial institutions.

These skills (operating in a regulated environment, coordinating with different players) are very important, because without them, in the current environment, there can’t be any Banksimple, Wepay or Square. These Financial Services disruptors need a ground of base services (secure holding of funds, ability to communicate with other financial institutions) to propose innovative front-end solutions to their customers. There is no point in reinventing the wheel if you can find satisfactory services with a provider and focus on your core.

But this is where we need brilliant banks / financial institutions. Because what happens when they are not is a total disruptions of their business. The recent post of Kosta Peric, head of Innovation at SWIFT, comparing bank to bank payments and Paypal payments is a prime example: http://copernicc.wordpress.com/2011/09/26/money-transfer-experiment-chapter-1-paypal/. Paypal wins easily on the transfer of small amounts between countries.

It’s difficult, for some part of the financial services industry to realize that a winning strategy for them would be to become highly qualified service providers, top notch commodities. That there is a play in becoming the efficient platform of front end services, to be more like a water service company for a major city. I believe (or assume) that is what Citi has in mind when they announced the release of their B2B API:

If banks want to enhance their own brands they need to scale. And the best way to do that is to open up application programming interfaces (APIs).“Banks need to harness the power of the developers out there,” says Citicorp’s Benjamin. 

Disclaimer: My employer Anthemis is an investor in Banksimple. We have recently invested in an innovative licensed bank in Germany Fidor Bank http://www.reuters.com/finance/stocks/F5RG.DE/key-developments/article/2403061. I am a huge fan of Square.

Why software is eating NFC

Marc Andreessen’s recent Essay in the WSJ entitled Why software is eating the world generated a strong feedback. He advocates that software is disruptive to all industries, from automobile to financial services as its importance finally comes of age with the growing pervasiveness of connectivity and calculation power. It’s an interesting read.

He highlights the following for financial services:

The financial services industry has been visibly transformed by software over the last 30 years. Practically every financial transaction, from someone buying a cup of coffee to someone trading a trillion dollars of credit default derivatives, is done in software. And many of the leading innovators in financial services are software companies, such as Square, which allows anyone to accept credit card payments with a mobile phone, and PayPal, which generated more than $1 billion in revenue in the second quarter of this year, up 31% over the previous year.

While it’s true financial services are a software based industry, it is stil very much reliant on dedicated hardware. Cash, checks, credit cards are all hardware based tokens to materialize value and ownership. NFC is the latest in this chain of hardware based solutions, using secure elements and dedicated POS hardware to ensure transactions. His choice of Square and Paypal is not surprising since they are software based disruptors in payment.

But startups and companies, with backgrounds closer to the disruptive companies quoted by Marc Andreessen (Skype, Linkedin, Netflix, …) are looking at the mobile / online payment market as a software based business. For them the question is : why do I need dedicated hardware when I can use 3G/wifi and cloud based solutions to run local payments and aim at the same level of convenience and security? I am guessing Paypal is one of the inspirations for these companies, having succeeded in internet based payment using a software-only solution, including fraud management when other players where proposing tokens, dedicated credit cards and other “stuff”.

Recent announcements show how these software based businesses are pushing for software based solutions in payment.

- From the outside, Square may seem very much hardware based since it is known for credit card acceptance on mobile. But it’s vision is software based. Card case is the perfect example of this, allowing local payments with merchants via mobile using a existing connectivity. Card case is now open to all merchants and with a dedicated app, I am expecting it to grow fast. To ensure fraud control, Square uses a mix of data (including social based), localization.

- Dwolla, the ACH based payment network, recently launched a P2P location assisted payment solution Proxi. Using your location, it allows you to discover other Dwolla users around you and make payment to them.

- Using Paypal on their phone, people can also Bump money to each other, or split tabs.

- Stretching this point a bit, I would be curious to know how many people uses Amazon mobile store and payment ”in-real world store” to make their purchase online (comparing prices, finding sizes etc).

What are the advantages of software based solutions?

- They are easier to launch, as the existing connectivity and tools can be leveraged. There is for now a limited number of NFC phones and Paypass POS are not that common.

- They seems easier to adapt as no dedicated hardware is used. App stores have also made app updates more convenient

Possible disadvantages are:

- Less secure (?) – Remains to be proved

What do you think, can software based solutions disrupt NFC?