The Connected Consumer
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CSC's Patrick Molineux Talks About the Evolving Financial Services Industry
The dialogue between consumers and financial services firms has taken a number of dramatic turns in recent years. Banking relationships once built on local ties became conversations controlled by voice prompts and customer management systems as mergers and acquisitions turned neighborhood banks into international financial powerhouses.
Today, a global community of customers, armed with mobile devices and instant answers, is once again redefining the relationship between customers and banks. Institutions find themselves in unfamiliar territory as they struggle to reconnect with customers on customers’ own turf and attempt to fend off challenges from new companies infiltrating value chains that once belonged exclusively to the financial services industry.
The Leading Edge Forum’s most recent report, “Connected Consumer and the Future of Financial Services,” examines the changes in that relationship through the development of four key areas: mobile technology, microfinance, media and data mining. The report was developed by Patrick Molineux, chief strategy officer for CSC’s financial services business. As an LEF associate, Molineux drove the research for this report, shaping the core themes and drawing on a team of CSC experts and select financial services and technology firms. Patrick spoke with CSC World about the quickly evolving financial services industry.
This report highlights the emergence of the connected consumer and the ensuing implications for financial services firms. What aspects of this transformation did you find surprising?
One of the most stunning aspects is the pace of change. We examined the impact of four major trends in the report: mobile technology, microfinance, media and data mining. The speed of consumer-driven technological change cuts across all four.
This speed is something financial services firms must grasp. A firm might spend months looking at an innovative idea, and then perform months of feasibility studies, months of implementation, pilots and final roll outs. Today at that pace an idea may well be obsolete or leap-frogged before it hits the street.
Consumer control is another important implication. Firms have said for years that the consumer is in control, but it wasn’t really true. Technologies now are making it possible for consumers to gain real control over the financial services process, forcing firms to engage on the consumer’s turf for the first time.
That leads to a third striking development, the need for firms to speak to consumers in an authentic voice. An authentic voice is not one that has been scrubbed by the legal department, whitewashed by the marketing department, and signed off upon by the chief executive. The way firms balance that need for an authentic voice with the need for maintaining compliance will be one of the great customer engagement challenges of the next few years.
What makes these issues important right now? What are the colliding forces that have created this nexus point?
We care about these issues now because incredibly powerful mobile devices are so embedded within the consumer lifestyle. This is driving change in consumer behavior with astonishing speed. The factors are feeding each other — the capability of devices, the acceptance of new forms of conducting financial transactions, and the sheer number of mobile devices that are in use. It’s almost a vortex of change.
Your report examined the impact of mobility in great depth. One issue we hear about repeatedly is the risk associated with mobile devices used for financial transactions. How realistic are those concerns and how will they affect the growth of mobile use in financial services?
A lot of people say mobile technology isn’t secure enough to use in financial services and I fundamentally disagree. They’re not comparing it with the right thing. Compare a mobile transaction with cash. Cash is insecure. Cash is almost untraceable. It is very easy to steal. It’s the most insecure thing possible.
Security on mobile devices is changing, and fast. It’s becoming harder to break the security. We’re starting to see the availability of multiple security mechanisms like CSC’s ConfidentIDTM Mobile, which establishes security through multiple layers of identification and authentication.
In advanced mobile devices, you’ll see security that goes beyond pass codes using a range of biometric authentication modalities. We don’t know which will be the most practical yet, but mobile technology is already far more secure than what we’ve had before and will become even more secure in the near future.
The report discusses the advent of the super card. Do you see a role for this type of device?
Compared to other transaction mechanisms, the super card is a comparatively new arrival. These are cards with capabilities almost rivaling that of a basic phone with digital displays and keypads. These could potentially act as a payment management tool, providing a bank balance, warnings if you reach a preset limit, and multiple accounts from different financial institutions, eliminating the need to carry a pocketful of cards.
The report discusses the tug of war between competing payment technologies, between super cards and mobile phone technologies. I think there’s a role for both types because payment preferences vary widely by country, culture and purpose.
Will firms need to implement something different on a country by country basis? Will there be a point where we reach a single payment system?
Maybe in 20 years we’ll be such a unified global village that our payment systems will have merged into a single form, but that’s well beyond the time horizon anyone is looking at right now. So there will be differences to contend with. Japan is far and away the largest user of NFC [near-field communication] phone payments. Kenya is leading the world in SMS-based payments with M-Pesa. Sweden may be the most advanced country moving to a cashless society, with stores in certain towns starting to refuse to accept cash.
To say one payment system will win out over the others would require more certainty than I or anyone else should have. Each country has a different kind of infrastructure to cope with payments, so the successful transaction technology will be the one that’s most convenient: and that’s going to vary by country based on the available alternatives and the transaction at hand.
The report examines the role of microfinance on the world’s financial future. How important is this trend and what’s the impact on financial services?
You can look at microfinance from an altruistic perspective and a hard-nosed capitalist perspective. It makes sense from both. From the capitalist’s perspective, microfinance is about a longterm investment that grows new markets for financial services. In the short to mid-term, the benefit of microfinance can be more altruistic, helping people gain a foothold out of poverty, directly affecting lives.
Microfinance isn’t a magic wand and we don’t want to misrepresent it. Citizens of developing countries face many challenges, and microfinance is just one tool to help them. But there is clearly huge value in both the near term and long term. If people have more money, they can break themselves out of poverty; providing accessible financial services is one of the tools to equip people with that ability.
What are the barriers that firms face in developing microfinance solutions, and how are they overcoming them?
Many barriers to microfinance have nothing to do with finance itself. Just one example is education. Many financial products are complex to understand. There’s no need for financial products to be complex. We can make them simple.
Low-cost tablets can have an impact. As soon as people have access to tablet technology, they have sufficient screen real estate to engage in financial education along with other learning opportunities.
Mobile devices are overcoming another barrier: distance. If you live a day’s walk from a bank, how do you establish a savings account? Even if you got to the bank, the cost of doing business would be so high, saving would be impractical. Today, phone-based savings accounts allow people to manage financial accounts from anywhere. Technology will never be the whole answer but it’s a big part.
You highlighted some facets of the connected consumer at the outset, but in the section of your report that discusses the impact of media, specifically, the Internet, what were the other aspects of this phenomenon that stood out to you?
We’ve known since the creation of the Internet that it provides consumers with knowledge. The connected consumer is one who uses the Internet to talk with others on a global scale and convert knowledge into power.
And by that I mean taking advice from other consumers, challenging the brands and banks if they don’t like the service they’re getting. That conversion of knowledge into power is an extraordinary shift that is unstoppable. Financial services firms used to act as interpreters, magicians almost, explaining things like pensions that few really understood. Now firms are acting as aggregators or executors because customers can go online and find out anything financial. This isn’t exclusive to financial services. It’s happened in many other industries.
Investments in social media are imperative. It’s easy to say “you need to get on Facebook.” The hard part is determining what conversation you’re going to have with consumers when you’re there and who will handle it. That goes back to the question of having an authentic voice.
The particular imperative for financial services firms is to address the new consumers coming to a bank for the first time expecting that level of engagement with the firm. No firm has worked out exactly how that is going to play out. That’s not a failure of anyone. It’s simply that this is moving so fast.
Will these factors make financial services easier to understand and to buy? Are we seeing more transparency as a result of mobile technologies and the influence of media?
We’re seeing financial systems turn toward greater transparency and simplicity, almost like a financial version of iTunes. But that begs the question: How simple can we make it? There is a certain sophistication of the products that defies simplification. Making a decision to invest in a Latin American fund versus an Asian fund is not an inherently simple decision.
That’s a great comparison. If financial services are as easy to buy as a song on iTunes, do you think it will diminish the discipline of investing?
There is a danger that too much simplicity can mask the sophistication of the decision. The consequences are low if I buy a Salt-n-Pepa tune instead of the Pink Floyd track I meant to buy. Financial mistakes are expensive. Accidentally putting money into the wrong fund can fundamentally affect my retirement. Perhaps in 10 years time we’ll be having the debate around making financial services that bit harder for consumers to purchase to force them to think through the consequences!
What impact are digital peer-to-peer (P2P) payments having on consumers and the financial services industry?
It’s absolutely huge. A genuine revolution. Everyone’s heard of PayPal. In China, everyone has heard of Alipay, which now has more transactions than PayPal because of the size of the Chinese market. Mobile P2P payments are becoming huge as well. Banks face a stark choice: engage in P2P payments or face disintermediation. Many firms are entering the payments value chain: Safaricom in Kenya, O2 in the UK, technology firms as illustrated by Google Wallet, for example. This is a value chain being broken apart by different players; you can join but you can’t stop it.
The report discusses the impact of mining as the fourth “M.” What is mining and how is it relevant to financial services firms?
We’re familiar with data mining, using large sets of structured data to answer specific questions. This is a capability many firms are still wrestling with as they try to respond to complex regulation. Now there are other types as well.
Web mining refers to posing questions to unstructured data sets. Google made data miners of us all. Consumers using search engines are constantly and almost unthinkingly creating sophisticated algorithms such as “Which bank account should I use,” or “Which insurance company has the best claims payout record?” Consumers can get good answers because they’re asking specific questions at one point in time. Web mining is a harder task for the firm that needs to have a continually updated view of those questions.
Then there’s a third development. Social mining reveals who is saying things about you, what’s being said about your firm on Twitter feeds, what discussions are taking place in online forums. This is huge. Firms can even start to adapt their product and service offerings based on what individual consumers are saying about them online.
The real revolution may come in what we term “society mining.” This is the concept of aggregating a whole range of data sources, public and private, that will help us understand the customer at an incredibly sophisticated level.
There’s a struggle to balance the interests of companies and consumers with respect to this type of data and privacy, but it’s clear that mining data and gaining new insights could be the most important theme of them all. Ultimately, perhaps the only barrier to a firm knowing anything they could ever wish to know about every customer they have and may wish to have in the future is a combination of data privacy regulation and access to the right technology. We’re not there yet. Will we get there? Leading this report has made me think we might.
Patricia Brown is director of content strategy for CSC’s digital marketing team.