CSC Smart Business UK Edition September - Connected consumers
Connected consumers
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 neighbourhood banks into international financial powerhouses.
Mobile devices are redefining the customer/bank relationship. Institutions are struggling to reconnect with customers and fending off challenges from new companies infiltrating value chains that they once exclusively controlled.
The Leading Edge Forum's report, "Connected Consumer and the Future of Financial Services," developed by Patrick Molineux, CSC's chief strategy officer for financial services, examines these changes in four areas: mobile technology, microfinance, media and data mining.
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 four major trends, and the speed of consumer-driven technological change cuts across all four. Financial services firms must grasp this; if they spend months studying an idea and performing feasibility studies, pilots and final roll outs, the idea maybe obsolete before it hits the street.
Consumer control is also important. Technologies are now giving consumers real control over the financial services process, forcing firms to engage on the consumer's turf.
That leads to a third development: firms must speak in an authentic voice, which is one not scrubbed by the legal department, whitewashed by marketing, and signed off by the CEO. Doing this while maintaining compliance will be one of the next few years' great challenges.
Your report examined the impact of mobility in great depth. One issue is the risk of using mobile devices for financial transactions. How realistic are those concerns and how will they affect the growth of mobile use in financial services?
Mobile devices are embedded in the consumer lifestyle and driving change in consumer behaviour with astonishing speed. Many believe that mobile technology isn't secure enough for financial services, but mobile device security is improving with the availability of multiple-layer security mechanisms like CSC's ConfidentIDTM Mobile. In advanced mobile devices, security goes beyond pass codes and uses biometric authentication modalities. We don't know which will be most practical, but security is constantly improving.
The report discusses the advent of the super card. Do you see a role for this type of device?
The super card has capabilities almost rivalling that of a basic phone with digital displays and keypads. It could act as a payment management tool, provide a bank balance, warn if you reach a preset limit, and access accounts from different financial institutions, eliminating the need to carry several cards. The report discusses the competition between payment technologies and how payment preferences vary by country, culture and purpose.
Will firms need to implement on a country-by-country basis? Will we reach a single payment system?
Maybe in 20 years we'll be such a unified global village that our payment systems will merge into a single form, but that's beyond the horizon now. There will still be national differences, but to say one payment system will win requires more certainty than anyone should have. Each country has a different payment infrastructure, so the successful transaction technology will be the most convenient. That will vary by country.
The report examines the role of microfinance on the world's financial future. How important is this and what's the impact on financial services?
Microfinance makes sense from an altruistic perspective and a hard-nosed capitalist perspective. To a capitalist, microfinance is about a long term investment that grows new markets for financial services. In the short to mid-term, it can be more altruistic, helping people out of poverty. Microfinance isn't magic. Citizens of developing countries face many challenges, and microfinance is just one way to help them.
What are the barriers to developing microfinance solutions, and how can firms overcome them?
Many barriers have nothing to do with finance; complexity is one example. There's no need for so many financial products to be hard to understand. We can make them simple. Low-cost tablets can help by giving people financial education.
Distance is another barrier. If you live a day's walk from a bank, how can you have a savings account when the cost of doing business makes saving impractical? But 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, specifically the Internet. What aspects of this phenomenon stood out?
Connected consumers use the Internet to talk with others, convert knowledge into power, and challenge services they don't like. That's unstoppable. Financial services firms used to be interpreters, explaining things (like pensions) that few understood. Now customers can find out for themselves online.
Social media investments are imperative. It's easy to say "get on Facebook", but harder to determine what consumer conversations you will have and who will handle them. Financial services firms must realise that new consumers expect that level of engagement.
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 to transparency and simplicity, almost like a financial version of iTunes. But how simple should we make it? Deciding to invest in a Latin American fund versus an Asian fund is not a simple decision.
If financial services are as easy to buy as an iTunes song, will that diminish the discipline of investing?
There is a danger that too much simplicity can mask the sophistication of the decision. Buying a Salt-n-Pepa tune instead of a Pink Floyd track is low risk, but financial mistakes are expensive and can affect our retirement. Perhaps in 10 years' time we'll be debating making financial services 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 industry?
It's a genuine revolution. Mobile P2P payments are becoming huge. Everyone's heard of PayPal, but in China, Alipay has even more transactions than PayPal. Banks face a stark choice: engage in P2P or face disintermediation.
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.
Web mining poses questions to unstructured data sets; Google made us all data miners. Consumers using search engines constantly create sophisticated algorithms like "Which bank account should I use," or "Which insurance company has the best claims payout record?" They get good answers because they ask specific questions. Web mining is harder for firms that need a continually updated view of those questions.
There's a third development. Social mining reveals who says what about you, what's Tweeted about your firm, what online discussions are taking place. Firms can even adapt their products and services based on what's said about them online. The real revolution may come in "society mining". This is the concept of aggregating a whole range of data sources, public and private, to help us understand customers at an incredibly sophisticated level.
Balancing the interests of companies and consumers with respect to this type of data and privacy is challenging, but mining data and gaining new insights could be the most important theme. Perhaps the only barrier to a firm knowing anything they could ever wish about customers 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? I think we might.
Learn more about CSC’s work in financial services