Innovation in financial services

Innovations in finance

Chris Skinner
www.thefinanser.com

What is innovation?
Innovation can be: Innovation in:
•Continuous •Product
•Disruptive •Service
•Process
•Ideas
•Technologies
Innovation ≠ invention
Innovation refers to the use of a new idea or
method, whereas invention refers to the creation
of the idea or method itself.
© Chris Skinner. All rights reserved.

“If we truly aspire to be leaders in the payments and securities
industries, why is it that so many innovations in this business
are pioneered by non-banks?”
Heidi Smith, JPMorgan
SIBOS 2004


Why we don’t innovate?

• Unproven business • No need
case – Barriers to entry
– Risk • regulator authorisation
• cost of capital and credit
– Fear
• IT investment
– ROI • getting customers to
switch
– Fast Follow


Q110 Forum offers tangible
financial services


Virtual Q110 closely reflects reality

Branding Architecture People


We have so many pilots,
we should run an airline


To truly innovate, you have to be committed
from the top-down


ING Café


“We don’t hire bankers, because bankers come
in with their DNA and they have their legacy
which won’t fit. Instead we hire dancers,
musicians and artists. People who can deliver a
great and different experience.”
Arkani Kuhlmann, President and CEO, ING Direct USA
BAI Retail Delivery 2008


• October 1989 - launch
• May 1991 - 100,000th customer
• March 1993 - 250,000th customer
• December 1994 - break-even
• April 1995 - 500,000th customer
• 2003 – 1 million customers
• 2012 – 1.16 million customers
– over 89% of customer contact is electronic (85% 2010)
– 950,000 of customers use Internet Banking (890,000 2010)
– 420,000 use SMS message banking (first direct sends around 3.5 million text
messages to customers every month)
– 44% of sales are via e-channels
• first direct has been in profit every year since 1995


Number of 90-day Active Users at the Top US
Online Banking Providers (Q2-2004)

Source: TowerGroup 2004

Online banking users Mobile banking users
•4.7m, December 2002 • Mobile banking services
•11m, July 2004 introduced in May 2007
•23m, November 2007 • 1m, May 2008
•30m, May 2011 • 6m, May 2011


Personal Financial Management (PFM)

• Over 25% of online users signed up for stand-alone PFM within 6 months
• Over 75% of new PFM users use PFM again within two weeks
• Over 25% of new PFM users use PFM five times or more in the first
month, and spend more than double the time in PFM compared to
general online banking
• The average time onsite is 12 minutes, with 35 pageviews per PFM
session
• More than half of all PFM users are still active a year after signing-up
• Over 80% of users are “pleased” or “highly pleased” with PFM
• 9 out of 10 users say they’d recommend PFM to others
• 66% say PFM has helped them see how they can improve financially
• 41% say they have improved financial behavior after starting to use PFM


PFM

• Active PFM users have increased the total number of Íslandsbanki
accounts (current, savings, credit card) by 19,4% on average after using
PFM for 1 year. Other groups show no or slight increase only.
• Active PFM users have increased Íslandsbanki transaction volume by 4,5%
on average after using PFM for 1 year. Other groups show no increase.
• Affluent customers are significantly more likely to use and be pleased
with PFM than other groups
• There is also evidence of significantly improved retention of PFM users
with 71% of users saying that Íslandsbanki‘s PFM offering increases their
loyalty


Why should we bother with
disruptive innovation????


2002: Bought by eBay for $1.5 billion, with revenues at $200 million
2005: Revenues reach $1 billion
2008:
• Purchases made outside eBay > on eBay
• PayPal provides 28.2% of eBay revenue, up from 24.8% a year before.
2009:
Q1 revenues $645 million, up 11% YOY; Q2 $669 million, up 11% YOY;
Q3 $688 million, up 15% YOY; Q4 2009: $796 million, up 28% YOY
Transactions exceed $20 billion per quarter for the first time

Q4 2008: 70 million active users, an increase of 23% year-over-year.
Q3 2009: 78 million, up 19% YOY

2009: Mobile transactions up from $24 million in 2008 to $140 million
2010: >$75 billion transactions, >$3 billion revenues, $1 billion profit

Q4 2011: PayPal has more than 106 million active registered accounts and is available in 190 markets;
revenues over $1.2 billion, growing 28 % YOY, and annual revenue was $4.4 billion, processing
$118 billion of which $4 billion was on mobile

• It took radio 38 years to
reach 50 million listeners.
• Terrestrial television took 13
years to reach 50 million
users.
• The internet took four years
to reach 50 million people.
• Facebook took two years to
reach 50 million users.
• The iPad reached 50 millions
users in just 18 months.
• 25 billionth app was
downloaded from iTunes in
February 2012 after just
three and a half years

• Every second, four people are
born globally and 32 phones
are sold
• Of the world’s 4 billion mobile
telephones, 1.08 billion are
smart and 3.05 have SMS
messaging
• By 2014, mobile internet usage
will exceed desk-based usage
• 86% of mobile internet users
do so whilst watching TV
• 2/3rds of mobile interest users
shop on their phone


• Processing $11 million a day in
November 2011, up from $4
million a day in July 2011
• Processing $4 billion in payments
volume per year March 2012, up
from $2 billion in October 2011
• Over 1 million merchants (8m
accept credit cards in the US)
• $100 million invested in 2011 by
Sir Richard Branson, Kleiner
Perkins, Visa and others, bringing
total funding to $168m for a
valuation of over $1 billion


Opus Research predicts that the global number of registered voiceprints will
increase from 10 million today to over 25 million in 2015, and much of this will
be driven by the payments markets.

2011


This is innovation


• Address a clear need • Launch from a fresh
• Find the voice of the start
customer • Find the data if needed
• Adopt an outside-in – innovation from legacy is
approach only possible through
good analytical detail to
• Develop a clear vision identify how the
• Ensure top-down innovation changes the
commitment traditional business
model
• Focus upon customer
• Have a strategy for
experience
continual
• Invest in staff differentiation
engagement if they are
• Build the right team to
to engage the customer
implement

It is better to have tried and failed,
than to have failed to try.

Barclays Bank / Barclaycard

• first credit card in the UK in 1966
• first loyalty scheme in 1986
• first to accept online bill payments in 1997
• first to introduce contactless cards in 2007
• first to introduce mobile contactless in 2011
• crowdsourcing customer views with Barclaycard Ring in
2012
• first to introduce C2C payments with Pingit in 2012


Innovators do win more business

From: Go Getter, innovator To: Entrepreneur, CEO
I’ve been thinking about our banking relationship with ABC Bank,
and would like to seriously consider changing banking partner.
ABC do not strike me as interested in innovations for consumers
or businesses. I get the impression that of all the banks, Barclays
are the ones with the most ‘innovation’ in terms of services and
applications – they launched the PingIt app very recently, for
example, and I also know from our BACS software suppliers that
Barclays do more for small-medium sized businesses. Both of
our competitors are with Barclays – perhaps they have a desire
to take on innovative businesses as part of a drive to be the most
forward-thinking.

Innovation in financial services

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