Will Bitcoin Bury the Banks?

Laptop

Think of it as the Bank for Humanity.  The Bitcoin protocol is the genie that has left the bottle never to be contained again.  Enormous decentralized businesses will be created out of this protocol that will change the landscape of global business forever.  A new cycle of disintermediation has begun and all existing business must adjust or they will be marginalized.

Bitcoin at its most fundamental level is a breakthrough in computer science – one that builds on 20 years of research into cryptographic currency, and 40 years of research in cryptography, by thousands of researchers around the world.  In its’ youthful history it has been attacked relentlessly and shown its’ resiliency repeatedly.

In the simplest of terms, think of a Bitcoin as currency melded with a public stock certificate of a fast growing startup. Think of it as owning a share of Facebook rather than a dollar, but you can electronically spend a bit of your share and buy a hamburger. Your remaining Bitcoin fraction can continue to appreciate even when pieces of it are spent. 

While the concept of Bitcoin may be hard to comprehend for those without a fundamental understanding of cryptography currency, bonds and banking, there are a few points that prove Bitcoin has the edge over banks.

Bitcoin is a Peer-to-Peer Network

The beauty of a peer-to-peer federated system (such as the one Bitcoin uses) is that it cannot be shut down because it does not rely on a hub.  Think Napster vs BitTorrent.  You can shut one down and not the other.

Bitcoin is an OpenSource project consisting of charitable contributions from developers who receive acknowledgement, peptides for their receptors and the knowledge that their valuable skills are contributing to something meaningful in addressing human need. In fact, Bitcoins add economic incentives to the equation making it even more compelling to create the building blocks of a new era in business.  Unlike banks, Bitcoin exists as a network that rewards users who contribute to the network by managing the Blockchain, by adding the newest Bitcoin “Block” to the distributed ledger and for providing the physical servers composing the network that processes the transactions of a global digital economy.

Bitcoin is not Subject to FIAT Manipulation  

All national currencies in circulation, issued, and managed by respective central banks are FIAT currencies.  Collectively, the banks have manipulated FIAT currencies by creating and printing additional money to create cycles of opportunity, which has led to debilitating consequences and even war. The network rules for Bitcoin are that a maximum of 21 million Bitcoins will be created.

The very fact that Bitcoin was designed to have a maximum number of bitcoins is part of the scheme that protects the Bitcoin currency from  the kind of manipulation that other FIAT currencies have experienced. The banks and especially our central bank are continuously  counterfeiting our currency and lending 10 to 300 times the actual reserves they have.  Even the reserves are nothing but government debt.

Bitcoin has Minimal Fees  

Of the world’s population, nearly 5 billion of the 7 plus billion people have no access to a competent banking system. They pay exorbitant fees (upwards of 10 to 40 percent) for simple transactions and Bitcoin holds the promise of doing the same for a micropayment sized fee.

Nearly 6 of the 7 billion people across the globe have access to mobile technology and live in countries where the local currencies are not investment grade or trustworthy. This underbanked population has every reason to feel that it would be better served by a trustworthy electronic cryptocurrency like Bitcoin. By eliminating banks as an intermediary from the consumer end of the equation it will take out the commissions and fees we are currently subjected to.

Bitcoin Has Fraud Protection 

Bitcoins manifest themselves only in digital form, as a pair of private and public keys, existing entirely as zeros and ones. To make generation of Bitcoins difficult, the Hashcash cost-function is used which allows Bitcoin blocks to be verified only by assembling the public and private key. The complexity of the design also carries with it foolproof features that prevent any duplicity in bitcoins and provide infallible protection to the integrity of the transaction between participants.

For example, unlike credit cards a Bitcoin transaction can not be fraudulent and needs no security provisions. All the fraud detection and call centers that support traditional banking and credit card processing are eliminated with Bitcoins and merchants (as well as consumers) will have exponentially less costs involved in all transactions.  Also, It would be impossible to end up with the 130 million compromised credit cards that Target and its’ customers experienced.

 

Andrew Flip Filipowski Silk Road HeadshotSilkRoad Equity Chairman, Andrew “Flip” Filipowski, is one of the world’s most successful high-tech entrepreneurs, philanthropists, and industry visionaries.  The former COO of Cullinet, the largest software company of the 1980′s, was also the founder and CEO of PLATINUM technology, inc. Flip grew PLATINUM into the 8th largest software company in the world at the time of its sale to Computer Associates for $4 billion dollars, the largest such transaction for a software company at the time. Upside Magazine named him one of the Top 100 Most Influential People in Information Technology. A recipient of Entrepreneur of the Year Awards from Ernst & Young and Merrill Lynch, Flip has also been awarded the Young President’s Organization Legacy Award and the Anti-Defamation League’s Torch of Liberty award for his work fighting hate on the Internet.  And proud to admit that he has a screwed up a business or two, royally.

What We’re Reading: U.S. Postal Service, Alerts, and Voice Recognition

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

  • U.S. Postal Service Should Offer Loans, Bank Products, Agency Says

American Banker

Washington — The U.S. Postal Service should consider fixing its massive budget shortfall by offering financial products such as debit cards, remittances and loans to underbanked consumers, according to a paper issued Monday by the agency’s Office of the Inspector General. The white paper said the beleaguered Postal Service could raise approximately $8.9 billion in additional revenue and reach potentially 68 million adults by offering such products, including international money orders and transfers.

Read more 

  • Cisco Research Reveals Web Threats Escalating While Mobile Attacks Are Still Rare

Credit Union Journal

The cyberthreats companies faced were greater in 2013 than in any of the previous thirteen years, mobile malware is much less of a threat than anybody thought it would be, large company websites have formed a bad habit of connecting to questionable websites, most web exploits target Java, and hackers are making excellent use of cloud computing — these are a few highlights of Cisco’s Annual Security Report. The report is compilation of observations and numbers from the security intelligence and operations group within Cisco. This includes daily reviews of 16 billion web requests, 93 billion e-mails, 200,000 IP addresses, 400,000 malware samples, 33 million endpoint files and 28 million network connections.

Read more

  • Ex-Googlers’ Startup Shape Turns Hackers’ Code-Morphing Tricks Against Them

Forbes.com

Shape’s CEO Derek Smith (left) and VP of strategy Shuman Ghosemajumder, who once fought click fraud at Google. In late January a team of entrepreneurs out of Google and the defense world unveiled a startup called Shape Security. The 58-person Mountain View, Calif. company sells a pizza-box-size appliance called a ShapeShifter that plugs into a company’s network and obfuscates the code behind the customer’s website. It replaces variables with random strings of characters that change every time a page is loaded, all without altering the way the site appears to human visitors. This trick, known as polymorphism, makes it vastly more difficult for cybercriminals to use automated tools to crack passwords, scrape content from thousands of sites or use malware-infected PCs to spy on victims’ online banking.

Read more

  • Listen to the Voices of Customers About Alerts That Matter

Javelin Strategy & Research

A potential example came to light this week during a Javelin webinar for Financial Alerts Forecast 2013: Security + Personal Finance = ROI, a report in which I call for banks and credit unions to expand the content of alerts in order to initiate regular “conversations” that provide compelling information, insight, and advice as customers bank, shop, buy, borrow, save, and invest. To start a discussion about financial alerts that consumers value most highly, we asked the nearly 50 attendees who work for banks, credit card networks, technology vendors, regulators and other industry players to identify which of five alerts U.S. consumers rated the most valuable. About 40% of the attendees selected alerts that notify customers of unusual transactions based on their purchasing behavior, with an additional 31% picking alerts that would warn customers when they’re at risk of overdrawing an account.

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  • Wells Fargo tests mobile banking voice recognition

Mobile Payments Today

Wells Fargo is testing voice recognition for use in mobile banking, according to The Charlotte Observer. The newspaper reported that Wells Fargo began the technology in its mobile banking app with employees using their real bank accounts in summer 2013. Brian Pearce, Wells Fargo’s head of mobile technology, told the newspaper that the bank doesn’t yet have a timeframe for rolling out voice recognition to its 12 million mobile banking customers.

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  • The Billion-Dollar Fintech Club (private companies)

Net Banker

Made it (recently went public/acquired): Xero, the New Zealand-based cloud accounting company, is valued at US$4 bil on NZ market. Qiwi PLC, the Russian payment giant, went public in May 2013 and is currently valued at $2 bil (Nasdaq). Lifelock went public in Oct 2012 and is currently worth $1.8 billion, it recently acquired Lemon to bolster its mobile identity protection services. Trusteer, the online security company, sold to IBM for $1 billion in 2013. Climate Corp (formerly Weatherbill), a weather insurance play, sold to Monsanto for $930 mil in Oct 2013 after raising $107 mil (Forbes). Braintree sold to PayPal for $800 million, $200 mil shy of the “club,” but not too shabby.

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  • Now T-Mobile Wants To Shake Up The Banking Industry

ReadWrite

T-Mobile’s biggest goal over the last year has been to disturb the roost that rival U.S. carriers have been sitting comfortably in for years. By eliminating carrier subsidies, creating new payment plans for smartphones and allowing customers to upgrade their smartphones more frequently, its competitors—AT&T, Verizon and Sprint—have all raced to match or exceed T-Mobile’s offerings. T-Mobile announced Wednesday that it is getting into … personal finance. Called “Mobile Money,” T-Mobile’s new program is designed to disrupt the finance industry’s model of forcing people to pay to manage their own money via check cards, bank accounts and other fees.

Read more 

What We’re Reading: Unbanked, Twitter, BYOD

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

 

  • Gruenberg: Cell Phones May Hold Key to Access for Unbanked

American Banker

The Federal Deposit Insurance Corp. plans to issue a report next year exploring whether cell phones could help draw consumers not served by a bank into the mainstream financial system, the agency’s chief said Thursday. “We want to take a hard look at this issue from the perspective of economic inclusion to try to assess what the potential is here in a careful way of using this technology to expand access,” FDIC Chairman Martin Gruenberg said at a conference hosted by the Consumer Federation of America.

Read more 

 

  • New Twitter Rules Stymie Credit Unions From Promoting Themselves

Credit Union Journal

New rules from Twitter have thrown a wrench in the social media works for some credit unions that want to use promoted posts to break through the clutter and highlight their offerings on the popular social networking site. Peach State FCU entered the social media realm in October with Facebook and Twitter profiles, using promoted posts on each site. (A promoted post pays the site to expose the tweet or post to a larger number of users.) But a recent change to Twitter’s rules sometime in November has shut out some credit unions from using this common business marketing practice. “We had some luck with Twitter in October doing promoted tweets and promoting the account as a whole,” said Meredith Olmstead, founder and social media marketing consultant at Social Stairway, who is serving as a social media consultant for Peach State.

Read more 

 

  • Mobile Wallet Collaboration Crucial for CU Success

Credit Union Times

A mobile wallet will only be successful if members adopt and consistently use the app to conduct daily transactions. Ultimately, merchants will play a critical role in the success or demise of each mobile wallet solution. Forging mutually beneficial relationships with merchants, navigating the various merchant requirements including point-of-sale technology preferences and negotiating pricing agreements can be a daunting, if not impossible,  feat for an individual credit union to accomplish, regardless of its size or resources.

Read more 

 

  • NAFCU – Strategic Growth Conference

The Financial Brand

According to data from FindABetterBank, consumers who are specifically interested in mobile banking services are very likely to believe they’ll bank 100% virtually in the future. While fewer banking “traditionalists” (those using checks, for instance) see an all-digital future, it’s still a healthy percentage — nearly two-thirds.

Read more

 

  • Security and BYOD policy management key barriers to corporate mobile banking

Finextra

Corporate treasurers cite security challenges and bring-your-own-device business policies as the key obstacles to wider uptake of mobile banking platforms for treasury activities. Of 135 finance and treasury professionals collared by Capital One at the annual Association for Finance Professionals (AFP) gathering, barely one-in-three used a corporate mobile banking platform. Security challenges with sensitive corporate data was cited as the primary barrier to widespread adoption (66%), followed by obstacles for companies figuring out their BYOD policies (24%).

Read more

 

  • Banks Face Losing To Google And Amazon, While Shortchanging Corporate Clients

Forbes.com

Two strong critiques of banking in the Financial Times today. Francisco Gonzalez, CEO of BBVA bank, writes that banks can expect competition from Amazon, Google and Facebook. BBVA is based in Spain but owns BBVA Compass in the U.S. Goonzalez writes that technology has transformed many businesses — next in line is banking. That may come as something of a shock to bankers who think they are on the cutting edge, but Gonzalez points to competitors in providing financial services including PayPal, Square iZettle, SumUp and Dwolla.

Read more 

 

  • Email Design: Discover Card’s “Statement Available” Message

Net Banker

Most statement alerts are simple one liners asking the user to do all the work: login, find the right tab, click on the correct button, and so on. Discover, on the other hand, positions key summary information right within the body of the email: statement end date, statement balance, credit available, minimum payment due, and due date. The company includes a button to view the statement at the top, but somewhat buries the payment link near the bottom. Analysis: This is one of the better (maybe best) statement-available message I get from the major brands. But it could still be improved

Read more 

 

What We’re Reading: BAI Retail Delivery, Banking Trends, Innovation

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

 

  • The Case for Keeping Mobile and Online Banking Separate

American Banker

Some people expect to be mobile-first customers.  To date, however, many banks require customers to first enroll in online banking – partly due to security and compliance concerns, partly due to integration challenges. Even so, some banks are separating mobile from online.  U.S. Bank, for one, already lets people enroll in mobile directly and activate some services without needing additional online setup. (The bank also offers imaging technologies that simplify the deposit and payment process, including mobile photo bill payment).  “Experience is king,” said Chris Peper, U.S. Bank’s vice president of mobile channel management.

Read more 

 

Bank Systems & Technology 

  • Mobile Banking Best Practices Highlighted at BAI

Several leading banks shared some of their experiences, challenges and lessons learned at BAI Retail Delivery 2013 today at a panel discussion titled “Mobile Influencers: Lessons Learned, Mobile Today, Mobile Tomorrow.” Some of the key themes that emerged from the discussion included the evolving relationship between online and mobile banking, the growing value of mobile check deposit and the use of mobile coupons and shopping offers.

Read more 

 

  • Banks Should Act Like Startups When it Comes to Innovation

Bank Systems & Technology

A session at BAI Retail Delivery 2013 emphasized creating new ideas and having deep customer empathy. When it comes to pursuing innovation, banks need to adopt the mentality of a startup. That was the theme of a session titled “Creating an Innovation Framework that Works” at BAI Retail Delivery 2013 featuring Nicole Lorch, SVP Retail Banking at First Internet Bank and Jeff Lauterer, Leader, Product Operations for online banking services provider Digital Insight.  According to Lauterer, innovation occurs in any industry not just by creating new products, but by tweaking existing products in such a way that demand increases so much a company needs to hire extra employees just to handle that product. He cited Taco Bell’s “Taco Loco” — a recent addition to the fast food chain’s menu featuring a Dorito as a taco shell — as one prime example of this. “Innovation can happen anywhere,” Lauterer noted. “The key is bringing in a culture of innovation that is sustainable and continuous.”

Read more 

 

  • Mobile banking without a phone: Here comes the bank van

Christian Science Monitor

With the rise of tech-driven banking in developing nations, why is this rubber-to-the-road method of reaching customers gaining traction? In Uganda, many of the rural unbanked still prefer the physical presence of a banker, even though they have access to the technology for mobile banking. “The market reality is that people want bank services closer,” according to Tonny Miiro, managing director of Uptime Solutions Uganda, one of the banks in Uganda that is using vans to reach more far-flung residents. “That is what we are doing. It is important that government comes up with more policies that call for more inclusive bank services provided by financial institutions, as there is demand.”

Read more

 

  • Google Data Reveals 2013 Banking Trends

The Financial Brand

Seven years ago, practically no one searched Google for anything related to mobile banking. And then… the iPhone came along. Now consumers see smartphones as an integral part of the financial toolbox. Consumer interest in mobile banking is climbing at a sustained 30° angle, with no signs of letting up.

Read more 

 

  • Are mobile wallets being made by the wrong people?

Finextra

The leaders in mobile wallet technology? Undoubtedly retailers. Starbucks and McDonald’s are already building these wallets in response to customer demand.  But with mobile wallet use predicted to rise in 2014, should banks or mobile operators—who are better positioned to offer levels of security customers expect—be building them instead? The challenge is that the business case for building a mobile wallet shows little direct financial benefit on its own to a bank or MNO (mobile network operator), while a retailer can leverage the wallet to drive loyalty.  But there’s actually no reason why banks should ignore the potential gains that will come from customer spending data and loyalty programmes that can be launched based on this information.

Read more 

 

Digital disruption: Are banks ready for the upcoming challenges?

In all spheres of the banking industry, that one thing that is inherent in them all is the risk and coming challenges for banks – digital disruption. No matter on what topic of banking one discusses such as revamped branch banking or incorporating the voice of consumer and employee, in more ways than one he or she will actually refer to the digital disruption trend that is giving birth to many of those opportunities and challenges.

In all these years, it has already been witnessed, how digitally-driven industries can succumb to disruptions like television, newspapers and publishing. More, those same disruptions in some tangible ways have affected the financial industry as well – much earlier than anticipated. This has laid bare the fact that a lot of financial institutions are yet to prepare themselves for the scope and intensity of the impending disruptions.

As far as technology is concerned, organizations across the world have taken huge and applaudable steps. For instance, fast moving consumer goods (FMCG) companies have created Facebook pages, media houses have replaced their source of revenue from print to that of digital one. There is lot to learn for the banks and other financial institutions from these business practices.

Still, these accommodations to capture newer digital realities account for only a fraction of the shifting value. Its pretty difficult to coerce big business organizations to incorporate greater amount of digitization in the way they participate in their respective markets. This is all the more challenging since nobody can confirm from exactly where and when would the next disruption come.  

However, not acting in the living present and lying inert would do more harm than good. This is due to the fact that digital disruptions don’t just devastate evolving technologies, but also how people use various technological devices and platforms. Actually, technological advancements have not only revolutionized the content that are shared, but they’ve also actively started to shape up the manner in which people interact with one another across the continents.

Every little bit of data – like search queries, telephonic conversations, mails, etc – that are exchanged get stored by the help of various technology tools. These tools are such that they can produce as well as utilize information to enhance the different platforms/devices of data exchange. However, the risk of operational setback remains. This would particularly happen because of the large-scale proliferation of data, channels and tools that are active participants in building relationships.

A lot of commenter have notified about the exponential rate of adoption in terms of mobile connectivity. Still, they fall back in talking about the possible implications of such uncontrolled growth of mobile connectivity usage. Even though a part of the global population has been able to take advantage of seamless connections at time and places of their choice, and that many of them think that they’ve experienced disruptions caused by the proliferation of technology, yet in reality they haven’t, not even a bit of it.

Hence, enterprises will have to battle out two-pronged pressure – one from the consumers and the other from the technologists that would direct them to transform themselves. Due to this fact, enterprises will have to understand how they would innovate newer services, control complexity of their systems and risks, connect with their consumer and so on. All these business requirements will depend on how well an enterprise understands the new relationship created by digital disruptions.

Yet, the giant leap will center around general acknowledgement which the banks must respond to. Major changes are about to come, driven by the consumers who feel elated and consider themselves as empowered through new technologies. So, what do these changes imply – a transformative opportunity or an inherent threat? The answer to this question would depend on how efficiently an enterprise can come to terms with digital disruptions.

 

Stuart Parker is an contributory writer .He is also a financial advisor and guest author for acclaimed blogs. Stuart has been writing for more than five years and helping people to get wise with their money. His interests include attending financial seminars, writing columns related to debt settlement, Debt relief, Debt help and visiting personal finance blogs.

Creative Social Media Solutions for Banks

Most banks and financial institutions have a Twitter feed and a Facebook page, but not every bank is employing those social media options in the most effective way. Customers won’t pay attention to a Twitter feed just because “it’s there,” and they won’t befriend a Facebook page simply because an advertisement compels them to do so. Even a staid business like a bank needs some creativity in the realm of social media.

Here are some tips to make social media work for your financial institution.

1. Use Social Media for Research

Social media is not a one-way street, and banks can learn from what their customers say to and about the financial institution on Facebook pages. 1st Mariner Bank, a small bank in Baltimore, Maryland, decided that it would use social media to query its customers about bank features and needs.

Instead of conducting sessions with focus groups, 1st Mariner asked the entire internet what it could do better. Through questions posted on social media pages, the bank was able to determine that it needed to provide a better banking experience to teenagers and parents.

2. Expand Customer Service Options

Social media is all about the engagement and responsiveness of the bank with its customers, and the immediacy of social media like Twitter offers customers the satisfaction of quick answers to problems.

Although the information shared on social media by a bank must be controlled in such a way to ensure security and privacy, the medium remains a reliable option for communicating with customers about their problems. Bank of America recently set up an active Twitter account that took some time to develop, but which eventually turned into a valuable outlet for customer service queries. Other merchant and review sites are also using Twitter as the go-to source for customer interaction.

3. Partner with a Popular Entity

United Kingdom-based Barclays Bank took note of the popularity of football (that’s soccer to Americans) in the country and decided to buy into title sponsorship of the country’s Premier League. Out of this sponsorship came an incredibly popular Twitter feed where the bank started to offer timely updates on what was happening with the professional football league.The feed swiftly gained over a hundred thousand followers, and Barclays was able to fortify brand recognition through Twitter. Each time a fan would see a Twitter update on the football feed from Barclays, he would see the Barclays Bank logo.

There is no doubt that social media propels advertising today, but it may also help a bank to improve customer service and create personalized relationships with its depositors and customers. Today’s customers are on the internet, and it is essential for banks to be inventive and resourceful with their social media campaigns.

A bank shouldn’t see social media as a simple advertising machine but rather a conduit for the exchange of ideas with customers.

Tanner M is a web specialist and entrepreneur and runs Multiple Streams, a site about helping people with their personal finances. Tanner also writes for TopTenReviews.com.

Infographic: Top National Banks on Social Media

The financial services sector may have been slower to adopt social media, but in the past few years, many of the top banks have not only embraced social, but amassed a large following. ViralHeat compiled data on large national banks using social media to see who has the strongest social presence. The breakdown is highlighted in the infographic below.

Top National Banks on Social Media

by Viralheat.
Explore more infographics like this one on the web’s largest information design community – Visually.

 

The Industry Is On A Rebound (Maybe)

It’s official: Our industry is back with a vengeance.

For the first time since credit debacles entered the headlines toward the end of the last decade, financial services companies are seeing the fastest earnings growth in the S&P 500, and potentially preparing to become the market’s biggest vertical industry. (For the record, according to Bloomberg, the technology sector still leads with 17.6% over 16.8%.) But guess who’s got the momentum.

That’s what’s happening at the top of the ladder. Further down, it’s a slightly different story. Every company and every professional working in it is acutely aware that huge changes are taking place, the whispers of unease are getting louder. Some of the concerns got publicly expressed at the American Banker and Bank Technology News’ seventh annual Mobile Banking & Commerce Summit earlier this summer.

To be clear, the industry as a whole has reason to take pride in its accomplishments thus far: exceptions notwithstanding, financial services institutions have been in the forefront of adopting innovations ranging from documents imaging to social media integration. Yet there remain some uncomfortable questions: Do even the sweeping changes go far enough? And are some institutions being left behind not through any lack of desire but because they don’t have the resources to overhaul their infrastructure?

A new report from Javelin Strategy & Research provides a startling view of the scope of the changes taking place, and the breadth of the adjustments needed to keep up. We all know that digital interaction has radically transformed banking practices, but the numbers still come as a surprise: Javelin says “88.5 million Americans attempted to open an account online or with a mobile device in the past 12 months,” but emphasizes that the full market potential remains mostly untapped.

It’s not just about the technology, of course. The truth is that the ubiquity of digital apps, both mobile and otherwise, is fundamental redefining what we know as ‘personal banking,’ and this revolution-as-evolution still has the market ahead of the industry. In other words, the changes may run deep, but not deep enough.

Take mobile, by most accounts the single greatest area of change. Despite the staggering numbers cited by Javelin, it’s also estimated that there’s a glass ceiling of 15% to 20% for mobile adoption among online banking customers. This isn’t because not enough customers have smartphones, or don’t wasn’t to use them—as with many other uses, there’s an initial resistance (particularly when there’s money involved) followed by an inevitable shift. Instead, it’s at least partly because at least some institutions, even those that may have devoted considerable resources to the effort, haven’t done their part.

In this context, “Consumers and Mobile Financial Services 2013,” the study released this spring by the Federal Reserve, is worth another look for gauging where we are in the move to mobile. There, too, we see a similarly substantial gap between adoption and practice.

Again, the industry seems to be doing fine—in particular, banks, brokers and insurance companies are posting much better numbers than they have in a while. But putting the broad brush aside for a minute, it’s also clear that the market is moving faster than some of us are, and in the long run that could be a huge problem for everyone.

 

FI Spotlight: Pan American Bank

Pan American Bank

Banks and credit unions are making headway building their own social media presence and with the influence of the Federal Financial Institutions Examination Council (FFIEC) are beginning to determine how their activities fit into company policies. Financial institutions looking to go social have a bevy of resources to learn from, whether listening to webinars from experts, talking with lawyers familiar with the guidelines or hearing from other members of their community.

For our latest FI Spotlight, we touched base with Jesse Torres, President and CEO of Pan American Bank in Los Angeles, California. Jesse recently posted an instructional video for bankers and directors on social media. To learn more, Jesse provided further insight to Banking.com on his experience with social media at Pan American.

Jesse Torres - Pan American BankQ: You seem to have a great perspective and experience with social media? How did Pan American Bank build its social channels, and what was your general philosophy?

Pan American Bank began using social media in late 2009 in response to the backlash against banks. As a conservative community bank, Pan American Bank never participated in subprime lending and other questionable lending practices. However, due to the broad and sensational messaging delivered by the media, Pan American Bank and other community-focused banks were painted with the same brush as those that violated public trust through questionable lending practices. Social media provided Pan American Bank with the platform to tell its story – one person at a time.

Through social media, the bank has been able to demonstrate its commitment to the community and other stakeholders. Social media is a tremendous tool for “personalizing” the institution and creating a venue for honest and transparent two-way communication.

While Pan American Bank maintains a presence on Twitter, LinkedIn and YouTube, it has chosen to focus the majority of its social media resources on Facebook. Facebook was chosen due to its broad adoption (over 1 billion worldwide users) and its mix of tools (e.g., status updates, video, photos, the ability to create and host events). These factors allow Pan American Bank to maintain an ongoing relationship with stakeholders using information in a variety of formats.

Q: What’s your best piece of advice for a financial institution just beginning to establish their social media presence?

Institutions need to realize that social media is now a regulatory hot button. During the past five years social media has transformed from an emerging technology to a mature technology. Many institutions now believe that it is time to incorporate social media into their strategy – perhaps due to having greater familiarity with the technology or because of competitive pressure. As such, the social media space is becoming increasingly occupied by financial institutions.

Regulators have noticed the growing trend but, until recently, have been unable to focus on social.  As the industry recovers and as fewer banks risk failure, regulators are returning to business as usual. Any institution pursuing social media must become adequately familiar with the regulatory expectations – governance, policies and procedures, third party due diligence, training, content monitoring, audit, and board reporting. At a minimum, institutions should address social media through a risk assessment, policy and training.

Q: What’s one unexpected difficulty that banks can prepare for when developing their social media policies?

The main challenge in developing a social media policy is the governance structure. Contrary to what many may believe, social media risk is not a technology risk. It is a human resource risk. The dangers involved with social media do not involve malfunctions of technology or similar events. The dangers arise from employees being poorly trained and unintentionally creating risk for the institution. As such, the governing individual or body should have sufficient influence to require adequate employee training. This fact is many times lost as social media is often assigned to the IT department rather than to a department with broader human resource training capabilities. Ideally, due to social media’s broad impact of an organization (compliance, legal, sales, marketing, information technology, etc.), an appropriate governing structure should include a cross-departmental team.

Q: What do you see as the next trend for financial institutions on social media?

While adoption has increased over the past five years within the banking industry, the recent January 2013 FFIEC draft social media issuance and pending final regulations will slow adoption as the regulatory process works itself out. Once adoption resumes, financial institutions will increase their use of social media as a customer service channel. More progressive institutions, with greater risk appetites, will consider its use in completing financial transactions (think Chirpify). Others may utilize the platform for underwriting, using the social networks as an indicator of credit risk (good credit risks beget, or befriend, good credit risks). However, most institutions will limit its use to community building and brand differentiation due to their conservative nature and the rise of hacking incidents of both bank and social media platforms coupled with regulatory skepticism over the security afforded to bank customers through social media channels.

Want to hear more from Pan American Bank? Follow them on Facebook.

Think your FI deserves special recognition? Submit your FI here.

Caught Between Custom And Commodity

At a time when bank branches are disappearing with regularity and there seems to be more consolidation at the corporate level (though that isn’t necessarily the case), the head of the Office of Fair Trading (OFT) in the U.K. has a major problem with the industry. He thinks the market needs more banks.

Speaking to the Parliamentary Commission on Banking Standards late in January, Chief Executive Clive Maxwell didn’t stop there. He stressed that the market needs more banks to make the industry more competitive and focus more closely on the customer. Established institutions, he reported don’t engage customers enough because they don’t need to.

The 40-year-old OFT had its powers expanded in 2002 through an act of Parliament, but even earlier its word carried some weight. That’s why a pronouncement like this sparks an unlikely thought: If the government doesn’t think an industry is being well served by its players, should other players step up? Or is that a sign that they should stay away?

Here’s a different way to look at the same problem. As the plethora of online and mobile services hitting the market every week makes clear, retail banking just ain’t what is used to be.

As we’ve occasionally examined in this space, there are certainly alternative models emerging, but the reality is that the Internet is the great equalizer. The array of tools and apps available from every bank in every geographic market essentially makes it easier for every customer but harder for the bank to create differentiators.

The charge that banks aren’t “engaging” their customers enough is particularly strange in this regard. Isn’t that exactly what the blizzard of technology-enabled services offers? The truth is that mobile apps and other online services, many of which feature more customization and convenience than was ever possible before, represents an unprecedented level of  engagement.

Here’s what might be considered the flip side of the equation. A blogger recently wrote about finding an old piggy bank he used to store the dimes he collected in his younger days. The dimes he found amounted to about $30; the piggy bank itself, by his estimate, cost $10. That got him pondering a ‘piggy bank’ test that evaluates the charges each bank’s customers incur, and whether they’re worth the price.

The OFT chief had a lot to say about this aspect too. He speculated that banks sell customers various products they don’t understand or even need, and drive up charges in the process.

There’s no clear bottom line here. Online or otherwise, banks will offer ever-greater customization and convenience, because in a free market, that is exactly what they should do. Services that are ultra-customized are by definition not for everyone, but that doesn’t mean the bank is giving customers services they don’t need. And of course, more banks will mean more services, not less.

We’re in the midst of a groundbreaking transformation for the banking industry. In a sense, we’re caught between two extremes—greater customization for the customer, possible commoditization (perish the thought) for the company. With new APIs and mobile devices coming down the pike, we’re actually going to see a spike in new apps. Some customers will appreciate that, and maybe some regulators possibly won’t.

So how will banks distinguish their offerings? How will customers react to new services giving them capabilities they never thought but like (and will have to pay for)? What will regulators have to say about it?

It should be fun to watch. Stay tuned.