I tried to argue for a better world taking on issues such as democracy, education, climate and capitalism on one my posts around two years ago. My views have not changed and I really believe we as humans are wasting precious time to make this planet a better one for ourselves and for our children. Yet if I am not running for the office and I am not, I think more about what will change business life, banking and specifically payments. And how we need to transform ourselves to lead.
I believe there are three big forces that shape our world and the way we live today. These are big and important forces and our life is and going to be very much influenced by them.
Where we live, how we interact with the world, and how companies and organizations will be capable of leveraging those interactions in a digital world are those three big trends.
Mobile and Wearables:
The famous (or infamous) Y2K is like yesterday to most of us yet many people actually heard or ever thought about a digital calamity only then. The fear of everything being stopped as many believed that most computers had a deadline of 00.00.00 namely the first moment of the year 2000, was like a awakening to the digital world. Today there are very few people (through social media) who don’t use the digital world around themselves.
The first digital revolution was not the Enigma or the first computers but personal computers as it allowed the computing power to be integrated with normal people’s life. Then came the software like lotus 123 (the grandfather of MS Excel) which was the first spreadsheet that enabled a person to interact with that computing power without the need to learn a special computer language. (i.e. Fortran, BASIC, PL/1, Cobol).
Few years ago Mr. Jobs changed the world not actually with an iPod but with the iTunes store. You always need an environment for the man on the street to relate. The same is happening with mobile and apps. Like the PC which provided the better off citizens of the world a computer, smart mobile devices connect almost every human being with one another and with knowledge of the internet. Instead of the software for the desktops, now is the time for mobile software applications called apps. Already the web is surfed much more through the apps than the internet browsers. Walmart at its 2014 Black Friday has seen 70% of digital orders coming from the mobile. And I covered that in one of my posts earlier “it is the mobile stupid”.
With internet becoming more available (and we need to do more to connect everybody on the planet), there will be several things that will change:
1) Industry disrupters: When most people finally have smart phones that connect to the internet, companies will see a whole new world opening to them to serve their customers. It is already taking place in countries with smart phone penetration of 65-70% or more. Call centers and physical branches lose their importance for instance. Yet more importantly, this connectedness will disrupt the existing industries and force them to change. Uber is a wonderful (!) example. Rather than waiting for a taxi on the street, you say I want a taxi here through the app and it tells you when it will be there.
Like the famous article of Mr. Levitt “Marketing Myopia“, many companies will see their industries open up to new players as the technology will enable it. While it is a good thing at the end for the consumers, it will be painful for the people who work for those companies and who will face with major cuts. This is and will be a major issue for governments and societies for many years to come. The skill gap between today and tomorrow is not that easy to bridge when you go down to the individual level. We will not have to wait for the robots to take our place. Digitization will do that to us. Think also about of the internet of things: The famous expectation that our refrigerator will refresh itself of the essential items like milk, eggs, and tomatoes may not be as far away as you may think. More importantly as the internet connection will become the norm as it is happening now, household items and utilities like the heaters, electricity measures, water supplies will all send signals to report their status eliminating the need to send people on regular basis to “read” them. US Postal service which is based on physical delivery of paper mail is making losses for many years. The new generation will not know what a stamp is…
2) The wearables: It is easy to say internet of things but what about those “things” are also us? It will most likely start with older people which is another big trend of course. The world population is getting older in every country. And you will want to take the advantage of the technology which will enable you to constantly monitor your body’s vital signs to a database and then to your doctor rather than going to see her with a snapshot of your health. A trend analysis is much more relevant for health. So if you are above 60, like the nicotine patches that some people stick to their bodies, you might want to wear a patch that has a small NFC antenna that talks to your watch or mobile which accumulate your vital signs. Blood pressure, pulse, sugar level etc. Google already released a very good smart watch and Apple Watch of course will come with all whistles and blows early 2015. Once those devices are out, many “apps” and additional devices will be offered. We will most likely swallow a pill that has the antenna and will stay with us for some time. So just like your daily vitamin, you will have your body connection!!!! Then what about small children. As we live more and more in big cities and anything can happen at any time, parents will most likely want to know where their most precious ones at any moment. So will come the GPS trackers for the kids. They are already available however they will become wearables or body parts. There are many people with diabetes, or allergies or many other diseases who need to live very carefully and with medication all their life regardless of their age. Therefore they will also embrace these devices and technologies. What I am saying is that wearable technology will become the norm rather than the exception in the next few years. This will have profound effects on industries as healthcare, education, transportation, and of course distribution.
Big Data: Data, data, data. Many people have been talking about it for some time now. IT is claimed that we as humans created more data in the past two years than all of the humanity created in the past 20 thousand years. Well, with everybody walking with smart devices with cameras, and on line most of the time this is no surprise.
Yet for me as important as data itself is the connectedness of the data. The trends within. The seemingly unrelated cases that are actually correlated. Imagine we connect data warehouses of all court cases. Or of all sicknesses. Or of all terrorist activities…. on and on on. And the ability to create models and correlation among this data. Miracles will happen when we can connect those dots. Mathematicians and data modelers are already on demand. Yet we will see more and more ability and need to analyze data. As we are more able to host more data in servers and connect them to one another, the so called silos will disappear. It will be like a blind man seeing the light for the first time. A veil will be lifted. I am confident that from health to justice big data will facilitate quicker and more cost effective solutions. (I am also aware that in places like most of Africa and India, we still need to record and digitize the information first. Yet I am very optimistic that it will also be achieved in the next 5 years. And without legacy systems, it will be cheaper and quicker.)
However, you cannot start by saying; “OK I need big data so let me get it” It all goes back to our famous Drucker’s quest: “what business are you in?”. One must need data to achieve something. Industries and the managers will need to define their needs clearly to be able to process it. Otherwise the whole process may become a cost item.
Urbanization: Oh my God, I hate traffic, I hate noise. I hate the color gray and the buildings taller than trees. And I hate air pollution. Yet you can see the numbers below. We, as the human beings became city animals. Human race live more and more in the cities. And those cities get bigger and bigger. If there is only one phenomenon that can summarize humans, it is hope. And in this case it is the hope to find a better future for ourselves and for our children. Hence if we are poor and don’t have much means, we move on. We move to find a better life. (Well isn’t it the main reason why we have America)
Today more people live in cities than in rural areas. The world’s GDP is being produced in cities.
What is that mean for the future? Many things: Like I write in my post “what can companies learn from football clubs”, individuals find it easier to establish emotional ties with their cities and neighborhoods than the whole nation which in fact is the remains of the old empires. Therefore nations eventually will cease to exist and cities will prevail. Now, that is not a 3 to 5 year trend. What is immediate trend however is the belonging feeling and the solutions that makes one life easy in a city will win.
Who wonders what the weather will be like in European Union tomorrow? Who cares if the traffic is bad in 750 miles away? Who is the most important sport person that you know and adore other than your own team?
Therefore what we will see in the next few years is that as nations will start to lose their significance, cities will prevail. London, not the UK. New York, not the US. Shanghai, not China. Tokyo not Japan. Rio de Janeiro not Brazil.
MNO. Do you know what it means? Multi National Organizations. This was the term used before the word Global. Many people still refer big organizations like GE, IBM as Multi-Nationals. This will change. This will become MCO, standing as Multi Cities Organizations. In reality of course, the name will not change but the global organizations will look at the number of cities they operate rather than countries.
Therefore apps, solutions, chain stores, TV coverage, services, offices, help, products, they will all change to cater cities and not the whole country.
Of course this movement to cities will have many other implications such as architecture, clean energy, transportation, education and so on.
Alright now, let’s combin e these three trends for our business; PAYMENT SYSTEMS and BANKING.
Here are my conclusions:
1) Mobile vs Digital Channels: Forget Omni channel. There is only one channel and it is the mobile. Banks will need to improve and invest in mobile apps all the time. Do one thing much better. ATMs, and web pages will lose their significance. Designing a winning app and making sure it is downloaded and used by all your customers require constant investment and constant betterment. Which means FOCUS. And banks are never good at focus as most are big and consider themselves as “universal” meaning they offer everything everywhere. Digital on-boarding of the customers without the need to go to a physical branch will require internal and external compliance steps to be taken.
2) Physical Branches: If a bank is successful at the above, branch numbers will be cut by half in the next 5 years especially in Europe where there is excessive branching. Interestingly we will need fewer branches at the cities where more people are with smart phones and more physical locations in the rural areas.
3) One app does it all? No. We will need to create two apps. One for banking. One for the payments; a wallet. Banking as usual needs to be very secure as it has your deposit information, whereas the wallet needs to be very convenient as it is an everyday thing. The challenge will be how to become the key banking app or wallet for the customers. We will need to establish partnerships with many technology companies that we see as competitors today. That connection, on top a different mindset, will require a different type of security. Many transactions will start from one platform and will continue on another. As banks are used to control things in closed environments, security in an open environment will be one of the main concerns and areas that will need to be invested. This is needless to say is a different IT skill.
4) Pay with….Many wearables such as watches and wristbands will communicate with the mobiles devices to be able to pay. In the next 5 years millions of people will pay with watches with NFC technology.
5) Plastic cards will disappear: As more and more POS terminals will be contactless/NFC compliant, we will issue virtual cards on the mobile payment app. Mobile phones will become virtual wallets and will pay with the touch of the mobile device to the POS terminal. Apple Pay has started and many will global banks and companies will continue to develop digital wallets. Once it becomes the norm, all the complaints like I didn’t receive my card from the mail, I broke my card, I lost it, will all be part of the past. The wallet app will pay and interact with the bank all the time. Think of the digital wallets as plastic cards with big screens and always connected to the bank servers like an ATM. Inn-app payments will also multiply. Wallets will talk to one another and payments will be accepted securely with the help of HCE, tokenization and additional verification methods.
6) Data for the customers: Big data will be needed to provide the best info for the retailers and customers of the bank. There is already big data in the hands of banks in the name of purchase transactions. Most banks don’t do much except selling other financial products to the same customers. We need to make that transactional information (of course anonymous) available to our merchants and retailers. Banks will need to become marketing partners of those entities not just financial partners. On top of transactional data, we can combine for instance, the weather, car and passenger traffic, similar cases of the same merchant category, of course with more people using internet to search before buying and/or to buy, that search information will need to become more available to the retailers. Such information will need to be part of SME loans or any other type of project finance assessment. The cash flow analysis will need to be enriched with more relevant data. Such as the data from similar projects around the world to provide a deeper understanding and comparison.
7) Replace cities with countries: Companies will need to put more effort to building infrastructure at the main cities rather than the whole country. As banking will very much concentrate on mobile and digital, buying a bank with many branches to enter a country will be a thing of the past. Money of course will be paid to the governments for the banking license but barriers of entry will go down.
8) Building trust and collecting deposits: For many banks building trust is opening branches at the busy streets and expensive TV ads/sponsorships. Banks will need to build a different type of trust to attract deposits. The importance of deposits will not decrease. We have seen the result of the highly leveraged banks and businesses in the not so distant past. Helping people to save for the future is and must be an important part of the banking. However we must learn to do that without branches. How do you build trust strong enough for the people to give their savings will fuel new projects at the banks? Avatars, animations, a new wave of digital marketing and very smart use of banking apps will all require new approaches and skills.
Boy, not easy challenges eh? Don’t forget we are in the middle of a digital revolution and the pace is faster.
Do I believe today’s banks will succeed in doing all this? I don’t. Many will try and fail. Some will not even try. There will be technology disrupters that will eat into some areas of banking. Some parts will become commodities. At the end, few banks will succeed to transform. We at BBVA definitely work hard on changing ourselves.
Bon Voyage to all of us.