Sunday, February 15, 2015

More than half of the money banks invest in Finance 2.0 is wasted, the trouble is they don't know which half!

The high-tech bubble burst more than a decade ago. Up till now this experience, above all the losses some faced is holding banks back from trying out new fresh ideas in Finance 2.0.  But history will repeat, because the human brain has not changed. Time will come when banks “buy” everything with a Finance 2.0 tag on it. They will follow without using their own brainpower, but banks should be aware that over 50% of their Finance 2.0 initiatives will fail or not bring the expected success. Some of the initiatives will change everything though and be the grand slam. Most probably these will not be their first initiatives. It will take time. Banks should be prepared for that. They should therefore not invest too much money in one single Finance 2.0 project which will take them out of the Finance 2.0 game in case of failure. 

I would like to point out, that I am a convinced advocate for the digitization in banking and I clearly think that Swiss Banks are not doing enough and are too slow by far. On the other hand that doesn't mean that an expensive Finance 2.0 project is a better project than a lower priced one. When I say they are too slow that doesn't mean they have to take a huge step and come up with something breathtaking in the very near future. When I follow Finance 2.0 activities of some banks I am bid worried, that those who invest spend too much money and will not be able to show the expected figures. As a result they might give up and cut down their Finance 2.0 budget too much and to soon.  Banks should be aware that in Finance 2.0 the approach is trial and error. Therefore they should rather take smaller steps. Not every step already has to bring a measurable benefit.  As long they are heading in the right direction it is ok.

Banks should be aware that we still don’t know anything on Finance 2.0 and where it will take us. We only see the peak of the iceberg. As a consequence it doesn’t make sense to blindly follow other (bigger) banks. Also these banks do not know what they are doing. Even for them it is trial and error and if it works for them it will not necessarily work for another bank too or the other way around. Have a look at the bancassurance (Allfinanz) business.  This concept has been a big success for VZ Vermögenszentrum, for Credit Suisse not so much.

When I say do not follow blindly I do not mean that banks should invest a lot of time in trying to calculate complex highly sophisticated business cases neither. A very detailed business case will give them a feeling of safety when there is no safety at all. For Finance 2.0 there are too many unknowns which will pulverize a too detailed case. Such a business case might also limit banks view. They might miss some great unexpected benefits generated by their Finance 2.0 initiative because it was not part of their business case and therefore is not measured.  Of course a Finance 2.0 project must have a certain potential to be successful. I recommend keeping it simple though. The lower the price the higher the probability of generating a profit and the number of potential users must be big enough. When thinking about the number of potential users banks should not think too much of the past. Only because clients did not use online channels in the past doesn't mean they won’t use new digital solutions in the future.

My dear bank friends be aware: A significant part of your Finance 2.0 activities will be a financial failure short term and a big part of your benefits will be a great gain of knowledge and experience. 

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