BankerVision

Why banks won’t do social media

A couple of days ago, I saw Chris Skinner give a presentation in which he advanced a few reasons why social media should be important to banks. His arguments, ultimately, boiled down to one main thing: social networks are where online people are, therefore, they are where banks should be too.

The thing is, I don't agree with that position much. If it were true, why aren't we all doing social media daily? If there was a business reason to be in social media, banks would flock there pretty quickly. It took 5 or so years for the flock to get there with Internet banking, and it will probably take as along for mobile. Social media has been around for more than 5 years, and I'm not seeing much flocking.

Arguments that banks "aren't innovative" or "don't get it" won't fly. The fact is, every bank has people that do get it and who are innovative. They just don't do much in the social space.

Of course, taking the negative position on banking social media is a disingenuous one for me, because I do social media myself here on this blog.

But the thing is, I can see why social media might not be the thing when it comes to a bank. Over the past few days, I've been conducting an experiment: using my Facebook status, I've been trying to see just how ridiculously uninteresting I can get before people dump me.

On the first day, I told everyone that I was still breathing.

On the second, that my heart was beating, and I was counting how many times it did it.

For the third, I said that I'd blinked, but that as it was a normal bodily function, no one should be surprised.

And today, I have uploaded a photo of the specific piece of gravel on which I stand waiting for my morning train.

Here is what I've found out so far: the less useful the content is, the more people engage with it. You'd not believe the string of emails I've been getting.

Now, although this is not an especially scientific experiment, it suggests to me you can build engagement with social media on things that are unimportant and irrelevant. But when you say things which, theoretically, would be interesting and useful, paradoxically, no one cares. Social media is a channel optimised for the insignificant.

Now I'd hardly say that finance and banking are in the insignificant camp for most people. And if that is true, and social media is good for unimportant things, what business does a bank have doing it in the first place?

Oh, you may argue that there are successful bank blogs, and there are some. Bank blogs about banks for bankers and their friends (such as this one, and BankWatch, and Chris Skinner, for example) get decent readership. But we aren't talking to customers, at least not all the time. We're the banking echo chamber.

And if you look at the successful social media experiments, such as VanCity's ChangeEverything, they aren't even about banking very much. VanCity has been clever enough to work out that they have to take a sideways approach.

But that's a special case. The rest of us still believe that customers won't respond to oblique approaches of this kind. We imagine that direct, core messages are all that customers will understand. And we would never dream of using such valuable customer contact to deliver messages that appear, on the face of it, to have little to do with selling product or enhancing service.

"Bother, we've run out of pamphlets again", is hardly the kind of thing a bank would be interested in putting on the net. But "Check out our new rate", is something you see often on bank websites.

My question is whether a venture into the banal would create bank success in the social space. My felling is it might.

Young Talent

Last night, I was invited to speak at the latest Geek dinner, a collection of fresh entrepreneurs, technologists, and new media people. They meet every so often to eat, drink, and have a chat, and On this particular occasion, the Open Finance Coffee Club also brought its members. A similar crowd, but with a specific interest in financial services. .

This is a group that is also, predominantly, young. The next generation of leaders that'll be running our enterprises and build the technologies we will all rely on next. I felt old just being with them.

Actually,  I am not that old, but there is just such substantive difference in the behaviour and capability.

For starters, when it got to questions, there were lots. Now, when speaking to corporate audiences, you normally have to drag the questions out by hook or by crook. Not so here. There were questions, and there were challenges. It was so refreshing.

And then there was the discussion during the dinner itself. How to get your start-up on various important sites to get that initial surge of traffic. The relative merits of each, compared with the growth stage of the company. And whether some traffic is not worth having at all.

I cannot imagine today's senior leaders even thinking about such things, much less doing something about them. But these guys were expert.

And speaking of expert, the financial accumen in this group is very impressive. I was speaking of an internal innovation we are doing here (and about which I'll write more  in the future), where we model certain innovative behaviours using a prediction market. And the audience wanted to know how we managed speculators with long and short selling, was our market efficient, and might the set of econometric factors we'd set up lead to an internal “bubble”.

There are people with decades of experience who work inside banks who are less expert than this lot.

But I also overheard something that made my eyes open. This guy was talking about his present employment. He explained, in hushed tones as if it were something to be ashamed of, that he was working in a big company, but didn't expect to be there long. “It isn't where I'd want to end up”, he said, implying that anyone who did anything other than be their own boss was somehow missing the point.

And this was a theme that came out on multiple occasions during the evening. The aristocracy of talent was all that mattered here, and why on earth would you put up with the potential of someone less talented than you telling you what to do?

In fact, as one person put it during the dinner “you can't even get the talented people to work in a startup. The best ones only want to work on their own ideas”.

The brightest, most talented people aren't coming to big companies any more. We've always had an advantage on our side: we have resources, so if you wanted to do something impactful, you had few choices but to go to a big player.

But now, with the democratisation of the tools of production (and, increasingly of capital), you don't need big company resources any more. You can be impactful yourself. And with the barriers so low, if your first great plan doesn't work, its easy to dump it and start something new.

The “War for Talent” is a constant theme when you go to corporate events and hear what large companies are doing to compete. But that's missing something very vital: the real talent isn't available to large companies in the first place.

Because the fact of the matter is, the ones we'd really like to hire serve themselves and their dreams first. They don't need, or want, any other master.

The proof of value

I was with a vendor the other day that said he needed a “demonstration of intent” to take to his management before he was able to engage with us.

The “demonstration of intent” is that in-advance commitment vendors like to have before they commit resources to any prospective project at a customer. It comprises, usually, a small amount of money up front (“to meet costs”), or a letter that indicates that upon successful conclusion of what-ever-it-is, there will be a deal on the table.

The thing about such requests is that they often come in advance of any proof of tangible value. A presentation or case study is not such a demonstration.

My answer to these requests, usually, is “we don't pay for pre-sales”. And why should we? The burden for demonstrating value – in our specific context – must necessarily be elsewhere. We don't have the bandwidth, anyway, for speculative investigations of things that might be useful.

I think it important, at this point, to characterise a definition of pre-sales. It's any situation in which the primary objective is to demonstrate to us there is value that ought be pursued. When someone proposes, for example, a new way of using data that will enhance revenue or cut costs, proving those claims is just a cost of doing business. Of course, any kind of proof that relates specifically to us is going to cost money. It'll cost us too: we have to invest time and other resources to help.

So don't be asking for money to “meet costs”, because it is likely that we'll ask for money to meet ours.

Some people, of course, will argue that this kind of thinking means that smaller companies (who simply don't have the money to invest without commitment) are locked out of deals with a larger organisation. That probably true, and its too bad. Its why smaller organisations tend to have smaller clients to start with: the costs of getting in the door rapidly accelerate the bigger the potential customer.

By the way, I also raise an eyebrow when the term “proof of concept” comes up, which is another way of saying pre-sales.

A pilot, on the other hand, is something quite different. The purpose of a pilot is to let us see how a particular new thing will work in our specific context. It teaches us the lessons we need to operate it successfully if it goes ahead. And it lets us uncover any technical or procedural bugs we'd need to address during a ramp-up.

A pilot is not about proving value. It is about demonstrating that operationally we can do whatever-it-is.

Functionally speaking, a pilot is pretty much a full implementation of the new thing. We like to make sure that our partners (which is what a vendor would be, if we are actually going to do a pilot) are in a situation where they, too, are getting something from the arrangement at this point. Though it might not always be money.

I have one further point to make on this subject. And that's about the amount of investment vendors have to stump up to introduce us to something new.

We, like every other business, have budgets we must adhere to. Most of the time, they are decided far in advance. And usually, there is no fat in them at all. We are asked, year on year to find cost savings, in fact. We make our investment decision based on the value and capabilities we have now, or know about about at budget time.

So when someone shows up with something unique, there is often a scramble to make anything happen. Sometimes we actually can't make anything happen. I often wonder, when I sit across the table from a potential partner whether they realise this, or think we're playing a negotiation game.

I can assure you we're not.

Its necessary to be candid about these things. And for vendors to recognise that the price of getting something into a large customer is directly proportional to how quickly they want it to happen. A sales cycle of a year or more (which fits in nicely with our budgetary cycle) can be circumvented, but only where practically everything gets paid for up front.

Here is the key thing from our point of view: if we try to slot something into a programme out-of-cycle, it means we'll have to cut something else. Presumably, since it got into the budget in the first place, it was quite important.

It is a brave person that deprioritises something everyone has agreed is essential in favour of something that practically no-one knows about, or is new or especially novel.

Here is another term I sometimes hear from vendors: “we will do something but you need to have skin in the game”. Since when did investing our time and resources in working with you not become skin the game? We have skin in the game from the first meeting.

So let me close with a summary that might be helpful. We'll talk to anyone that can help us build our business. But be ready to prove you can do so. And recognise that any new thing we do will likely require us to negotiate a compromise somewhere else.

Trade Secrets and Open Innovation

If you're a bank, what is the first position of your management when you suggest you should license your patents, share your underutilised trade secrets, and investigate the possibilities of collaboration with your competitors?

You'll probably find you run up against a big, fat, wall. It is likely the same wall you ran into when you tried to deploy social media. The same wall, in fact, that exists between each business unit of your institution, and between the work-groups inside each business unit.

I am put in mind of this as I write a piece on Open Innovation for Future-proofing. Now, in case you've not heard of this, it's the idea that if you have unused intellectual property or uniqueness, you are best served by licensing that to competitors who might make use of it, rather than let it sit idle. And, in reverse, if competitors have something of value  you need, that some arrangement is executed that enables you to get it.

The underlying principal is that everyone knows practically everything about everyone. In such an environment, key uniqueness is protected either legally or because the capabilities are hard to replicate. Everything else is transferable and up for grabs.

Building hard to replicate capabilities is, of course, the central thing that defines competitive advantage anyway. If they can't be easily copied, you don't really care who knows about them.

Open Innovation is the current de-rigor fashionable business model amongst innovator in lots of industries. That's especially true in industries where the products aren't very differentiated like FMCG. And, of course, in industries where the products are very differentiated, like aerospace.

We could never do this in banking, of course. Our protections are still medieval in nature: we rely on trade secrets. Everything is one, even the unique capabilities that would be hard for anyone to replicate.

What are the signs of over reliance on trade secrets in banking?

Constant vetting of external communications, no matter how insignificant, by teams set up specifically for this purpose.

Nervousness when it comes to employees participating in conference pro grammes.

Elimination of collaboration technologies, or a failure to provision them in the first place.

And, of course, outright panic at the idea of staff using social media externally.

Now all this is a cultural thing, and there are signs of change in many banks I talk to. Let's face it, my own institution allows me to have this blog. You'll note we are careful of branding, and also to make sure that any statements I make here are my own, and not reflective of the views of my institution as a whole. But I doubt even a few years ago such a blog would be possible from a bank employee.

So, the pace of change is slow, but it is coming.

My point, though, is that whilst other industries are achieving synergies that can create “man on the moon” type projects, bankers are stuck with the glacial progress that results when you have to do everything yourself.

Institutions have a lot of man-on-the-moon opportunities. One is addressing customer-bank hate. Another is coming to terms with all these non-bank competitors. Dealing with global financial stability. Fixing markets in the absence of decent global regulation. Or how about using banking to alleviate poverty?

We could do these things, but no one bank can do it alone.

Reliance on trade-secrets makes each bank an island. It means that the really big, really significant innovations can come only from the largest players on Earth, who can afford to fund the work required. With the activity going on in the financial services sector at present, it is swiftly coming down to a handful of institutions with such resources.

Here is one thing I've noticed, though. Many institutions have a groundswell which is breaking down such silos anyway. There is this new generation of employees who are simply not prepared to put up with artificial barriers that prevent them from being the best they can be. They'll talk to each other – even about trade secrets – no matter what you do.

They're the ones who want openness as a first principal. They'll have it, no matter what management thinks. And with it will come the end of the trade secret as a source of competitive advantage for banks, if it ever was in the first place.

What then? Nothing all that innovative, in fact. Institutions will simply have to focus on building hard to replicate uniqueness that lasts in the market. But because that very, very hard for banks – who have undifferentiated products in the first place – it will require serious innovation to pull off.

The lucky institutions will be those that have made appropriate investments to build out their innovation capabilities in time.