Social Media Blueprint for Banking and Insurance


Last week I was sat with an executive from a large financial services company who said that they were taking a conservative, risk averse approach to social media due to the adverse impact of getting it wrong. They were particularly concerned about reputational risk and brand damage. The issue at play is customers heading off to the Facebook site to complain and slag off the company, which would in turn impact all the other customers that subsequently arrived and saw the commentary.

It’s certainly a challenge but not one that’s solved by shutting down the site and not turning up for the conversation. This is because the conversation between the customer and the brand has now been completely turned on it’s head. It’s no longer a monologue, driven by the brand agency with customers viewed as a target. Today’s world is a dialogue between brands and their customers that occurs on social media. Those that engage in dialogue with courage, transparency and honesty are winning. I thought we all got this, but apparently not, hence the post.

samson On a recent trip around Asia, the handle of my new suitcase broke. A quick Facebook search found the manufacturer who replied within a couple of days; not bad timing but certainly a good response. Once up, alongside other queries, other customers can see how they handle claims, which is an important part of the decision making when selecting products.

This does demonstrate that you do need someone and probably a dedicated team watching, responding and championing social media within the organisation. If you are serious about this then they are also going to need the gravitas and authority to stay the course and take the organisation on the journey. It’s certainly not a job for a graduate or someone that is “good at Facebook”! The engagement will almost certainly identify opportunities for improved processes and potentially customer centricity culture and that’s going to need authority and capability to see through.
In a customer centric organisation there is the potential for a lot of gold in social media. We can hear what customers want in products and services which can be valuable for building the roadmap. During the design process customers can be brought in to give their views and engaged in the testing process. Those that are building products and services with a Human Centred Design approach will really get this.

The blueprint for Financial Services companies begins with ensuring that the core channels are enabled, monitored and switched on for engagement: Facebook, LinkedIn, Twitter. Put the team in place, align their objectives strategically and give them the budget, tools and analytics to measure and manage sentiment and then correlate that to ROI.
At Moroku we regard that as Social 101: Using social media to engage customers.

Once that’s done you can begin to move to Social 201. This is where we begin to embed Maslow’s hierarchy of need into the way we build and design digital core services, such that social and social values, as opposed to just social media, is inherent in the way we centre the offering and use social media as a framework to enable that. At Moroku we call that Banking in the Crowd


Nava Ashraf’s article in the Harvard Business Review on the application of Behavioural Economics into health program design has much to offer in terms of application design in general. There are six principles and notions that are worth capturing and reviewing in terms of their impact on game design:

Present Bias. This describes our tendency to value the present over the future; present gains over future ones, current costs over future ones. One of the best examples of this is the struggle smoker’s face in quitting, whereby the cost of not having a cigarette (withdrawal) is higher than the perceived cost of the future health implications. Understanding this helps us understand the challenge people face when considering saving or paying off a loan, versus using the money on a purchase they can make today. In game design, recognising this bias to ignore future value over present directs us to consider how we might attempt to neutralise this impact by improving the value of actions generally directed at future benefits, incorporating more short term rewards, fun and other mechanics to overcome this bias.

Limited Attention: Increasingly bombarded by media and life’s demands, the cognitive resources available to apply to the myriad of today’s challenges are ever diminishing. Due to this overload we become increasingly dependent on reminders, hints and triggers to get stuff done. We just don’t have enough mental horsepower to remember all the things we need or want to do. Under this paradigm the fun stuff will always have a tendency to get prioritised over the hard or boring. Recognising this forces us to think about ways to overcome this attention deficit. This can include reminders, feedback and fun to get over the attention barrier.

Commitment Devices: Rather than gadgets, commitment devices are contracts that participants make to formalise their pledge to an outcome. Using the smoking example again, getting smokers to put up a bounty that they can redeem at the end of their program if they have quit or forfeit to a charity if they fail has proven very successful in delivering additional leverage and getting people to quit. The application of the pledge also overcomes some of the sunk cost bias that forces us to make current choices that justify past ones. e.g. having paid for the movie ticket you are more likely to go than if you just schedule some time to go to the theatre. Pledges don’t have to be financially based. Committing your pledge publically is often as strong if not stronger than pledging money that can always be written off.

Material Incentives: Intrinsic benefits are always more sustainable than extrinsic rewards as they don’t require a constant up levelling as the novelty of the extrinsic reward wears off. That said, immediate material rewards can be valuably employed to overcome the Present Bias. Benefits on the program or game may be some way off. This is again true with smoking but is equally true in financial goals that are equally subject to procrastination. Material incentives can be used to neutralise this impact, rewarding the player early when the final, intrinsic reward can be a ways off.

Defaults: This approach is commonly used in software installation and getting people to sign up to organ donation programs. By setting default choices to what you want people to do, rather than what you don’t want them to do, you can create a simple but effective mechanism that plays on the Limited Attention rule. Organ donation programs are ten times more successful when being an organ donor is the default on a driver’s license application. This was demonstrated in Austria where the default is to be an organ donor and participation is 100%, compared to Germany where the default is not to participate and participation is 12%. Setting payment parameters are good examples of how defaults can be set up within games to limit what the player has to think about.

Pro-social Motivations: We are inherently social beings. This means that we have needs to be accepted and gain approval from others as well as having strong desires to help others. Integrating social networks provides plenty of opportunity to leverage these needs and use as motivation to play and win.

Each of these understandings provides plenty of opportunity for game designers to consider what they want the player to achieve and how they might go about guiding the player towards that outcome. By understanding what people are inherently inclined to do we can improve our chances of delivering game outcomes.


Matthew 21:12-13

Jesus entered the temple and drove out all who were buying and selling there. He overturned the tables of the money changers and said “You’re making my house a den of robbers!”

Hhhhmmmmmmm. Well that’s a first – Bible quotes on the Moroku blog and let’s get that cleared up quickly … we’re not!  However, the young Brian was onto something. When trying to determine how much debt a retail customer can handle, otherwise known as “serviceability” most institutions use one of two calculations:

  • Henderson Poverty Index HPI
  • Household Expenditure Measure HEM

When you apply for loan, the bank will collect your expenses along with the data from these two measures, as presented in the tables below, to determine how much money you have to spend on your loan. They’re trying to maximise the amount you can use to service a loan and therefore the size of the loan – they want you to have as big a mortgage as is humanly possible.

Living expenses for Single Adults

Household Segments HPI HEM
No Dependents $1250 $1105
1 Dependent $1717 $1430
2 Dependents $2159 $1560
3 Dependents $2601 $1889

Living expenses for Couples

Household Segments HPI HEM
No Dependent $1817 $2032
1 Dependent $2284 $2583
2 Dependents $2726 $2704
3 Dependents $3168 $3137

The clue to what they’re looking for is in the title – henderson POVERTY index. This calculation is simply trying to understand how much financial misery someone can put up with. If you look at the numbers you’ll see they imagine quite a lot of financial misery. I don’t know of anyone or any couple that could afford to live on those numbers in Australia, particularly Melbourne and Sydney and pray tell if they had any children. But what the banks expect is that if you take your salary and exclude the numbers above, everything else is available to be spent on a mortgage.

Why would a bank do that? Why would a bank that should be worried about your financial well-being and helping you grow be driving you beyond what you can comfortably afford? It’s because they make money by lending money and that if they don’t drive you to the edge of what you can afford and beyond, someone else will, so they may as well. Is it any wonder that Brian threw the money changers out of the temple?

But there is hope. There is an increasing awareness within the financial services industry that this model of driving people beyond poverty is unsustainable and has to a large extent been accountable for driving the global economy to the edge of the cliff in very recent times. The recent massive sell off on the Shanghai stock exchange is case in point as was the financial crisis.

This awareness is creating a group of bankers and new entrants that believe there is not only sustainability but also growth and market capture in building businesses based on customer success. These new thinkers believe that by authentically helping customers pay off debt faster and move from debt and into wealth they can create businesses built on wealth and win on the collective wealth. Its stems from some of the fabulous work young Bill Gates wrote about when he talked about the spiral: When you’re on your way down, you’re down and will take people down with you. When you’re on your way up, you grow progressively and take people up with you. It’s a values based business.

We just have to ask the simple question. “Who do we want to be?”


Moroku stems from the Maori word for gathering, puroku, twisting it in the realisation that in 2015 the tribe connects via mobile. With only China and India having more social members than Facebook and the majority of the interaction occurring on mobile, few will argue that the age of the mobile gathering is not upon us.

Yet banks continue to be very poor adopters of this new and dominating engagement platform; struggling to embrace the new world of transparency in communications and dialogue and engaging in remarkably limited experimentation with the open API opportunities for identity and community.  This lack of deep engagement with social media is all the more surprising against the back drop of a great intent to create and build relationships with customers and to build digital channels to serve customers better. It’s surprising because in the digital channel, it is  social media that forms, manages and shapes relationships. This lack of execution can only be down to a lack of understanding as to the why and the how, so let’s have a look.

The business of banking is built upon large numbers of customers buying and using transactional products on a daily basis.  This is no niche service. It’s a scale game. Getting customers to buy is premised firstly on the customer knowing why to use the product and then having the trust to use them; trust that the bank will do the right things with your money and help you win. Whilst the system has trust engineered into it at a systemic level, much of this trust has been put under pressure of late, starting with the financial crisis and pervading with the Greek debacle as the ECB and the IMF embarked upon a very public debate as to the best way forward.

Back in the days of the fabulous TV show “Mad Men”, retailers could be fairly confident about creating customers by controlling the message from the top down, building campaigns with lots of colour, light and sound to build the funnel. During the early days of the Internet this advertising model prevailed as the banner ad leapt to the fore. Today with customer distrust and our ability to filter out ads at an all-time high, the power of the Mad Men has been significantly eroded.  Today people do more research than ever before on products; comparing features, price and service online with a large amount of this done on social media, as customers ask the crowd what they think.

There are some folk lore examples of banks getting taken to the cleaners on Social Media. Two of the best involve Westpac and Bank of America both of whom got hammered for cranking up interest rates and then not managing the social media onslaught that ensued. Both banks failed to take the Social Media revolution seriously and took a bath on credibility. Customers took to Social Media complaining and when this wasn’t dealt with openly and transparently the traditional media, always keen to back the wee guy and beat up the abusive bully, got stuck in. All that money spent crafting messages from the top down, burnt in an instant of absence.

Conversely the ROI of getting right is very measurable; Research from Bain shows that customers who engage with companies over social media spend 30% more than those who don’t and demonstrate a deeper emotional commitment, granting them a 33% higher Net Promoter Score. Social media engaged customers buy more.

As well as top line improvements there are also significant bottom line enhancements. Constant margin pressure ensures that there is no abatement in the search for new ways to tear into the cost to serve in banking. When we first built Internet Banking in the late 90s we knew we could get the cost of serve from the branch to the web down from $1 to $0.10 and did. Today that’s transitioned to mobile with digital channels now serving more customers than the old world of man to man marking in the branch and call centre. With efficiency improvements attained, there has been a renewed attention on sprucing the digital channels to also drive sales and take on the workload of the top line. Digital clearly presents us with plenty of opportunity for effectiveness (selling) and efficiency (cost improvements) which collectively build the compete muscle of the bank and maybe helps put some money back into the pocket of the customer. Social media has a massive roll to play on both accounts as it picks up service work loads, with customers helping each other through forums and communities.

With the why becoming increasingly obvious the challenge becomes the how. The first answer is clearly to lean in; build the social presence and allow customers to engage in an open dialogue with you on Facebook, Twitter, and LinkedIn. The latter is often forgotten but is critical for building engagement with the profession and institutional customers. Be authentic, don’t use it as a marketing channel. Use it to keep your customers engaged, up to date and winning. Do not delay, ask for help, spend millions and create teams who give the bank a strong social media muscle. If you’re having trouble getting the boss to commit, get help, forward this blog and print it out on dinosaur paper if necessary.

Creating and monitoring a social presence is Social Banking 101 and should be regarded as hygiene factor for any bank. It is also a necessary achievement before levelling up to 201. 201 is where we move off the Facebook page and embed crowd consciousness into the fabric of our products.

In our drive to build banking businesses, we often lose sight of the fact that money plays an enormous part in the way life works. There is little apart from sun, air, water and money that seep into every crevice of life. They are incredibly powerful elements as they give us the foundations to move. The other notion that is helpful to remember is that before individual pursuit comes belonging and our need for connection, as Maslow was at pains to point out. Indeed it is this hunger for connection that has made social media so popular. In a digital world that appears to have lost the ability to have conversations, the planet is connecting with more tentacles than it ever has. Realising the power of money to move communities through a social media fabric is incredibly powerful and defines Social Banking 201.

It starts with our ability to harness the identity platform offered by social to connect concepts of customer and account. There’s clearly a KYC gap between what Facebook or LinkedIn need from a customer and that of a bank. However when you get smart and link the two then you really plug in and can begin intelligently routing and connecting social engagement to revenue and banking activity. Many telcos and other providers conduct significant customer checks and where they do they can be leveraged to drive compliance and knowingness. Such approaches also demonstrate that you “Get Social”.  Engage customers in pre-sales activities like doing research with limited identity and then move up the scale of knowingness:– “Want a quote? Sure, Sign in With Facebook and you can come back and get your quote any time without having to remember that silly quote number”

With the identity component locked we can now move to the real fun in 201 – crowd banking. This is where we integrate the community into the heart of banking. It’s where we flip the user experience model around, so that instead of the customer logging into Social to do their banking, they log into banking to do their Social. This is possible because of the water like nature of money – remember its ability to get in and move things? There are actually very few things we do alone. Almost everything most of us do involve others and money: Housing, eating, health, illness and travel are real examples and give us the opportunity to present banking contextually. There’s lots of talk of P2P, digital currencies, mobile money and cross border remittances combining at the moment. This is because there are just so many inefficiencies in the current models. Social within these systems will elevate the acceleration of their adoption by placing open identity architectures at their heart.

There are so many activities that we do together and which have a financial component to them. Banking with the Crowd is coming out of the lab and into reality, binding people together around their life pursuits in a valuable way and allowing customers to win. It’s happening across the board in retail and business banking as we remove physical barriers and allow netizens to come together and collaborate in very enterprising ways.

There are lots of reasons to be excited


Following hotly on the heels of last week’s post about the social financial enterprise, the USA Army Bank  is launching a standalone app designed to help it’s customers create a habit of saving. The bank serves millions of military members and their families with banking solutions and first came to my attention last year at Dreamforce with their very authentic focus around customer success.

Several studies have shown that millennials are reluctant to put aside funds. Individuals aged 35 and younger had a negative savings rate of 2% in 2014, according to data from Moody’s Analytics: whatever money they have saved is being eaten into. The new app from USAA crunches financial transaction data to recommend daily amounts of money to put into savings but also layers in gaming. It moves money into savings after a person completes a challenge like eating-in rather than ordering a pizza, for example. Savings Coach, deploys a number of gaming techniques, including rewarding members through points, badges and new levels within the app. The core idea is to teach financial planning lessons that sound obvious but are a struggle for many: pay yourself first and spend less than you earn. USAA’s approach with Savings Coach demonstrates the premium the institution is placing on its mission to help lead the charge on financial literacy and move to a sustainable, liquidity based revenue and growth model.

Moroku GameSystem incorporates a Human Centred Design methodology with a configurable and integratable digital banking platform to allow banks like USAA to make banking fun and take customers on a journey of financial mastery the way they want to – through fun, rewarding and engaging mobile experiences.



A couple of months ago a friend of mine, Ben Pecotich, said he was starting a business targeted at helping Social Enterprises.


Good – a new term. Curiosity lights up –

“What’s a Social Enterprise Ben?”

“It’s a business that doesn’t have shareholders and exists to support a more community or collective based set of values.”

What? Like a charity or Not for Profit?”

No, Charities and NFPs don’t make a profit and are founded on fundraising or sponsorship models whereby people support a good cause, usually because the market won’t. Social Enterprises create value in exchange for money, and often want to make a profit so they can grow in many ways but use that money for the good of the collective upon which they’re based”

“Cool – Sounds very old school and highly relevant mate!”

Yesterday morning I was in Melbourne having breakfast with Joel Hanna from Xero and lead songwriter from The Wilds who suggested we go to KinFolk – a Social Enterprise Café opposite Spencer Street station.  Kinfolk is a social enterprise serving up coffee and a seasonal menu crafted from local and sustainable produce, driven by a dedicated team of volunteers. The profits are redistributed to partner charities oriented around social inclusion.

With these two experiences in the back of my mind, I was in Melbourne was to meet with a selection of CEOs and executives from a lesser known group of Australian banks – Credit Unions and Mutual Funds. These banks, also known as building societies, operate under the same regulations as the major “for Profit” banks and compete with them for customers but are owned by their customers, not investors. Hhmmm, Sounds like a Social Enterprise.

The term “building society” first arose in the 18th century in Great Britain from cooperative savings groups. In the UK today, building societies actively compete with banks for most consumer banking services, especially mortgage lending and savings accounts. There are 45 of this style of bank in the UK, 8 in New Zealand, over 100 in Australia including the imaginatively titled “The Sweeter Banana Co-operative” and approximately 7000 of them in the United States with 95 million members comprising 45.4 percent of the economically active population. Bigger and older than I thought is this Social Enterprise thing.

The Greek crisis is filling the news and providing another global example of how people’s trust in banks, currencies and political systems is being eroded and social enterprises, those that place community members at their heart, rise in popularity with parallel financial and political systems evolving.

While the Eurozone and IMF heads think about what they do with the currencies and other structures the people are taking action, setting up IOU based currency systems, free kindergartens so some can work while others take care of the children and so on. In their minds they are done. Disappointed with money they worked hard for and invested with trust into pensions that have eroded, they are creating new social enterprises regardless of what the bureaucrats chose to do.

In Australia Average savings at retirement is $130,000, household debt at record levels and Australians owe a massive $48.9 billion in credit card debt, which at an average APR of 17%  equates to $7.3bn in interest per annum above the base rate that Australians are handing over in credit card fees when they could be using this money to buy houses and get ahead financially. These numbers are echoed around the world.

We suspect that increasing consumer choice will create a new lens through which consumers’ select financial products. Banks that join their customers on their journey to success and do this digitally will secure more sustainable, and larger liquidity based businesses than those that pervade the cut and thrust of Net Interest Income.

As digital lowers barriers and connect us, I foresee a world where the banking market will separate into two:

  • Those that increasingly think about high volume low margin back office services that are presented as a set of APIs.
  • Those that deeply connect to their customers success individually and collectively to offer low volume high margin solutions that go beyond a discussion on price but play to a broader set of needs.

Whether this is as clear cut as the big and the small and how the continual consolidation of the industry plays out is unclear. Amazingly only 20-30% of customers don’t realise that Bank of Melbourne and St George are rebranded Westpac services which demonstrates there is plenty of mileage in “going local” even for the big guys.

Maybe Will I Am had some insights for us

Help each other, make these changes
Brother, sister, rearrange this
The way I’m thinking
That we can change this bad condition

Wait, use you mind and not your greed
Let’s connect and then proceed
This is something I believe
We are one, we’re all just people

One tribe y’all, one tribe y’all
One tribe y’all, we are one people

Black Eyed Peas – One Tribe Lyrics

fintech final

Accenture has today chosen Moroku to join 6 other FinTech businesses from Asia Pacific to join  12 Global and Regional banks for an intense 12 week program in Hong Kong

The participating banks will work with the FinTech innovators to commercialise the platforms against the backdrop of their own businesses and needs

FinTech Banks


Colin Weir, Moroku CEO, is delighted with the opportunity to spend so much concentrated time with executives of some of the region’s leading and largest banks as well as the leadership group at Accenture.

“As an industry, we are only beginning to grasp what customer centricity means and how it impacts how we run our businesses and serve our customers. Focussing on the success of the customer is increasingly seen as a growth lever to fuel sustainable volume increases, rather than less sustainable improvements in revenue margins. By far the leading growth market and indeed spurred by this attention to customer success, are the millennials and underbanked in Asia Pacific that will lead with mobile. I am very excited to be testing this thesis with such a fabulous group that has true capability to take the lead, be different and break away in a sustainable way. Its also a great opportunity to spend some time with other like minded and classy entrepreneurs “

The 14 companies that passed through the London program in the first two years raised more than US$35 million in new investment, signed nearly 50 contracts to do business with banks, and increased revenues by 170 percent. Participants in the Asia-Pacific Lab have thus far raised more than US$26.5 million.

The program kicks off on August 17th and concludes November 4th










Payments is undergoing a massive upheaval. Within 5 years the landscape is going to look very different to what it does now as digital currency, shifts in economic power, regulations, technology, particularly mobile and cloud, put everything we know into the mixer and serve it up in a very different form.

Music was first disrupted by Napster and CDs were finally hoovered up by the cloud through iTunes and Spotify as distribution was legitimately digitised. The same thing happened with Newspapers as global brands like the BBC fought hard to win digital and provide more real time, bit-sized choices to consumers. Every now and again I might get all nostalgic and buy a newspaper but it’s rare. Now video content is the headlights of the digital excavator as Video Easy, Blockbuster and now Fox customers flock to Netflix and its ilk with better choice, flexibility across devices and price.

Like these examples, and perhaps even more so, payments has huge capacity for digitisation with payments providers, particularly banks, at risk of a similar disruption brought about by similar shifts in the value proposition based on attributes of choice, speed and price. Like the distributors above there is also an opportunity for incumbents to claim the high ground of service by offering faster, more convenient mobile and cloud based systems that are built for the 21st century consumer, so long as they recognise the opportunity and actively create the new landscape in time. “Time” means now as Amazon, Google, Apple, BitCoin, Facebook, PayPal, Ripple and Vodafone, through M-Pesa, all demonstrate how the many of the entry barriers to this market have been dramatically lowered in recent years and challenge traditional providers that don’t move with the right speed or form.

The galactic size of the addressable market is driving lots of innovation and investment with promising opportunities for very real growth for those prepared to respond with foresight, innovation and determination.  By way of example here are some of the payment sub markets:

  • Foreign Direct Investment (FDI) are investments made from one country into another, normally by companies rather than governments, usually to establish operations or acquire tangible assets. Globally these payment flows grew 9% last year to $US 1.45 trillion with the vast majority going to developing countries.
  • International Remittances will grow 20% to $US 681 billion next year. With the global average cost for sending money at 8% and as high as 12% in Sub-Saharan Africa that’s a $54bn prize pool right there and no surprise that the P2P and remittances market is busy with contenders.
  • Cash as an analogue payment instrument is clearly a natural target of digitisation. If alternatives can offer the same degree on anonymity and convenience with improved security and reconciliation there’s approximately $USD 4.3 trillion of it kicking about.
  • Point of Sale generates approximately $USD 21bn in revenue for Visa and MasterCard globally. Assuming these revenues are generated from 0.5% interchange fees that would reflect a $USD 4.2tn turnover. Despite lots of talk of threat and an increasing preference for EFTPOS and debit cards these schemes are still growing at about 5% per annum. Business is going so well that the Mastercard stock is already up over 20% over the year. This arena presents an opportunity for alternatives as well as participation, through value added payment proximate activities.

Payments generate a large proportion of banks revenues, generating $1.6tn in revenue and accounting for 41% of all banking revenues in 2013, up from 34% in 2009 and expected to grow to $2.3tn and 43% of all revenues in 2018. Not surprisingly most of the volume and growth coming out of APAC.


With the landscape upheaval generated by alternate payment mechanisms which now outnumber scheme based payments  it’s very much a time to pay attention. Payments have traditionally involved complex banking routines that have protected the market for banks. The arrival of new back office cloud and mobile enabled services such as credit, identity, AML and KYC checking mechanisms, like Netverify, with support for billions of consumers and merchants, coupled with rapidly changing customer expectations of how stuff should work, place these traditional reserves of banking under threat.



The payments landscape going forward will have many attributes that are different to that which we have today including:

  • Integrated Global Real-Time Settlement and Clearing – The world is full of very fast silos, yet Ripple is showing us what lies ahead. Indeed, had Ripple been around when Australian Payments and Clearing Association (APCA) were looking for a new payments platform they absolutely would have selected it over SWIFT’s platform.
  • Less cash as mobile, digital currency, P2P and EMV (American Express, MasterCard and Visa) continue to make big progress. There were an estimated $6.2 trillion in consumer C2C cash and check payments (or 40 percent of total C2C payments) globally in 2013. If only 5 percent of these were to migrate to faster payments solutions, they could generate an additional revenue pool of $80 billion.
  • More cloud as outdated client server architectures server workloads that are unable to serve mobile get consumed.
  • Greater Size – As convenient and secure alternatives to cash arrive along with new ways of paying people and the world’s middle class growing by 3 billion people over the next two decades, predominantly originating from Asia, the total size of the payments markets substantially increases. McKinseys predicts that merchant payments revenues could double in size as new digital solutions open up untapped revenue pools.
  • More little guys – 97% of businesses are SMEs. Traditionally they have been costly to reach and serve but mobile and the cloud changes all of this and present a rich platform of size and wallet share opportunity where payments, business solutions and cash management are all linked holistically. As with many facets of the broader market these services will be necessarily targeted at people, not identities or accounts as, people who own and run businesses but also have household accounts as in these businesses, blurring the distinction between personal and company finances as they all largely roll up to the same thing – a total position.
  • New stakeholder mix – Driven by the change in technology there will be new solution providers as the explosion in FinTech is showing. This will mean new payments mechanisms and systems across front and back office as well as sophisticated decisioning systems that help companies choose the most effective payment mechanism on the fly.
  • Regulatory Convergence as countries group together to provide more consistency and standardisation for payments legislation and by doing so remove friction and improve support for both global trade and security. This may take some time and until it does new entrants will look to find regulatory environments that give them the best mix of flexibility and trust.
  • Better integration across the context within which the payment is made with payment service providers moving further back along the value chain to get embedded earlier, secure the relationship and add value.
  • Broader Context – As the value chain is explored new opportunities arrive in the broader context of the merchant or consumers life with an opportunity to explore add on services such as lending and financial planning. Those that get customer success in this regard will show who truly understand customer centricity. As fee margins get squeezed through initiatives like the European Commission’s new interchange regulations and the Durbin Act in the US that is lowering card fees which together will wipe $7.2bn of bank revenue off the P&L forcing banks to identify new ways of looking at the customer.
  • Smarter use of more data: As mobile adds location data and more granular transaction at the SKU level, rich reserves of behavioural data will emerge as the new treasure for better market insight and opportunities. With 400 billion cashless payments occurring a year there is lots to acquire and glean insight from.

Ralph Waldo Emerson once wrote: “Whence this worship of the past? The centuries are conspirators against the sanity and authority of the soul. History is an impertinence and an injury if it be anything more than a cheerful apologue or parable of my being and becoming” 

His idea is that history is just the story of what happened to get us to here. Indeed if we look to the past for guidance on the future we’re likely to be amongst the injured. It’s an exciting time to be building the next generation of payment solutions; we’re honoured to be here with a great team at a great time.


As Moroku grows it’s important that the team understands the domain we’re in. Banking and payments is a complex beast and it’s changing fast as technology and financial services collapse into one to create a new industry, FinTech. In order to assist the team get up to speed so we build relevant innovative products I wanted to start summarising the structure and the opportunity.

Social, cloud, mobile and lean business models are reducing many of the traditional barriers of entry into banking and payments. In a recent report by Cap Gemini and the RBS, traditional banks’ market share in non-cash payments is projected to decline to half of the forecast 800 billion non-cash transactions that will be made in 2024. The central banks report that non-banks already handle almost 300 billion transactions every year, the bulk of which are retail payments. These volumes are so significant that the impact on the way we consume public services, business activity and go about our day to day lives will be widely felt as the provider mix as well as the products themselves change.


Whilst non-banks have been participating since the 1950s with charge and credit cards, the trend towards non-banks is being pushed along by:

  • banks as they outsource more and more of their payments and technology services
  • customers who seek alternatives to the banks and do so online
  • regulation and compliance costs incurred by banks that non-bank providers may be able to limit through partnerships or jurisdictional selection
  • innovations such as digital currencies and P2P that create new opportunities and that are more readily responded to by non-banks

Non-banks are organisations whose main business is not related to taking deposits from the public and using these deposits to make loans and gather revenue through net interest income – the difference in the interest rate between deposits and loans. The internet and mobile have provided a large opportunity for non-banks to enter banking and payments by:

  • reducing many previous barriers to entry, such as location which has enabled digital only banks to form.
  • changing the shape of the landscape and therefore new entry points, such as mobile.

Where non-banks, such as telcos and mobile operators have existing and large volumes of existing customers, the opportunity seems hard to ignore. Orange, Vodafone and Airtel have all demonstrated this with their mobile payments platforms. So too it was when eBay’s rapid land grab as an ecommerce portal provided a fabulous launch pad to scale out fast by buying the 4 year old PayPal for $1.5bn in 2002. As well as paving an opportunity for existing players, technology is also providing an opportunity for new players, such as Square and Mint to enter existing markets.

When it comes to payments, non-banks are getting involved in a variety of payment types including cards, transfers, direct debits, e-money, loans and remittances. They can also participate in a range of functions, operating at the front end, providing services directly to consumers and businesses, operating at the back end by providing services such as clearing, settlement, fraud detection and anti-money laundering services to banks, operating retail payment infrastructures (e.g. Visa, MasterCard, China Union Pay) or play right across the spectrum, such as PayPal.

P101bThe choice of position is largely dictated by a selection of which step, or steps, in the process they choose to engage. The diagram to the right illustrates the various stages of the process at which a provider may play.

Digital money providers have an ability to play right across the process and do. This end to end control makes it highly attractive to new entrants as they don’t have to engage, pay or rely on anyone else.

Outside of digital money, most non-bank providers tend to focus on the pre transaction phase with banks picking up the clearing and settlement stages before handing back post transaction services to the initiating provider, according to research done by the Bank for International Settlements (BIS).

Payment flows are often described using a four corner model, identifying the traditional relationship between customers and their banks. Two participants in a transaction each have their own bank who ultimately settle the transaction between the parties, creating 4 parties and therefore the 4 corners to the model. In this depiction, front end providers insert themselves between banks and the customers, while back end providers would sit behind the banks, un-noticed by the customers. In each and every one of the components depicted, non-banks providers can and increasingly are providing services.




End to end providers collapse “Payer’s Bank and Payee’s Bank into one “three corner model” and eliminate the need for any 3rd party clearing and settlement services. The rub under a 3 corner model is that there still needs to be a mechanism whereby money can enter and exit the system. M-Pesa is a great example of such a three corner model, whereby Safaricom owns the airtime that is exchanged by payers and payees but people still need to rock up at an Agent and handover or redeem cash. Digital currencies and P2P present great examples of where banks are largely removed from the entire process, other than as an initial funder or exiter of the system i.e. pay in or pay out.


New entrants will look to enter the payments space if they believe they can derive economies of scale or scope from a new platform. Economies of scale derive from releasing incremental profit as more units are sold. Economies of scope derive from increased profit as additional products or capability are added to the platform. Such scale and scope can however be hard to achieve in the short term. As a network service, payments is highly dependent on the famous network effect, made famous by the telephone and latterly the fax machine – they only become useful once a lot of people, or at least the people that matter have one too. This requires either significant capitalisation or partnering to cover the gap of time or capability between launching a product and lots of people using it.

These models provide ideal lenses through which to identify new business opportunities. Economies of scale can be derived by non-banks by specialising and therefore becoming very efficient at just one thing as opposed to banks who by necessity must be jack of all trades. Scale can also be derived by selling a service to more people including banks. Square is a good example of this, but having a laser focus on their mobile payments offerings and targeting a global market. In Australia Cuscal, provides payment economies of scale to the 100 or more credit unions who server over 7 million consumers. These credit unions have been able to deploy technology solutions to their customers that rival the big four, by amalgamating their resources and effectively outsourcing it to Cuscal. Individually they would have almost no chance to compete.

Most of this spells opportunity for banks and non-banks alike. Banks have an enormous amount of trust. When it comes to handling large volumes of payments and money, such as that tied up in retail mortgages and business lending it is hard to imagine a world where the history and governance of banks and the central banks that hold them together are no longer warranted, or valued by large swathes of the population. It does however spell a new world of competition and cooperation between banks, non-banks, old guard and start-ups. As banks are faced with the competing challenges of running day to day operations and hitting quarterly returns, smart movers such as BBVA are embracing non-banks and start-ups in particular to create new businesses at a pace and scale they can’t match. This is particularly likely in areas that are new or complex, technically or regulatory, such as mobile payments and digital currencies. How for example does a bank launch a digital currency when so many of the central banks are highly sceptical, seeing them as the preserve of crime and the whole concept appearing somewhat counter preservationist? On the flipside ItBit has just raised $25 million in funding and become the first virtual currency firm to receive a charter from New York state’s financial regulator, enabling the exchange to open its doors to customers throughout the US.

In Payments 102, we’ll look at some of the regulatory conditions under which the systems operate and why risk management is a fundamental part of not only how banking operates but how it will either block or enable banking and payments to occur going forward.


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