There’s no industry that more needs to change its game than financial services – and yet that seems so unlikely to do it. This is not because of the conservatism of banks, but because of the conservatism of consumers. In many ways, it’s a justified conservatism – ‘don’t mess around with my money’ – and yet things could be so much better for all of us. Cash machines and credit cards revolutionised money in the 1960s. Since then, we’ve had great but relatively small innovations, mostly from smaller players. In the mainstream, little has changed. But there are three signs of hope.
The revival of ethics
Why do we still so mistrust banks? In the UK, only one in ten people say they trust bankers to act in their best interests, according to Which?But one global bank is trying to do something about this: Barclays. Through its Transform programme, led by CEO Antony Jenkins, Barclays is shifting its culture towards making money ‘in the right way’. Employees who don’t accept values like integrity are told: ‘Barclays is not the place for you’. The change will take time, but it’s certainly in earnest. And around the world, Islamic banks, like Noor Islamic Bank, are becoming a mainstream alternative. They don’t charge conventional interest, they invest ethically, and they share profits and losses. Ernst & Young predicts that Islamic banking in the Middle East and North Africa will double in size between 2010 and 2015. Expect more banks to take ethics much more seriously: but who will do it best?
The transformation of payment
Why do we still carry a pile of coins, and a stack of plastic, around? Here’s where there has been change, with online payment systems like PayPal, contactless cards, person-to-person payment devices like Square, and mobile systems like M-PESA. Square, for instance, now processes $41 million in payments every day. And we’re on the brink now of cashless, cardless payment, as our phones and credit cards converge with innovations like Apple’s Passbook, Google’s Wallet and AmEx’s partnership with Isis Mobile Wallet. Expect rapid change in the next couple of years. One brand will probably emerge as the standard: which one?
The modernisation of advice
Why is there still no big, branded financial advice service? Financial advice is a huge industry, and the demand is growing – yet it has shown few signs of entering the modern world. When people don’t know which advisors they can really trust, alternative sources are doing well, often with a lot of peer-to-peer content. Moneysavingexpert.com in the UK reaches 13 million users a month. CaféMom is a successful forum on family financial issues targeted at mothers. SALT is a free membership programme from the non-profit American Student Assistance to help students manage their loans and take control of their money. These examples are promising, and expect much more. But which big brand will really grab the still-open opportunity for good, sensible, large-scale, mainstream financial advice?
Robert Jones is head of new thinking at Wolff Olins. Sami Mallis is a marketing associate at Wolff Olins London.
At a recent Share in New York, Wolff Olins had the chance to meet Jon Stein, CEO, and Eli Broverman, COO, the cofounders of Betterment, a startup that wants to bring simplicity, design, and a dose of behavioral economics to personal investing and saving.
Disrupting your savings account.
So how does it work? First, a user easily transfers money between their checking account and the Betterment tool. Then Betterment invests the money across a diversified range of options. Those options take into account a person’s net worth and income as well as modern portfolio theory. At any time, a user can adjust the risk that informs their investing strategy—if you’re more comfortable with risk your money can be invested in more stocks than bonds, and vice versa.
Jon and Eli, the duo behind Betterment, launched the company at the 2010 TechCrunch Disrupt, beating out 500 other startups to be named Biggest New York disruptor. Not bad for an SEC Registered Investment Advisor and a broker dealer regulated by FINRA and the SEC.
Betterment sticks out in three notable ways.
— First, Betterment’s design sensibilities are refreshing considering the cluttered and confusing user interfaces that populate many investing services. Jon describes this minimalist approach to financial services as “Apple meets Vanguard.
— Second, the cost of using Betterment is extremely attractive for anyone interested in growing their savings—there are no minimum balances, transaction fees, holding periods, or hidden costs. The only fee a user pays is a low annual management fee between 0.15% and 0.35%. To put this in perspective, the average mutual fund fee is close to 1.4%
Now, mind you, competitors can quickly emulate these two qualities. Banks can hire design firms to redo their website, and lean startups with enough funding can perform the same services for less.
— The third factor, and where this start up truly stands apart, is that it lets its users set goals which inform Betterment’s investing strategy. The ‘goals’ feature, implemented by Betterment after carefully listening to the feedback of their users, treats you like a human being, rather than a dollar sign.
Let’s say you want to purchase a car in 3 years. With a few simple clicks to provide basic information, such as how much you’d like to save, you can quickly set that as a goal. Next, Betterment recommends an investment strategy for you, considering your total net worth, salary, and investment goals. Goals range from the specific—purchase a new $40,000 car in 3 years—to the more nebulous—retire by the age of 60.
The purpose of money management is only superficially to make more money. At its core, the driving force of money management is to make more money to do things.Helping someone achieve their goals requires a deep level of trust, and a genuine interest in their circumstances.
Users and brands can work together.
The recent scandal at JP Morgan Chase over the manipulation of the London Interbank Offered Rate, or Libor, is only the latest in a series of events—perhaps beginning with the subprime mortgage crisis of 2007—to deepen the distrust citizens feel toward financial behemoths.
Betterment thinks users and brands can work together to better each other’s lot. It is this sensibility, that a company’s value is evaluated not only by its bottom line, but by its social impact, that we take to heart here at Wolff Olins. Ultimately, it is this sensibility that will separate the game changers, from everyone else.
(This is the fourth Future Patrol, a monthly series of macrotrend posts by WONY StrategistEmily Segal. You’ll see Wolff Olins’ established macrotrends called out with a hashtag.)
I. What it is:
Loyal3, launching in May, is a new startup that enables consumers to buy shares of companies (really $10 fractions of shares) directly on Facebook, an idea CEO Barry Schneider is calling “the ultimate ‘like’ button.”
Loyalty programs have already become a focal point for incenting consumer behavior, creating personalized perks, and gathering consumer data.
Loyal3’s move to put real stakes behind consumer engagement shows that loyalty is beginning to generate new revenue models. The #Hyperloyalty trend is about precisely this kind of consumer-focused shift from marketing to value creation.
Future Patrol predicts that loyalty programs will become an expectation for every brand –even in industries that have conventionally gone without them – with elements such as crowdfunding, branded currencies and extra perks for good social media behavior as key features.
“Most large companies – from Starbucks to British Airways to Sheraton to American Express – are evolving their reward and point loyalty systems into digital micro-economies, complete with redemption and exchange between systems.” (Cayman Financial Review)
Frequent flyers are the day traders of this new economy.
“Mileage runners are the high-tech nomadic wanderers of the air. Predominantly male, generally obsessed with flying and miles, and typically employed in white-collar careers that involve significant business travel, they scour the web for cheap flights, phoning in sick or using vacation days to fly the longest itineraries they can string together.”
GAMING THE SYSTEM
Loyalty programs – and games – are both about incenting customer behavior, and both use feedback loops and points to that end. But a loyalty system need not actually be a game to feel like one.
“Assembling a mileage run means deciphering complex fare rules and pulling together information from up to a dozen websites. It’s an achievement that tickles the same satisfying problem-solving centers of the brain as a Sudoku puzzle, and always ends in the deep-rooted human thrills of travel and flight.” (Wired)(“Frequent Flyer” documentary on Vimeo)
THE EMOTIONAL LANDSCAPE
Freedom is the best perk.
“Designing programs with an overarching theme of “freedom” can instill incredible power into our initiatives.” …. “Not “freebies.” But “freedom.” The ability to do things, to make decisions, to enhance one’s life, in ways that wouldn’t otherwise be possible. The word is telling. Many elements contribute to freedom, and, yes, the freebie is one such element. Others include privilege, convenience, assistance, guidance, choice and ease.” (“Freedom: Perhaps the ultimate aspirational reward” Colloquy Blog)
However, “freedom” is not the first word that comes to mind when integrating social media into loyalty schemes. Giving consumers deals or discounts because they have desirable social media influence is a marketing trend, but also can create a coercive situation in which consumers must forfeit deals if they want to preserve their privacy
+ Gilt Groupe provides extra discounts for users with high Klout scores
+ Amex / Twitter: The new Twitter integration lets American Express cardholder receive special offers by tweeting with a special hashtag. Initial partners include Zappos, the Cheesecake Factory, McDonald’s, Best Buy, Virgin America, and Whole Foods. In order to redeem a deal, you send a tweet with a hashtag and the offer is loaded on to the account. The credit appears automatically when the card is swiped. (Venturebeat)
+ Exchange systems like Pay with a Tweet, or Chime.in that exchange goods for social media “love” and personal data from consumers
+ Reputation currencies like Whuffie Bank (where you get discounts and rewards based on your online social reputation)
III. What this means for brand:
+ Extreme consumers and mileage runners have invented their own rituals around current loyalty infrastructures. There’s an opportunity for brands to leverage the subcultures that spring up around the way they architect their companies. What seems like extreme niche behavior today will likely be mainstream tomorrow.
+ Don’t become so seamless and ubiquitous that you slip beneath the convenience threshold. Failure and friction are important elements in building brand loyalty – and put the “social” in social media. Help your customers “play, fail, replay, achieve, succeed and progress” (LS:N).
+ Brands that make customers feel free are powerful, but the feeling of getting away with something may be even more powerful.
The world of personal finance is unnecessarily complex and overwhelming. In November, I wrote about Simple, an up-and-coming startup that hopes to turn the banking industry on its head. This week I wanted to highlight a few other startups that are simplifying and humanizing the way we perceive and interact with money.
Need to split up the restaurant bill? Need to write a check to your roommate for rent? Venmo makes transactions between friends fast, seamless and effortless. Add your bank account, and then start sending and receiving payments. Pay a friend back by simply replying with a text message or do it through the app.
My savings account has been collecting dust. For the past two years, I’ve gotten calls from my bank encouraging me to invest my money in a mutual fund.The jargon, opaque fees, over salesmanship has led to inertia. Until recently.
A couple of months ago, I stumbled upon Betterment, a new service that makes investing transparent, simple and painless. You don’t have to be a certified accountant to use Betterment; they translate the jargon and use normal, everyday language. You don’t need to have a lot of money to start investing; there are no minimum balances. Plus, you can make deposits and cash out whenever you want – without paying extra fees.
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Groupon, the daily deals provider, has generated so many customer complaints about how it markets its deals that it could face legal action unless it improves. Why? The portal maintains that rapid growth is at the heart of its problems - its internal processes and procedures had struggled to keep pace with its expansion. This is certainly not the first time a brand has become a victim of its own success. So, how can high growth businesses ensure that its functions keep pace with its growth? We put our heads together to come up with some advice:
Learn to say no: Just because you can doesn’t mean you should. This sometimes means denying the customer for a bit. Yeah. Heresy. The ‘customer’ is not an excuse for treating suppliers poorly, being underhand, or pursuing a business model that is actually inherently unsustainable.
Decide what you are going to suck at: Nobody is world class at everything. It’s a mistake to try to be. For Groupon, striking fair deals and marketing with integrity would probably be the ones to focus on…
'Going public' means just that: If you want to be treated like a big adult company, don’t expect to get let off because you’ve had to grow up fast. Make sure you’d be happy if everyone knew what you were up to. Adverts that make light of Tibet and unrealistic offers probably won’t cut it.
Great game-changing brands share something in common – a strong, driving purpose. Brands like Virgin Atlantic, IKEA, and RyanAir all have a clear sense of purpose, which guides the business and is attractive (or at least relevant) to their customers, employees and suppliers. Goldman Sachs (GS from here on) is a brand with clear purpose - it creates wealth for its employees.Wealth that attracts the smartest and most ambitious talent in the world. This purpose appeals to GS clients because they anticipate the smarts of GS will discover new ways to make money for them too.And so long as the bank’s clients believe in this link, stories and allegations like Greg Smith’s will continue to be storms in teacups. It’s not all plain sailing however. This constant chipping away at GS’s reputation is beginning to impact the employees where it matters to them – in their wallets.
The zeitgeist, fed by energized doe-eyed youth, is demanding better regulation (won’t work), moral responsibility in banks (never happen) and feels that morally bankrupt organisations (aka Banks like GS) don’t represent them.Small beer, since most instances they’ll never be prospects or clients of these banks.
But what happens when this poor reputation begins to impact GS people, as individuals?On leaving the bank, it’s going to be harder for a GS employee to land a plum non-exec or heavy-hitting public sector role. Furthermore, any company they set up will be under increasing scrutiny and skepticism (e.g. Ocado?). This is a shame because today’s world needs people with the GS smarts.It just doesn’t need any sniff of satanic or charlatanic behavior.
Consider the risks
So, is this brand broken?Not yet. But the risks to GS are that its clients start to turn on it, that it begins to encounter problems dealing with various governments or that it starts to lose its talent.
At the moment, the brand still works for GS’s clients – it’s still associated with the smartest people in finance – but again, it’s short term.And right now, it works for employees. Despite what the public thinks, it’s still the place the smartest people in finance want to be. But will they continue to work for an organisation whose reputation taints their future?
But the brand isn’t working for investors as hard as you’d have expected.Reportedly, $2bn dollars were written off GS’s market cap after Smith’s resignation – but bounced back the next day – after investors were reassured that clients weren’t leaving.Investors will have them on their watch lists.But, ever seeking a deal, watch for folks going short at the next PR hiccup.
If Goldman Sachs were my client
If I were a GS client I’d want assurance that my wealth and my interests were being handled properly. But if GS were my client, what would I advise?
The first thing would be to advise against knee jerk reactions to media – this is not an institution that needs a public rebrand (yet) – it does however need to bond with its clients and its people, fast.
Second. GS must know the facts on the impact and implications for clients. Find out if they have been affected and if they have, act decisively: reimburse, re-advise, change teams, get rid of people, change the incentives and reinstate long-termism.The key is to engage clients, reinforce the success and focus everything on them.And when the presses roll with the next bad story – be ready to talk to them immediately.
Third. Understand the implications for your people. Check the culture at all levels, what needs to change? Encourage people to speak their mind, clarify the grey line between dishonesty and self advancement, contribute to a discussion on risk and ensure you’re not limiting their actions.
Beyond this my advice would be to espouse your beliefs.Stop the puffery like the 2010 adverts but be brutally honest, say something with integrity and honour. And if what you say will continue to grate with the public (i.e. we’re here to make money for ourselves and our clients) then have an adult-to-adult conversation – explain you’re not the regulator – tell the industry truths.
Give your people a platform to show their selflessness and how they go on to create good things in the world (once they’ve filled their trousers for the lifestyle they want).I consider it completely appropriate for GS not to have an enormous PR driven CSR programme - the causes it does push have an economic rationale relevant to the GS brand.
GS’s brand is about enabling individuals to do what they want, it creates the ‘can do’ culture and attitude and like it’s clients, it lives with the flip side of this – arrogance.GS shouldn’t try and find a cause everyone can buy into and marshal them into delivering it– rather, it should be a platform to allow the smarts at GS to do what they do best. Having said that I’m unconvinced that a purpose based on 20th century capitalism will carry their brand back to the status they once enjoyed – essentially being the B2B equivalent of Apple.IBM hit it right with their ‘Smarter Planet’ programme, a purpose that guides the brand and resonates with the wider public.Let’s see what the smarts at GS make of it…
Charlie Stottis a Senior Strategist at Wolff Olins London. For more of his thinking on Goldman Sachs, watch him on Reuters here.
Thank you PSFK and The Daily Beast for pointing us to two new currencies we hadn’t heard of. One is called the “Nanto” and the other you might recognize from your laundry room.
No Money? Make Your Own
A French city called Nantes, population 300,000, will soon introduce its own virtual currency to complement the euro and encourage trade between its small local businesses. By next year, participating businesses will be able to pay or be paid in something called “Nanto.”
Accelerated by the financial crisis, Europe has seen a trend of small businesses looking to make more cashless exchanges. The WIR cooperative bank in Basel, Switzerland is already using a similar cashless payment system, but this is the first time a large European city is trying the experiment.
Tide laundry detergent has become the item to steal. According to reports in The Daily, NPR, and The Daily Beast, Tide’s recently become a major target for thieves from New York to Oregon, who are using it as a type of street currency because of its steadily high retail price. According to Planet Money, Tide’s street re-sale is anywhere from $5-$10 a bottle. It’s unclear if people are trading it for other goods, as well as cash.
While it’s hard to find hard data on this “trend,” there are loads of good anecdotes on the Web. For instance, one man in Minnesota stole $25,000 in Tide over 15 months before getting caught last year. It’s apparently enough of a problem that CVS is looking into special security measures to keep Tide on the shelf.
So why Tide and not Wisk or Seventh Generation? According to The Daily it’s all about brand recognition, both in the store and on the street. “Police say it’s simply because the Procter & Gamble detergent is the most popular and, with its Day-Glo orange logo, most recognizable of brands.”
Remember the future? Or at least the future of commerce? Always Open. Always On. Always Available. E-commerce was going to take the place of the so-called brick and mortar stores providing the consumer with convenient and immediate solutions to all theirshopping needs. Want to shop at 3am? No problem. Want free shipping? No problem. Never want to deal with a salesperson again? No problem.
This October, a report was published by McKinsey estimating that the Internet has contributed more than a fifth of the GDP growth in mature economies over the past five years. That’s remarkable, especially at a time when these economies are struggling to get their populations back to work––producing and consuming the domestic product. So if the Internet is our ace in the hole for economic growth, and you and I are the prospective producers and consumers of the product in question, let’s take a look at the situation in front of us.