The Beginning of The End of Consumer "Banking"

Funny to see a story from John Gapper in the FT this morning, saying technology will hurt retail banks but not kill them, only a few pages before First Direct admits it mis-sold complex investment products to consumers.  While I agree that innovation doesn't 'kill' anything, and must co-exist with what it is replacing, John seems to have a misplaced faith in retail banks' ability to maintain their direct relationships with consumers.  Banks are steadily being relegated to the back-office of retail finance.

 

John may be right to point out that banks lose money on the limited activity of offering current accounts, and possibly even savings account functionality, so that these are not attractive areas in themselves for technology businesses to enter. But of course you can't view those 'products' in isolation. They are just part of the 'bait and switch' routine that banks operate to persuade people to part with their money so the banks can earn far more from using those funds for their own ends.

To understand what the tech companies are doing, you have to consider how much money the banks make out of the end-to-end activity of robbing investors/depositors of yield while fleecing borrowers with expensive loans - and making everyone pay a lot for slow-cycle payment processing. 

 

It is wrong to say that technology companies are merely playing at the edges of 'banking' by offering payment services and person-to-person loans. This is all part of the strategy for disrupting the 'banking' sleight of hand.

 

Tech companies know that if they can provide a decent, transparent consumer experience to savers/investors on the one hand, and those who need the funds on the other, then they are in a position to cut the cost of moving money between the two. In fact, the money may not even have to move at all: the important issue is who is entitled to it, and whether it is available. 

 

You don't need a bank to keep the data and transaction records that tells you who owns the funds. It's all just data, as Marc Andreessen is quoted as saying. 

 

And it's far safer to separate the transaction processing and record-keeping function from the cash, which should be held separately from the processor's own funds. That's how e-money institutions, payment institutions, P2P lending and crowd-investment firms are set up...  They may rely on segregated commercial bank accounts for holding that cash, but the banks who provide those accounts have no control at all over which consumers own the money in them, or what those consumers choose to do with it amongst themselves.

 

In the EU, the regulatory support for such new business models began in earnest in Europe in 2000, with the advent of the first E-money Directive, and has snowballed with the Payment Services Directive in 2007, a new EMD in 2009 and the proposed revamp of the PSD. There are now hundreds of these payment institutions in the UK alone. And it's no coincidence that the UK has led the way in both creating and regulating P2P lending and crowd-investment platforms.

 

All of this spells the beginning of the end for consumer 'banking'.

 

 

Facilitators and Institutions Defined

The distinction between 'facilitators' and 'institutions' is a theme that has emerged quite strongly in this blog and is discussed in Chapter 2 of Lipstick On a Pig. In essence, I've defined "facilitators" as organisations that exist to solve their customers' problems; and "institutions" as organisations that exist to solve their own problems at their customers' expense.

To be more specific, I've extracted the following characteristics that I believe mark an organisation as being one or the other. Broadly, these characteristics group into themes of alignment, openness, adaptability, transparency and responsibility.

So, a 'facilitator' is organised to solve its customers’ problems, operates openly, adapts well to changing circumstances, is committed to transparency and takes responsibility for the impact of its activities on the wider community and society.

I update this post from time to time and am interested in any comments you may have.

Facilitators:

 Alignment

• exist to solve problems that their customers encounter day-to-day as part of wider end-to-end activities (i.e. customers don't 'pay' or 'bank', they make a payment as a single step in a much longer purchase process);

• don't presume to 'own' the relationship with people who use their products, and see customers as the controllers of that relationship;

• accurately define real problems, assess their real scale, identify root causes and implement proportionate, efficient solutions;

• view the world through the eyes and experiences of people who use their products;

Openness

• are prepared to work with complimentary businesses to support their users' end-to-end activities (including linking to material produced by others);

• seek feedback, welcome input and criticism;

• interact well with users in open forums;

• are 'free-rider tolerant';

Adaptability

• are highly adaptable and responsive to criticism; 

• allow ideas to develop from staff and users bottom-up, generating passion and connection amongst them;

• see uniqueness, change and adaptability as a source of competitive advantage;

Transparency

• work to simplify their products and users' experience;

• their terms and communications are clear, fair and not misleading;

Responsibility

• seek to make the world a better place in which to live, addressing the impact of their activities on the wider world.

Institutions:

Alignment

• Exist to solve their own problems at the expense of 'their customers';

• View the world through the lens of their own products (whether goods or services), rather than the activities in which users are engaged when acquiring or using those products;

• Regard themselves as controlling the relationship with users. 

 Openness

• Resist criticism and change – believing that their own processes, judgement and publicity should prevail;

• Impose their own views on staff and 'their' customers, top-down;

• Interact poorly with users (if at all) in open forums, experiencing 'vicious cycles' of adverse publicity; 

•  Are 'free-rider resistant';

• Mandate the use of their own add-on services, even where these are inferior those available from third parties; 

 Adaptability

• See running with the herd, or 'fast-following' as a source of competitive advantage;

• Demand that 'their' customers must become more capable if their products or experiences are to improve; 

Transparency

• Deliberately adopt complex pricing, conditions and 'pressure' techniques in their sales and marketing activities;

• Rely on cross-subsidies to distort the attractiveness of new products;

• Their terms and communications tend to be unduly complex and legalistic;

Responsibility

• Avoid addressing the impact of their activities on the wider world.

Role of Social Media in Consumer Finance

Recent discussions about whether new entrants are pushing banks to the back office of the consumer finance space have prompted me to update several previous posts on the role of social media and brands vs facilitators.

Of course, "social media" refers to the co-operative mix of internet and mobile  network services that are themselves increasingly networked. Look at all the platforms or applications that enable people to send and receive Twitter "updates" for example. This enables sharing of content amongst users at a time and location that suits them and whatever activity they're engaged in at the time. Unlike the off-line media, we can  even have all our social media available on one screen. So any single social medium is merely a hint of something very much larger:

Anyone who believes we can predict the social network service that people will choose to manage their finances will be disappointed. Human physiology may be reasonably predictable, but human behaviour is not. There is no "mass" of consumers, no bell-curve to accurately describe their behaviour to enable us to predict with any precision how each person is likely to behave next. Even Twitter could disappear in a sudden puff of user indifference, like others before it. Black Swans are lurking - surprise events that have a huge impact and which we rationalise by hindsight.

Yet it's tempting to try to explain the social media as a reflection of numerous trends that signify a desire to assert control over our own personal lives and experiences. Perhaps this at least explains the birth of social media, if not the basis on which it will be sustained.

At any rate, the commercial challenge the social media currently presents for any business is how to facilitate the individual's desire for control, rather than be shunned for failing to do so or even for trying to resist or subvert that desire. This means presenting services that are designed bottom-up and which are highly flexible and adaptable, rather than inflexibly geared to suit the product provider's top-down view of the world.

To distinguish the two approaches, one might call providers of bottom-up, adaptable services 'facilitators', and the providers of top-down, inflexible products 'institutions'.  Another way of summarising the difference between them is that facilitators primarily exist to solve their customers' or users' problems, while institutions are primarily driven by the need to solve their own problems (like 'delivering value to shareholders').

The requisite flexibility and adaptability is delivered by the "architecture of participation" of the kind created by various Web 2.0 facilitators and their users that has enabled us to break down and personalise the one-size-fits-all experience traditionally offered by music labels, book publishers, retailers, package holiday operators, banks and political parties. Such facilitators make the difference between us 'raging against the machine' on customer 'help' lines in a lone, fragmented way and achieving real change by acting as individuals, yet in a concerted fashion.

In the social media environment, the consequences of institutions putting their own needs ahead of their customers can't be overstated. The institution risks tapping into the dark side of the trends mentioned above, and being exposed in a borderless environment of interested, active people. In public policy terms that means being exposed to the sense of frustration and disillusionment responsible for both the plunge in faith in society's institutions and declining articipation in formal politics over the past 30 years, and the corresponding increase in political awareness, informal political action and consumer activism over the past decade. In terms of change theory, people have recovered from their shock at the parlous state of  'the system' and are doing something about it. Similarly, that sense of frustration and disillusionment marks the turning point between vicious and virtuous circles of consumer sentiment and related publicity. This was a key difference between President Obama and the other guy.

This is nicely illustrated by the "Influence Ripples" graphic from David Armano's "Logic and Emotion" blog.

What struck me about this graphic was not so much the ripple effect of conversations about a product, but the 'aerial' view of the customer community (specifically in the case of Twitter, blogs and other "Level 2 Ripples"). This would seem to be a great tool to communicate about, and focus resources on, the architecture of participation users are relying on to personalise their use of a provider's products - a 'virtuous circle' - or bitch about them - the 'vicious circle' of adverse comment.
There are several instances of this dynamic at work, driven by privacy concerns (Phorm, the Data Retention Regulations) content ownership (see the ripples emanating from Facebook's revision to its privacy and content ownership terms) and straight "us vs them" (e.g. Ryanair's collisions over its 'idiot blogger' remark, which viciously spiralled on reports they were going to charge £1 for answering nature's call).

The dynamic relationship between facilitator/institution and its customers is extremely complex, largely because it is driven by the activity in which each customer is engaged at the time of interaction, as well as the stage at which each individual customer has reached in his or her relationship with the facilitator/institution or its product(s). The  following (rather crude) slide is my attempt to illustrate this complex dynamic in the consumer finance context (click to enlarge):

Finally, this dynamic is perhaps even more critical for B2B product providers to understand. Not only may their immediate business customers have their own social media presence (even if only to relate to retail customers), but the B2B service provider's own product is also part of the end user's experience. If the B2B provider's element of the consumer service or experience is unsatisfactory, sooner or later that fact will show up in the 'ripple analytics', and the B2B provider will come under intense public (and published) pressure to resolve the issue. This is happening increasingly in the area of public sector projects, for example, as taxpayers become alarmed at the terrible state of the public finances.

In this environment it's pretty much terminal for a business to ignore the social media or the supporting facilitators, and not to see itself as part of the social media mix. In fact, since we have the Webby Awards honouring business excellence on the internet, why don't we offer Webley Awards for businesses that don't get it (as in the old imperialist who retires to the library with his service revolver and a bottle of port)?

Does Individual Empowerment Risk a Social Void?

Oikonomics makes the excellent observation that "We consume not to conform and be like (or liked) but to be different and thereby feel that in some small way we are in control of our lives...However," he warns us that "instead of pulling together we begin to pull in our own individual direction leaving a void in the social world that needs to be filled if we are going to meet the collective challenges of the sustainability of our way of life."

I agree that control over one's life is the motivation for consumption, but I believe this enhances, rather than undermines, our ability to meet the collective challenges of sustainability.

I agree that (except for fads/crazes like yo-yo's or cabbage patch dolls), we really only consume what is useful in solving/controlling a real problem, and the trend is towards more personalised solutions. The challenge for product providers is how to facilitate that desire in a highly flexible, adaptable, bottom-up way, rather than dictate how it can be satisfied in a top-down, one-size-fits-all fashion. Brands need to be facilitators, not institutions.

I agree that this trend represents a growing 'void', but only to the extent that one size no longer fits all. We no longer share the same TV schedule. We don't all have the same experience of any web-based service that dynamically serves its home page to each user. We've unbundled our travel and music. Our computers and smartphones are each differently configured with different 'apps' [who ever thought 'apps' would end up a retail marketing term?!]. Each social network service 'feed' is unique. We are ignoring traditional, formal politics and congregating around single interest campaigns and informal deliberative processes.

And I agree that this growing diffusion of consumer experience is undermining the sustainability of our [current] way of life. In fact the tools that are enabling this trend, unleashing our ability to escape the institutional view of the world, have been a catalyst for the bottom-up realisation that the way of life preached by our institutions has become unsustainable.

Yet, for all these reasons, I must disagree that the utter diffusion of consumer experience risks creating a social void that threatens our ability to meet the collective challenges of sustainability. If anything, the trend has put us in a far better position to face those challenges in a concerted fashion than ever before.

Discuss ;-)

Internet Regulation Won't Stop Black Swans

I enjoyed Professor Michael Froomkin's recent "Golden Eggs" lecture on internet regulation. He foresees the future regulation of the internet being shaped by the tension between the 'Cypherpunk' vision for a distributed, democratic , libertarian environment - and 'Data's Empire' - where established institutions respond to the perceived threat of the internet by trying to create a centrally controlled environment. He cautions us not to be complacent or 'technologically deterministic'. There are opportunities for us to make real choices to avoid "killing the goose that is giving us golden eggs of innovation, decentralization, and personal empowerment".

This model does not only describe the two broad forces at work in the online regulatory environment. Generally, our individual desire to control our own experience tends to be opposed by institutions' desire to retain control of how they deal with us. Indeed, it might be said that explosive Internet adoption occurred because individuals pragmatically recognised and seized an opportunity for individual empowerment in the face of comparatively rigid institutional control in the offline world.

Yet institutions try to catch up, and the cycle continues. Michael hints at this when he notes "to a surprising extent both sets of trends have manifested themselves simultaneously. The question is whether those two trends can continue, or if instead we are witnessing the start of a collision between them." Of course, we are seeing collisions everywhere, all the time, between individuals and institutions each trying to control their relationships. Just consider all the markets, services and activities impacted by the Web 2.0 phenomenon, and the realisation that brands must become facilitators rather than institutions.

But we should also consider that 'control' is illusory. Human behaviour is not predictable and, while it may appear that people are acting in a controlled way in certain scenarios or under certain regimes, radical change is never far away. The fall of the Berlin wall and the credit crunch are two of many situations or activities which appear to be under fairly strict, central control but are in fact not - or at least not in any sustainable way. This is not a technologically deterministic view. It simply acknowledges the nature of the world. We are constantly exposed to the risk of "Black Swans" - surprise events that have a major impact which we rationalise by hindsight, as if they had been expected. Andy any inquiry into the why's and how's of such events is largely academic, albeit tantalizingly so.

So, while real regulatory choices of the kind Michael mentions may remain to be made, we should not count on those choices as having the intended effect of delivering 'control' for any sustained period of time. Regulation cannot possibly cover every eventuality, and is too slow to create, too blunt and too easily circumvented by anyone sophisticated and determined. Cryptography and the sheer volume of users and data make a mockery out of online access and content controls, centralised 'mining' and monitoring. We do rely increasingly on facilitators to find desired data and/or edit/adapt it in some way to make it more manageable for us or our devices - and these represent natural 'chokepoints' for regulators and commercial institutions, as Michael Froomkin points out. However, these chokepoints are also easily circumvented, either as described or by the rapid rise of the next facilitator or competitor, and related technological innovation.

This is not to say that those who purport to edit more actively what people see should not be subject to democratic controls over their exercise of editorial discretion. There seems to be (a somewhat surprising) acknowledgement of this in Google's decision to fund the Advertising Standards Association's efforts to regulate online marketing activity. The point is that new standards won't protect us from calamity.

The ultimate challenge, as Nicholas Taleb warns, is to minimise or avoid exposure to the potential downsides posed by Black Swans, while maximising one's exposure to the potential upside. To illustrate this in financial terms, it would be a mistake to borrow money to 'short' stocks, but worthwhile to invest a small proportion of your savings in Hollywood films. In the online world, Black Swans would seem to loom most obviously in the content arena - or perhaps fraud. Regulation is heavily focused in this area, but that is merely a signpost. We must take responsibility for our own practical choices. These include whether to share thoughtful or sordid content, to engage in copyright violation or to openly publish key personal financial data or photographs of your family. It's worth considering that the internet hasn't changed our propensity to behave well or badly, but may have amplified the outcomes.

To bring it down to a personal level, I maintain my anti-virus protection and avoid or minimise sharing what I'd regard as 'key' personal or financial data, even though there are comparatively fewer people out there who would use it to my disadvantage, since the impact their activity is so personally disruptive. However, I do acknowledge that the benefit to sharing certain limited personal transaction data - with credit reference agencies, for example, and some retail or social networks - can outweigh the downside of misuse. In these circumstances, you might think that more regulatory and commercial resource should be dedicated to quickly and efficiently restoring a person's control of their own identity once control is lost, rather than drastically limiting the availability of personal data or intervening too much in the exchange of information in social or retail networks.

Similarly, I post my thoughts and share others' because I hope they are better shared than consumed by me alone - and the (small) chance that millions might find such a thought worthwhile represents a very positive potential experience ;-). Conversely, I would not (even if I wanted to) create or share sordid content because it represents exposure to an extremely negative outcome. That said, I acknowledge a middle ground where (within reason) the assessment of what's merely in good or bad taste is hugely subjective and may change. For example, I recall being struck by the fact that 'topless bathing' was deeply frowned upon in Sydney one summer yet utterly commonplace on Bondi Beach the next. Similarly, we'll hear the last 'cautionary tales' of people losing their jobs over embarrassing photos of university hi-jinks once the 'Facebook generation' become middle managers.

The point remains, however, that we must take responsibility for our own personal vigilence, even if employers come to tolerate the odd embarrassing photo, or the government succeeds in tightening internet content controls. Those Black Swans will still be out there.

Market Research and Social Media

Today I presented again on 'Behavioural Targeting of Online Advertising', this time at the 5th Annual Online Research Conference in London. Not that I advise any clients in the area, but I've tried to keep up to date in light of the whole Phorm controversy.

Unfortunately I couldn't stay for the day, but I did catch the morning.

I enjoyed Mark Earls' presentation on the changing relationships between people and organisations, and the role of market researchers as mediators who can help everyone adjust to the new reality. It was also interesting that he picked up on the useful role that the tons of publicly available data can play, and that reminded me of Hans Rosling's excellent presentation on that subject at TED:



Mike Hall of Verve tried to define a new medium called the 'online brand community'. There was no time for questions but this seems to assume the brand is at the centre of things, and I wonder what Mike would say about the research value of comments people publish in the complete absence of the brand? In distilling the essence of community in 6 'rules', Mike also said that 'participation is the oxygen of the community'. But surely the 'oxygen' is whatever induces participation. And it's too simplistic to state as another rule that people participate online to obtain information. Some want to broadcast, others to listen. As the guys from InSites Consulting reported, people tweet to chat socially, 'show off' a rare URL, upload photos, or because they're curious, want a laugh or to be made to wonder. I guess that information is at the heart of all those things, but there's far more to it.

I'm sure the afternoon was just as thought-provoking. Definitely an event to keep an eye out for next year.

Gordo Got You Down? Try Power 2010!

If you aren't thoroughly disillusioned with UK politics and hell-bent on doing something about it, I don't know how much more mayhem it will take.

The good news is that even Gordon Brown admits he has to unwind his vast public sector binge of the past twelve years. The chips are really down.

But as the great HST himself said, "when the going gets tough, the weird turn pro".

So now is the time to ensure we get to keep and invest in what's important.

Enter Power 2010, a campaign chaired by Helena Kennedy and funded by the Joseph Rowntree Charitable Trust and the Joseph Rowntree Reform Trust.

Like MySociety, Power 2010 uses the internet to enable you to share your thoughts in a way that politicians cannot ignore without being called to public account. It doesn't matter whether Parliament is sitting or not. The internet is always on, 24-hours of disinfecting sunlight shining into the Westminster pit.

So please share your ideas now, at http://www.power2010.org.uk/page/s/yourideas.

Money - Like Music - Is Better Shared

Here are my notes/thoughts from a really interesting discussion that Bruce Davis of Oikonomics led last night, entitled "Finance is like the music industry in the '90s". Apologies, if I have misrepresented anything. Corrections welcome. Thanks to Bruce, and Thomas Barker for organising.

As individuals we actually share money, rather than 'consume' it. So we prefer to withhold it from those we perceive to be 'taking' our money and not sharing in return. Government and banks would fall into that category. Savings are perceived to be at risk, and not 'solid', even with FSCS guarantee.

We agree the terms on which money is shared or used in context, and that in turn may give it a very different meaning to the users. On that basis, "money" is not a static concept, but a dynamic (though it is basically useful as a means of showing individual contribution, or as a store of value).

Some people view a loan as a cash float or a credit, rather than a debit or debt - e.g. a student loan. This is obviously frustrating to those with a traditional or accounting based view of money, but has to be grasped to communicate effectively. Focusing on our use of money, rather than its value becomes instructive. Trials have shown that if you remove the interest rates from the outside of a bank branch, footfall at that branch increases. Maybe the FSA and the OFT should focus more on the responsible/irresponsible uses of money, not advertised rates and other indicators of 'value'. Responsible lending/borrowing initiatives are the tip of the iceberg, since there are many other uses. On this basis it seems right that there is no usury cap in the UK, since the contextual use of the money, not the rate alone, is key.

It is perhaps worth considering that money in very old economies, like the UK is customary, not created, as it is in newer economies, including the US. In the UK there's a tendency to feel it's somehow wrong to borrow, so we hide or ignore debt. This makes for worse overindebtedness, whereas making debt visible leads people to try to pay it off.

Peronally, we don't like being 'targeted' as 'consumers'. We prefer to be in control and demand products for our own reasons (which may change). On that basis providers should allow consumer to shape products.

It's important to demystify the various uses of money as a means of opening up its uses to people who may feel excluded by complexity and therefore not use or share money to theirs and others' advantage.

Bankers' view of money has shifted in line with Greenspan's admission that his assumptions about the efficiency of markets was wrong. As a result banks no longer trust in the concept of sharing money and and are hording it rather than lending it.

Benefits recipients might feel more encouraged if the benefit or pension is styled as money or an investment in them personally, or an attempt to provide capital, rather than merely 'care' which gets taken away if they find work or another source of income. There is a disincentive to return to work in that it takes so long to get back on benefits if you fail. Yet trial and failure need to be encouraged for low income earners, like any other form of entrepreneurship. Styling unemployement as a social issue closes off the economic, or entrepreneurial path out of it.

Some risk is good, whereas our nanny state is committed to removing the risk from everything we do.

Digital Britain

I should start my take on the "Digital Britain report" by making one thing clear: the fact that the government has issued the report is itself a Good Thing. The government does have a role to play in fostering and facilitating the growth of the digital world.

In that respect, the most important message in the whole document is this:

"We are at a tipping point in relation to the online world. It is moving from conferring advantage on those who are in it to conferring active disadvantage on those who are without, whether in children’s homework access to keep up with their peers, to offers and discounts, lower utility bills, access to information and access to public services. Despite that increasing disadvantage there are several obstacles facing those that are off-line: availability, affordability, capability and relevance."

However, the terrible news is that the detail of the report is merely a cascade of top-down recommendations to institutional problems, rather than a genuine attempt to clear the obstacles to every one of us seizing control of our dealings with government, banks, utilities, broadcasters and others.

Take the word "relevance" in the above quote, and consider the following passage that Technollama has extracted:

“The popularity of X-Factor and Britain’s Got Talent shows the enduring drawing power of content-creating talent that few people possess. The digital world allows more of that talent to find its way to more consumers and admirers than ever before. But it is not wholly democratic: some have the talent to create content; many others do not. As throughout history, there need to be workable mechanisms to ensure that content-creators are rewarded for their talent and endeavour. And the need for investor confidence is key. User generated videos can be hugely popular, but there remains a healthy appetite for big movies costing many millions to produce.”

It's a sad reflection on the government's understanding of digital Britain, that "X-Factor" and "Britain's Got Talent" are not only seen as "relevant", but also epitomise Britain's "content-creating talent". It is deeply insidious for the government to claim that the digital world is "not wholly democratic". This is view of the online world is simply false. The digital world is much, much more important, relevant and creative than is suggested, and hugely democratic - much more so than this government would like. Television and user-generated video platforms are merely a part of a co-operative mix of many different types of web site that are increasingly inter-linked and intertwined, enabling access to a huge range of content in different formats from different people at different times on different platforms and networks, depending on where people are and what they're doing. "X-Factor" is just one pixel on a much larger screen.

So let's not allow a few television shows to be the Trojan horse for a bunch of protectionist measures for Britain's beleaguered entertainment institutions.

Just because television has "gone digital", does not mean that TV content is a proxy or yardstick for all digital content. Similarly, the fact that a few record companies have made uncorroborated guesses that they'll make £1bn less in CD sales over the next 5 years, must not colour our view of file-sharing or distract us from understanding the value of Net Neutrality. Their digital music sales increased by 28% in 2007, after all. And they aren't the only people relying on the digital media to release music. Furthermore, several studies on the impact of file-sharing appear to negate the assertion that file-sharing adversely affects creativity.

It is great that the government has demonstrated a willingness to foster the growth of digital Britain. But it is also extremely disappointing that the "vision" is for us all to be glued to a screen watching wannabes singing other people's songs.

FYI, I've extracted the government's proposed "Actions" below, and may comment in more detail on some of them later:

• The Government will look to Ofcom to formalise the Consortium of Stakeholders to drive a new National Plan for Digital Participation.


• The Government will ask the Consumer Expert Group to consult and report on the specific issues confronting people with disabilities’ use of the Internet in Digital Britain.


• The Government will write to the Channel 4 Board asking it how it can further contribute to driving Digital Participation.


• In order to ensure the delivery of the Universal Service Commitment, we will establish a delivery body – the Network Design and Procurement Group – at arm’s length from central Government.


• The Caio Report recommended relaxation of regulations on the installation of overhead lines to lower deployment costs.The Government proposes to launch a consultation, by Summer 2009, on the impact of any amendment to the Code governing this.


• The Government intends to consult on the proposal for a general supplement on all fixed copper lines for a Next Generation Fund.


• The Government will have an independently produced guiding technical arbitration on the timing and cost of 900 refarming (and other related issues), paid for by an industry fund.


• The Government will work with manufacturers so that vehicles sold with a radio are digitally enabled by the end of 2013.


• On Digital Radio, the Government has asked Ofcom to consult on a new map of mini-regions.


• Alongside the Digital Britain Final Report the Government is publishing a community radio consultation seeking views on changes to the current licensing regime.


• Alongside the Digital Britain Final Report, the Government is consulting on a proposal to legislate to give Ofcom a duty to take steps to reduce copyright infringement.


• The Intellectual Property Office is considering the scope to amend the copyright exceptions regime in areas such as distance learning and the preservation of archive material and intends to announce a consultation on these later this year.


• The Government launched its copyright strategy


• The Government intends to consult on legislative reform in respect of orphan works.


• The Technology Strategy Board will lead and coordinate the necessary investment for Next Generation Digital Test Beds and has allocated an initial budget for £10m for this purpose.


• The Government will consult openly on the option of a Contained Contestable Element of the Television Licence Fee, carrying forward the current ring-fenced element for the Digital Switchover Help Scheme and Marketing (c.3.5% of the Licence Fee) after 2013.


• We will take the views of the Channel 4 Board on the draft updated statutory remit for C4 Corporation as set out in this Report.


• The OFT will amend its guidance to ensure that in cases relating to local and regional newspaper mergers raising prima facie competition issues the OFT will ask Ofcom to provide them with a Local Media Assessment.


• The Government is inviting the Audit Commission to undertake an inquiry into the practice of local authorities taking paid advertising to support information sheets.


• Commercial public service broadcasting liberalisation, including regional news, analogue licences and advertising minutage


• The Technology Strategy Board has assigned an initial budget of £30 million to advance Digital Britain related innovation.


• The Government will carry out a major test in late 2009 of our ability to manage and recover from a major loss of network capacity.


• The Information Commissioner’s Office plans to consult later this year on a new code of practice in relation to “Personal Information Online”.


• The Government will consult on the penalties that Ofcom is able to impose for contraventions of the Communications Act 2003 and, in particular, the level of the fine it can impose in relation to persistent misuse cases.


• Led by the Contact Council, chaired by the Cabinet Office, Government will take forward proposals for developing a Digital Switchover of Public Services Programme starting in 2012.


• We propose that DCMS, BIS and Ofcom carry out an assessment, to be completed by the end of this year, of the opportunity for bringing together some or all of the delivery agencies either into one body or through a federated structure to achieve economies of scale and greater operational efficiency.

Role of Social Media in Financial Services

There's been a lot of excitement about recent "research" to say that only 10% of people on Twitter are responsible for 90% of the content, based on "a snapshot of 300,542 users in May 2009."

This is excellent news. Because if the basis for institutional people dismissing social media has become this hokey, the online world must have become truly mainstream.

We can stop referring to "Web 2.0" and just get on with it.

Twitter is interesting not because it's Next Big Thing, but because it's another popular way for people to engage with each other, either by publishing your own thoughts or reading those of others, but in a bite size format. The report that "figures from research firm Nielsen Online show that visitors to the site increased by 1,382%, from 475,000 to seven million, between February 2008 and February 2009" against Facebook's 228% growth for a similar period, suggests that it can afford to leave a few people behind.

But are they really being left behind?

You can't analyse Twitter in isolation, or say that it's really competing against anything or anyone. Twitter is not a divisible or competitive "channel" or medium. It's merely part of a co-operative mix of many different types of web site that are increasingly inter-linked and intertwined, enabling access to content from different people at different times on different platforms and networks, depending on where people are and what they're doing. Look at all the platforms or applications that enable people to send and receive Twitter "updates" - including Facebook - http://apps.facebook.com/twitter/.

We can have it all. At once. On one screen.

All of which is to say that Twitter - like any one of the other sub-networks on the Internet - is merely a hint of something much, much larger:

Interestingly, James Gardner, the Head of Innovation and Research in a major UK bank, says that, for banks, Twitter is a stunt. He says it's uneconomic for a bank to communicate through the medium because - I hope I don't summarise unfairly - it's too expensive for banks to create content that's relevant to people at scale. "Surely no one," he says, "thinks Twitter is going to be a channel choice that many customers are going to use regularly".

You mean there are predictable channel choices?!

Human physiology may be reasonably predictable, but human behaviour is not. Anyone who believes we can predict the means by which people will choose to manage their finances will be subject to a rare but cataclysmic event - a Black Swan, if you will - that could send them down the tubes (I've often wondered where "the tubes" go...). In reality, there is no "mass" of consumers, no bell-curve to accurately describe their behaviour to enable us to predict with any precision how each person is likely to behave next. We are merely guessing, because there is a point at which all those highfalutin credit scoring and other "models" break down, as even Lord Turner is now convinced.

Even Twitter could disappear in a sudden puff of user indifference, like others before it.

It's only one hypothesis, but to me the social media reflect numerous trends that seem to signify a (currently) rising desire to structure our personal lives and experiences as each of us sees fit. The commercial challenge that presents is how to facilitate that desire in a highly flexible, adaptable, bottom-up way, rather than dictate how it can be satisfied in a top-down fashion. Brands need to be facilitators, not institutions.

To illustrate this further, I'd suggest that the very complex dynamic process by which individuals might, say, save or invest could (rather crudely) be depicted as follows (click to enlarge):



or this:

In this environment it's an incredibly brave yet foolhardy commercial decision for any business to ignore Twitter. It may as well reach for the Webley now.

Hey, we have the Webby Awards honouring excellence on the Internet.. how about the Webley Awards for businesses that don't get it?

Event Promo: Role of Social Media in Financial Services

On 16 June, the Financial Services Club is hosting a discussion about the role of social media in financial services. A senior central bank spokesperson commented that the event should be of special interest to banks:

If you wish to attend, members should register here and non-members should register here. Non members are invited to attend this and other events at the special rate of £95.00, plus vat, refundable if the individual subsequently becomes a member of the Club. Drinks and canapés are included and there will be an opportunity to network.

Is This Entertainment?

"The entertainment industry scored a rare victory on Friday," says the FT, reporting the prison sentences and fines handed out in Sweden to the four promoters of Pirate Bay.

Really?

As has been shown in the UK, there is no economic justification for spending public money on special life-support for the so-called "entertainment" industry's antiquated set of business models, let alone on imposing criminal sanctions. And doing so in the case of file-sharing only encourages these laggards to persist in their efforts to slow the development of an open internet to their snail's pace.

When lobbied for more public resources to tighten the entertainment industry's failing grip on consumers' wallets, Ministers should demand instead that the industry delight people to the point where they don't need or want to use the likes of Pirate Bay.

Now that would be a victory for the entertainment industry - and entertaining to boot.

Brand As Facilitator, Not Institution

I was jamming with Mark Nepstad on Saturday about the role of brands and their agencies in social media - as you tend to do on Shiraz - when he showed me a publication containing this graphic, which came from David Armano's excellent "Logic and Emotion" blog.

What struck me about this graphic was not so much the ripple effect of conversations about a product, but how comparing the data from each social network would give a supplier an 'aerial' view of their consumers' community (specifically in case of Twitter, blogs and other "Level 2 Ripples"). With that data the supplier is better able to organise itself to help improve, or facilitate, its customers' experience.

The challenge, of course, is to resist the temptation to use the data to interfere and manipulate in a top-down, institutional manner, rather than facilitate consumers' bottom-up assertion of control.

The consequences of succumbing to this temptation can't be overstated. A supplier risks tapping the sense of frustration and disillusionment responsible for both the plunge in faith in society's institutions and participation in formal politics during the past 30 years, and the corresponding increase in our political awareness, informal political action and consumer activism, particularly over the past decade. Similarly, that sense of frustration and disillusionment marks the turning point between vicious and virtuous circles of consumer sentiment and related publicity. It was the difference between Barack Obama and that other guy (though interestingly the informal tactics of the new President actually drove a return to formal politics).

As I've suggested before, it is the "architecture of participation" created by various Web 2.0 facilitators that has been a very real catalyst in this rise in personal, informal, direct action. It has enabled millions of us to experience what it's like to personalise the one-size-fits-all consumer experiences offered by the likes of music labels, book publishers, retailers, package holiday operators, banks and political parties. So it can be said that the facilitators of this architecture are making the difference between us 'raging against the machine' in a lone, fragmented way and acting together as individuals in a concerted fashion. And it's a thrilling ride.

Used to this end, the data about a supplier's "Influence Ripples" amounts to yet another tool with which a brand, as facilitator, can strengthen the architecture of participation from which the data is drawn to help consumers personalise their experiences involving the brand's products - a 'virtuous circle'. Conversely, the very nature of the architecture in which the influence is rippling means that any supplier who is perceived to be using, or likely to use the data for Orwellian purposes - to manipulate or interfere for its own institutional ends, rather than its customers' interests - must find itself in a 'vicious circle' of adverse comment. There are several instances of this dynamic at work in the privacy sphere, around Phorm, the Data Retention Regulations and the recent ripples still emanating from Facebook's revision to its privacy and content ownership terms. [PS. And here's another, hot off the press on 25.02.09, as Ryanair trades blows with 'idiot blogger' and, oh look, it's getting worse on reports they're going to charge £1 for answering nature's call].

Reassuringly, I see that Mr Armano came to a similar conclusion in his own post, entitled (coincidentally, I swear) "Brand as Facilitator". With some more very nice graphics ;-)

Long Tail Financial Services: Passion & Connection Require Social Network Services

Kevin Kelly has built on Seth Godin's discussion of the idea that there are "three profit pockets" on the tail of product popularity.

In brief, Seth says that the first two - at or near the head - are profitable for the creator, while the third - the long tail - is only profitable for the aggregator:

"The most common misconception about Long Tail thinking is that if you don't succeed at pocket 1, don't worry, because the tail will take care of your product and you'll just end up in #2. That's not true. #2 isn't a consolation prize for mass market losers. Mass market losers are still losers. In order to become a mass market star you make choices about features and pricing and quality--and if you lose that game, there's no reason to believe that those choices are going to pay off for a different market."

Kevin (with whom Chris Anderson agrees) says you shouldn't conflate the views of creator and aggregator, but view each section consistently from each perspective. True, because you then see clearly the challenge that each faces when products are in the long tail - albeit one that aggregators are able to meet more easily:

"...if we view the long tail as a market of a different type, as a market of enthusiasm and connection, then as the long tail expands, this increases the chance of two enthusiasts meeting, and so the longer the tail, the better. The first two pockets of the curve are trying to maximize profits; the last pocket of the long tail is trying to maximize passion and connectivity.

There is one further indirect advantage to the long tail. Since your creation now exists in a market (where it would not have existed at all before) it can, if you are lucky, start to migrate uptail."

This emphasises why creating a social network among interested buyers and sellers of each of the products, or sets of products in the long tail, becomes critical to maximising revenue from it. As discussed on Wikipedia:

"A social network is a social structure made of nodes (which are generally individuals or organizations) that are tied by one or more specific types of interdependency, such as values, visions, ideas, financial exchange, friendship, kinship, dislike, conflict or trade."

Facilitators' discussion boards, blogs and social network services all clearly help enable those buyers and sellers to find their type of interdependency - so do open marketplaces like online auctions, or simply knowing what people who bought one item also bought, or what other profiles they viewed, and so on. Ultimately, transparent, reliable, timely pricing and product description are key to sales.

Applying this to retail financial services is interesting, given current market conditions. Where's the passion? Well people get really passionate (angry) when there is significant change. The last time the most people got the most passionate about retail financial services was in the early '90s when many houses prices plunged into negative equity (the dotcom bubble-burst mainly affected the retail investment world - the preserve of far fewer consumers).

The Internet wasn't around commercially to help people get out of negative equity in the early '90s, but a whole "specialist" (and substantially sub-prime) mortgage industry ignited around the fact that 25% of the people who'd had a mortgage from a high street institution suddenly couldn't get one. Connectivity arose because their lawyers and other advisers knew that those clients who were "battlers" and worth a punt. They arranged loans from other clients or themselves, starting new mortgage and loan providers and brokerages in the process. All manner of strange, alternative finance deals became available - a veritable long tail of mortgages, secured and unsecured loans - and daytime television advertising hasn't been the same since.

Most recently, Northern Wreck sent a shock wave rippling through the UK population, and similar disasters are striking at US retail borrowing sentiment. But this time the Internet and social network services are there to facilitate connectivity amongst the passionate at the same time as the institutional and specialist mortgage market has panned. Coincidentally, social lending facilitators, like Zopa (2005) and Prosper (2006), are also on the scene, enabling individual consumers to lend and borrow at rates that suit them personally. Importantly, lenders decide how diversified they wish to be, and choose their borrowers. Zopa is still citing a default rate of less than 0.1%. These sites were started by people (and I confess to being one) familiar with the effect of both the dotcom bubble on personal investment as well as the early '90s issue of negative equity. They've had time to work on their propositions, strategies and tactics - the use of social networking tools being amongst them.

Of course, the long tail of products represented by online social lending did not really exist before (except perhaps more informally, off-line). These products are being created by the individual lenders offering their money, and the borrowers who post their requests for money (depending on the model operated by the relevant facilitator). Successful lenders, in particular, therefore challenge the notion that creators can't make money out of the long tail.

It's also worth keeping a look out for other shocks that signal passion in other markets - particularly those not yet disrupted by the Web 2.0 trend. Insurance? Pensions? I shudder to think of the disasters that will set those wheels in motion!

Prepaid Cards and Financial Services 2.0

A tip of the hat to Chris Skinner for his giant post on Prepaid Cards as a payment method.

Very timely, given the launch this week of Wigadoo:

"Collect all the money for your trip into an online event account with a virtual prepaid MasterCard®. When you come to pay for hotels, tickets or extras it's all ready and waiting for you to spend."

Chris laments that the banks are not the ones initiating prepayment tie-ups with retailers etc. But this expects too much of banks. As an example, the Wigadoo card is issued by Newcastle Building Society, but there's little chance that NBS could have dreamed up Wigadoo's use case, let alone implemented the user experience and the marketing plan. That's just not what financial institutions are good at, and it's taken the talent and experience of Andy, John and Uma to initiate and drive the whole thing, using angel money and input from the likes of Andy Phillipps and Brent Hoberman.

I've said it before, and I'll say it again: banks will be the back office, not the front, of Financial Services 2.0.

Politicians@LinkedIn

I was slightly taken abarack just now to see that someone in my LinkedIn network had added Mr Obama to their network. Having viewed the candidate's profile, I also see that other US politicians have created profiles. I was somewhat comforted not to have found profiles for Gordo or Dave, but concluded that this may be more to do with their own arrogance than any desire to spare people the dilemma of whether or not to add them to their networks.

I don't know about you, but I can't see myself adding a politician to my social network, unless they happened to be a trusted, real-world friend. And that's just it. As far as I know, none of my trusted, real-world friends are politicians (other than perhaps in the sense that they cope with daily cut and thrust of office politics).

I also reckon that to add a Politician to your social network is tantamount to drinking the Kool-Aid - it's never going to end well.

Too Early to Call Time on Web 2.0

It's fascinating to see the mainstream business press calling time on "Web 2.0". Presupposing that the Web 2.0 tag constitutes a definitive cohort of businesses who must be earning substantial revenues today, if they are ever to be successful...

This as just another consequence of the credit crunch, rather than evidence that it's suddenly crazy to start a web business dedicated to enabling users to take control of their retail, entertainment, financial and other personal affairs. It's a sign that the institutional herd is headed for safe havens and wants a slow summer at the beach, free of write-offs and any doubt that it might be missing key opportunities through its inability to invest in the current tidal wave of innovation.

But the curtain is barely up on Web 2.0, and at this rate the FT's core readership will miss the whole show.

There is plenty of non-institutional money to be had - and you don't need much of it - to help start a Web 2.0 business. The angel world is also still awash with pre-Crunch bonus money and the likes of ex-Googlers cashing in their options to do help Facebook or do their own thang. Seedcamp is happening again, and (the ironically named) Techcrunch is alive with plenty of news, even from Europe. Remember, too, that venture funding is not required to build any of the infrastructure necessary for Web 2.0 businesses to flourish. The big corporates in the internet game have taken on that job, and are still investing heavily to create the bandwidth and computing capacity on which low cost, web development start-ups like Ooyala are feeding greedily.

Seems to me that September is going to see a whole new tidal wave of innovative business launches - so it's gonna be a pretty intense summer for some!

Predictions for 2008 Revisited - Financial Services 2.0

I reckon my predictions for 2008 are looking like a pretty good bet:

"Gartner warns banks not to attempt to copy social banking practices, unless they can clearly establish a strategic intent centered on social welfare, as opposed to
traditional commercial return. Instead, banks should look to partner financial social networks, offering capabilities like transaction processing and risk management."

;-)