The Open Internet Exchange

According to the FT:

"The new marketplace, called the Open Internet Exchange uses anonymous information about internet users’ browsing activity to serve up more relevant adverts.The system tracks recent sites visited by the user and any keywords they have entered to search engines to identify their interests, but replaces their identifying details with a random number that cannot be traced back.“We cannot know who you are or where you’ve been,” said Kent Ertugrul, chief executive.

The supplier of the technology, Phorm, says that consumers are given an opportunity to opt-out of having their browsing activity (anonymously) tracked.

The service is being promoted by participating ISPs - currently BT and Carphone Warehouse at Webwise.com: as their "response to consumers’ growing concerns and frustrations with the Internet. Webwise can help protect you from fraudulent “phishing” websites that may put your financial and personal data at risk. It also helps reduce the number of irrelevant, untargeted ads you see."

That site it is offering people the opportunity to opt-in as well as opt-out.

Question is will it be defaulted to "opt-in" when users sign up or next fire-up their internet connection?

And what will this mean in terms of advertising revenue?

"...analysts at Investec estimated that BT and Carphone Warehouse could see revenue benefits of £85m and £65m respectively.

The high margin nature of online advertising revenues meant this could benefit their 2010 earnings by about 1.3 per cent and 10 per cent respectively, Investec said."

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."

;-)

Credit Crunch Reveals Just How Much the Banks are in it for Themselves

The credit crunch is doing a great job of opening up opportunities that the banks can't service because they're too busy lining their own pockets rather than focusing on the consumer.

Resigned to the fact that retail banking “...is going to be less profitable than it is and is going to be growth constrained,” as the Chairman of HSBC put it last November, now the banks have been asking their otherwise idle credit teams to use your credit data in reviewing the current and likely future profitability of their customers.

The results? Rising fees and the withdrawal of products from low risk but unprofitable customers.

Nice one guys.

No wonder Gartner has warned 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."

Of course, it's not news that banks are more intent on their own profitability than solving their customers' critical needs. Until 2000, they enjoyed comparative immunity on this front because some of their activities are key to our economic stability. Then the FSA was given powers which reflecting society's concern that banks must minimise consumer detriment as well as systemic risk.

The problem for banks is that Web 2.0 'consumer empowerment' and the run on Northern Rock have unleashed our expectations when they are least able to cope.

B2B Lending

Gartner has recently warned banks that consumer peer-to-peer lending platforms are a force to be reckoned with. Any business with a UK consumer credit licence can lend directly to consumers at Zopa, but the timing also looks good for SME's to get into their own peer-to-peer market without the aid of the banks.

A recent survey commissioned by Belgian bank KBC amongst businesses with turnover of £10m to £1bn suggests that UK businesses are continuing to borrow, even at higher rates.

“The people in the real economy, not the financial economy, are saying: ‘We’re still going, but financial fuel is going to get a lot more expensive for us,’” said Cameron Marr, general manager of the London branch of KBC Bank.

At the same time, however, 70 per cent of respondents expect credit to become less easily available. They foresee the cost of borrowing rising and loan covenants becoming tighter. The number of corporate defaults is expected to increase."

Necessity, as they say, is the mother of invention...

Time is Right to Innovate in Retail Financial Services

Two reports this week confirm it for me.

The first was from MoneyExpert.com, as reported in the FT:

"Since the revised banking code made it easier for customers to change their current account provider in 2005, more customers have taken advantage of the option. Over a six-month period to the end of October 2007, the number of clients changing provider rose from 1.8m to 2.3m. “The switching index shows that around 300,000 people a month are choosing to change their current account provider, and overdraft facilities are an important component for choosing an account,” said Sean Gardner, chief executive of MoneyExpert.com."

... Customer dissatisfaction over bank overdraft fees, as well as concerns over financial security prompted by the problems of Northern Rock, have accelerated the number of switches made recently, according to Mike Naylor at personal finance website uSwitch.com."

The second was from the Bank of England, to the effect that unsecured lending to households and small businesses is suffering a large reduction, and spreads between savings and unsecured lending have widened and are likely to widen further during Q1 2008. In other words, banks are helping themselves to more of consumers' cash as a result of their exposure to the credit crunch.

So, customers are adjusting to recent banking shocks and making alternative arrangements. And, while the banks need to offer incentives to retain or attract those customers, their hands are tied when it comes to anything really substantial.

The timing is great for innovation and new entrants to the retail financial services marketplace.

Yet the key to how retail financial services should develop is how consumers actually view and use money. Today's products and infrastructure are generally designed to suit the banks and other product providers, and they are ill-equipped to innovate from the consumer's standpoint. I reiterate my November prediction for 2008. And for my money, the essential characteristics of Financial Services 2.0 will mean that banks retreat from "owning" customer relationships to back-office service provision.

PS 7 Jan '08: First Direct's recent offer of simply paying people £100 to switch current accounts and receive the same old products, underlines the lack of real innovation amongst retail banks. Note the requirement to take an extra product or maintain a balance of £1500 in a nil interest account in order to avoid a £10 a month fee. The only real competition amongst retail banks is in the size of their marketing budgets.

PPS 21 Jan '08: The proportion of Britons still getting their financial advice from high street banks has declined from 28% in 2003 to just 4%.