The Long Tail of Banking: Define "Head" and "Tail" - Part 2

Fascinating post by Chris Skinner on The Long Tail of Banking.

In any such discussion, it's important to define the "head" and the "tail". In essence, Chris says:

"The Long Tail in banking would be a mass market of niche microgroups that incur no cost overheads to manage but, for each transaction, creates a small profit... You want to reach people who were previously underserved, because it would not be profitable....We are talking about children, students, the unbanked, the underbanked, the grey market, the welfare market, the pensioners, the migrant workers and more. And we are talking about social lending and saving, [e-payments], prepaid and mobile.... we need to look at prepaid and mobile for these folks."

I understand Chris to be saying that current bank customers are the "head" and everyone else as the "tail", and that the "long tail" challenge is how to get existing bank products (e.g. prepaid cards and mobile payments/banking) to the tail.

However, I view the "head" and the "tail" in terms of the breadth of product selection and related customer need, not the customers themselves. The long tail challenge being how to enable customers to find or create the product that is right for them personally. As Chris Anderson explained in his response to the recent HBR long tail review:

""Head" is the [product] selection available in the largest bricks-and-mortar retailer in the market... "Tail" is everything else, most of which is only available online, where there is unlimited shelf space."

The reason why Web 2.0 is now disrupting traditional retail banking is that banks and their direct competitors have followed a traditional "blockbuster" approach - marketing comparatively few, very inflexible products (the "head") and relying on those to attract most of the market, rather than trying to market the "tail" of products that would solve every person's individual savings, investment, borrowing and payments needs. Online facilitators, like Zopa and Kiva have spotted this, and created the means to enable consumers to create, or find, and buy the financial product that is right for each of them personally, in the same way that they can now design their own holiday instead of taking a package holiday. Using these facilitators, consumers effectively create thousands or even millions of "products".

Currently, the scale of participation in social finance platforms, and the resulting liquidity levels, only makes a long tail strategy feasible in the markets for retail savings, microfinance and personal loans. But at scale there is no reason why people can't finance each others mortgages, mutually assure general insurance type risks or offer short term trade finance for SME's and so on, depending on their individual need.

Of course, the financial wholesale or capital markets already operate like this, and long ago evolved "products", like spread-betting and CFD's, and user experiences, like City Index, that are better suited to individuals rather than large market counter-parties. Worth noting that BJSS, who helped build the Zopa platform, also developed various financial markets trading platforms.

I take Chris's point about mobile being critical to reaching the long tail, but viewing any one access technology as a gateway in itself risks a slide into "blockbuster" thinking rather than long tail thinking. To access the long tail of individual requirements, the market has to be as porous as the participants need it to be to create their own "product" whenever and wherever is convenient or useful for them. In practical terms, you should be able to (and now can) share or publish your loan request or "listing" via your pc or mobile to all the social network platforms, in the same way you can share a blog that you like.

The role of technology in creating the long tail of products that meet individual customer requirements in the payments space is perhaps a little different. The act of payment itself is very simple and doesn't need to change. But the "blockbuster" approach has meant that banks and other payments providers have treated payment as an isolated act, and supported it with a few inflexible products. Whereas, from a customer standpoint, payment is always embedded in a longer process, activity or scenario. In-store payments aside, it has been a real struggle to enable individuals to make payments and money transfers when and where they want to. Integrating payments with online shopping carts and ordering pipelines to create a satisfactory customer experience occupied the first 10 years of e-commerce development, and many still get it wrong. Mobile payments (not to be confused with mobile banking) has had several false starts and still suffers from a lack of standards and interoperability. This makes it tough to enable each user to make up his or her own payment solution to suit a specific scenario. But at least providers are now focused on solving real user problems in real scenarios - like enabling you to find a product and buy it while you're on the move or remittances from foreign workers stuck in remote compounds.

Mobile banking, on the other hand, still suffers from the old blockbuster thinking - merely offering access to the same old, inflexible bank products, rather than enabling users to make up their own. I'm sure the long hand of the Web 2.0 trend will enable consumers to get there eventually.

Reaction to eBay's PayPal-only Rule: a Lesson in "Web 2.0"

The reaction to eBay's attempt to require sellers only to accept payments via PayPal has reinforced a key tenet of "Web 2.0" - that facilitators provide an "architecture of participation" within which users interact and collaborate to improve the service.

Users will tolerate unilateral acts by the facilitator, as long as they trust that the facilitator is acting to improve the architecture - greater efficiency or more features, for instance - although these are clearly best introduced in response to actual user feedback or user behaviour, either on or off-site. Friendster paid the price for not aligning itself according to users' on-site experience and off-site behaviour.

Firsthand experience at Zopa also taught me that users will even tolerate the introduction of fees to the extent that it's a genuine attempt by the facilitator to achieve financial health and stability.

But eBay's decision to impose the PayPal-only requirement appeared to be neither genuinely facilitative, nor motivated by user feedback or behaviour. It hardly seems critical to eBay's financial health and stability. So users punished it accordingly.

Had users not reacted in this way, there might have been a basis for doubting the continuing validity of Web 2.0 as a description of what's happening in the consumer sphere. But clearly the trend rumbles on.

National Rail's Secret to Great Train Timing

The Long Tail: Define "Head" and "Tail"

Fascinating post by Chris Anderson responding to a Harvard Business Review analysis of sales patterns in the music and home-video industries to see if they support or undermine the Long Tail theory.

In short, depending on your definition of "head" and "tail", the data could be used either way. A somewhat obvious point to make about any stats, but nice to see the pro's slanging it out, and good ammunition for responding to use of "Long Tail" buzz words in pitches.

The slightly longer version is that HBR finds that the "blockbuster theory" holds even for e-commerce:

"A balanced picture emerges of the impact of online channels on market demand: Hit products remain dominant, even among consumers who venture deep into the tail. Hit products are also liked better than obscure products. It is a myth that obscure books, films, and songs are treasured. What consumers buy in internet channels is much the same as what they have always bought."

Hence, even online businesses should focus their resources on promoting hit products rather than obscure products.

However, Chris Anderson points out that:

""Head" is the selection available in the largest bricks-and-mortar retailer in the market (that would be Wal-Mart in this case). "Tail" is everything else, most of which is only available online, where there is unlimited shelf space."

Using that definition, the data supports more "tail heavy" consumer demand on the sites analysed.

View or join the ongoing debate!

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.