The Apple Card Cometh

Apple card

A bank in the making? (Computer image courtesy of Wikipedia, licensed under the Creative Commons Attribution-Share Alike 2.0 Generic license. Chip image and type added.)

Innovation doesn’t always move forward. Sometimes it circles back.  

For instance, Amazon saved you from having to travel to physical stores, and then circled back and opened physical stores.

Starbucks made it so you’d never again have to brew supermarket coffee at home, and then circled back and placed its products in supermarkets so you can brew coffee at home.

The cellphone industry all but obviated wristwatches with its time-displaying phones, and then circled back with smart wristwatches.

And now, after creating Apple Pay so you wouldn’t have to carry around plastic cards, Apple has circled back and joined forces with Goldman Sachs to offer a plastic card.

The Wall Street Journal broke the story on February 21, reporting:

Apple Inc. and Goldman Sachs Group Inc. are preparing to launch a new joint credit card, a move that would deepen the technology giant’s push into its customers’ wallets and mark the Wall Street firm’s first foray into plastic.

Neither Apple nor Goldman Sachs made themselves available for comment, so other news media reported on the WSJ story. According to NPR, Apple and Goldman hope to introduce more than just another credit card.

… the card will be integrated with the iPhone and offer features to track spending and points …Rather than competing with other credit cards offering lots of points, the Apple and Goldman Sachs card may try to attract users with features that emphasize budget management.

Finextra points out that Apple is positioned to bring to the party features beyond the reach of competing cards:

The new Apple-branded card will offer cashback rewards for spending and will be complemented by new iPhone features designed to help users to track rewards, set spending goals and manage their account balances.

The Apple credit card will rely on the Mastercard network, so card users will likely earn cash rewards of around two percent for general purchases with the possibility of more for purchases of Apple products. “Beyond the bonuses,” CNBC reports, citing the WSJ article, 

… Apple and Goldman Sachs hope to attract users with extra features in the technology company’s Wallet application, such as tracking rewards and spending, as well as managing account balances.

It doesn’t take much imagination to see why Apple would want to venture into new profit areas. iPhone sales declined 15 percent in the last year. Perhaps the plastic card and smartphone combination will boost sales of both in an upward spiral. 

From the same CNBC report:

Apple is trying to up its take of iPhone credit card purchases, as the company currently gets a small cut when users make purchases through Apple Pay. Additionally, Apple is looking to boost revenue from things other than gadgets, and the payments space is in the midst of intense competition from banks and tech startups.

Finextra adds that the move is …

… part of a push by Apple to focus on fee-generating services and it continues Goldman’s campaign to appeal to rank-and-file consumers.As for Goldman Sachs, the NPR story says “… the card appears to be part of its effort to capture new customers: the middle class.” PYMNTS.comsheds more light on what’s in the deal for Goldman:

… as securities trading wanes as a business, the company [Goldman Sachs] has pushed into online lending, notably through Marcus—and reports Thursday said the company would offer Marcus and wealth management products to Apple users.

As for Goldman Sachs, the company has committed no small investment to the venture and, in fact, has begun spending. According to Reuters

Goldman Sachs has already started adding customer-support call centers, and building an internal system to handle payments, a project that could cost the bank $200 million, WSJ said, a time when banks are focused on reigning in expenses to boost their bottom lines.

As I wrote last week, adaptation is the paramount business tool for surviving a changing environment, which today’s digital world is. There is no better example of adaptation than Apple Inc. Since its 1975 launch, Apple went from fledgling circuit board maker, to personal computer company, to smartphone maker, to tablet company, to music purveyor, to movie streamer, to applications marketer, to smart-watch maker. 

Apple stuck a toe into the waters of financial services with Apple Pay. Evidently it found the water temperature agreeable. The introduction of a credit card could be a serious step toward Apple’s adapting into a increasingly bank-like entity.

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Adaptive Blackberry takes the wheel

Blackberry w Wheel

Blackberry: Your future chauffeur?

Remember Blackberry? It’s still around—and making headlines. The company just announced its $1.4 billion cash purchase of Cylance, known among other things for AIs that guard against cyberattacks. And in particular, the autonomous car industry has taken notice.

A little over a decade ago, you weren’t cool, much less current, unless you were packing a Blackberry phone. With its tiny mechanical keyboard, groundbreaking trackball, full-color screen, and ingenious, secure integration of text, email, phone, and Internet capabilities, Blackberry was the bee’s knees. So strong was users’ dependence on the darned thing that envious people stuck with fading-star phones like Nokia ruefully dubbed it “crackberry.” 

Yet today, and perhaps you have noticed, not many people are walking around with their eyes and ears glued to Blackberrys. Its demise began in 2007, when Apple debuted iPhone. At the time, Google was set to launch its own phone with a Blackberry-esque design, but with one look at iPhone they round-filed their plans and went to work on what would eventually be the Android Operating System.

As for the folks at Blackberry, they succumbed to the temptation as market leader to rest smugly secure. Blackberry assumed, incorrectly, that their base would remain loyal. WordPerfect Corporation similarly miscalculated when, with the debut of Microsoft Windows, they elected to introduce another DOS-based product. By the time they came up with a Windows-based offering, Microsoft Word was well into eating their lunch.

There’s a lesson in there, and I don’t pretend to be the first to point it out: In a fast-changing environment, businesses and products that fail to adapt face extinction.

That sure has a familiar ring to it. It sounds a lot like this:

It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.

Were you to attribute the above statement to Charles Darwin, you’d be incorrect but in good company: just about everyone does. Actually, the phrase dates back only to 1963. It appeared in “Lessons from Europe for American Business,” an article written for Southwestern Social Science Quarterly by Leon C. Megginson, who taught at Louisiana State University at Baton Rouge.

To be fair, Megginson was attempting to summarize what Darwin was getting at. But what is significant for present purposes is that Megginson wasn’t a professor of biology. He was a professor of management and marketing.

It wasn’t long before the folks at Blackberry realized they were being left behind. When they hurried and introduced the all-touchscreen Blackberry Storm, it was too little too late, and the device pulled poor reviews. Hoping to cash in on the tablet frenzy, Blackberrry introduced the Playbook. It was feature-poor and also pulled bad reviews.

In 2013, Blackberry brought on John Chen, known for turning companies around, made him CEO, and charged him with the company’s rescue. Under Chen’s leadership, Blackberry adapted—by exiting the phone business. Choosing to capitalize on legendary Blackberry security, the company reinvented itself as a provider of secure mobile device management software. Apps the likes of Blackberry Work, Blackberry UEM Client, and Blackberry Access enjoy a solid reputation and respectable sales.

It wasn’t the first time Blackberry adapted to a changing environment. Prior to making phones, the company, then known as RIM (for Reality In Motion), broke significant ground when it introduced two-way pagers and, later, email pagers. Phones came along yet later.

The Cylance acquisition is definitely a visionary step in Blackberry’s ongoing adaptation. Last week, calling itself “… a billion-dollar cybersecurity firm with the technology portfolio enterprises need to intelligently connect, protect and help build secure endpoints,” Blackberry announced that it had …

… completed its previously-announced acquisition of Cylance, a privately-held artificial intelligence and cybersecurity company based in Irvine, California.

“Today BlackBerry took a giant step forward toward our goal of being the world’s largest and most trusted AI-cybersecurity company,” said John Chen, Executive Chairman and CEO, BlackBerry. “Securing endpoints and the data that flows between them is absolutely critical in today’s hyperconnected world. By adding Cylance’s technology to our arsenal of cybersecurity solutions we will help enterprises intelligently connect, protect and build secure endpoints that users can trust.” notes that the addition of Cylance positions Blackberry to participate in a big way in the autonomous car market: 

BlackBerry Engineering VP Rupen Chanda told PYMNTS about the large amount of data that needs to be processed and protected in order for connected cars to operate securely … “We’re talking about literally hundreds of millions of lines of code—and automakers will be responsible for making sure it is all up to industry standards and secured against attacks from cybercriminals.” … The unfortunate reality, he said, is that cybercriminals are already working hard to crack car systems, and will only work harder as cars become more connected and increasingly software-dependent.

The idea of a hacker’s taking over your car while you nap in the backseat is unsettling to say the least. Who knows? The maker of that once-cool phone may one day save your life in traffic. Of course, if Blackberry and Cylink get it right—there’s every reason to believe they will—riders will remain unaware of the close calls they never had.


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The age of AI

BotIf you’re going to produce a drama with an Artificial Intelligence unit as a principal character, here’s a tip: be sure the AI unit turns evil and dangerous. Sweet, empathetic AIs like David in A.I. Artificial Intelligence and Andrew in Bicentennial Man tend to land with a thud. We humans like our AIs scary, thank you very much. We demand the likes of the androids in Westworld, Ava in Ex Machina, the terminator in The Terminator, and Hal in 2001: A Space Odyssey.

The AI-amok trope conflates artificial intelligence with artificial self-awareness. It makes for a great thriller, but it’s like conflating singing soprano with using sound to break apart planets. AI—real AI, not movie AI—refers to machines that learn and make decisions. Examples include search engines that learn your content preferences, digital cameras that know how to blur backgrounds, apps that can beat in you a game of chess, and smartphones that can tell you how to find the nearest Starbucks. Yet none of these applications is self-aware, and none has any means of locomotion. You don’t have to fear that, someday, fed up with your incessant questions, erica will decide to go after you with a kitchen knife.

erica is but one example of just how firmly embedded in financial services AI already is. The AI app is remarkably competent when it comes to delivering efficient service with, ironically enough, a personal feel. Sameer Maskey noted in a Forbes article that erica* is …

… accessible 24/7, and it can perform day-to-day transactions. This allows clients to have access to services at any time without costing more money hiring customer service personnel.

On a like note, members of British cooperative financial institution Nationwide Building Society will soon be interacting with Arti, an AI who works with a bit of help from IBM’s Watson. In an article dated February 15, Finextra reported:

Nationwide Building Society is to launch a virtual assistant as a first line of support for first-time home buyers, responding to preliminary inquiries. The new bot, dubbed Arti, will apply learnings from IBM’s Watson Assistant to respond to online queries from home buyers. As the conversation progresses, Arti will escalate questions to a human agent as needed …

… “Enterprise-grade AI virtual assistants are more than just chatbots,” says Beth Smith, general manager, IBM Watson. “A true enterprise assistant understands when to search from a knowledge base, when to ask for clarity and when to direct users to a human – helping to resolve more requests while reducing misunderstandings and alleviating frustration for both employees and customers.”

Watson is able to learn on the job, refining its answers to respond to more complex queries.

Useful as erica and Arti are, AI does a lot more in financial services than answer basic questions about accounts. AI is fast becoming indispensable to investment services. An article in Customer Think notes:

… the data regarding financial transaction can help the bank understand the expenditure pattern of the customer. The bank can come up with a customized investment plan accordingly and also assist the customers for budgeting. What’s more, banks can send the notification about the advice for keeping a check on the expenses and investments based on the data … 

… Globally, hedge funds prefer AI-based models. It is because AI-related tools can fetch real-time data from various financial markets across the world. Also, AI models can analyze the mood or sentiments of different financial markets and come up with an accurate prediction. These inputs and sophisticated algorithms make AI models capable of assisting the users to take decisions quickly.

Hedge fund trading and management can be done on the move with the help of AI-based mobile app solutions for the banking sector. These solutions help the banks to mitigate the risks associated with overexposure and user intervention in the market.

AI is also proving its mettle when it comes to fraud detection and prevention and cybersecurity. Take, for instance, Citi’s Feedzai, which Emerj describes as …

… a leading global data science enterprise that works in real-time to identify and eradicate fraud in all avenues of commerce including online and in-person banking. Through its continuous and rapid evaluation of large amounts of data, Feedzai can conduct large-scale analyses. Fraudulent or questionable activity is identified and the customer is rapidly alerted. 

The service also assists payment providers and retailers in monitoring and protecting financial activity in connection with their companies. To prevent fraud and monitor potential threats to customers in commerce Feedzai utilizes “machine-based learning” to evaluate “big data” and potentially fraudulent activities.

I enjoy the AI-as-villain movie cliché as much as the next person. Even more so, knowing that moviemakers use AI to help in production. But it’s nothing to fear, despite scary sound bites from people like Elon Musk, who, according to people like Bill Gates, ought to know better. Someone may well someday figure out how to design a self-aware AI. Rest assured that it’s a long way off. 

*Here’s an example of AI: Just now, Microsoft Word stopped capitalizing the when I typed erica. Apparently it “knows” that after I undo the automatic correction a certain number of times, I must be using the lower-case on purpose.

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“Deal Frenzy”?
More mergers and acquisitions headed our way

MergerBouquetMergers that don’t make national news might create the impression that bank M&As aren’t frequent. The opposite is true. Last week, the Federal Reserve listed 163 pending financial institution merger or acquisition applications. And that’s just in the United States.

But some mergers have caused buzz, like the planned mergers TCF Bank with Chemical BankFifth Third Bancorp* with MB Financial Inc., SunTrust with BB&T, and Alibaba’s Ant Financial’s pending takeover of Worldfirst.

As reported by Bloomberg, Bank of America CEO Brian Moynihan suggested at last month’s World Economic Forum in Switzerland that the merger trend may produce new megabanks:

“How does somebody emerge? The same way we emerged,” Moynihan said. “The emergence will come out of the consolidation of another round of people which still has to happen in the United States. There are now 6,000 odd banks, and you’ll find them continuing to consolidate.”

In the same Bloomberg article, Citigroup Inc. CEO Michael Corbat referred to the current trend in mergers as a “deal frenzy” and suggested a catalyst: “In the U.S. today, there’s probably not much appetite for the big banks to get bigger.” To Corbat’s point, limiting the size of top-tier banks in terms of size may lead to the creation of new global contenders via mergers of penultimate-tier banks.

Not surprisingly, Senator Elizabeth Warren is not thrilled. Her recent letter to the Federal Reserve System’s Jerome H. Powell all but accuses the Fed of dereliction by “… summarily approving mergers.” But it’s no secret that Warren tends toward a binary view when it comes to banking. In one of her infamous senate committee grillings, she accused, “Cross-selling isn’t about helping customers get what they need,” but is all about “pumping up” stock prices.

Warren should know better than to argue all-or-nothing. Of course cross-selling can help stock prices, not to mention benefit banks in other ways. Yet for many if not most banks, better helping customers is implicitly and often explicitly understood as a vital condition. That cross-selling can help banks and customers is what we call non-zero-sum or win-win, an outcome that Warren seems not to acknowledge.

Non-zero-sum outcomes

Likewise, bank mergers and consolidations can accrue benefits to financial institutions and customers alike.

Containing costs may be the bank’s most obvious benefit. Consolidation means that only one, not two banks must meet the considerable expenses of regulatory demands and keeping up with technology. To be sure, cutting such costs nearly by half benefits banks, but it also benefits customers. As with any business, a bank’s costs are its customers’ costs. The fewer a bank’s costs, the fewer costs it must pass on to its customers.

Consolidation offers banks a fast, often lower-cost route to customer acquisition. The risk lies in whether acquired clients will prove profitable. Usually, the risk pays out, resulting in a stronger single institution than either component institution was on its own. Strength portends well for banks, but also for customers, and, for that matter, for economies in general. Safe banks are rather a good thing for everyone, customer or not.

Merging entities may profit from one another’s areas of strength, at the same time bringing one another’s areas of strength to their respective customer bases. SunTrust and its clients alike must surely be pleased to get their hands on BB&T’s digital banking app, which the 2018 MagnifyMoney Mobile Banking App Ratings ranked “best app among the ten largest banks.”

Consolidation can provide an economic boon to municipalities that wind up being home to a new, merged bank’s headquarters. The Detroit News’s Briana Noble wrote:

A proposed merger announced Monday between Chemical and TCF banks is expected to bring more jobs to the city, grow the tax base and expand philanthropic work being done to aid in Detroit’s recovery …

Gov. Gretchen Whitmer said the announcement is good news for the economy and the state’s future … “If we’re going to ensure Michigan’s success, we’ve got to attract more businesses to create jobs and boost the local economies in cities like Detroit,” Whitmer said in a statement. “This merger will create hundreds of jobs in the city, help local businesses attract the talent they need to thrive and provide investment throughout the state. I’m excited to work with everyone who wants to build a Michigan where more businesses move to for opportunity.”

Granted, consolidation can bring casualties in the form of branch closures and resultant job loss. In no way do I wish to trivialize the impact of such at the individual and family level. But I must also acknowledge the overall positive effects of mergers and acquisitions in the banking industry. Otherwise, Adam Smith’s “invisible hand” would have brought them to an abrupt halt centuries ago.

In place of “deal frenzy,” perhaps a more accurate and positive term might be “mutual strengthening opportunity.” Either way, the trend is sure to continue. In our business, mergers have been and likely will continue to be a way of life.


*Who thinks up these names?

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The end of a not-so-great retention tactic

Amazon Bank?According to a recent story by Steve Cocheo in The Financial Brand, “Millennials, Gen X and even boomers will ditch banks for Amazon.” 

Hold on. Even boomers? They’re the group that research usually shows as slowest to adopt nascent technology. But Cocheo cites a Novtantas report that …

… classified those who have switched banking providers in the last few months as “recent purchasers”. In the survey, nearly two-thirds of these switchers were either Millennials (47%) or Gen Z (15%). But one in five (20%) were Boomers, and an equal number were Gen X.

Moreover, writes Cocheo,

Part of the problem, according to Novantas, is that financial marketers overestimate the differences between generations, causing many banks and credit unions to drag their feet. Traditional institutions seem to think they can take their time responding to consumers’ digital preferences, assuming that older consumers are in no rush and will stick around. They are sorely mistaken.

It’s a fair point. A good deal of research indeed shows that younger generations adopt new technologies faster and in greater numbers. But it’s a mistake to infer that older generations are sitting idly by. “Faster and in greater numbers” in one group doesn’t necessarily mean “slow and few in number” in another. On the contrary, it seems to mean “not quite as fast and in not quite as great numbers.” One could well add, “… and not to be ignored.”

In the digital banking world, it’s prudent to recognize that the heat is on, and will only grow hotter. There’s no resting on laurels in the form of older generations while taking one’s time gearing up for the younger. And there’s no counting on the hassle once associated with changing financial institutions to slow the tide.

For that matter, the younger generations aren’t all that young anymore. Millennials and Gen X-ers were included in the Novantas study because they already account for significant numbers of customers. The wisest course is to pull out the stops to keep them—now—and not risk having to play catch-up to technology companies in hopes of winning them back.

The weakening of older retention strategies

Every financial services marketer knows that it’s easier and, therefore, more cost-effective to keep and grow a relationship than to hunt down a new one. We also know that (come on, let’s be honest) one bank’s array of products is pretty much like any other’s. That’s why in our industry we make customer retention a priority. 

Of course, the best way to retain customers has always been to provide such great service that wild horses couldn’t drag them away. Another is cross-selling, in and of itself a valuable customer service, assuming it’s done in the customer’s and not only the institution’s best interest. Yet another is to surprise and delight—offering the occasional freebie, sharing relevant news, or even the random thanks for being a great customer

Those approaches are still needful and valid. But a strategy that may be weakening is share of wallet. The idea is that the more accounts and services a customer has with one institution, the more loyal that customer will be. Or, to put it more cynically, the bigger pain in the ass it is for a customer to switch banks.

That’s not relationship-building. It’s restraint-imposing. And, thanks to the phenomenon known as digital banking, it’s fast vanishing. Much of what not long ago required a trip first to the prospective former bank and then to the prospective new one, with each trip involving having to face personnel and complete endless forms, has been reduced to a few touches or clicks.

But besides vastly reducing pain to the hindquarters, digital bank also opens customers to thinking outside the bank box. 

Some of you may remember when savings and loans existed. In their final throes, they had won the privilege of offering checking accounts. Credit unions already had that privilege. Technical differences distinguishing the three organization types were lost on the average customer, who tended to lump them all under, simply, “banks.” As long as a financial institution offered needful services, no one much cared what it was called on paper.

Today it is technology that opens new doors to convenience. So perhaps it shouldn’t surprise us that people aren’t uncomfortable doing their banking with technology companies in addition to—or in place of—traditional financial institutions. Especially a technology company like, say, Amazon, which, like banks, largely sells products available anywhere, but, as banks aspire to do, has built its customer base on the kind of convenience and service that’s by and large impervious to wild horses.

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