Carpadium Consulting

It appears like NAB is continuing to put downwards pressure on fees, with the recent announcement that it will further lower fees on accounts and card products.

Along with earlier announcements by NAB and others, this is all very welcome news. However, you can start to get a sense of the scale of the fee regime here in Australia when we see one of the big banks foregoing an alleged $110 million per year in revenue at what has routinely been called the worst financial crisis for a generation. Quite clearly, things are not so bad that they can’t afford to take a lazy $110m of the bottom line.

Now that this fee reduction program has really kicked off in earnest with the major banks, you are starting to hear them using “low fees” language in their communications, so it is obviously something that is resonating with consumers. There is still quite a long way to go, but it certainly seems like things are moving in the right direction. Unfortunately, there has not been much movement on fees and charges for businesses – a fact that is just now starting to get some public attention.

I imagine that we will see all of the Big 4 come more or less into line over the next 6 months or so on fees for retail customers. It remains an open question if any one of them will blink and start reducing fees for business customers.

M@

The Australian is reporting that CBA is in the process of rolling out contactless payments, apparently with a view to shortening the lines for pie and chips and your next footy match.

I think this is a good move, because I believe that it can have a real impact on the way people make purchases. If you can cut down the time it takes to make a payment, then you can obviously cut down the time taken waiting in line. This will obviously be really good at the big venue scenario, where you often have to wait a very long time in huge queues.

However, there is another angle where it could be very useful: public transport. There has been a long running effort to try to roll out a stored value transport card system here in NSW. This is similar to existing systems around the world, with the exception that our Government has not been able to make it work as yet. Perhaps an alternative to building a new stored value system specifically for transport would be to make use of one of these emerging contactless payments mechanisms? If done properly, this would obviate the need for a dedicated stored value card system altogether.

It will also be interesting to see how the fees and charges work. In the past, this is something that the banks would have placed a whole bunch of new fees onto from the outset, but my sense is that there is a bit more competitive tension these days between the Big4 banks on fees, so I’m guessing that there will not be too many (at least in the short term).

M@

I read this article today from the online version of the New Yorker, and thought that it was really interesting. I particularly like this bit:

… In a famous 1960 article called “Marketing Myopia,” Theodore Levitt held up the railroads as a quintessential example of companies’ inability to adapt to changing circumstances. Levitt argued that a focus on products rather than on customers led the companies to misunderstand their core business. Had the bosses realized that they were in the transportation business, rather than the railroad business, they could have moved into trucking and air transport, rather than letting other companies dominate.

I think this is precisely the same problem a whole bunch of the current crop of what we might call mainstream businesses are facing – from broadcast TV through to retail banks. They don’t get who their customers are, and so consequently, don’t really understand what business they are in.

Television is facing this problem as well (perhaps a little behind newspapers) but the evidence is clear that many of the established players are struggling for relevance. Their customers used to be advertisers, but as soon as you have a direct connection between content producer and content consumer, the real customers can bypass intermediators – especially when broadcasters treat content as little more than an inconvenient interruption between advertising messages. Punters no longer buy this, and are increasingly chasing alternative forms of entertainment.

The New Yorker’s comments are particularly germane to retail banks (especially in Australia) because very few, if any, seem to get the fact that their relationships should be customer-driven, not product-driven. They just about all focus on products, with the customer an incidental attachment that has more to do with how data is stored in the underlying technology than it does to do with valuing the relationship between institution and individual.

I blogged about this very point about 12 months ago, and Ian Verender in today’s SMH made some similar comments in his rather scathing analysis of the Australian retail banks.

So, in addition to coping with the global financial crisis, perhaps banks need to add something else to their list of external shocks: the death of the product-driven business model?

I wonder when we will see a truly customer-driven bank emerge in Australia? Given recent consolidation which makes our market even more concentrated than before the GFC, I’d say it will be a while.

M@

It strikes me that there is a really deep flaw in the way traditional core banking systems model the relationship between an institution and the end consumer. Often these systems are product-based, with the customer’s relationship with the bank modelled as an artefact of the origination process. I have heard this described as “inverting the customer/product model”. To me the standard product-based approach is basically backwards. I should be able to have a relationship with the bank that is independent of any particular product. Of course this is changing with modern CRM systems, but the fact remains that there is a huge underlying legacy of core banking systems that seem to have the basic abstraction wrong.

M@