What do banks need to do to compete with nimble and high-tech financial services newcomers? Brett King, founder of Movenbank, BTN's 2012 Innovator of the Year, author of the new book "Bank 3.0" and sometime bank critic, sat down with us and shared his current thinking on where the industry needs to go, and the latest on Movenbank's delayed launch and the moving target that is his company's intriguing CRED reputation score for assessing creditworthiness.
What's the difference in message between your earlier book, "Bank 2.0," and your new book, "Bank 3.0"?
In "Bank 2.0," I was trying to raise awareness that multichannel banking is not an option or an add-on, it's going to become the primary way people bank, so you've got to get the infrastructure in place. It's only going to get harder for you to engage customers if you don't have a competent digital strategy.
Then I realized — and part of this came out of experience of building Movenbank and knowing the guys at Simple — that customers just want solutions to their day-to-day financial problems. For most financial issues, people need a bank product or service to be very contextual. Right now banks have the luxury of saying, "You can't buy that car or house until you come to us, fill out this paperwork, let us complete this risk assessment and then we'll decide whether or not to take you on as a customer." That's not efficient and it's not a friendly process; it's focused on KYC and traditional distribution mechanisms.
It's a myth that you can visit a banker and get great advice. We surveyed customers and 95% of them said they couldn't remember ever receiving any advice from a bank in a branch.
Banking has to work when and where you need it. The best advice and the best service in financial services happens in real time and is based on customer behavior, using principles of Big Data, mobility, and gamification.
When you talk about being contextual, are you thinking of things like USAA's and Commonwealth Bank of Australia's apps for home and car buyers, which guide the user through the entire purchasing process with an embedded real-time loan process for those who are interested?
I think those are great examples. You'll probably find two approaches to this. One is the relationship approach taken by CommBank and USAA, where they have a strong consumer base and can use these tools to build brand loyalty. But given the way the market is moving, your bank may have to detect you're in a car dealership and that you're in the market for a vehicle, so some of it may be driven by search and location. Car dealers and realtors may become great partners for banks.
Senator Al Franken is trying to reintroduce a bill that would govern the way companies use geolocation data. A lot of bankers are hesitant to start tracking customers' location data out of concern about what their own regulators will say. If Congress acts, that may put more pressure on the regulators.
I think you're right, there's going to be pressure. But keep in mind, there's always going to be an option for opting in where the customer willingly shares her data. I can't see an environment where Congress or regulators would prevent people from sharing their own data. We're moving into an economy where sharing this type of data in a tradeoff for some kind of value or service is becoming extremely acceptable, especially to Gen Y. We've got a billion people on Facebook sharing stuff we would never have thought people would share in the past.
How do you provide banking in context at Movenbank?
We want to be a bank that helps people. When you pay with your phone using Movenbank's contactless sticker, you get a receipt in real time displayed to the phone. You see your balance adjusted in real time, how much you spent at that merchant over the last 30 days, and how much you spend in that category. That's combining geolocation, PFM, and data we classify in real time. But the behavioral side of this is where advice is helpful. I grab a coffee and a bagel every morning for about $5- $7. If you asked me how much I spend at the coffee shop, I'd probably say $60-70 a month although I'm really spending $250 a month. That's shocking.
I was horrified to find out how much I spend on taxis every month in New York. I had absolutely no idea.
Are you taking the subway everywhere now?
I try to take it more. I still get in a taxi probably more than I should. I've stopped using Uber as much as I used to.
This is about taking control. We've got this rich data emerging about so much of our lives, but banking has remained passive and dumb in respect to this sort of information. Banks rely on our ignorance and overdraft fees. That environment can't survive.
It seems to me that in the scenario you describe, it would be critical to a truly complete and accurate picture of the customer's finances. Do you have a vision for that?
People can aggregate their accounts to our service. But the more powerful feedback is in real time as you're making a transaction. That's where we will differ from Mint and others. When we start promoting Movenbank, we'll just say, try a few transactions and see the feedback you get. You won't want to use your dumb plastic that doesn't give you feedback any more.
What network are you using for the contactless transactions?
We're using MasterCard PayPass.
Do you plan to incorporate other networks and payment types?
Absolutely. The reason we went with PayPass out of the gate is that its mobile payments are a bit more mature than v.me, the Visa product. Things will change rapidly on this front over the next two to three years. We're pretty agnostic as to the underlying technology. As long as it's cardless, and as long as you can get the feedback in a real-time receipt, we don't care whether it's PayPass, PayWave, NFC, PayPal, Square, or whatever. We'll plug in whatever cardless payment technology makes sense.
Last time we spoke with you, you were still developing the CRED score to assess customer risk, based partly on a person's social media activity and reputation. What does that look like today?
We've done a lot of consumer testing on this. Consumers repeatedly said, what does this score mean for me? The CRED score has morphed into a financial wellness or financial health score. As your score goes up, you're getting financially healthier, and as your score goes down, you're getting riskier and less financially healthy. As someone's propensity to save improves, their ability to service credit gets better too.
The way you do risk assessment sounds like almost the opposite of the traditional credit score. Where a credit score looks at how much credit you've had and how you've handled it, you're saying, forget the credit, look at how much people are saving and almost giving demerits for having cards and loans. Am I oversimplifying?
We do take the credit score into account. The credit score only tells you what someone has done in the past. The likelihood of default on a future credit facility may or may not be based on how you've serviced credit in the past. If you've lost your job and you've got a great credit score, the chances of you being able to service a big credit facility has gone through the floor, but the credit score is not going to tell you that. We wanted to look at not just the lagging indicators of your financial health but the leading indicators. The best leading indicator of your financial health is that you've got your spending in control. We've found that that's a much stronger indicator of future default risk than credit score.
Have you thrown out that idea of trying to measure the value of the customer's reputation?
No, that's still part of the CRED mechanism. We're going to test this a bit more when we start putting credit facilities out there. At Movenbank, we're focused more on managing spending and improving savings than on credit.
What's the latest with Movenbank? I know you've signed up Bancorp Bank, do you have any other bank partners?
We've got CBW in Kansas and there are a couple of others we will announce when we launch on February 25. We're still testing with friends and family right now, still getting transaction data in and tweaking the algorithms, making sure the classification engine is bulletproof. We'll probably convert the first 500 to 1,000 customers in March. We have 5,000 customers KYC'd. People will load money into the account through direct deposit, ACH funds transfer or whatever is easiest electronically. We have enough information to offer them a bank account.