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October 17, 2014

Sending Money Socially

Posted by Rajashekara V. Maiya (View Profile | View All Posts) at 10:08 AM

In France, Transferring Money With Tweets [Source: http://www.youtube.com/watch?v=jHPC_J2iqC4]

The power of the proverbial wake-up call. Some of us are lucky to receive them. They keep us nimble and always push ourselves and our organizations to improve. But there are those among us who are unlucky; they're the ones who don't receive wake-up calls. Remember the man who, more than 100 years ago, said the 'horseless carriage' wouldn't catch on because of all the petrol stations that would have to be built to serve them? Then there was the executive in the 1970s - a computer company CEO, no less - who said he could never see people keeping computers in their homes.

Today we received a couple of huge wake-up calls. The question is: who will heed them and who will ignore them? The call involves the fact that a French mega-bank, Groupe BPCE, is teaming up with Twitter to allow customers to transfer money via Tweets. And that's not all. Indian private sector lender Kotak Mahindra Bank (KMB) has launched a Facebook-based instant fund transfer service where money can be transferred to users' friends on social media network in real time and for free!

This is earth-shattering news. In America, where I write this blog today on a business trip, you would be hard pressed to find a traditional financial services institution that is open because it's a bank holiday. Tomorrow, when banks re-open, most of them will keep traditional 'banker's hours', a daily schedule that has changed little since the 17th century. So anyone wanting to transfer money from one bank account to another (especially international wire transfers) will have to do a lot of waiting this week. Waiting for the money to clear one bank and then the clearing house and then the transfer agent and then the other bank. In an age when a Tweet can go around the globe in seconds, and go viral in a few seconds more (meaning it's been read by a billion people), why should banking customers have to wait patiently on a system that has largely existed since the late 1600s?

The French bank and the Indian bank's alliance with Twitter and Facebook respectively are indeed major wake-up calls. If I were the head of a traditional bank, I would be using my bank holiday today to call an emergency meeting of the board of directors and ask if something - anything - can be done to make a similar collaboration. After all, grocery chains like Sainsbury's and Tesco is the United Kingdom have entered the financial services arena. Bank branches are popping up in Wal-Marts across the United States. In 10 years, will anyone need a traditional bank if these trends continue? I doubt it.

Barely two weeks ago our CEO gave an inspirational speech on what to expect in the coming years. Dr. Sikka predicts it will be known as an age of software. Now I know exactly what he meant by that prediction. Any institution with the right software solutions can (following this particular example) become a banking institution. In fact, a consumer-oriented business would be silly not to use software solutions to offer banking services to its clientele. Is it any wonder, for example, that Facebook has applied for a banking license in Ireland?

In the case of Twitter, the money transfer service is ingenious in that payments will go through the Groupe BPCE's so-called S-Money service, which allows money transfers via text message and utilizes the credit card industry's data security standards. The money transfers can occur without either the sender or the recipient being a customer of Groupe BPCE. Of course, the French bank will get its commission from each transfer, not unlike credit card companies, as will Twitter. I suspect that whatever the additional fees are to make money transfers this way will be more than offset by people wanting to transfer cash immediately. Not that we all don't like banking methods from the 1600s...

Kotak Mahindra's service is built on a mobile-based Immediate Payment System, developed by the National Payment Corporation of India. In order to access KayPay (as the service is called), users will have to register their bank accounts. Facebook user id, password and an One Time Password (OTP) is used to authenticate the transaction. Once it's completed, the sender and the receiver will get notifications via SMS and Facebook.

Indeed, this week's announcements should be a wake-up calls all banks: innovate and collaborate ... or go the way of the horse and buggy.

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