Commentaries and insightful analyses on the world of finance, technology and IT.

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April 10, 2013

The Jumbled Pizza Cataclysm

Whenever I am handed out a new assignment, Lao Tzu always crosses my mind - "A good traveller has no fixed plans and is not intent on arriving". Sadly enough, neither my boss, nor the clients ever seem to agree...

...which leads to some memoirs from "The Chronic Traveller's Diary" - Having seemingly survived Continental Europe as a vegan (and yes, including the inevitable sacrifice of piquancy) and with just English on my linguistic arsenal, I was exultant to have to be in the Land of the Brits. Apart from the cold weather, which you could easily mistake for a North Indian winter, I was pretty much at home. And comes with that is the ability to find vegan, especially curry in abundance. And one day, I was out with a good ol' friend for lunch. Even as the food arrived, we were still not done jabbering; when suddenly, I felt tasting something unpleasant. I gestured to the waitress. "Is this Veneziana?" I queried as she came up. "Oh! This is the Americano your friend ordered" she said and coolly switched our plates. "Everything's ok, now?" she remarked with a beaming smile.

As we were dragging ourselves back to work, I couldn't help but think if this one experience would put me off visiting this Pizzeria? If so, would it because of the bad initial service encounter, or, perhaps the ignorance to realize their mistake? In the financial services world, the Operational Risk Pundits would have loved to pounce on it and call it a "Reputational Risk Event". But, hang on, what if you were marooned on an island, waiting for Captain James Cook to make contact, where this was the only food source; hypothetically? Well, there's no bothering about risk, if it's not going to blow into a loss, is it?

With an over-arching risk like reputational, an unimaginable amount of factors come into play - Market dynamics like competition, which in effect is governed by entry and exit barriers, which is again predicated on a series of other factors. How feasible is it going to be setting up a new restaurant in an island, esp. given that island tribes aren't known a whole lot to be fond of Pizzas? [Sarcasm]. In banking parlance, this effect is more magnified. For one; we don't have financial mom and pop stores cropping up on every street corner - Regulatory and financial barriers are high! We can however, most certainly be glad that Banking Industry a'int a monopoly.

While most certainly banks may not be worried about a new competitor, they would need to  fear 'churn'. All said, reputational risk is really a function of market perception of operational risk management failures within the bank. (Now...Why didn't I say "function of Operational Risk Management"?...Hmm). A single risk management failure casts a cloud of cognitive bias on the risk management capabilities of the bank. Here, the assumption that such a reputational risk event would lead to losses is based on the notion of revenue thinning on account of customer churn. But, what would happen when every competitor (or majority of the big boys, atleast) has a similar breakdown of risk management? Ah, well...the credit crisis wasn't so long ago, was it? We could go with everyone's guilty and hence even, I suppose!

Clearly, as something of concern to a bank, reputational risk is narrower than it may sound, only referring to those events negatively affecting its revenue stream. For instance, a bank failing to fulfil its 'social' responsibilities, though probably, taking a hammer on its 'reputation', would not suffer a reputational risk as it does not cast a slur on its 'money-making competencies'. Rather it should act as a point in its favour, since the money can be deployed for better purposes. How do mortgage backed securities sound, for a start? [Sarcasm]

April 5, 2013

The Risk Scrutiny Galvanization

With operational risk management, organisations aim for an imperforate ambit, exactitude of the numbers and providence to emblematize the contingent. Numbers often grab centre stage, manifesting as milestones, unsurpassable; or financial dominance, resounding. With financial disciplines, this couldn't be more veracious; risk management is no exception.

In its quest for precision, every organisation, inevitably, commits the cardinal sins of - delimiting the unbounded, quantifying the abstruse and postulating the unknown.

For a discipline forced to cope with imperfection emanating from a source, disembodied, yet simultaneously braided within a majority of other event types, aka 'the people factor'; this can often be a tough ask.

In many ways, the 'people' facet of ORM is like directly stumbling onto the end of a book, only to find it abominable. Let's face it, there can nothing complete, accurate or predictable about people risk. The real question is how many organisations care to flip through the book, ending notwithstanding. It's like proposing a travel back in time, with a future, un-impacted by any change to the past. But, why wouldn't you just enjoy the ride?

Of those people risks internal to the organisation, quite a few (frauds, rogue trading), albeit not all (who are we kidding here), can be negated through an appropriate combo of system and process controls, properly implemented. Such incidents having surfaced even in the recent past, is a knock-out punch for the 'compliance' paradigm of risk management.

On the causes of people risk itself - Churn, though afflictive, is a lesser cause of concern for organisations, as against an apathetic workforce. Holding onto that thought, let's ponder the below...

Risk culture can shape risk awareness of the employees and resultantly, the risk profile of the organisation. While, risk culture and awareness are all permeating, arguably the former flows top-down, while the latter is bottom-heavy; either which way, agreeably people-driven, people-communicated, people-actioned structures in any facet of risk management.

Whilst every organisation might have an ethically sounding and perceivably fair set of policies, whether actualized or adopted, its adherence to, and every day actions set the management's tone towards risk culture. And when I say, management, I also mean the senior and middle management, as they often communicate the tone at the top.

Given the heavy reliance of risk management on decentralisation in identifying, tackling and reporting risk, or at bare minimum being cognizant of them in course of daily business, the contribution of risk culture to risk awareness cannot be emphasised enough.

Now, back to my point on the 'apathetic' workforce - This is precisely where organisations may shoot themselves in the foot by hopelessly holding on to the policies, rather than using them as guidelines. If legislations drafted by experts aren't fool proof, neither can an organisation's policies - Employees may start to drag their heels, stick to the job, and much less contribute to managing risks, whilst still being within the 'policy-defined terms of employment'.

In the current world of complexly muddled financial engineering, two remedial calls are growing louder, one for more regulatory impositions (which understandably, is going to be reactive - like Batman solving Riddler-Puzzles albeit, without the forewarnings), and the other is for organisations to be 'risk-smart' i.e. own up risk management. With the latter, agreeably, it's not like the entire organisation is contriving to profit by dodgy means. Au contraire, more often than not, it's a single employee or a team. But, hang on, accountable doesn't mean the employee concerned has a moral epiphany, infact far from it; it means the other employees are sufficiently motivated to 'rat out' (excuse the phrase) the wrongdoers!  

Employees are much like a financial instrument, risk and return, all packaged in one, and as long as the organisation's handling of the living organism deters risk or enables its identification, it's all good!

Tablets can be the antidote to some of the banks' "ailments"!

Tablet devices are becoming immensely popular and their adoption is forecast to grow over 40% by 2016 - by which time tablets are expected to overtake the sale of PCs. Today, tablets like the Apple iPad, iPad mini, Samsung Galaxy Tab and Amazon Kindle Fire continue to sell like hot cakes. Research shows that over 30% of U.S. Internet users use tablets for two hours per day on an average. The above statistics are anything but surprising. The fact that tablets bring together the best attributes of smartphones and computers-- portability, convenience, screen readability, personalization, easy to use interfaces, and sociability--makes them an ideal companion for leisure as well as business.

But why should banks take note of tablets?
Most tablet owners are young (25 to 44 years old) and wealthy (incomes of over US$80,000 per year). Tablet owners are also known to use many banking products and have investable assets. Research shows that self-service banking channel adoption growth among tablet owners is two times that of non-tablet owners. Transactional banking services like bill presentment and payment are being adopted more by tablet users than smartphone-only users--particularly in areas with higher tablet adoption. In fact, transactional tablet banking usage is expected to exceed 200 million users by 2017. In Europe, tablet owners have 50% greater chance of shopping on their tablet device than using their smartphone. It is expected that significant migration of transactions (especially bill presentment and payment) and purchases would happen from desktops/laptops/smartphones to tablets. Today, large numbers of customers are accessing banking services using their tablet's Internet and apps capabilities. Many more are asking their banks to provide tablet banking services that enable complete online banking functionality as well as offer an optimized, enriching user experience.

Banks should not ignore these tablet trends and customer demands. Enabling tablet banking benefits banks through:

  • Differentiation and improved customer acquisition/retention: Banks can differentiate themselves by effectively leveraging tablets and demonstrating to customers that they understand the requirements of the channel as well as their customer's needs. It has been seen that tablet banking users bank more frequently than non-tablet users and are more engaged. This helps banks enhance their brand interaction and loyalty. Tablet banking also provides an opportunity for banks to attract specific customer segments - for example, households with an annual income of over US$75,000.
  • Improved customer service and satisfaction: By supporting the tablet channel, banks can enhance the dynamics of their online and mobile banking channel and enable superior self-service channels' usage experience to customers. Richer, faster and collaborative services could be enabled leading to improved customer service.
  • Increased profitability and reduced cost: Tablet users are more likely to make purchases and respond to offers and ads, thereby generating higher revenue. Tablet banking can also assist banks in enabling greater customer migration from costly offline channels (e.g. branch, call center) to lower cost self-service channels.
  • Enhance advisors' performance: Tablets have the capability to transform the face-to-face interactions of financial advisors and customers. Some of the banks have started leveraging tablet apps during face-to-face interactions between financial advisors and customers. For one, tablets enable advisors to be more productive irrespective of their location - e.g. cafes, restaurants, etc. Further, tablets' collaboration and rich media capabilities enable advisors to explain complex investment decisions or products in more engaging and compelling manner. Graphical tools on tablets that enable financial planning, risk profiling, product selection, etc. make for better client involvement in decision making. The linking of tablet apps with the bank's CRM systems further enable advisors to have faster and more flexible access to the bank's product catalogs, applications and other business processes. This enhances advisors' efficiency and productivity.

What are your banking peers doing in the tablet environment?
Examples of proactive adoption of tablet banking by banks abound. For example, BB&T, Chase and BNP Paribas have their own good iPad apps that let customers make transfers, manage accounts, pay bills and more. Some of these apps provide more features than smartphone apps - e.g. access to a host of calculators and insightful articles. BNP Paribas Fortis (Belgium) publishes an e-magazine named UltiMag that is available exclusively on the iPad. Finanza & Futuro Banca piloted Finantix Wealth Apps, an advisory suite that runs on the iPad and helps the bank's advisors engage with clients/prospects in a more effective manner. Commonwealth Bank tailored their Internet banking channel, called NetBank, for tablet devices. Danske Bank enabled a banking solution on the iPad for their Nordic customers. They are the first bank in Denmark to offer an iPad solution. In India, Corporation Bank enabled transaction-based banking services through tablets, becoming the first public sector bank in India to do so.

The way forward
Many banks have failed to proactively harness the opportunities that tablets offer and leverage it effectively to address some of their business challenges. With an assumption that their customers are happy as they are (accessing their existing online and mobile banking channels using tablets), many banks have largely ignored the development of tablet-specific apps designed to enhance the user's banking experience on tablets. It is important that banks look at tablets as a new and distinct channel and adopt it proactively - the business benefits to be had from tablets channels are too big to be ignored.

Gamification? It's one of today's buzz words!

"Using game principles in non-game environments to drive business profitability" is a definition of gamification that is gaining universal acceptance.

As any avid gamer will tell you, a sound game plan focuses on leveraging the technology and behavioral insights at your disposal. Gamification is a lot more than just introducing badges and points into the functioning of an enterprise. While traditional games are based on entertaining users, gamification principles are based on motivation to achieve enterprise goals.

How did the concept of gamification come about?
"It's not right, Stepa, the way we shut ourselves up from the rest and don't know the chaps at all. The emulation started spontaneously, without us, we just joined in."

This is a part of a conversation taken in context from the book, "The Tanker Derbent", which talks about motivation and social competitiveness in the 1920s. Even in the 1930s, the enterprises had well-laid plans designed to motivate an employee to surpass the firm's own expectations. Firms rewarded personnel both morally and materially in several ways, be it providing them concert tickets, placing winning portraits on a honoree board, or even a house. Today, one can see some of these elements everywhere, from pizza outlets to consulting firms. However, although the standard principles of motivation existed in firms, they were never considered a single package until the word "gamification" was coined. Working in the financial services unit of an IT firm, I can personally see a major buzz taking place this year in this sector, despite the fact that financial institutions are often considered late adopters of technology when compared to retail, communications and marketing companies.


What is gamification not about?
It is definitely not Farmville; and does not include virtually harvesting crops and stocking grains. When referring to an enterprise, we are considering a crowd with social intelligence. I have seen a website claiming "just add points and boost your employees' performance". Merely adding points may work for a fortnight but not in long run. Gamification is often misinterpreted as providing incentives to lure employees to over-perform. The truth is, it is about interpreting what motivates employees to complete their obligations and stick to the firm's goals.

Then, what really is gamification?
Gamification is about applying suitable game dynamics and principles in planned phases. Consider a scenario where users of an online bank platform need motivation to stick to the personal finance management application on web. This stickiness to the portal can be obtained by using rich user interfaces, simple, un-burdened, "habit creating" content that needs insights into customer behavior. Once this is a success, the goal of the customer in managing his funds effectively is fulfilled while the goal of the bank in cross-selling products is also satisfied.

Some aspects that a gamified experience should consider providing the user are:

  • Self-competence - Draw out a person's personality and characteristics to face and overcome challenges and make strategic decisions.
  • Social competence - An urge to have healthy competition and mastery within a social group
  • Self-efficacy - A belief that someone can perform the task to completion
  • Mastery - Results in the user sticking to the gamified environment.
  • Real goals -Providing a win-win scenario for the enterprise and user
  • Motivation - Interest inculcation in the user to complete his goals

10 suggestions

  1. Define a business need for gamification. Carefully separate what works from what doesn't. This comes from experimenting. So think agile.
  2. Use behavior analytics as an input to re-engineer the platforms. Being creative definitely helps in this process.
  3. Game theory says "games arise when multiple actors with different objectives compete or cooperate for a scarce resource." Gamification says "Motivation and value arise when multiple actors with similar objectives get a gamified experience in a non-game environment". Both, game theory and gamification, are connected.
  4. Game mechanics make sense only when the underlying achievement is providing the target user with meaningful recognition. Within organizations, where the target user group comprises of employees and, as a result, is far smaller, game mechanics can help positively influence participation.
  5. Game mechanics can help improve R&D efforts by offering solutions to business problems
  6. Recognition on enterprise forums motivates contributors to increase contributions.
  7. Enterprise content can be harnessed by providing visibility, recognition and access to the experts contributing the content. Promote the contributors through social networks.
  8. Leaderboards are a good source of long-term motivation. Motivate user involvement at every stage--from a learner to a master.
  9. Effectively manage the change that comes when deploying a gamified experience. Monitor, harness and tweak platforms accordingly.
  10. To be relevant and effective, game mechanics requires continuous updates to themes and the overall aesthetics of the game. This undoubtedly involves financial investments but, in return, far better returns (ROI) as well.