Understanding the Digital Payments Maelström


I am going to connect a few dots here that may seem a bit odd – so bear with me — but I’ve been living on the edge of (no, not sanity!) emerging digital payments and channels and staring into this rapidly changing space is both terrifying and sensational.

New players are emerging, new payment types are evolving, protocols are competing, new entrants are jostling, incumbents are bracing.. it’s all quite chaotic.  What will dominate, who will lead?  It’s like staring into an abyss and wondering what’s out there.  Who knows, all specific predictions will be wrong and the future will surprise us all.

The Payment as Medium

Marshall McLuhan famously reflected on the impact of media and technology on humanity and the role of technology in impacting the delivery of content.  He predicted the evolution of the world-wide web and semantic knowledge repositories (Wikipedia) and this was in 1962 a time when TV’s were still primarily black and white.  Yet his guidance still resonates today and I believe applies to all emerging technology including the evolution of digital payments.

How we pay is as important as the transaction itself; how we pay defines the experience.  The experience and the payment medium are intertwined.

Just as McLuhan saw the darkening of the clouds and the coming storm of communications media we can now see the clouds forming around digital payments.

Communications as a Reference for Payments

From paper printing press to radio and the spoken word to television to the internet, communications has changed profoundly in a short period of time and this has also changed us.  What if we are now in the “radio stage” of digital payments, what changes are still coming?

Understanding the Chaos

When faced with the unknown in the world of communications and media, McLuhan established “Laws of Media” which helped to assess the impact of media, and these four forces worked simultaneously and inevitably.  These forces are also relevant for emerging payments medium and provide a useful guideline when evaluating emerging payments:



The Tetrad approach provides a perspective on payments as a disruptive medium and a way to understand the interaction between this medium and incumbents.  Screening new entrants against these four rules and considering the interaction between payment types is at least a step toward organizing the discord and providing a body of work that can be employed to help anticipate the next wave of change in this space.






Too Many Clouds on the Horizon?

IMG_0221Cloud is great.  I like cloud.  It’s a way to jettison some aspects of IT that allow for some very tedious things to be taken care of in a way that is simple.  What’s not great is chaos, chaos is no fun, and cloud chaos is even worse because it is so easy to get there.

Adopting a banking cloud solution requires a clear understanding of what is where and which components are strategic and which are commodity.  These days I don’t think there are any “hard and fast rules” about what should be in the cloud and what should be on premise.  At one point people viewed it like this and created some simple guidelines for what they would keep where.  Currently I see these guidelines pushed aside as the technology becomes more secure and more consumable.

The greatest challenge that I see is that many firms are adopting cloud solutions without a cohesive strategy or approach and while each decision in itself may be justified and make sense the direction as a whole is incoherent.  A bit of cloud here for this and some other cloud for that is fine for the short-term, but the real challenges emerge when you want to integrate the process or the data from each of these clouds.

Cloud solutions don’t mix well, and don’t always play nicely with others..

The cloud approach itself is very powerful, but without a strategy and approach it can be dangerous.  It is important to define which topics are strategically important to hold and which can be externalized.  Here are some ideas and examples of what I mean:

  1. Much of financial services is about trust.  Cloud solutions can be incredibly secure and well designed for privacy and transaction integrity – but be aware of the trust relationships involved.  I have seen cloud solutions where the bank is front and Centre on managing the trust relationships because this topic is too important to leave to any third-party, what I like about this is that the decision was taken consciously and with a clear perspective of the underlying principles involved.  Be aware of where trust exists in the solution and consider that this is a fundamental part of the customer/financial services relationship.
  2. Create some boundaries and order around cloud solutions.  If you have a cloud strategy around your supply chain avoid having three platforms performing the same function – this will drive future complexity and create integration nightmares that will impede future flexibility.
  3. Keep the cloud simple and under control by defining a strategy and clear guidelines and patterns for usage.  Expect to see more cloud solutions in the coming months and years, having a cloud strategy ensures that the decisions going forward are aligned to a specific direction.  This means that your organization is going somewhere with cloud which beats the alternative.

Overall I believe that hosted solutions are the future for many things, and that this will give some firms a major advantage.  Having a foundation of strategy and structure and adding the cloud to this will result in great progress and flexibility.  Without order there will just be too many clouds and a new class of legacy.

Where to Turn with The Internet of Things?



Disruption is the new normal in most industries and certainly this has been the case for financial services.  The world of channels alone has been explosive, as has analytics and the world of data.  Data, automation and customer interaction have all changed significantly in the last ten years — and this will continue to increase exponentially in the coming years with the Internet of Things (IOT)

We don’t really know what impacts IOT will have on financial services yet, but early glimpses are exciting (or scary) depending on your perspective on change.  I think the word disruptive fails to really give it proper scale.

The reason that the change will be so profound is because when IOT intersects with financial services it enables entirely new business models and revenue structures and it enables a degree of seamlessness that is currently unheard of.  The act of engaging in a payment transaction becomes implicit rather than explicit: the payment just happens.  The pricing model is based on individual behaviour and history.  When the things are all talking, and talking payments there will be entirely new concepts that emerge that the current world is not expecting.

Uber is an example of a company that is disrupting the transportation space in a very simple way – ease of use, immediacy, and payments integration.  This simple formula has the taxi industry up in arms in many cities – tires are being slashed, drivers are being accosted.. protests in the streets;  people don’t like to see their worlds turned upside down.

Financial services disruption will be even greater for several reasons:

  • There is a growing backlash sentiment against “the big banks” and populist momentum will quickly support disruptive offers.
  • Financial services is an information business; IOT is all about information. Physical goods don’t need to change hands, cars don’t need to be dispatched. This makes it easier to invent new business models.
  • The rewards are great for those that can lead the disruption, this will motivate new entrants and capital focused on this topic.
  • The Industry as a whole is struggling with complexity and legacy and these factors will not help when the time comes to pivot in new directions; organizational cultures are also not prone to change.

The IOT is not bad news for the financial services industry, it’s just a coming age of increased change and disruption – likely with new categories and a new list of winners and losers.  Apple’s iBeacon is an early indication of how payments will be changing and it looks seamless. 

I have no idea what the future of financial services will bring as it intersects with the Internet of Things, but the possibilities are amazing and disruptive.  Where to turn?  Given the options outlined in the diagram above I think I have found my choice!









Here is a Data Approach that is Helping Financial Services Firms do More with Less

1374788_35279525Banks are under siege and it looks like this is the new normal — many new entrants are emerging and focusing on the most lucrative areas of banking.  Banks are also under pressure from regulators and while not new these increasing requirements are added on top of everything else.  Most of the people who I know in the industry feel over worked at an unprecedented level and are being asked to do increasingly more with increasingly less.

This is certainly the case with data; more data is needed, data is increasingly seen as strategic, but there is increased pressure to reduce costs and increase efficiency.

Typically, stakeholders from finance, risk, fraud and operations are siloed and not interested in finding ways to collaborate especially when it comes to data — yet they are all interested in the same data elements and activities: payment transactions, liquidity relevant events, information about parties and counter parties involved in transactions, a historic view of behaviour, a perspective on which figures are reconciled against the GL.  Each of these topics and many others are challenges to define, capture and store yet financial services organizations have typically built these solutions separately.  Data semantics, storage, movement, and history are all duplicated which is really expensive and very brittle from a change perspective.  Some have realized that it’s time to take a new look at how this is handled.

The approach that has evolved recently involves separating the view of the data from the storage and allows for a unique lens on the data for each one of the stakeholders while centralizing the storage, movement, and history.  The semantic is interpreted during the view rather than hard coding this into the model.

The technology that is helping to enable this is often referred to as “Big Data” but the real story is not about the technology but rather how it enables the separation of the semantic from the storage and how this allows loosely connected or disconnected groups to work together from the same platform without having to agree on the low-level details about data definitions.

This approach can help to save as much as 3/4 of the data costs associated with finance, risk, fraud and operations – and even more when cost of change is considered.  What is required to achieve this is an open mind and a willingness to adopt a new model.  Since the spend in this area can be massive for larger institutions there is a potential here for tens or hundreds of millions in savings.  Given these financial incentives, I expect these approaches to continue to be adopted by banks that are serious about efficiency.

Headlights, Badges and Bumpers: Banking Product Platformization


One of the questions that I often ask banks undertaking major change programs is “Why are you doing this?” — it seems like a simple question but it can often be difficult to answer succinctly because of the number of mandates and often competing objectives assigned to these initiatives.

A great answer is often along the lines of industrializing the bank and preparing it for an anticipated period of consolidation, disintermediation and changes in consumer preferences.

Under increased margin pressure, growing consumer channel demand, and requirements to scale banks won’t be able to afford the artisan approach to banking products for long.

Looking at parallels in the automotive industry:  there was a time when each car was made by hand in a small shop, and then came the factory.  Now we have global automotive platforms where one chassis is engineered to service multiple markets and marquees.  By comparison, most banks are still creating products by hand, a few have built small factories but fewer still have created product platforms.

Developing a banking platform strategy requires understanding and organizing the banking products and then delineating product features that are market facing versus those that are servicing relevant.  Once the products are understood they then need to be engineered to fit into platform categories.  These categories allow for consistent servicing behaviour with a high degree of flexibility on market facing feature attributes.  The more features you are able to realize on a single platform, the more efficiency in distribution and cost can be achieved.

Currently, most banks are experiencing a 1:1 ratio where each set of product attributes are map directly to servicing relevant settings — as banks move up the industrialization ladder this ratio should increase.  A higher ratio allows for multiple products in the market with a single servicing platform, which allows for lower operating costs and change costs.  Ideally, servicing systems are flexible enough to manage entire families of products (i.e., all deposit and lending accounts) within a single product platform and allow for many market attributes.

This concept challenges some of the fundamental assumptions of what banking products are all about.  Why is that product defined as a checking account?  Because it has the attribute of being able to handle item processing associated with checks.  But if it has an overdraft associated with it, we don’t consider it a loan account – yet it could go into a negative balance and even have a dunning process associated with arrears on overdraft amounts.

Banking products are complex – but banking solutions can be designed to separate attribute complexity from system complexity

At a fundamental level, an account is an account.  The ability to connect to a debit network, process items, handle overdraft, compute interest, associate collateral, and produce statements are all examples of account attributes.  Banking solutions designed with this in mind will be much more resilient and flexible while allowing for lower operational costs and systems complexity.

With banking “platformization” the only difference between banking products may be the equivalent of headlights, badges and bumpers.