Big Auto vs. The Innovator

Yesterday Michigan Governor Rick Snyder passed Michigan House Bill 5606 (a tip of the hat to a longtime friend and fellow “car brat” who brought the story to my attention), which prevents electric car manufacturer Tesla Motors Inc. from selling vehicles in the state. Snyder, in a signing letter to the Michigan House of Representatives, says that this isn’t really news–the bill just clarifies that rather than using its own franchised network of dealerships, car manufacturers can sell through any franchise. Tesla sells directly to consumers, so sales of Tesla were always illegal in Michigan. Tesla had some damning words to say about the bill:

Not content with enshrining their ability to charge consumers dubious fees, on the last day of the legislative session, the dealers managed to make a last-minute change to the bill in an attempt to cement their broader retail monopoly. Using a procedure that prevented legislators and the public at large from knowing what was happening or allowing debate, Senator Joe Hune added new language in an attempt to lock Tesla out of the state,” Tesla said. “The dealers seek to force Tesla, a company that has never had a franchise dealership, into a body of law solely intended to govern the relationship between a manufacturer and its associated dealers. In so doing, they create an effective prohibition against Tesla opening a store in Michigan.

Either way, General Motors Co. has gone on record as a supporter of the bill, which, in the company’s view, levels the playing field by either forcing Tesla to sell through dealers or bow out of Michigan. Tesla seems committed to its direct-to-consumer strategy, so it looks like Tesla won’t be selling in the Great Lakes State any time soon.

I can’t help but draw parallels between this incident and another time that Big Auto has gone toe-to-toe against an innovator:

TuckerMoviePosterTucker: The Man and His Dream, the 1988 biographical movie, is based on the story of Preston Tucker’s attempt to change the auto industry in the 1940s. His “car of tomorrow”, the Tucker 48, featured several safety innovations, such as a shatterproof glass windshield, roll bar and seatbelts (The Tucker 48 was the first production car to include a seatbelt). In Francis Ford Coppola’s version of the story, the Big Three (Ford, GM and Chrysler) feared competition from the upstart Tucker as well as innovations like seatbelts that implied, in Detroit’s mind, that cars aren’t safe. Tucker’s dream was squashed when he and several other Tucker Corp. executives were indicted for mail fraud, conspiracy to defraud and SEC violations. They were eventually found not guilty, but Tucker Corp. fell apart and Tucker’s dream was dead.

Thinking about U.S./Big Auto vs. Tucker/Tesla brought my thoughts to all the nonbank competition out there today–and whether those nonbank competitors will remain immune from financial regulation for much longer. Of course, the picture in the bank space is significantly more complicated than in the auto industry, with big banks, community banks, credit unions, Big Tech like Google and Apple and small fintech startups all jostling for position.

And as they dig themselves further into the banking space, I think Big Tech and and the smaller fintech firms will come closer and closer to being under the thumb of the Consumer Financial Protection Bureau, an agency that enjoys freer reign than other regulators and relishes its role as the consumers’ protector. At least one law professor believes that Apple Pay already crossed the line. The more financial products and services that ‘Big Tech’ offers, the more they’ll come under the eye of Cordray. If that happens, will the CFPB mark the end of fintech innovation in the U.S.?

4Q14-Cover*If you’re interested in reading about the threat that technology companies pose to traditional banks, check out the latest issue of Bank Director magazine, featuring Jack Milligan’s cover story, “Sizing Up the Nonbank Threat”.

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Meaningful CyberSafety Reform? Not Today.

VISAcard_MFPresident Obama today announced measures to ensure more secure transactions, which the White House has dubbed the BuySecure Initiative. The President endorsed chip and pin technology in a speech at the Consumer Financial Protection Bureau, saying that the UK saw a 70 percent reduction in credit card fraud after its adoption, and plans to apply the technology at the federal level to government credit cards and debit cards, and upgrade payment terminals at U.S. facilities to accept the new cards.

But the technology isn’t really new. Some form of chip technology has been used abroad for decades, while the U.S. continued to rely on magnetic stripe cards, which are easier to counterfeit. Chip cards store payment data within a microprocessor chip, and each transaction creates unique data which cannot be used for future transactions. They’re difficult to counterfeit, and definitely safer and more secure than what most Americans have been using–though as mobile payment options grow, you have to wonder how much longer chip and pin will be relevant.

So it looks like the Federal government is getting on board with more secure transactions. The White House also mentions that companies are joining this “national effort to improve transaction security” — stores like Target and Home Depot (both victims of data security breaches within the past year), as well as Wal-Mart and Walgreens. These retailers will roll out secure chip and pin card terminals in stores by January.

But these stores already committed to chip and pin, along with many major banks. After October 2015, the company that has the outdated magnetic stripe technology — the retailer or the bank — will be the one holding the bag if there’s a data breach. (I wrote about this in our 2nd quarter 2014 issue of Bank Director magazine, available here. Registration may be required.) Target stepped up its efforts after its infamous data breach late last year, and already planned a roughly $100 million investment in chip card readers at all its U.S. stores by the first quarter of 2015.

The White House also announced that “Citi, in partnership with FICO, will begin making credit scores available for free to its consumer card customers updated monthly online — joining the over 70 million Americans who already have access to this feature at other nationwide banks and card issuers.” (Emphasis my own). Again, no real news here: Credit scores are often included as checking account add-ons.

President Obama’s goal to protect Americans from identity and data theft is laudable. But I just don’t feel that much was accomplished today.

Financial Research: Grappling with Technology

Bank leaders want to know more about how to leverage technology to make their institutions more profitable, but don’t know where to start, reveals the 2014 Growth Strategy Survey. Bank Director and CDW surveyed 145 independent directors and executives in June and July to uncover technology’s role in growth strategy.

Growth-Survey-Group-1Bank leaders know that technology can make their banks more efficient, and know that customer demands are only growing. But less than one-third talk about technology at every board meeting, and one-quarter of banks lack the IT staff to grow the bank.

Growth-Survey-Group-4When asked about the top technology concerns for their banks, keeping up with the evolution of mobile banking is a concern for more than half. Data analytics is also top of mind, and the survey finds that big banks are better users of data. Forty percent of respondents overall use business intelligence tools and analytics within their organization, but more than three-quarters of banks over $5 billion in assets currently use data to support growth goals.

Growth-Survey-Group-2One-third are concerned that the bank’s core processor impedes the bank’s ability to innovate. Community banks in particular depend on vendors for their technological expertise, yet half say that their core processor is slow to respond to innovations.

Growth-Survey-Group-3It’s important to note that many of these concerns about innovation and the use of data tie into growing concerns about competition from outside the industry. Eighty-four percent of respondents say that today’s highly competitive environment is their greatest challenge when it comes to growing the bank, and 83 percent worry about nonbank competitors. Banks above $5 billion in assets reveal a heightened concern about PayPal and Amazon.

Full survey results are available online at BankDirector.com.

The Growth of the…Branch?

Pinecone_Unsplash

The American Bankers Association just released survey results that say that the number of Americans that prefer to bank within a branch actually grew within the last year. Americans opting for internet banking fell by 8 percentage points, while the number who prefer to meet their banking needs through ATM or mobile each grew slightly.  The ABA theorizes that recent technological advancements made within bank branches have made the channel more efficient and therefore, more attractive to customers.

Reflecting the view across the pond, Accenture released a study last month, focusing on the UK financial services industry, with similar findings–online banking remains steady, while the use of branch and mobile channels grow.

There are certainly branch success stories for community banks in the U.S., and most of these involve a transition to self-service, whether through the use of image-enabled ATMs or video tellers. Kennebec Savings Bank uses image-enabled ATMs to handle one-third of the bank’s deposits, and the machines allow the bank to expand in its market through self-service branches more cheaply  than through a traditional branch. And Conestoga Bank opens two-to-three times more accounts each quarter through video tellers. (For more on how these banks are using technology in the branch, please read my contribution to Bank Director magazine’s innovation section, “Will Video Kill the Teller Line?“.)

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LOFTy Expectations

I’m a big fan of LOFT, the lower-cost little sister to the slightly more upscale Ann Taylor, but their most recent sale probably lost me as an online customer.

LOFT ran a big sale Sunday that offered a 70 percent discount off sale items. Who doesn’t love a good deal? The sale expired at midnight, so I started to browse late Sunday evening on my iPhone. Unfortunately, I couldn’t get past browsing–the website constantly crashed. This isn’t the first time that LOFT’s website couldn’t handle extra traffic during a big sale.

LOFT Response LOFT’s response to my concerns voiced on social media Sunday night came on Monday morning–hours after the end of the sale–and instead of addressing the issue through that medium, they directed me to call an associate. Around the same time, I received a tone-deaf email advertising a 60% off flash sale email.

LOFT Flash Sale 07142014

I should note that the social media team at LOFT seems to be responsive to customers on its Facebook page. It’s true that I was disappointed that, instead of addressing the problem through social media, LOFT directed me to contact them by phone–an extra step that I didn’t want to take–but their team is just doing their job.

The real problem lies in the fact that marketing, product delivery and customer service aren’t strategically aligned.

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Where Do You Draw the Line on Data?

SharpPencils_MFIs a national conversation brewing about how companies use consumer data?

In case you missed it, on June 17 the Proceedings of the National Academy of Sciences (PNAS) published the results of a January 2012 experiment, in which Facebook Data Scientist Adam Kramer, along with Jamie Guillory of the University of California, San Francisco, and Jeff Hancock, of Cornell University, manipulated Facebook’s news feed to provide some users with content that was emotionally positive or emotionally negative to see if this resulted in a correlating reaction by the user. Kramer, in a Facebook post, clarified the research, saying, “we care about the emotional impact of Facebook and the people that use our product.

Facebook Founder and CEO Mark Zuckerberg has so far been silent on the matter, but today the Wall Street Journal reported that COO Sheryl Sandberg said:

This was part of ongoing research companies do to test different products, and that was what it was; it was poorly communicated.”

“And for that communication we apologize. We never meant to upset you.

The apology is a bit “I’m sorry if I offended you”, but if my own Facebook feed is any indicator, the social media giant will be OK. At any given moment you can read the results of my friends’ latest BuzzFeed quiz on their spirit animal or where they should go on a time machine. (Guess what? BuzzFeed is using your data too.)

I don’t know if it’s indicative of my generation–I’m firmly in the middle ground between Gen X and Gen Y–but I typically don’t get bent out of shape about how my data is used. Data is a part of my daily life, and I know the old Economics 101 credo–“There’s no such thing as a free lunch”. Facebook has to benefit from its user base. And data is really, really valuable.

But Facebook wasn’t transparent about how the data was used.

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Where’s the Risk?

With the Target data breach being just the latest example of how cyber criminals will find a way to hack into consumer data, bank boards are putting more focus on cyber crime.

WheresRiskInfographThe above infographic cites the results of the 2013 Bank Board & Executive Survey.

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