Good banks and meaningful money today in France

While I’m very interested in the future of money, I’m even more interested in the future of money now: the very practical things that we can do with the banking and monetary system as it is today.

I have come to realize that the ideas I believe about the future of money, in particular making money more meaningful, are very well understood by small community banks and credit unions. They have incredible assets, one of which is the human-sized organization, which allows you to quickly talk directly to the decision-maker. What they lack are simply the resources of the large banks and the sense of urgency of startups, but I know they are open to partnerships to workaround these issues.

Below is my corrected Google translation of a recent post by JCPhilippe, who is Managing Director of the Credit Agricole in the region of Pyrénées Gascogne in France on how the bank he manages is becoming a good bank.

As part of  a week on “socially responsible savings”, we organized a symposium on 3 November. Distinguished guests, Father Bernard Devert,President and founder of Habitat Humanism , François De Witt,founder of Finansol , and Pierre Scherek, Director General of Ideam convinced us of the usefulness of their actions and this form of savings, still limited in use in France. Socially responsible savings consists in selecting financial investments by adding meaning and socially responsible as a requirement in addition to performance.

We fully support this approach. When I say this, I understand it is difficult to believe a banker is telling the truth. If he speaks of social responsibility, ethics, faithfulness to pledges, and sustainable development, how can we not think that he is only doing so to better profit? The mega-banks have left such a strong mark in people’s mind for their subprime profits, losses, their traders and their bonuses, that it is easy to forget the local bank dedicated to a particular geographical area, which serves, people of modest means, small businesses , artisans, shopkeepers, farmers. The headlines make us forget that finance and banking are first and foremost here to help with daily life. So when a banker says: “I want to be useful!”, Who can believe him? Who can believe that a bank, a banker can have be well-intentioned?

A Pyrenees Gascogne, we believe in the good and useful bank, local solidarity, local cooperations. This idea of a good bank can be seen in everything we do. When we say that advisers are not paid on the products they sell, it’s true, or that we advise our customers products that suit them, it’s true. And because we want a good bank that we have developed a consulting business in how to save energy. And when we provide help to non-profit in our area, it’s because we believe their action is vital to the social fabric.

So if we offer our customers financial products around solidarity and socially responsible investing ( here on the site talking about heritage ), it’s because Pyrenees Gascogne invests itself in these products, it’s because these products are purchased by our employees employee for their own savings, it’s because we believe in the value of these investments for ourselves. We do not follow fashion, we are not trying to conquer a market, we try instead to share a belief with our customers.

I am increasingly convinced that of of the key levers to make companies more virtuous, more accountable to the future is to channel savings into those companies that subscribe to the principles of sustainable development, and integrate this philosophy in their decision and accounting. It is more useful to invest in such investments than to give a little to non-profits, (although each donation is helpful) because that way, they have means to improve their ambitions. We can put more solidarity in the economy and the formula of Phocion “private virtues become public morals” is truer than ever. Of course, we must still dare to believe and decide to build!

Good Banking

I’m reading the live blogging of the Bernanke hearing today, and I’m pretty shocked by the following conversation:

Bad lingo | 3:59 p.m. Emanuel Cleaver, a Democrat from Missouri, condemns the term “bad bank.” He says the term does not exactly inspire support for the program. Maybe it should be called the “Damascus Road” bank, he says, or maybe the Fed should have a linguist look into something else more appealing.

Mr. Bernanke replies that it’s officially called an “aggregator bank,” not a “bad bank.”

Mr. Cleaver says that term is unlikely to catch on, and that perhaps a three-year-old should come up with something that rolls a bit more trippingly off the tongue.

Well, what about “Good Bank”, and what about making it more than just a sweet name?

I’m convinced Americans want good, ethical banking, the kind of banking that focuses on developing healthy communities where they can live and raise their kids. Just like anyone else on this planet. More importantly, they want HOPE, and good banking IS hope.

Bruce Cahan says it very well:

What We Had

The earliest banks were built by business, civic and religious leaders to grow hometowns, in regions they knew best. Community banks and bankers exist as a minority, often still independently-owned.

What We Lost

Today, most deposits (upwards of 80%) in America’s large cities are held by banks headquartered elsewhere, accountable to no one locally, except regulators in Washington or the state capitols who are easily outmaneuvered through lobbyists, industry political donations and complex financial instrument structures that camouflage the transparency needed to see simple causes and effects.

America’s banking system has lost its roots, has lost its way. “Safety and soundness” used to mean bankers living in and knowing their home regions and the people, businesses, governments and nonprofits there. Now Wall Street financial services mega-banks and investment professionals have fractionalized underwriting, ownership and obligation to the point where hedged bets on leveraged obligations (e.g., home mortgages or corporate bonds) create a rapidly cascading morass of multiplexed risk, drying credit up for other purposes in places where the risks are less or could be underwritten more safely and simply. As rogue traders have shown, the whole house of cards can easily unravel, with the use market capitalization and Federal Reserve costs unwinding such positions entails.

What We Need: An Ethical Bank

We need more ethical banks, where decisions are made transparently, its allegiances trace back to community concern and its pricing of credit and investments is directly tied to the contribution each transaction makes to growing regional health.

Banking-related panel proposals for 2009 SXSW Interactive Festival

I searched the SXSW interactive panel picker for “banking”, “money”, “finance”, “financial”, etc. Here are the panels I found:

  • Banking 2.0 – Algorithmically Fixing the Sub-Prime Mess (suggested by Christopher Hughes, PennyMac): Sub-prime debt may be causing the collapse of the worldwide economy. Speculators, investors, banks, mortgage brokers, honest home-owners have all been duped into believing that that the real estate market was a “sure thing”. Can a solution be found with a computing cluster, open source software, and a semi-complex algorithm? Yes.
  • Future of Money: Life after the Fed (suggested by Blake Stephenson, Flow): Ron Paul’s presidential campaign shone a light on the impossibility of central banks to “regulate” the economy and the inherent problems with fiat money (paper money). The internet is playing and will continue to play a critical role in the creation of the future of money. What is the future of money?
  • Mobile Ubiquitous Banking and the Future of Money (suggested by Kyle Outlaw, Avenue A | Razorfish): Nearly half the world’s population now has a mobile device and more than a thousand cell phones are being activated every minute. The ubiquity of mobile devices will make new services available to billions of people worldwide who have not had access to traditional banks or credit cards. In developing countries such as Kenya – where nearly 80% of the population is excluded from the formal financial sector – text messaging is being used to transfer money to friends and family living in other countries. Moreover, new forms of currency are being created – trading cell phone minutes for goods and services, for example. This panel will explore the challenges and opportunities as banks go mobile, and how the revolution in mobile financial services will change the way we think about money.
  • Strategies for Establishing Social Media in B2B Relationships (Brad Garland, The Garland Group | Social media in the consumer space is clearly talked about and prevalent. What is barely getting addressed is how these technologies can be implement in the business world and what are ways to do it successfully. This panel will explore that concept and how B2B relationships can be formed using these tools.

About SXSW:

SXSW Interactive Festival features five days of exciting panel content and amazing parties. Attracting digital creatives as well as visionary technology entrepreneurs, the event celebrates the best minds and the brightest personalities of emerging technology. Whether you are a hard-core geek, a dedicated content creator, a new media entrepreneur, or just someone who likes being around an extremely creative community, SXSW Interactive is for you!

A bank’s payment strategy in 3 words: Convenience, Convenience, Convenience

The Bankwatch had an interesting post titled Payments – the impossible dream for Banks? this week outlining the importance of payments for banks and the challenges they face in bringing about innovative and user-friendly payment solutions. Colin’s line of thought is that:

  1. Banking has moved to self service
  2. Self-service allows two types of financial activity … view balances, or move money.
  3. Moving money is payments.
  4. Payments, as currently offered by banks, are mostly hell and they cry out for innovation
  5. Payments innovation is not about technology or standards (SEPA), but about customer experience

I cannot but connect this “hell” experience with one of the most interesting questions raised during the Mobile Web Wars conference last week:

Why  people are willing to pay for apps on the iPhone, but not on Facebook?
Why people are willing to pay $3 for ringtones, but not $1 for music files?

A participant was arguing that the reason was the “mobile effect” i.e. the fact the mobile is a relatively new communications channel that is so personal that people value it more than the PC channel. But at the same time, Bart Decrem, CEO of Tapulous, a social app company for the iPhone, was saying in the background: “Ease-of-use, Ease-of-use, Ease-of-use”, in other words: convenience drives customer value and their willingness to pay.

Something pretty obvious some would say, but this idea was made to me much clearer in the last few days while trying out two new services:, a London-based bill sharing online application, and TipJoy, an online tipping (“micropayment”) service. Both services address different user problems, but they both address it very well with an extreme focus on convenience.

TipJoy for instance, does not require what you would normally call “payees” to register: you can simply donate to any URL on the Web you want. As Web site owners register and add the TipJoy button on their Web site, they essentially claim by the same token URLs and collect tips. From the payer / tipper perspective, a single click on the TipJob button is required, nothing more: the button is already configured by the payee with a pre-defined amount (in the order of 5 to 50 cents). This is convenience at its best.

Expensure solves the problem traditionally solved by complex spreadsheet. I used it to share bills between an upcoming WE trip with my friends and I was extremely satisfied with the application. It’s all in the details. For instance, I was able to set a ledger and experiment adding expenses to it without having to invite my friends to the service, something that would have refrained me from starting to use it, b/c my friends are too busy to receive unwanted invites from applications I found not worth using after a trial. In this case, I did, and ultimately send the invite to 5 friends.

Both applications touch on the problem of payments, but with an extreme focus on a relatively highly context-specific problem and a very well designed solution to the problem. Yes, I could have used my bank’s transfer service, or checks, plus a shared Google Spreadsheet, as I did in the past, but I will certainly not do so now that my social network is almost set up with Expensure. Same thing with TipJoy: while I could have used a PayPal button on my blog, I can see the value of simply providing a pre-defined amount to users willing to tip me, and will most likely go with them in the end if I ever want to be tipped for writing these articles (I’m not really and I’m doing this on the side of my day job).

What was the most interesting to me, what the following FAQ excerpt from Expensure:

Can I pay somebody back using Expensure? Soon. Right now we are focusing on making Expensure the best shared expense tracking app out there.

and from TipJoy:

Why can’t I withdraw cash from my Tipjoy account? There are legal implications to allowing this transaction which we are currently working through. We expect that you will be able to withdraw cash very soon. In the meantime, if you have a minimum of $5 in your account after removal of applicable fees, then you can do the following with your earnings: 1. Donate to any official charity you’d like 2. Purchase an Amazon gift

Both of these companies are clearly focused on providing the best customer experience first, then only will they figure a way to monetize it. They probably have listened very well to this presentation from Paul Graham on how being benevolent and focusing on solving problems is more important than thinking about making money when starting a business.

The only thing that these companies are missing is that they are not a bank or Credit Union, but as good entrepreneurs, starting a new CU or bank is probably not an option they will choose. Just like PayPal partnered with Wells Fargo, I would not be surprised to see an innovative bank or CU partnering with them to handle the back-end aspect of their solution, in particular legal compliance in each legal framework/geography they do business in.

So, when real-estate agents are asked about RE investments strategy, it’s: “Location, Location, Location”. When asked about early-stage investments, VCs talk about “People, People, People”. Perhaps, when banks are asked about their payment strategy, or their general banking strategy for that matter, bank should say: “Convenience, Convenience, Convenience”.

Financial services pay the most for prospective customers’ attention

I was encouraged this WE to look into the cost-per-click of some financial services keywords in the U.S. using Google Adwords Keyword Tool.

As of the time of this writing:

  • “video cameras” costs you an estimated $3.14 per click,
  • “buy car” costs you $4.81,
  • “wireless” and related: ~$5.00,
  • “dsl” and related: ~$6.00
  • “real estate investments”: $5.47
  • “buy computer”: ~$8.

Now get this:

  • “buying mutual funds”: $12.66, “online stock trading: $18.06
  •  “best credit card deals”: $25.94, “balance transfer credit cards”, $18.23
  • “auto insurance quotes”: $34.58, “insurance quotes: “$29.77″
  • “high yield checking account”: $17.81, “checking account rates”: $20.44
  • “mortgage refinancing”: $32.58, “home equity loans: $23.74

I know this is a very superficial research study, but there seems to be a pattern here: financial services firms are paying significantly higher than firms from consumer sectors for prospective customers’ attention.

What can we learn from it? IMO the cost per click is a function of

  • profitability of the related service offered over the average customer relationship duration, and
  • likelihood that the prospective customer who has clicked will subsequently actually buy the service online,

then my quick conclusion is that there is probably good business opportunities in online comparison services for financial services products, as well as in new financial services that leverage the Web and social networks to be cheaper and mass-market. Peer to peer lending is probably one of them.

Developers: register your API key and start your own credit union/bank

Imagine if a bank or CU was exposing their system via a GData-like API, and was outsourcing innovation to third-parties, possibly creating a dedicated VC fund or prize to finance startups building applications on their API, managing innovation as a good old option portfolio, possibly acquiring only the most successful and profitable of these innovators.

Well, that’s not really possible yet, but it seems the idea is in the air, at least the API part. Here are some excerpt from the comments section of OpenSourceCU report on BarCampBankDallas. Here is a summary:

In the current economic context, some credit unions may be pushed to innovate to survive, and one effective tool would be to expose their API. Tim McAlpine says:

As far as the API goes, traditional FIs are the opposite of open source. Being open requires a start-up mentality. Unfortunately today’s old dogs are more interested in keeping the vault full and closed. […]

This API opportunity lies with the credit unions. If an open CU was backed into a corner to survive, they may think differently if we could get them to understand the concept and potential power of an API. This type of CU may be ripe for innovation and may just turn that API over. If they did, I bet the geek world would love to slide in the door and innovate on their behalf!

In a subsequent comment, Robbie Wright took this vision to the next level: what if someone was providing a platform for anyone to start their own financial institution, leaving the difficult paperwork part to the platform provider:

I believe a large opportunity exists in helping people start new CU’s. It is so tough from a regulatory perspective and from a capital perspective, that it always seems starting a CU is impossible. That is what we need to change. Aside from the open source core processor idea that has been kicked around for a while now, there exists the possibility to create an entirely new industry of the outsourced FI.

Now, what would this API would look like?