Center for Future Banking

Is this a reaction
OR
a strategy?
Banking is Everywhere

Where Customers Want and Need banking

1M Users 6,100 Banking Centers

Can reach 75% wireless
subscribers

Customer
78% US pop

5,000+ Affinity Groups

24M Active
Online Users

18,500 ATMs 56 Million House Holds

2.6B Contacts

2
 Banking Innovation

Innovative Products and Services

3
 Emergent Innovators

The emergence of financial services as innovators?

1
Financial Services Representation in
5 Business Week’s 50 Most Innovative
How do
Companies (2005 – 2008) they
10 innovate?
Combination
15 Services
Business
20 Products
Models

25

30 Processes

35

40 Customer
Experience
45

50
4 2005 2006 2007 2008
 If Banking
is starting
to Innovate
then why
the urgency
to explore
the future?
Unprecedented Scale

Historic levels of growth

Device Proliferation (Billions)
• 2001 1st Billion Networked Humans
15.0 14.6

• 6 years later, in 2007, Mobile Internet Device

10.6
12.0

the 2nd Billion arrived 7.6

9.0

• 700,000 new people join every day 6.0

5.1

3.1
• Sometime in 2011 the 3rd Billionth person will 3.0
1.6
PC
2.8
join the network economy 0.1
0.6
1.2 1.6
1.9
2.3

0.3 0.5 0.9

0.0

roughly 50% of the worlds population 2008 2009 2010 2011 2012 2013 2014 2015

This massive growth in networked consumers will NOT be:

– Homogenous
– Predictable
– Static
Unprecedented Speed

And speed….time to 1mm users

Time to 1MM users (in months)
• Quicken – 70 months
80

• BAC Online Banking - 36 months

70

60
• eBay – 30 months
36

• BAC Mobile Banking – 12 months 40

30

• Facebook – 10 months 20
12
10

• iPhone – 100 days 0

3 days

• iLike – 3 days
Quicken BAC eBay BAC FacebookiLike
Online Mobile
Banking Banking

Speed to a Billion Dollars

YouTube.com created in 100 days Feb ’05
and in Oct ’06 sold for 1.7 Billion
 Unprecedented Speed

The Shifting of an Industry and the profit pools – Music

The Big 5: P2P:
• Sony, BMG, Universal, • 2nd Generation: Gnutella, Kazaa, eMule & Kademlia
EMI & Warner
• Counterfeits cost ~ $5 billion/yr
14,000 • 80% market share
• RIAA has filed 18,000 lawsuits
• P2P paves the way for IPod & ITunes
12,000
Apple:
• New channel
10,000
• 150 + million iPods
Napster:
• 5 billion downloads
8,000 • 56 million users in 2 yrs
• 5 million downloaded daily
• 1 million customers per day
6,000
• Shut down for copyright Video
infringements (2001) Applications
Next?
4,000
Drivers for Change:
Physical Disruptive Technology,
2,000
Changing consumer behavior, 500mm downloads
Digital New entrant in marketplace,
Regulatory pressure 25mm downloads
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Recording Industry Association of America
Is it time for a
Bank industry
tectonic shift?
Shifts in a blink

Things don‟t change that fast in banking – right?

• What about ten years ago?

• Ten years ago, there was no euro. There was no TARGET system.
There was no EURO1 or STEP1 system. The European Central
Bank had just been created, as had the EBA.

• Ten years ago, the European Union did not include Bulgaria, Croatia
, Cyrus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta,
Poland, Romania, Slovakia and Slovenia.

• Ten years ago, we were enjoying one of the largest stock market
bubbles ever, as the internet boom was in full flow.

• Google and PayPal started at the end of 1998.

Shifts in a blink

1994 Top 10 Banks

• In 1994, the Top 10 banks in the World by Tier One Capital,
according to the Banker magazine, were:
– 1 Sumitomo Bank
– 2 Sanwa Bank
– 3 Fuji Bank
– 4 Dai-Ichi Kangyo Bank
– 5 Sakura Bank
– 6 Mitsubishi Bank
– 7 Industrial & Commercial Bank of China (ICBC)
– 8 Crédit Agricole
– 9 HSBC
– 10 Citicorp
Shifts in a blink

2008 Top 10 Banks as of Sept. and it changed again

• This year, it‟s:
– 1 HSBC
– 2 Citigroup
– 3 Royal Bank of Scotland
– 4 JP Morgan
– 5 Bank of America
– 6 Mitsubishi UFJ Group
– 7 Crédit Agricole
– 8 ICBC
– 9 Banco Santander
– 10 Bank of China
• In 14 years, only 4 of the original banks stayed in the Top 10. The
rise of China’s banks and disappearance of Japan’s banks is
particularly noteworthy.
Shifts in a blink

The “developing world” has come to the rescue of

European and US firms

20% share
$6.6B – Saad $5B ––$3B
Qatar
China
Group; – China
Investment Authority
Investment
$7.5B – Abu “undisclosed”
Dhabi – Corp. Bank
Development
$6.6B – Kuwait
Dubai Int‟l Capital
InvestmentAuth.
Auth.
Investment Et. Al.
$1.4B – Mubadala $2B – Temasek
$3B – China
$6.9B – State
Singapore $9.8B – Singapore
Devpt. Corp. Holdings
Investment
Investment Co.
Corp.
$4.4B – Temasek
Investment Corp.
$1.1B – Dubai $6.9B – Dubai
Holdings
International Capital International Capital
Shifts in a blink

However - Power Shifts Equal Strategic Risk

Shifts in a blink

„Z uker‟ punch – Facebook effect

• 110mm users
• 47,000 organization groups
• 600MM searches a month
• 3,000 MM page views a month
• 6th largest trafficked website
• Growing users at 3% per week!
• Valued at $15B
 If a tectonic shift
is about to happen
what can
the Banking Industry
do?
Vision of the Future

Center for Future Banking

• 5 year research commitment
• Research Themes
• Building research capacity
• Executives working jointly with researchers
• Developing disruptive business models
• Engaged with other ML sponsors
• Government, Academia, Industry expansion plans
Research Macro Themes Described

Macro Theme Description

Information flow is the signal versus and noise of information science. The
Information value is an increase or decrease in signal. Information is the lowest atomic
unit of measure for our research. The flows form interdependent chains or
Value chain graph of relationships. The flows of value are not exclusive to money and
include any convertible value.

Includes any behaviors that happen before and after the decision of a
Behavioral consumer or producer. Behavior is observed, modeled, anticipated,
Economics projected, predicted as well as all the vagaries of the human condition. The
unit of measure is at human scale and includes many uncontrolled factors.

Identity includes concepts of privacy or public disclosure. Trust implies the

Identity, Trust concepts of gradations of security or no security if full trust is granted. Both
Privacy, Security included measures of credibility and honesty or value systems that are
human. The concepts span system processes and human interaction.

Network Networks are the systems that connect and the people acting in social
interactions. Information flows, social behavior, identity and trust are
Economies aggregated into economic interactions within a network.

Includes individual actions representing corporations as well their household

Social and raises questions of ethics. This aggregates the network economies into
Responsibility defined groups that care for direct and indirect impact and consequences of
decisions.
Research Theory and Impact

Macro Theme Consumer Impact * Theory Basis Research Unit

Information Usability Communications Bits/Bytes

Value chain Sensing Store Signal/Noise Numbers/Time

Behavioral Consumer Individual Psychology

Economics Buying Decision Choice Theory Mind/Emotion

Identity, Trust Consumer Risk Containment Safe

Privacy, Security Confidence Chaos Theory Systems

Network Connected Complexity/Game/ Societal

Economies Consumption Graph Theory Knowledge

Social Consumer Values

Philosophy
Responsibility Literacy Ethics/Law
CFB Approach: Doing collaborative Research
“Triple Helix; Industry, Academia, Government”

1. Identify and create tectonic shifts in the global socio-economic landscape

a. Experimental Research on what may impact the way people live, work and thrive.

b. Long-term partnership with collaboration between academia, industry and the civic bodies is
the only way to identify potential mass adoption of new standards, behaviors and business
frameworks

2. Research to Predict, build, and test future drivers of business models

a. Agreed on a rapid extreme experimentation approach in live environments

b. Macro Themes generate emerging concepts to research real scenarios

c. Inform existing product innovation by pipelining the experimental research findings,

techniques, and artifacts into the enterprise to create a sense of ownership and urgency to
formulate or seize these emerging business models
CFB Research Outcomes Categories
“All outcomes need to be adopted
before they are useful”
• Artifacts
– Research results with tangible embodiments that demonstrate what is possible
– Early indicators of physical interfaces afforded interaction designers
– Example: Patties Maes, Siftables devices
• Techniques and methods
– The invention of new techniques for analysis of experimental data.
– Example: Deb Roy, Human Speechome Project
• Observations
– Speculative insights based on observations that inform hypothesis for
experimentation
– Example: Dan Ariely Behavioral Economies patterns
• Understandings
– Theories that challenge the prevailing beliefs. Intangible experimental demonstration
– Example: Sandy Pentland, Sociometer discovery of Honest Signals
• Philosophy
– Radical thinking that breakthrough common practice
– Example: Stallman, Free Software Foundation, Open Source Software
Research Conceptual Structure
VALUE SERVICE
CREATION SCIENCE
Financial RESEARCH
Ecology

Network
System Relationship
Dynamic Knowledge
s
Value
Creation
Information Behavior
Economic TECTONIC SHIFT
Models

Human
Interaction
Data

TACTICS TODAY STRATEGIC HORIZON RESEARCH FUTURES

Now – 12 months 1 – 3 years +3 to 10 years
“The FUTURE
is here
It‟s just not
widely
distributed
yet”
William Gibson
Research for the Future
• Understanding Health, Wealth and Happiness
• How do we support a Billion people?
• Everyone, Anytime, Anywhere, communications
• Re-conceive the physical space
• Life logging and the new deal on data
• Information as the new currency of knowledge
• Real-time human behavior segmentation
• Models for social and economic networks
• Nationwide living lab of Networked Relationships
• Redefine the Risk Models for a Financial Ecology
• Revamp technical infrastructure of large scale systems
 Center for Future Banking

Questions?

Get Involved

Panel: Jeff Carter, Deb Roy, Ray Garcia

cfb.media.mit.edu