The recent Vodafone acquisition of Hutch Essar for $11 Billion has been garnering a tremendous amount of press globally. In India, the media has been heralding the size of the price tag as the price of a ticket to the Indian consumer market. In the West, the academic and management consultant skeptics suggest that the Eastern bubble is growing to unmanageable proportions with an impending correction as these valuations give way to margin compression and delayed infrastructure modernization, etc. The M&A bankers are test driving Lamborghinis with gold-plated shifter knobs.

With the emphasis on customer franchise size and lifetime valuation of customers, we are kind of seeing a bubble ala the Internet days, inasmuch as the distorted lifetime value numbers in the current context. Google is the only model that emerged with the lifetime economics even close to its original estimates, because its search became the start point of virtually every web session. However, given mobility’s inevitable centrality to emerging market Internet strategies (see NetCore CEO Rajesh Jain’s comments last October), should we be discounting the future Google + Verizon’s of the emerging global economy?

The question that does come up is how do these companies avoid commoditization and business model decay as it should happen even faster in markets with lower margins than the US and EU. One cans see the need to welcome true customer service providers such as banks and health services to the network in a strategically significant manner. Co-developed, innovative solutions that bring traditional services to a secure, mobile, customer centric platform can feed both heads of the beast, allowing further capitalization of the networks, allowing them to fulfill the dream valuations they have today.

Recently, I was chatting with a bank marketing manager about direct mail marketing and the ever-decreasing response rates and the increasing battle for that scrap of attention in apartment building lobbies and on the porches of the suburbs every morning. She was talking about tweaking a program to get up from 15 to 20 basis points of response. I imagined the 100 other marketing managers doing the same thing for this months mailing. The consumer finance industry sends 8 billion pieces of direct mail in the US with a response rate heading to 25 basis points.
Quick math shows that a fully loaded piece of normal direct mail (color and first class postage) will go to about 40 to 50 cents plus the list cost. That’s a $500 CPM people.
What banks should do: Be the first to kill off direct mail and go all electronic. You ask your customers to do it, so practice what you preach and it should pay off in the same way.

I’ve been holding off on writing about Wesabe, just to give sometime for the service/platform/network to take hold. For those who don’t know or keep their money in mattresses, Wesabe does for finance, what LinkedIn does for looking for a job: allows you to announce, share and track your goals and interests with others.

In addition to the social aspects of the platform, Wesabe also provides an aggregation engine that grabs your financial data from your various institutions and pulls it into your Wesabe profile. Aggregation is a Web 1.0 term that recalls names like Yodlee and Chaabi and other screen scrape specialists. It is enjoying a bit of a resurgence with CommerceBank acquiring eMoneyadvisor and Nextgen bank sites getting up.  There are two quite notable aspects to Wesabe’s approach to transaction data:

1. Interesting use of a web-enabled application that simply automates the login and download (and subsequent upload to Wesabe) of a statement on a periodic basis. Aggregations big issue back in the day and what we thought we solved with screen scraping was that pulling secure data from a banks server was a task that could not be performed on the “server-side”. This is not server side either but the effect is pleasant and more importantly transparent to the user.
2. Intelligence on the data pulled from your bank. Unlike the early aggregators, this is not about create “one site” or a portal for your financial data. You can actually due things with your info that you cannot do on your bank site. Useful things like tag recurring transactions that come up with a foggy MCC code and poorly tagged merchant like STARBU–ACH-399PA. That’s my Starbucks which is on Lexington Avenue and 53rd. In Wesabe, it’s called simply MORNING STARBUCKS. Then I can see how much or little I spend on caffeine.

Word on the web is that the Wesabe folks are bootstrapping and running lean at 4 or 5 heads. Which is a brilliant example of how you can take a banks information at actually make it interesting and useful without much investment, just a smart approach.

I’ll be tracking them as the community grows, as the value of social finance is driven directly by who joins and gets active.

Garanti Bank in Turkey has an interesting card program that is “Tailor made for each card holder”. Consumers can specify amongst a batch of parameters including rate and fee to customize their card product. From their site:

During the application process on the web, applicants can manipulate over ten parameters such as the reward rate and type, interest rate, card fee, and campaign type to create their preferred combination. Customers who want a simple approach can choose to select one of the four ready made packages…

Considering the rate vs. fee vs. rewards conundrum that haunts acquisition managers on a daily basis, seems like a logical approach to allow individuals to trade off values in each to their liking. It will be quite interesting to see how you can actually get people to take a higher rate or fee. Seems like a great test ground. Garanti also allows people to upload a photo for the card design or to choose from a menu of colors.
I cannot seem to shake the feeling that this is the NextCard folks resurfacing after that debacle here in the States. I have yet to find evidence that they are driving it. The card design is a bit derivative.

Seems that innovation in the financial vertical will turn a corner eventually and the first ones to get there will be the more open-minded North American inhabitants of Canada.

This contest is an interesting hybrid of the retro sort of Westinghouse, Intel Science competitions geared towards school-aged, budding scientists and those late-night patent office advertisements suggesting that your idea for a combined garden rake-can opener is intellectual property that requires protection.

This contest solicits college students, so a slightly older bunch, and focuses right on the specific problem of financial services 2.0. In fact the guidelines pages suggests that teams focus on such areas as “trends”, “partnerships” and even “pricing”!

Seems to me like RBC is trying to get some customer insights at a cut rate. The prize for this competition is $20K so the cost is near nothing. Can’t blame them for avoiding the customer insight “specialist” firms that dot the new innovation landscape. They could have made the reward for participation a bit richer than just the moral satisfaction of helping define the next generation of banking services. Throw those kids a few chips RBC!