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The Insider’s Guide To Improving Payments And Cash Flow: Evaluate And Select A Partner

The title of this post was inspired by the 1996 documentary “When We Were Kings,” about the heavyweight fight of 1974 between two boxing legends, Muhammad Ali and George Foreman. In the not-so-distant future, it will also be a fitting phrase for many in the banking and insurance industries.

Readers may ask why I am talking about banking and insurance in such doomsday terms. My bleak forecast does not stem from the notion behind the common fintech (financial technology) and insurtech (insurance technology) industry pitch that they will change their respective industries with innovation and better customer experiences, although I firmly believe that some of the startups will cause significant pain to the incumbents and will indeed change their respective industries. One day, some of the existing and as-yet-unlaunched fintech and insurtech companies will also become incumbents that other startups aim to disrupt.

The real threat to the financial industry will come from a radical approach to penetrate the financial market—an approach that I believe has not yet been addressed or even conceived by the competition. The emphasis is clearly on “yet.”

What is this new concept? It is simply this: offering financial services at or below cost. I have mooted this idea at many think tank events, and I thought I should write it down to share it more broadly. It is, and should be, a terrifying thought for many, and I strongly believe this approach will be implemented in the near future. It will bring many of the incumbents to their knees, unless they prepare for what is to come by investing in technology and adapting radical business models.

People talk about the limited impact of fintech and insurtech on the incumbent business model. I must agree that at this point many startups have little influence, if you look only at the customers they have taken away from incumbents. What the startups are already doing, however, is forcing many incumbents to lower their fees to better match what the smaller players offer to their clients.

Moreover, startups have also changed customers’ expectations of the user experience. Startups will also use artificial intelligence and machine learning to compete against the established financial players that have more resources—such as money, data and clients—at hand to compete. There is no way around investing in AI and machine learning to compete successfully against tech-savvy competitors. Many startups and large companies already use machine learning algorithms to build better credit risk models, predict bad loans, detect fraud, anticipate financial market behavior, improve customer relationship management, and provide more customized services to their clients. Arguably, the biggest effect of startups is that they continuously put pressure on incumbent profit margins. Startups will continue to try to change the status quo because they smell blood in the incumbent water.

The real and biggest threat to incumbents will likely originate from tech giants, such as Amazon, Apple and Facebook, and other big non-tech companies that have large customer and employee bases. These organizations will use their customers and employees to sell banking and insurance solutions, and the big financial institutions will become at best dumb pipes. The technical approaches to doing business within the fintech and insurtech industries may provide some of the tools tech giants and other large companies need to execute this strategy.

I know some readers will say that regulators will stop any attempt by non-traditional players to provide many banking and insurance services. However, I do not think regulators can or will stop the new competitors, because these companies will either obtain the necessary licenses to operate or have a bank or insurer provide third-party financial services to them. This strategy is not unlike the way some fintech challenger banks use the licenses of an existing bank to operate.

Why should we expect this scenario of financial industry disruption to happen? In our case, we all seem to agree that the tech giants are the ones to fear because of the Big Data platform and technology knowledge they possess. In addition, tech giants have several advantages, such as the trust factor and the constant interaction with satisfied customers. Furthermore, studies have shown that millennials would prefer to bank with tech giants such as Amazon, Facebook, or Google than with the existing banking players. And last but not least are the tech giants and startups that keep setting the bar higher for exceptional customer experience (for instance Apple’s simplicity or Amazon’s instant gratification) and shape the client behavior and expectations, not the incumbents.

All that speaks to tech giants’ favorable circumstances as serious competitors that are not yet ready to come in at full speed and hit the financial industry broadly, but it does not point to the need to fear an extreme disruption as I projected. I do not believe we will see those tech giants providing whole-spectrum financial services anytime soon, but they have the potential to offer services in certain segments, such as providing payment, lending, or insurance options for their customers and employees.

What is terrifying to imagine is a situation in which tech giants or other big companies provide financial service solutions at or below production costs. No, that is not a typo; I mean providing financial services for nothing—for free.

If we take this scenario to its extreme—that is, selling banking or insurance services for nothing (yes, for zero pounds, euros, dollars, or renminbi)—then we have a situation in which financial institutions in their present forms will die or be reduced to shadows of their current selves.

That can and will happen, and here’s why: Large companies could do exactly that—sell at or below cost—to win or keep customers. The new competitors would not need to earn money and could even afford to lose money in offering financial solutions if these features entice customers and new potential clients to use the companies’ core offerings. Remember that Facebook, for instance, earns the biggest portion of their profits through advertising because they have created a great platform through which people love to interact. Financial solutions would be just another great offering (especially if they are offered for free) to entice many people to join the tech giants’ ecosystems.

Alternatively, car companies such as GM could provide their employees and customers with very cheap or no-cost (no cost to customers, at cost for the company) banking or insurance solutions. Don’t forget that banking and insurance solutions can be provided at very little cost as white-label services from third parties that already have all the necessary licenses, technology and infrastructure.

All is not lost for banks and insurers, but it will be very hard for them to compete against savvy tech giants on their technological home turf. The financial industry must think fast to find ways to compete before their business oxygen runs out.

One solution that banks and insurers should pursue aggressively is to embrace the fintech and insurtech industries for their innovative business spirit and fast, direct execution approach to new ideas. That means financial institutions should buy what they can or partner with startups to make up for all the shortcomings that legacy brings. Size and regulation will not be enough to protect incumbent financial institutions against new competitors, as we have seen in many other industries.

Another idea might be for financial institutions to place advertisements on their websites or apps to compensate for loss of profit margins. I do not think this is the only solution, but financial institutions must innovate beyond their core areas of expertise and standard industry practices. Why do you think Amazon, Uber, and Airbnb have been so successful at disrupting their industries? Because they thought and acted as if they had nothing to lose and everything to gain.

The “at or below cost” approach to financial service solutions is not a far-fetched scenario for tech giants and other companies that are trying to find new ways to attract and keep clients. The banking and insurance industries must at least get very comfortable with the idea that low-cost or free financial services are coming.

A tsunami is often unnoticed in the open sea, but once it approaches the shore, it causes the sea to rise in a massive, devastating wave. The financial industry needs to determine if the threat by tech giants and non-tech companies is a small wave or a tsunami and prepare accordingly. My recommendation to all financial institutions is this: You’d better prepare for a tsunami, even if all you see is a small wave on the horizon.

Read more in my new white paper “Machine Learning in Financial Services: Changing the Rules of the Game.”

SAP Machine Learning Banner 728x90 V2 The Insider’s Guide To Improving Payments And Cash Flow: Evaluate And Select A Partner

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When It Comes To Rewarding Employees, Is Cash Really King?

The September issue of the Harvard Business Review features a cover story on design thinking’s coming of age. We have been applying design thinking within SAP for the past 10 years, and I’ve witnessed the growth of this human-centered approach to innovation first hand.

Design thinking is, as the HBR piece points out, “the best tool we have for … developing a responsive, flexible organizational culture.”

This means businesses are doing more to learn about their customers by interacting directly with them. We’re seeing this change in our work on d.forum — a community of design thinking champions and “disruptors” from across industries.

Meanwhile, technology is making it possible to know exponentially more about a customer. Businesses can now make increasingly accurate predictions about customers’ needs well into the future. The businesses best able to access and pull insights from this growing volume of data will win. That requires a fundamental change for our own industry; it necessitates a digital transformation.

So, how do we design this digital transformation?

It starts with the customer and an application of design thinking throughout an organization – blending business, technology and human values to generate innovation. Business is already incorporating design thinking, as the HBR cover story shows. We in technology need to do the same.

SCN+SY When It Comes To Rewarding Employees, Is Cash Really King?

Design thinking plays an important role because it helps articulate what the end customer’s experience is going to be like. It helps focus all aspects of the business on understanding and articulating that future experience.

Once an organization is able to do that, the insights from that consumer experience need to be drawn down into the business, with the central question becoming: What does this future customer experience mean for us as an organization? What barriers do we need to remove? Do we need to organize ourselves differently? Does our process need to change – if it does, how? What kind of new technology do we need?

Then an organization must look carefully at roles within itself. What does this knowledge of the end customer’s future experience mean for an individual in human resources, for example, or finance? Those roles can then be viewed as end experiences unto themselves, with organizations applying design thinking to learn about the needs inherent to those roles. They can then change roles to better meet the end customer’s future needs. This end customer-centered approach is what drives change.

This also means design thinking is more important than ever for IT organizations.

We, in the IT industry, have been charged with being responsive to business, using technology to solve the problems business presents. Unfortunately, business sometimes views IT as the organization keeping the lights on. If we make the analogy of a store: business is responsible for the front office, focused on growing the business where consumers directly interact with products and marketing; while the perception is that IT focuses on the back office, keeping servers running and the distribution system humming. The key is to have business and IT align to meet the needs of the front office together.

Remember what I said about the growing availability of consumer data? The business best able to access and learn from that data will win. Those of us in IT organizations have the technology to make that win possible, but the way we are seen and our very nature needs to change if we want to remain relevant to business and participate in crafting the winning strategy.

We need to become more front office and less back office, proving to business that we are innovation partners in technology.

This means, in order to communicate with businesses today, we need to take a design thinking approach. We in IT need to show we have an understanding of the end consumer’s needs and experience, and we must align that knowledge and understanding with technological solutions. When this works — when the front office and back office come together in this way — it can lead to solutions that a company could otherwise never have realized.

There’s different qualities, of course, between front office and back office requirements. The back office is the foundation of a company and requires robustness, stability, and reliability. The front office, on the other hand, moves much more quickly. It is always changing with new product offerings and marketing campaigns. Technology must also show agility, flexibility, and speed. The business needs both functions to survive. This is a challenge for IT organizations, but it is not an impossible shift for us to make.

Here’s the breakdown of our challenge.

1. We need to better understand the real needs of the business.

This means learning more about the experience and needs of the end customer and then translating that information into technological solutions.

2. We need to be involved in more of the strategic discussions of the business.

Use the regular invitations to meetings with business as an opportunity to surface the deeper learning about the end consumer and the technology solutions that business may otherwise not know to ask for or how to implement.

The IT industry overall may not have a track record of operating in this way, but if we are not involved in the strategic direction of companies and shedding light on the future path, we risk not being considered innovation partners for the business.

We must collaborate with business, understand the strategic direction and highlight the technical challenges and opportunities. When we do, IT will become a hybrid organization – able to maintain the back office while capitalizing on the front office’s growing technical needs. We will highlight solutions that business could otherwise have missed, ushering in a digital transformation.

Digital transformation goes beyond just technology; it requires a mindset. See What It Really Means To Be A Digital Organization.

This story originally appeared on SAP Business Trends.

Top image via Shutterstock

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Turning Comments Into Cash

I am a child of the on-premise world. I grew up learning BASIC on an Apple II+ clone with 48K of RAM. When my dad gave me a 16K RAM expansion card for my birthday, I thought I had died and gone to heaven.

I didn’t get my first modem for another 7 years (a  2400-baud Hayes!). I learned assembly language, made my own games, and typed in pages of code from computer magazines. I didn’t need to get connected to anything; I found an entire universe inside that little box in my bedroom.

How on-premise was I? I could place my hand on the disk drive, and from the sound and vibrations emanating therein, I could tell you whether or not the disk had an error about 10 seconds before any error messages popped up.

I stayed with IT through the rise of the Internet, and in tech support roles early in my career spent my fair share of time hanging around server rooms, swapping tapes, typing cryptic Unix commands, and waiting out long-running scripts as I performed weekend production upgrades for various customers. I was proud of that time in my life, as I felt I was in the forefront of an IT revolution that was changing the world.

If you’re an IT professional in your 30s or 40s, you’ve probably also done some or all of the above. Perhaps you and other readers are wondering why there is skepticism about the cloud. The decision-makers grew up in an on-premise world. Happiness is a warm server.

Let me try to convince you, fellow children of the 70s and 80s, of the benefits of a cloud solution. If I could cross the divide to the cloud realm, you can too.

1. You have better things to do

Most likely, your organisation is not an IT infrastructure company. Running data centers is probably not your core business. Many companies, however, are forced to have their own data centers and server rooms because of the lack of reliable services out there. This is a bit like having to dig your own well because there is no water service at your house. Things have changed, however—now, instead of dedicating personnel to non-core functions, you can let somebody else do the menial work and let your employees focus on things that are more relevant to your bottom line.

2. It costs less

Aside from the obvious shift from capital expenditure to operating expenditure when you move to the cloud, you must also take into account many other factors that go into running your own infrastructure. Perhaps the following graphic, which popped up on my LinkedIn feed the other day, describes it best:

iceberg Turning Comments Into Cash

I love this illustration because it illustrates many aspects of how your cost structure will change by moving to the cloud.

First, your most visible cost (the tip of the iceberg) will change from an up-front license fee to a subscription fee. If you simply look at this visible cost, it’s pretty clear that after a few years, the subscription cost will be higher than the one-time license cost. However, it’s important to remember that beneath the surface are the hidden ongoing costs that go into maintaining your own infrastructure.

In the cloud, that becomes somebody else’s problem (just as you wouldn’t need to worry about well maintenance once water is hooked up to your house). This is one of the true savings of moving to the cloud, so it is important not to overlook what lies under the surface when considering your TCO savings.

3. You’ll remove risk

Let’s go back to the well analogy again: If you use a well, you are responsible for making sure that the water is clean, that no feral possums get into it, and the pump is rust-free. When you are a water subscriber, you have only one risk: if the water supply stops.

That risk is mitigated by the fact that the water company has thousands of other water customers to whom it is also responsible. Same with the cloud, so you can stop worrying about whether your server room will catch fire or a mouse will nibble through your cables and just use the software you need.

And much like the water company likely does a better job of managing the water supply than you can, moving to the cloud with the right company enables you to take advantage of best practices such as automated backups, built-in redundancies, and automated software updates.

4. You’ll be more agile

Most on-premise software projects start with the selection and procurement of hardware, followed by installation of that hardware and software. Only then can you finally begin implementing and configuring your business solution. With cloud solutions, you can cut straight to the chase without worrying about potential infrastructure problems.

Furthermore, five or seven years down the road, you will not need to worry about what to do with that old server that can no longer run the latest release of your software.

All of the above factors are valid arguments for organisations of any size, but they are especially relevant for the small and medium-sized businesses (SMBs), which do not have the luxury of large IT departments and generally have more limited budgets.

At the risk of mixing metaphors, it’s time to start drinking the water without worrying about the well—consider how moving to the cloud can shrink your iceberg.

For more on why your business should consider moving to the cloud, visit our new cloud content hub.

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Yixia Tech's Latest Cash Infusion Will Spur Social Media Videos

Short videos are becoming a mainstay of Chinese social media, especially on Weibo.com. A new investment in the company behind two of the biggest platforms is set to grow the market further.

Weibo Corporation has completed a US$ 120 million investment in Yixia Tech, a Beijing-based developer behind short video mobile app Miaopai and Xiaokaxiu. The deal follows a US$ 200 million series D funding round Yixia competed in November 2015 led by Weibo, with participation from Sequoia Capital, South Korean entertainment firm YG Entertainment and others.

To date, Weibo has invested an aggregate of US$ 190 million in Yixia, while the two strengthened their existing partnership.

Miao Pai and Xiaokaxiu lets users shoot, edit, and share 10-second videos on Weibo and other social media platforms. It has registered users of 15 million and facilitates over one million video uploads daily, according to its official releases.

Launched in September 2013 with the help of Sina Weibo, Miaopai received venture funding in multiple rounds from Morningside Ventures, Redpoint Ventures, Kleiner Perkins Caufield & Byers (KPCB) China, Sina Corp. and StarVC.

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Salesforce Ponies Up $340M Cash for Krux Data Management

Salesforce has agreed to acquire its Marketing Cloud partner Krux, which offers a data management platform.

Salesforce will pay US$ 340 million in cash and issue between 3.4 million and six million shares of common stock to consummate the deal, according to documentation filed with the U.S. Securities and Exchange Commission on Monday. That’s worth an estimated $ 700 million in all.

Benefits to Both

Krux will extend the Salesforce Marketing Cloud’s segmentation and targeting capabilities to power consumer marketing with even more precision at scale, said Krux CEO Tom Chavez.

Further, Krux will feed Salesforce’s new artificial intelligence system, Einstein, with billions of new signals, providing corporations with more data about their users.

Krux will continue supporting its partner ecosystem.

“The acquisition was absolutely needed and expected,” said Sheryl Kingstone, a research director at 451 Research.

“It’s a great addition to not just the data cloud, but also the marketing cloud, as the world demands contextual 1:1 intent-driven engagement,” she told CRM Buyer. “It’s all about the data for the future of intelligent business applications.”

Salesforce is making a big push into AI, having developed Einstein to integrate AI into all of its products and serve as a nervous system across its entire business.

Einstein includes product recommendations; Predictive Sort, which turns up sort and search results based on how likely customers are to make a purchase; and Commerce Insights, which helps retailers understand product purchase correlations to help improve their store planning and merchandising.

Data lies at the heart of those efforts, and that is just what Krux offers. Through its data management platform, it serves as an intelligent marketing center that corporations can leverage to deliver media, content and commerce experiences to deepen customer engagement, strengthen

At the Crux of Krux

Every month, Krux interacts with more than 3 billion browsers and devices, supports more than 200 billion data collection events, processes more than 5 billion CRM records, and orchestrates more than 200 billion personalized consumer experiences.

Krux uses AI to analyze all of those signals to identify audiences for targeted marketing and advertising efforts.

Clients include Kellogg, ConAgra, JetBlue, Time Warner and Peugeot-PSA.

Happier Together

When Salesforce unveiled its next-generation marketing cloud last year, Krux was one of the partners in its digital marketing and digital advertising ecosystems.

Krux earlier this year deepened its integration with the Salesforce Marketing Cloud, empowering advertisers to match third-party data with customer information on their Salesforce instances.

Krux also entered the Salesforce independent software vendor partner program, which enables customers of both firms to use their customer data to target consumers on the open Web, while also enriching their customer profiles with online engagement data.

The resulting two-way data exchange between the data sets let Salesforce clients consistently increase the value of both their online and offline data.

It made sound business sense for Salesforce to extend the partnership by purchasing Krux.

“Krux’s technology has real-time access to extensive customer data, which is crucial to understanding the process a consumer goes through when making a purchase,” said Anne Moxie, a senior analyst at Nucleus Research.

“Salesforce will be able to leverage this data with its artificial intelligence offering, Einstein,” she told CRM Buyer, “to potentially either make its marketing campaigns more dynamic, so that it can respond to consumer actions in real time, or … for highly granular customer segmentation.”

It will “make targeting more accurate,” Moxie noted, “because the neural networks and deep learning models in Einstein can use the real-time data that’s collected from Krux for improved campaigns.” end enn Salesforce Ponies Up $340M Cash for Krux Data Management


Richard%20Adhikari Salesforce Ponies Up $340M Cash for Krux Data ManagementRichard Adhikari has written about high-tech for leading industry publications since the 1990s and wonders where it’s all leading to. Will implanted RFID chips in humans be the Mark of the Beast? Will nanotech solve our coming food crisis? Does Sturgeon’s Law still hold true? You can connect with Richard on Google+.

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Cash or Credit: A Millennial Story

Last year Millennials surpassed Baby Boomers as the largest generation in the U.S. (Pew Research, 2016). Millennials (those born between 1997-1981) now number 75.4 million, just pipping the Boomers at 74.9 million. The Millennial generation came of age during the Great Recession and some studies from Bankrate and others, have shown they are credit averse, and favor debit cards over credit cards. However, new FICO research points to just the opposite.

Yes, I’d like a Credit Card.

There is no doubt that the Card Act of 2009 reduced the number of credit card carrying adults under the age of 21 which was its intended impact. Indeed, FICO’s research shows that just 64% of Millennials 18-24 have credit cards. However, older Millennials 25-34, now own cards at a higher rate (83%) than Generation X or those 50 and older.

percentages 300x144 Cash or Credit: A Millennial Story

So what do Millennials want in a credit card?

Millennials are particularly cost-conscious when choosing a card. They are most interested in transparency and lower fees and rates. FICO’s research also found that they are more interested than other generational groups in receiving notifications from their card provider on upcoming or missed payments, suspicious account activity and credit limit warnings. This is in contrast to older, wealthier consumers (earning >$ 100k per year) that are seeking travel or cash-back rewards, no foreign transaction fees and strong security features. Segmentation and analytics are the key for matching the right consumer with the right offer.

Segmentation

FICO has worked with a number of credit card issuers to help them segment and deliver the right analytic offer. Helping to build a base of new Millennial clients is of the first critical step in those efforts. We feel that a single solution that spans both the marketing and origination processes will deliver the best results. By connecting the underwriting and marketing decision, with strong analytic tools, card issuers can get the following benefits:

  • ROI forecasting – Before going to market they can simulate the effectiveness of different offers not only from the marketing uptake standpoint, but also from a risk view.
  • Customized Offers – With the simulation results, firms can segment customers and pre-approve the most profitable prospects with an tailored offer .
  • Continuous Improvement – Using market data to create a continuous feedback loop sharpens both marketing and credit decisions for increased revenue and profits.

To learn more about FICO research into Millennials and Credit Cards download our ebook or to learn more about our Bank Card Solutions visit fico.com

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OVH gets $327m cash for data center expansion

12 December 2014 by Drew Amorosi – Datacenter Dynamics

OVH Presse Datacentre RBX1 0004 OVH gets $327m cash for data center expansion

OVH’s RBX-1 data center in Roubaix, France (OVH Group)

France-based web hosting provider OVH Group announced this week that it plans to raise $ 327 million to extend its cloud services business and add to its data center fleet. The company said its goal is to expand its business into previously untapped international markets.  

The company announced via its official blog that the cash infusion will come from a combination of bank loans ($ 196 million) and private bond issues ($ 131 million).

Solid financial results
Via twitter, OVH founder Octave Klaba cited “solid financial results” as the driver for a $ 490 million investment in international business development by the end of 2017, including the $ 327 in debt raised to fund the expansion.

“The goal is to provide the means to become a key player in the global cloud, able to compete with the big American companies”, said Nicolas Boyer, CFO of OVH, in a statement. Boyer confirmed that the debt raised would be part of an overall $ 490 million international business development plan, with the remaining amount to be self-funded.

“We can then intensify the deployment of our data center and network infrastructures, supporting our customers in the cloud while capturing new markets”, he added.

The financing deal may be a pre-cursor to OVH going public, according to Le Figaro. “This transaction has allowed us to vary our sources of financing and test the appetite of private investors”, Boyer commented. He told the French daily this week that an IPO would be the “next logical step.” 

OHV operates 17 data centers, with three in Canada and the rest in France. The company currently serves its North America-based customers from three data centers in the Montreal area. This geographic limitation prevents OVH from expanding its US-based business outside of the Midwest and East Coast. 

Although there are no official expansion plans, an OVH spokesperson told DatacenterDynamics the company would target the West Coast of North America, but whether this will be in the US or Canada is uncertain. The same spokesperson said the company would also look to expand into Asia, but that no specifics on location were available at this time.

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