The Price of Everything

Fair Isaacs has seen it all.  FICO’s James Taylor takes off from a recent piece from TowerGroup’s Kathleen Khirallah by placing it in a larger context. 

The key element to get started is that Banks need more finely grained segmentation for their pricing. Most of them already do a great job of segmentation for risk, credit line management and so on but they lack this approach in pricing. They don’t have a comprehensive pricing strategy that reflects the sensitivities and desires of customers.

While traditional segmentation works pretty well for loans (customers expect individualized pricing), this can be tricky in deposits - and banks should tread carefully.  Read more »

Bookmark to:
          

Remember the end of It’s a Wonderful Life? The entire town came together to help Jimmy Stewart’s Building and Loan because he was a keystone of the community.

My town’s banker, Walter Deutsch (Unity Bank):

This mythical age of banking may have never truly existed, but we seem to be moving further away. As banking moves online and credit scoring replaces reputation, banks sacrifice the human touch.

As community dissolves, banks lose. We are still highly trusted, but there are fewer places to apply that trust. Read more »

Bookmark to:
          

Amazon recently announced Elastic Compute Cloud - a service that allows outsiders to rent computing power from Amazon’s huge server farms. 

BNP just signed a deal with IBM to share computing capacity.  Bankervision links the dots to show where this is going:

Let’s assume that BNP does inter-day, processing only, and that the run takes all night. Therefore they use that capacity for 12 hours. In other words, the facility costs them $3000 a day. There are 52 weeks in a year, but markets are open for only 5 days of each week. Ignoring holidays, we have to do 260 runs a year, for an  annual cost of $780,000. Over three years, that would amount to the grand sum of $2.34 million dollars. For 2500 machines available on demand.

Something like 90% of Amazon’s hardware capacity is designed for the Christmas crunch and sits idle the rest of the time.  Their marginal costs in renting this capacity out are near zero.  They are actively looking for customers (like banks) to rent this capacity cheap.

Banks will have to work out security implications, but it’s well worth it.  Computing in the Amazon cloud allows several million in savings beyond the already terrific IBM/BNP deal.

Computing in the cloud will produce major cost savings/hardware improvements for the banks that take advantage.  Ultimately, there could be a few big competitors facing the same costs, concerns, and prices.  My guess: it won’t take long for IBM’s initial stab to grow to many more jointly-shared servers.  And ultimately, IBM could charge Amazon for Christmas cloud coverage.

A big potential win for banks and even good green marketing.  In an era where Google consumes more power than aluminum smelters, using computer hardware more efficiently translates into reduced dependency on foreign oil.

Bookmark to:
          

Microsoft is famous for “dogfooding” their software - they use their own software internally.  This demonstrates Microsoft’s confidence in their own products.  Even more important, dogfooding makes sure the software teams experience the same pain as real customers. 

We dogfood here.  And banks are starting to do the same - or at least the hedge funds that own them.  Tom Brown and the rest of Second Curve Capital recently explored all of the bank branches in their Manhattan neighborhood.  From the NYT: Read more »

Bookmark to:
          

Dogfooding is the practice of using your own products.  The term comes from marketing slang - “will the dog eat the dog food?” - shorthand for the idea that the product may be amazing, but ultimately, it only matters if the consumer likes it.

Dogfooding was made famous at Microsoft, but has spread well beyond Redmond, Washington.  Lots of companies dogfood their products now.  Some choose more palatable imagery.  For example, Siebel Systems calls it “sipping your own champagne”.

Whatever you call it, the thought is right.  Otherwise, the annoying nuisances in the product never completely go away.   Read more »

Bookmark to: