Microsoft Business Talk

Up Close and Personal - Banking on Big Data

David S. Cox — Thu, 14 Feb 2013 18:47:00 GMT

Many people ask the question “where is banking going next?” Facing a down market, legacy issues and a growing volume of regulation the traditional business is under threat. Plus a new generation of alternative providers – particularly in payments – is eating away at the core franchise.

What’s to be done?

Bank’s today are sitting on a ton of data, much of it about you and me. This data is incredibly valuable. But years of acquisitions have led to a patchwork of systems and technology solutions that don’t sit well together. Plus many database systems are designed around standard predictable questions we always needed answers to not the new questions that are driving our business more and more today.

The result is data is hard to access let alone analyze. Even though it is valuable, it’s really hard to get.

Plus even more data is coming down the pike – and unstructured data at that which bank systems are ill equipped to handle after years of investing in structured, relationship based systems. Plus what is data today? Is it words, numbers, images, voices, gestures, presence?

Classifying the data is a great place to start. There is high-value data we need to run the business now and lower value data we may need in the future (or may not – we just don’t know yet). Data we need now should be close to the line of business. Not far away in some remote central repository. We have more flexibility over lower value data. As long as we can get it when we need it.

This suggests a federated approach to data management. A centralized, single database model assumes all data is equal in value which, of course, it isn’t.

Once we have our data story in place, the technology and security story we need to support it falls more easily into place. Tools like Hadoop, Hive, SQL, analytics and the Cloud each have a clearer role to play and data will flow more easily to where it’s most needed.

And what’s the prize for getting this right?

Many banks have had to cut back and grow smaller since the financial crisis of 2008. One exception is Great Western Bank that has grown 300% since then mainly by harnessing data Big Data tools to understand their customers better and service them individually.(1)

(1) http://blogs.technet.com/b/vertical_industries/archive/2013/02/14/becoming-an-analytical-enterprise.aspx

A Separate Point of View

David S. Cox — Mon, 27 Aug 2012 14:25:00 GMT

The technology industry has become a battle ground for patent disputes. Some have questioned their value. But Apple’s recent patent victory against Samsung gives a really clear message on the importance of a separate point of view.

But have some features become so generic, such as pinch-to-zoom, as to make it impossible to produce a smartphone without them? If true will competition suffer?

The answer depends on how consumers react. Will they substitute cool for safe now the market has become less predictable? Or will consumers see an opportunity to express their individualism in the devices that define them and embrace separate choices?

On the one hand picking a safer phone – one not subject to controversy – has become more important.

But individualism and personalization are on the rise. More and more we are defined but the devices we have and the lifestyles they support. Almost every industry has flourished by offering consumers choices and avoiding standardization.

What about the supply side of the equation? Some technologists may now be more fearful in bringing new ideas to market, now the bar on what is different is higher. But the more a product looks different the stronger their defense will be.

In truth, the smartphone industry is still in its early stages. Just like cars might have looked very similar in the thirties and forties so smart phones often resemble each other in our own time. Sometimes it’s hard to tell them apart without close inspection.

Windows Phone is certainly a separate point of view a distinction even more reinforced when Windows 8 comes to market in October. Also smartphones will not long survive as standalone devices but companion tools in a world of connected devices and applications where the platform becomes more important.

The smartphone industry is a young one but was already beginning to coalesce on devices that looked more and more standardized. The Apple verdict celebrates the importance of a separate point of view reinforcing the importance of creativity in a market that desperately needs it.

Eliminating the Fear of Social

David S. Cox — Mon, 11 Jun 2012 13:07:00 GMT

The recent furor over Wall Street’s handling of Facebook masks a deeper issue – banking’s almost paranoid discomfort with social networking. The cultures couldn’t be more extreme. While capital markets favor opaqueness, social networking is all about transparency. Surely any bank’s nightmare would be to have its trading strategy posted on Facebook.

Yet it is the very transparency of the internet and the information society it is spawning that is transferring power from banks to their customers. In today’s always interconnected world of unlimited newsbites customers often know more about their banks than banks know about them.

In our down market there has been a shift in banking towards customer intimacy and away from complex products. What’s the point of a synthetic derivative if no one wants it? This represents a 180 degree transformation in the industry’s technology focus at a time when budgets are really tight.

Ironically it is the internet and its related technologies, the tools that have put banks so much on the defensive, that offer a solution. The debate about whether social is better for branding or advertising misses the point. It’s one of the tools that help banks build deeper relationships with customers.

Thanks to the internet of things, an ecosystem of connected devices and applications, we are generating more data about ourselves than at any time in history. Every time we put our photos in the cloud, check in on a social networking site or trawl websites we leave behind digital clues as to who we really are, what relationships we have and lifestyle choices we make.

We are creating a treasure chest of information which, when combined with what banks already know about us, offers huge insight into us as individuals.

Add to this mix the power of analytics and banks can predict with increasing certainty how we will respond to individual campaigns. Instead of receiving blanket offers we may have little use for we can start to receive relevant ones that may actually improve our lives. Even in as basic an area as communications, content can be personalized to our individual needs.

Does the customer want their statement electronically or in paper form? How frequently do they want those statements? Are they interested in savings products or borrowings? Are they about to change jobs or start a new business? Imagine being able to make relevant offers timed to lifestyle events.

In the old world of spray and prey marketing banks spend billions of dollars a year in postage alone and achieve little in terms of customer satisfaction, retention or even growth in customer relationships.

It is time for banks to overcome their fear of social, embrace the new world of market transparency and recognize the new opportunities they have been offered on a plate. Once banks do this perhaps then they will appreciate the real value of Facebook.

The Real Value of Facebook?

David S. Cox — Fri, 01 Jun 2012 13:54:00 GMT

There has been much wailing and gnashing of teeth over the recent Facebook IPO but less consensus over the long term value of the company. And bad news begets bad news. Even issues like outages gain national attention as if they were part of some deeper, darker story.

Have we forgotten that the real purpose of capital markets is to unlock long term value; not to satisfy the whims of short term investors? And yet here we are bashing the IPO and the company after just a few days. It's like judging a new born baby based on whether or not it looks sufficiently like its parents or siblings.

Sadly whether it is dotcom stocks, IPOs or houses we have come to expect to make money by flipping assets rather than investing in them. A boom and bust society has been the result with little growth in equities. It's hard to build long term wealth with a short term perspective.

This has other implications.

The long term transformational impact of technology generally exceeds the short term hype. In the case of social networking we have seen much hype but are nowhere near realizing the full potential.

Why is this potentially dangerous?

Because we often fail to see the full benefits of technology and so delay its implementation.

We recently passed an important milestone; the ability to store and compute almost anything. This means that many challenges we once thought impossible may now become attainable. And through ventures that may or may not have the word social in them, but may still bring huge social benefits in healthcare, lifestyle even the management of our economy, we may transform the future of our planet.

These initiatives need long term venture capital not short term day trading.

Facebook is an exciting opportunity in a huge long term shift in our global society to wards greaser collaboration, freedom and transparency empowered by technology.

Let's try and put a short term value on that.

Millennials and Boomers – Poles Apart or Peas in a Pod?

David S. Cox — Thu, 17 May 2012 12:46:00 GMT

Popular mythology suggests younger people are more tech savvy than older ones; digital natives and digital immigrants divided by technology. Teenagers would rather text than talk.

By implication, boomers are technophobes or at best neophytes. Future markets are more likely to be shaped by younger people than older ones. Many firms have set up Gen Y research, marketing and HR teams to help plan the future of their products and businesses. The size of this group already eclipses Baby Boomers and will soon represent half the workforce.

But is it really that black and white? The terms ‘Digital Native’ and ‘Digital Immigrants’ are already ten years old and technology has changed a lot since then. Technology is easier to use, more accessible and more embedded in almost everything we do. It’s harder to be a digital immigrant today. Boomers may prefer email and millennials texting, but they both can function in a real time information society.

The productivity gap has become slight not systemic.

Digital literacy adds a further dimension. Our participation in digital society varies significantly even within generations. Playing games and sharing photos as opposed to writing blogs and wikis suggests very different levels of digital literacy. The U.S. President is no millennial, but he has redefined politics through his sophisticated use of social networking and is reaching out to all of us.

Because of their broader use of technology, millennials may be wired differently than boomers which may make them better at multi-tasking. But that may make them less effective at deeper analysis and decision making. As we move to a more information rich, analytical society employees with deep analytical skills will be more in demand. But there may be fewer of them.

While millennials may be early adopters, Boomers are making a comeback. In May 2009 Microsoft and AARP sponsored dinners for 60 boomers in four cities – San Francisco, Phoenix, Chicago and New York – to explore what modern technology meant to them.[i]

Far from portraying a generation challenged by technology the boomers came across as ready to embrace it, but with their own unique perspective. They feared that their children were allowing technology to shape their lives rather than using it to help create the lives they want.[ii] Millennials may be early adopters of technology, but so too were boomers when they were young – after all this was the generation that produced Bill Gates and Steve Jobs. And that generation invented much of twenty first century technology – a revolutionary combination of flower and computing power.

Boomers have a unique perspective. Standing between their children – the millennials – and their parents – the Silent Generation – they can see both the dangers of over dependence on technology and the consequences of ignoring it. So they are more likely to have a more balanced view and use technology as a tool rather than an addiction.

Another Microsoft study that year reinforced this, focusing on financial services. While millennials were early adopters of technology, boomers were more pragmatic in their approach willing to use a portfolio of tools to achieve their objectives.[iii]

As technology has grown, its adoption spans the generations. Cell phones, including smartphones, are by far the most popular device among American adults of all ages. Again there were some differences. Younger users are more likely to use more functions than older ones. But that’s a long way from being a deep technological divide.

When it comes to social networking, Millennials may be the most connected generation in history. But, everyone uses social networks these days. Users 55 and older represent the fastest growing segment.

So what are the implications for banks?

Thanks to technology, there has been a big shift in power and influence from corporations and institutions to consumers and employees. We are less susceptible to traditional marketing campaigns and company messaging and more influenced by personal, shared experiences.

Thanks to the internet, we often know more about the corporations that service and employ us than they know about us. As a result, it is easier for consumers to compare one product with another and switch providers, and easier for employees to assess and discover new jobs and opportunities.

We live in a more and transparent, real-time and fluid society.

As a result, the competition for the best customers and employees is likely to accelerate. Banks in particular will have to make themselves more attractive destinations for both customers and staff.

In this context the diminishing technology divide between boomers and millennials is becoming less of an issue. Technology is embracing everyone. It is easier to use – more connected, inclusive, pervasive and embedded in everything we do. As a result customers both young and old will have more choices in how to engage with their banks. Similarly banks will have more opportunities to engage with customers.

For example, banking has traditionally been a face to face business. But ‘face to face’ means something different now. It may be a page on Facebook, a video call on Skype or an avatar on Xbox. Customers are more likely to engage with their banks through their smartphones, tablets, perhaps even from within their cars as automation embraces almost everything.

Thanks to the tremendous growth in TV content and the opportunity for interactive TV customers in the future may be just as likely to deal with their banks from their living room than from within the branch. Channels are likely to grow rather than shrink which increases the need for them to be integrated to encourage access to financial services from multiple sources and enable conversations in one channel to be continued in others.

Banks will have more information on customer needs. The growth of the internet and the plethora of connected devices increase the amount of digital information – Big Data – and opportunities to create targeted offers and campaigns. A new era of personalized eBanking will emerge.

In the past banks have had separate physical and digital strategies. This no longer makes sense. Banks will need to combine both physical and digital channels into a single integrated approach.

The bank of the future will be more analytical and less transactional, and more relationship focused. There is already a shift underway from building technology around products to building it around customer relationships and that will only accelerate.

To achieve this, banks and their branches will need new skills. A more sophisticated retail banking workforce will emerge with deeper relationship and advisory skills. This in turn will need new tools to manage it and new incentives to motivate and reward.

Millennials and Boomers – poles apart or peas in a pod? A fresh perspective is long overdue.

[i] “Boomers and Technology – An Extended Conversation” AARP and Microsoft, October 2009

[ii] “Boomers and Technology – An Extended Conversation” AARP and Microsoft, October 2009

[iii] “Earning Customer Trust in a Cynical Age” Microsoft, August 2009

Why Big Data is Important

David S. Cox — Thu, 10 May 2012 12:37:00 GMT

Several years ago at university I took a course in the economics of developing countries. Back then I thought I had stumbled on the most intractable problem mankind ever faced. Now with the world running out of resources perhaps the concept of developing applies to all of us.

But sometimes when you think you understand a problem you realize you are looking at it through the wrong lenses. The shortages we face today as a planet in energy, clean water, medicine and nutrition are simply aspects of a single, bigger problem – a shortage of information.

With the rapid changes in technology everything we call information whether it’s a book, a film, a conversation even an awareness of someone’s presence is data that can be digitalized. With the proliferation of mobile computing and communication devices what has come to be called ‘Big Data’ is growing exponentially, 90 per cent of it created in the last couple of years.

But what has information, digital or otherwise, got to do with the fact that the planet is running out of resources or that nearly 11 million children die every year through under nourishment; lack of clean water perhaps being the biggest problem?

Since the dawn of civilization we have been collecting information on papyrus scrolls to silicon chips. But until recently our lives have been defined by a lack rather than an abundance of it. Think of the recent financial crisis – how much of us really understood the risks we were taking?

Now with our ability to store and compute almost anything that is all about to change. We are entering a golden era of computing and with that our ability to manage our resources and our lives better than ever eliminating waste.

In their book ‘Abundance’, Peter Diamandis and Steven Kotler point out that in America today 70 percent of our water is used for agriculture, yet 50 percent of the food we produce gets thrown away. Five percent of our energy goes to pump water but 20 percent of that water is lost through leaky pipes.

A water shortage is really an information shortage. By creating a smart water system that identifies how and where we lose it we can manage it more effectively.

An example is computer-assisted irrigation with GPS tracking and remote sensing technologies that allow farmers to know everything that is going on in their fields. This method of precision agriculture allows farmers to lower their water usage, target it more effectively and increase their productivity.[i]

When most of us think about Big Data we tend to see the commercial opportunities first.

And solving the world’s water supply is a huge commercial opportunity. But it is also a great human opportunity, a chance to lift the world out of poverty, to raise living standards by solving our most basic problems first – our ability to help each other survive.

[i] “Abundance – the Future is Better Than You Think” Peter H. Diamandis and Steven Kotler, Free Press 2012

Lifting the Fog of Markets - CVA and the Analytical Enterprise

David S. Cox — Mon, 16 Apr 2012 14:26:00 GMT

$600 trillion – that’s the size of the derivatives market. 40 times the size of the U.S. economy. And it has long been one of the most opaque wonders of the world. So it’s no surprise that regulators are all over it. The consequences of default can be huge. But ironically it wasn’t defaults that represented the greatest source of losses during the financial crisis.

According to the Basel Committee, roughly two thirds of counterparty credit risk losses were due to credit value adjustment (CVA) losses and only one third to actual defaults.[i] Managing CVA volatility is one of the biggest challenges facing financial institutions still to this day.

Never mind the algorithmic and compute challenges involved, the acronyms alone are a lot to handle.

CVA – credit value adjustment – is the difference between the market value of a counter party exposure and a risk free position. If derivatives are cleared by CCPs (central clearing counterparties) then such contracts carry a CVA of zero. But if they remain within the bilateral structure of OTC markets – that’s a whole other ball game. CCR’s EPEs, EDEs, DVAs all add to the alphabet soup that basically sum up to the fact that this is not a topic for the technically challenged.[ii] In fact for much of Wall Street, despite the huge risks involved, getting on top of these exposures is still a work in progress.

CVA calculations are typically carried out by the trading desk and sometimes by risk and finance as well. But while finance, risk and trading may share similar models, trading rarely wants to share what part of the curve it’s on to the rest of the business. Plus, to the extent that different lines of business may use different risk methodologies creating the single version of the truth may become even more elusive. That makes the efficient allocation of capital across the enterprise more art than science.

By themselves Monte Carlo simulations are renowned for their complexity; exotics even more so. Calculating the multitude of internal and external scenarios can grow exponentially the more complex the derivative. It requires a huge amount of compute power which for many firms using standard technology can take too long.

CVA adds a further complexity – scenarios on top of scenarios.

New simulation technology is one response – simplifying the regression by reducing the number of scenarios.[iii]

But compute power is another part of the challenge. And not just to calculate the endless scenarios. As more and more data becomes electronic and accessible in digital form so the number of inputs into a scenario can also grow substantially. In analyzing the risks in any position we can not only reply on the huge amount of market information, we can tap social data as well.

Back in the days of open outcry traders in one pit could sense the buzz of markets by listening to the roar in other pits. With electronic trading that intelligence disappeared. To some extent it has replaced by 24X7 news feeds but tweets, blogs and internet activity can provide a ton of extra intelligence anticipating potentials movements in CDS spreads and CVA positions.

The pressure to deliver CVA calculations to tougher regulatory standards brings together two monolithic challenges that plague financial services today – the challenge of Big Data – and the need to access massive compute power at a moment’s notice.

The cloud is an obvious solution. It is in the one place where you can access compute power at the touch of a button. But while some firms are rushing to embrace it, others remain anxious about it. They worry about its security, in particular putting customer data beyond their firewalls. Bursting to the cloud avoids this risk keeping data on premises while accessing almost unlimited computing power at a fraction of the cost of in-house systems.

Most firms will prefer a portfolio of technology solutions – massive parallel process (MPP) allowing many servers to come together on a single problem; Hadoop to tackle the challenges of Big Data; and a range of cloud solutions – private (on premises), hybrid and public cloud provide a range of options for almost every market situation. The back office of the future has to be able to spin on a dime.

On April 10^th JP Morgan Chase, Numerix and Microsoft came together at the Harvard Club to share their perspectives these challenging topics with a number of industry practitioners. [iv]The good news is that most of the tools we need are readily at our disposal.

The challenges, as always, comes in implementing them and that means a true commitment to the analytical enterprise, not just within one line of business, but across the enterprise as well.

[i] Optimal Funding Strategies For Counterparty Credit Risk Liabilities

CLAUDIO ALBANESE, GIACOMO PIETRONERO, AND STEVE WHITE

http://www.riskcare.com/wordpress/wp-content/uploads/2011/05/Revolvers.pdf

[ii] CCR – counterparty credit risk, EPE – expected positive exposure; EDE – expected negative exposure; DVA – debit value adjustment

[iii] American Monte Carlo developed by Numerix is one example.

[iv] http://xenomorph.typepad.com/xenomorph/2012/04/cva-from-numerix-and-prmia.html

http://blog.numerix.com/public/2012/04/numerix-microsoft-and-prmia-host-thought-leadership-forum-on-credit-value-adjustment-.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NumerixBlog+%28Numerix+Blog%29

How does Hadoop fit into the Analytical Enterprise?

Damien Islam-Frenoy — Wed, 11 Apr 2012 23:09:00 GMT

As described in a previous post, an Analytical Enterprise is one that leverages data to its advantage. This includes the hard-to-tame “Big Data”, which is too awkward to be managed by traditional means.

To support this mining of Big Data, a slew of new technologies has arisen. The most talked about is Hadoop. But what exactly is Hadoop? How should enterprises leverage it? And how should they not..?

A Schema-less World

Relational databases are at the heart of every Line of Business application today, and most web ones too. For good reason: they have tightly defined schemas, provide data consistency and support a well-defined query framework.

That said the technology can struggle with the variety and size of Big Data. The resources and effort required to store this type of information in a relational model can be significant. At the same time, databases are organized for anticipated queries, whereas businesses really need the potential to ask any question they want.

How Does Hadoop Help?

Historically business-critical data was well organized and the needs predictable. Today’s world is all about uncertainty. A fresh approach to data management is required, and Hadoop helps fulfil this need.

Hadoop at its simplest is a combination of a distributed file-system and a framework for Map/Reduce algorithms. Map/Reduce provides a means to perform analysis without moving the data (too cumbersome), and without requiring a predefined schema (not possible). The file-system stores large amounts of unstructured data in a cost effective, fault tolerant and scalable away.

Simply put, you can:

Ask any question you want
Perform the analysis where the data lives
Look at a complete detailed picture (not a sample nor an aggregate)
Efficiently store large amounts of varied data

What does this mean for Financial Services?

Examples of industry Big Data include raw tick data from financial exchanges, server logs from e-banking websites, and the output of operational and trading applications. In these cases, data is generated at high velocity, often in a raw yet-to-be-structured format.

Big Data tools can therefore be applied to solve some critical industry problems:

Building a complete, single view of the customer for a more personal approach to banking.
Constructing and back-testing complex trading strategies in order to beat the market.
Calculating exposure accurately and in real-time to take risk management from an art to a science.
Delivering holistic operational data management to create a more robust and reliable back-office.

These scenarios require the merging of varied data sources, and the ability to ask complex and detailed questions in an efficient way. An integrated data platform is therefore essential, and along with traditional relational databases, Massively Parallel Processing (MPP) appliances, analysis engines, and BI and visualisation tools, Hadoop has an important role to play.

Where does Microsoft fit in?

As part of the complete platform, Microsoft has optimised a distribution of the open source Hadoop project to shine on Windows Azure and Windows Server. In addition Hadoop has been made enterprise ready by integrating it with Microsoft’s systems management, database and BI platforms, as well as providing simplified tools to write and execute Map/Reduce jobs.

How Should Enterprises use Hadoop?

Some firms use Hadoop to test new forms of analysis on data before deciding whether to store it in their data warehouse. Others with heavy and frequent BI needs may leverage Hadoop for ETL (Extract + Transform + Load) workloads to process complex raw data before ingestion into a relational database or directly into a BI cube. Those whose business-needs require lots of ad-hoc analysis may use Excel as their front-end to directly query data stored in Hadoop.

Watch out!

Beware: Hadoop is not the hammer to make everything a nail. Queries are batch driven, not real time. It is not designed to be optimized for specific scenarios. There is no transactional model.

By combining Hadoop with other data technologies, firms can build a complete Analytical Enterprise. Leveraging internal and external Big Data to its fullest, they can gain a clear and accurate view of their world, make better decisions and leave the competition behind as a result.

Big Data and the Analytical Enterprise

David S. Cox — Wed, 11 Apr 2012 17:56:00 GMT

At the recent Davos Summit, Big Data was described as an asset as valuable as currency or gold. Why this sudden excitement over something that has been around for years? Because the tools are now available for organizations to build a more powerful Analytical Enterprise – one that turns Big Data from a problem to a solution.

What is Big Data?

The growth in data, digital data, has become exponential. Every day, we create 2.5 quintillion bytes of data. 90% of the data has been created in the last two years alone. This data comes from everywhere: from sensors used to gather climate information, posts to social media sites, digital pictures and videos posted online, transaction records of online purchases, and from cell phone GPS signals and electronic markets to name just a few.

IDC estimates point to it doubling every other year.

This highly varied data, flowing faster and growing larger than ever before, is “Big Data”.

The tools to manage Big Data can be thought of in three parts:

Consolidation and aggregation – the assembly of data
Storage and analysis – the ability to access and analyze data
Absorption – presenting data so it can be easily consumed and meaningful insight obtained.

Conceived in this way, Big Data technologies involve a platform approach from the creation of data to its final consumption. Self-service BI is an important part of the Big Data story. Data is useless if you can’t do anything with it.

What defines an Analytical Enterprise?

An enterprise that uses data to understand their customers, risk and operations more completely, redefining their business opportunity as a result, we call an analytical enterprise.

The value of Big Data lies in the fact that it offers businesses the opportunity to see everything and miss nothing. The technology of Big Data allows us to store and compute practically anything for the first time in history. The impact can drive significant increases in value across many industries including financial services. Customer segmentation and targeting, risk management, investment management, compliance and financial reporting; even managing the enterprise becomes easier when we have access to more, perhaps unlimited information.

One great example is from a large insurance company. By using sensor technology in cars to monitor driving behavior, and a Big Data platform to analyze the output, they can more finely price insurance risk. By taking a more granular approach they can outperform their competitors on price and portfolio quality.

Big Data is the challenge - Creating the analytical enterprise is the solution.

The true analytical enterprise is one that takes a holistic view of its data platforms and an end-to-end approach to data management. It has the ability to see the wood and the trees, viewing everything in context. With both a laser focus on detail and a landscape view of the organization, an Analytical Enterprise can see its risks and its rewards, giving it the upper hand amongst its peers.

For more information...

To support this mining of Big Data, a slew of new technologies has arisen. The most talked about is Hadoop. But what exactly is Hadoop? How should enterprises leverage it? And how should they not..?

Big Data Comes of Age

David S. Cox — Mon, 13 Feb 2012 13:33:00 GMT

Many years ago, Walter Wriston, former Chairman and CEO of Citicorp, startled the world by claiming information about money has become almost as important as money itself. More recently, the World Economic Summit at Davos published a report implying it was an economic asset as valuable as currency or gold.[i]

The difference between ‘almost’ and ‘just’ might seem more semantic than systemic, but the reality is quite the opposite. The massive growth in technology in recent years is causing an explosive growth in information about ourselves, our lives and the world in which we live.

Thanks to the internet, not since the Great Library in Alexandria has so much information been stored in one place at one time and with far less chance of burning down. Of course it is not just in one ‘place’ but distributed across a mass of servers, nodes and networks accessible to all of us who hold an internet ‘library card’ (address) thanks to an open sourced software framework called Hadoop.

The implications of this massive explosion of data are huge. We call it ‘Big.’ And big it is, growing at 50% per annum according to IDC estimates and by even more according to others.[ii] But not just big in terms of growth, but also scale, because it covers our tweets, our wikis, our blogs, our photos, even our conversations and gestures thanks to dramatic progress in the way we engage with computers.

Big Data is different from traditional data in that it is more varied in format and structure, more volatile and often travels much more rapidly than traditional forms of information. It is also more valuable, because it provides granular information to marketers as to who we really are and offers new ways for corporations and financial institutions to engage with us with pinpoint accuracy.

In contrast’ traditional’ data is structured, machine readable (by traditional machines) and resides on data bases organized around planned queries – questions we thought we wanted answers to in some cases years ago. But in the last few years, we know the world has changed dramatically.

We have new questions and they are growing all the time. As a result, much of the way corporations are approaching data management and data warehousing in the past has to be revised.

Just a few years ago we believed free markets were self-correcting without knowing as much about them as we thought we did. Now we can manage financial markets in real time with the precision of a Swiss watch. We have the technology to achieve this, but not always the will to implement it.

For those of us who believe many of the world’s problems – war, diseases, poverty, hunger – are largely caused by ignorance, Big Data promises us a new Utopia.

The time has come to grasp it as quickly as we can.

[i] “Big Data, Big Impact: New Possibilities for International Development” World Economic Forum

[ii] “The Age of Big Data” Steve Lohr, New York Times, February 11^th, 2012

Revisting the Analytical Enterprise

David S. Cox — Mon, 24 Oct 2011 09:32:00 GMT

The way banks have competed in the past has been on the basis of assets – how many branches, products, how many countries they operate in – even how big they are. But the rules of the game have changed. These capabilities are less important today. What matters more is how banks manage information – data management is the new competitive playing field.

The bank business model of the future is heavily invested in data management, particularly data about customers. Thanks to technology there has been a big shift in technology investment from products to customers. But that investment needs focus. Improving customer experience is an essential part, but that experience has to be directed towards a goal – a deeper understanding of customers. That is the key to achieving a better relationship with them.

Understanding customers is not just about giving them the tools they need to enrich their lives through retail banking. It is important for capital markets as well. In real time markets, market data is obsolete as soon as it hits in the screen. The key is to understand and anticipate the trends that are bubbling up and will produce that market data, that stock price before it hits the screen. That means understanding what consumers (customers) think about buying cars, computers, homes, etc.

By understanding customers more deeply, we will have a better understanding of what products we should invest in and what risks we should be most concerned about. Even our economy is managed on the basis of lagging indicators.

We are living our lives and managing our businesses in our rear view mirrors.

Imagine if two or three years ago we could link into a pool of otherwise opaque mortgage backed securities and understand what the individual homeowners were thinking about their homes, their financial obligations, their ability to make ends meet. How would that have impacted our ability to manage risk? How would that have changed the course of our financial history?

And how about operations – what we can’t measure we can’t manage.

But the data we need to manage banking more effectively is often outside the bank and very unbanking like in its appearance. It is unstructured, unsecure, volatile, social (not just personal). It is not just numbers or words, but images as well. Even sounds become more important. We are creating new digital footprints across the internet leaving behind us clues about how markets will evolve.

But to capture those clues and draw insight from them we need a whole new set of tools few of which exist in most banks today.

Coming Out of Left Field

David S. Cox — Sun, 16 Oct 2011 00:43:00 GMT

Baseball is the arguably the most hallowed game in America. Trying to redefine baseball is almost like trying to redesign the American flag. It’s practically sacrosanct.

Since the 19^th century, a player’s performance has been determined by the insider opinions of players, managers, coaches and scouts using traditional statistics such as stolen bases and batting averages. Moneyball, a book and a film, chronicled the efforts of a baseball team, the Oakland A’s, to change this by analyzing in-game activity such as on-base and slugging percentages as better indicators of a team’s potential for success.

Thanks to this, the Oakland A’s were able to win more games with less money than wealthier clubs by attracting undervalued talent. But challenging orthodoxies is seldom easy and early pioneers are often rewarded more by arrows than accolades.

Their approach has since become adopted by many other teams revolutionizing the way the game is played. It arguably helped the Red Sox eliminate the Curse of the Bambino.

A large retailer recently discovered a major competitor was steadily gaining market share across many profitable lines of business. A closer look revealed the competitor had made massive investments in its ability to collect, integrate, analyze and absorb data from each store. At the same time, it had linked this information to suppliers’ databases, making it possible to alter prices in real time, reorder fast-selling items automatically, and shift items from store to store more easily. By taking a different approach to managing data the competitor had rewritten the rules of the retailing game.[i]

Financial services firms have long made money out of information. But while banking data often remains siloed, stale and incomplete, the nature of data has dramatically changed. Today there is more to analyze, it moves faster and comes in many different forms. And it comes from different sources, from social networks, sensors and web traffic. Almost every major bank today has a ‘big data’ project trying to get its data house in order.

But when it comes to managing ‘big data’ social networks leave banks far behind. Creating huge data franchises by connecting people through new forums, relationships and associations requires a very different approach to data management than banks have traditionally employed.

Social networks have taken the management of large amounts of structured and unstructured data to a new level. Hadoop, which is hosted at the Apache Software Foundation, was formed by Yahoo and is based partly on the MapReduce programming model developed by Google. It is a software framework for managing and distributing large amounts of data across multiple computer clusters.

Microsoft has announced great plans about Hadoop adoption to deliver enterprise class Apache Hadoop based distributions on both Windows Server and Windows Azure. Customers will be able to interchange data between Hadoop environments, SQL Server, and Parallel Data Warehouse.

Can the technology of social networks help banks redefine the rules of the game? Perhaps by tapping and managing different data sets more creatively than before.

[i][i] McKinsey Quarterly, October, 2011

The Bank Branch of the Future – Microsoft at BAI 2011

David S. Cox — Thu, 13 Oct 2011 10:45:00 GMT

Bankers at BAI this year seem to agree that bricks and mortar banking is here to stay, despite the growth in digital channels. But the role of the branch would be very different and more enabled by technology.

What the bank branch of the future might look like is very much the theme of the Microsoft booth at this year’s BAI. Bankers looking for a vision of the future will find plenty of ideas on display.

Tablets are redefining the branch experience.

Windows 7 slates featuring digital signature technology impressed many booth visitors with its ease of use and practical application. One bank in particular commented on how much easier the digital signature was on a Windows slate than other devices. Better than a wet signature and a lot more secure.

Even rubbing out errors was a better experience on the screen than on paper.

Data is a big theme this year as banks try to learn more about their customers. Pitney Bowes predictive analytics solution was on display at the Microsoft booth illustrating how US Bank had used this solution to increase revenues by 300% in one division, reducing mailing costs by 40%.

Fiserv’s EnAct reminds us of the importance of CRM for enterprise sales management - a solution designed by bankers for bankers. And Harland Financial Solutions shows how bankers can use Microsoft Outlook to access a complete history of the customer’s relationship through a simple mouse click straight into a bank’s core systems, all on display on the Microsoft booth.

Mobility captures everyone’s imagination and the new Windows Phone has attracted a lot of interest for digital and bricks and mortar bankers alike. Both the Bank of America and USAA mobile applications on the Windows Phone are on display. And there were many enquiries about Microsoft Surface, the collaborative table top technology that allows families and friends to explore financial options together.

Compensation has been a burning issue across the industry. How do you track compensation across the bank and audit it so that you can manage rewards and incentives more effectively in the short and the long term? Tying compensation to performance has never been more important. Varicent on the Microsoft booth are displaying their enterprise solution for banks trying to get to grips with this.

Looking for a vision of what the branch of the future might look like? The video on the Microsoft booth does just that and many banks were asking how to make that vision a reality.

The Forgotten Channel – the fall and rise of ATMs – Themes from BAI 2011

David S. Cox — Thu, 13 Oct 2011 09:58:00 GMT

For years the ATM channel has been taken for granted by the banking industry. The focus of innovation has been on other channels like mobile, but this is rapidly changing. Evidence presented at BAI 2011 by BBVA Compass suggested that ATMs are very important in driving customer satisfaction.

So despite the buzz over digital channels, according to David Dove of Dove Capital Partners, the real action is around ATMs. In fact while cash seems to be on the way out thanks to technology, the use of cash per capita is growing faster than GDP according to a Federal Reserve Bank of Boston study.

ATMs are a growing business. There are 2mm ATMs around the world today going to 2.5mm by 2013 according to estimates from Dove Capital Partners. Research from Dove suggests 57% of consumers consider ATMs important in choosing a bank. But location is more important than numbers.

Consumers are more concerned about access.

Consumers don’t just go out to get cash from ATMs; they also run errands at grocery stores, restaurants and gas stations. Therefore locating ATMs at locations where those errands take place rather than at branches may be a better way of expanding their usage. It also drives traffic to other customers that depend on consumer access to cash to increase sales.

From automated teller machines (ATMs) we are rapidly moving to intelligent teller machines (iTMs). New technologies are reinventing ATMs. Image technology is one example. Seeing the image of a check on the screen gives customers almost the same feel as an actual teller and added reassurance that the transaction has been credited to their account. Making ATMs real time also resonates well with consumers as does extending the cut-off times so they can get good value later in the day.

ATMs have even attracted the attention of the most creative design agencies. IDEO worked with BBVA to create next generation ATMs supplied by NCR using Microsoft technology in some of their branches in Madrid. These ATMs have bigger screens and smaller casing than traditional ATMs. Customers can see their cash counted out before them in different denominations on the screen before they cascade down to the single slot where transactions go in and out.

The biggest obstacle to ATM usage is surcharges. Banks are rediscovering the value of their ATM networks but it’s not just technology that matters. Pricing and location are also important.

Banking on an Uncertain Future - BAI 2011

David S. Cox — Wed, 12 Oct 2011 13:24:00 GMT

President Clinton’s keynote speech at BAI this week reminded that this is an exciting time to be living thanks to advances in technology, but the world remains unstable. Uncertainty seemed to be in the minds of many delegates to the BAI conference this year as the banking industry struggles to recover from the shock waves of the financial crisis, and the mortgage mess that the President reminded us we must fix quickly to avoid a lengthy recovery.

But most of the uncertainty at BAI stems from the impact of technology.

With uncertainty come questions and this year more delegates to the conference. The industry is anxious for answers.

At the heart of the many questions is the prospect of cultural change; the feeling that the industry has reached an inflection point and things will never be the same again. New skills, new technology and new practices will be needed. But what will the impact be? Will technology replace people or empower them? What will the branch of the future look like? Can we safeguard our data in the cloud?

One question in particular seems to summarize many others – How can banks maintain strong relationships with customers who are primarily interacting with it through technology?

The banking industry isn’t alone in dealing with this.

Another President, President Obama, is already using social networking to build his campaign for the next election. While the President may face many challenges, his online presence is growing.

This very week, Wal-Mart announced their answer to this question – a partnership with Facebook offering specific Facebook pages for its 3,500 locations. Wal-Mart is using social networking to get closer to its customers attracting local communities to the pages of individual stores making Wal-Mart more relevant at a local level.

One bank that has taken a similar approach is Missouri based Mobank. Mobank serves an eclectic customer base of visionaries and artists. Though they have only three branches, they’re located in areas where people are invested in the community. They’re not using social media to “sell” anything, but instead as a way to build upon their community-minded philosophy. Hip, young and cool, the bank parlays that image on a Facebook Page that acts as an online neighborhood for their customers to interact with each other and the bank – much like their branches.

At BAI we will continue to explore the implications of technology on the industry, but one thing is clear. Banking may never be the same again, but that could be a very good thing for the industry.

Banking at the Crossroads

David S. Cox — Thu, 06 Oct 2011 12:26:00 GMT

History tells us there are certain watershed moments. Banking is going through such a phase. After decades of building systems around products, the industry must now build technology around customers, and, in particular customer relationships. Also, the conversation with customers is changing from complex instruments to simpler products like value based checking.

Banking is going back to basics.

This is no easy task. It requires not just new technology, but a completely new way of thinking. It requires genius to be simple. Banking is becoming a simpler, leaner, more agile industry. The time to make adjustments is now.

Timing isn’t great. Margins are under pressure. Budgets are tight. New technology is expensive. Something has to give. Improving customer experience for organic growth is one challenge. Banks have to reduce costs as well and at the same time.

Where to start? We can’t manage what we can’t measure which means getting control of data. The market is rushing to embrace ‘big data’ solutions. Banks are awash with information. But it is often buried in individual silos making it hard to access when most needed. Plus the organization of that data reflects past questions not future ones.

The nature of data is changing – less structured; more volatile; more dynamic and more immediate. Not just numbers or words, but click-streams, noises, images, even presence offer clues to market trends and consumer preferences. Social networks lead the charge where banks have been slow to follow. Distributed Map/Reduce systems (like the open source Hadoop) provide new scalable ways to efficiently query this data, extracting intelligence and sourcing insight outside of the usual boundaries. Banks must perfect the science of search and analytics to manage customers, products, risks and operations. Only then will they have the tools to understand and service customers more creatively.

Once the data challenge is met, customer interfaces and channels should be revisited. Outbound marketing no longer works as before. Consumers tire of endless campaigns. We live in a world of expanded choices. Highly targeted and inbound marketing are the new priorities for banks attracting customers to their channels, whether social, digital or physical. Natural user interfaces can revolutionize the banking face to the markets, whether wholesale or retail, across tablets, smartphones, digital and physical media.

More insight at lower cost.

Let’s focus on costs. The trend towards simplicity reduces the need for complex processing and hybrid operating systems. Simpler piping within the bank facilitates front and back office integration, paving the way for paperless, effortless banking.

Technology deployment is another issue. The public cloud is anathema to many banks, but the economics of building and maintaining internal data centers is becoming prohibitive. Volatile markets no longer wait for new data centers to be built to support new products. Banks that don’t have some form of cloud strategy are placing themselves at a serious disadvantage. The cloud makes scale less important. Today it’s agility that counts.

Banking technology priorities fall into four main parts. Leverage big data. Build new technology around customer relationships. Simplify processes and systems and burst to the cloud – no easy task. Banking may be going back to basics, but the opportunities for genius and creativity have never been greater.

Living on the Edge of Exponential Change

David S. Cox — Mon, 22 Aug 2011 13:16:00 GMT

Our future looks grim. The economic situation is dire with little relief in sight. But short term gloom conceals deeper shifts in an ever-changing environment. The future may be much brighter than it seems.

There have been many turning points throughout history when breakthroughs in technology brought about huge changes in society. From the spinning wheel to the steam engine, to the automobile and the jet engine our lives continue to be transformed thanks to innovation and technology.

Once again we stand on the edge of an iconic shift in the way we think, work and play. A revolution in information technology is underway that will transform every aspect of our lives. We may see more change in the next five years than the last thirty. But what might those changes look like?

High on the list must be our ability to collect, share, analyze and assimilate information and engage with the technologies that deliver this. This capability is increasing at an exponential rate – everything from words and numbers to images, noises even movements processed in real time. Many new technologies contribute to this from sensors to virtualization to natural user interfaces, cloud computing and ultra-light devices.

As a result, our relationship with technology is fundamentally changing and with it our relationship with each other. It is becoming easier to perform tasks, work together, share information and control our lives. This represents a huge shift in power from corporations to individuals creating a new world of technology embedded in almost everything we do.

One beneficiary will be science. Our understanding and ability to predict, prevent and eradicate diseases that have defied us for years have increased exponentially. The result will be longer, richer and more productive lives.

Social networks are overturning dictator ships and increasing access to power, influence and information. The outcome of elections, even the London riots, can be influenced by tweets. Even dating is different under Facebook.

Green technology becomes more important – more energy efficient data centers; paperless offices and a dramatic reduction in our dependence on fossil fuels.

Since the industrial revolution we have seen explosive growth in cities and the concentration of populations in large, dense urban areas. But if we no longer have to live near our work what does this mean for the future workplace? Can we live in Montana and work in New York?

And the gadgets of this new world? New diagnostic, less invasive medical systems; cars that can drive and navigate themselves with sensors that avoid accidents and anticipate congestion; virtual offices that can exist anywhere creating a new, more mobile workforce; homes that can be operated by computers controlled by gestures; instant access to unlimited computing for small and large businesses alike from devices that fit in our pocket. More powerful and accessible video technologies that reduce the need for travel.

And the implications for financial services? The financial service business model is really about making money from information and relationships. Transactions are less important. New products and services are already emerging building new relationships in a more connected world. The future looks grim, but take a deeper look. It may be much brighter than it seems.

How 'Social' is Bringing Passion Back to the Workplace

David S. Cox — Fri, 08 Jul 2011 20:28:00 GMT

We appear to be living in two economies with very different stories. One is the traditional economy, currently in the doldrums, and the other is our social economy, rising in value and importance, which is redefining how the traditional one works.

Social computing includes social networking (Facebook, LinkedIn and Twitter); you are my friend, you are my partner and you are my future employee. But social computing is a much broader concept. It includes all the tools that facilitate communications, networking, sharing and collaborating (SharePoint, Lync, Exchange and even the simultaneous co-authoring of Office documents). The terminology like the technology is still evolving so we have license in the definitions we employ.

Even Avatar Kinect, the virtual meeting technology that allows us to have online meetings with anyone, anywhere, anytime, represented by our own avatar, is a part of the social economy that could add new value to the traditional one.

Social computing, like so many parts of the techworld, is an eco-system empowered by the cloud that touches and often gives new meaning to other eco-systems around it.

What impact will this social economy have on the traditional one?

It will make it work more efficiently; improve growth and accelerate wealth and capital creation. But the rules of engagement in the traditional economy are almost the opposite of those in the social one. Witness the agony many firms are experiencing with their staff on the use of social networking.

The traditional economy works on the concept of the corporation as its center. But, in the social economy, individuals become more important whether they live and work inside or outside the corporation. Economic power and social influence has shifted from corporations to individuals. The individual is more in charge now. Corporations may have to rethink their approach to customers and employees, satisfying their needs and leveraging their skills in very different ways often by enabling and empowering them; not just selling to them and telling them what to do.

Thus, social computing can make leaders of us all.

Rather than two economies, we have one in transition from closed and competing cultures to open and collaborative ones. Our old economy is suffering from low growth and diminishing returns – a workforce as depressed as the economy. Our new social one promises the exact opposite, bringing a new sense of passion back to the workplace.

Netflix and the Future of Banking

David S. Cox — Fri, 01 Jul 2011 12:20:00 GMT

Banking moguls looking to extract more value from their businesses might take a leaf out of the media industry.

Netflix is a huge media success. But it is far from unique. The media industry has long made more money through aggregating and distributing content than by creating it. Distributors provide scale and customer reach without the costs associated with making films or TV programs. The glitz and the glamor may be in movie making, but the gold is in aggregation and distribution and the customer stickiness as well.

Netflix doesn’t have to pay for James Bond’s cars or Q’s gadgets.

Social networking is a similar model. – offering scale and customer reach. Google’s new social network is already oversubscribed.

Could we apply the same logic to financial services?

The traditional banking business model is more about insourcing than outsourcing. Content distribution and creation takes place in the same shop.

But does that make sense anymore? Would customers be better served by having access to their choice of financial services from any provider through a single source?

Financial consumers have relationships with more than one provider, sometimes with several. But there are costs associated with this. Information is difficult to aggregate across multiple firms. Executing transactions can be even more so. Add geography to the mix and the complications may accelerate.

Is there a market for a multi-bank aggregator and distribution model that consolidates everything from our bank accounts to our 401 (k)s? Could we pass all our instructions through one interface to all our financial providers (MINT, Bundle, PayPal are interesting examples of value extraction through aggregation).

This isn’t an argument for breaking up banks, but it is a suggestion for considering a different model even within the bank where there is a customer facing business with its own P&L buying products customers demand both from within and outside the firm.

Banks are treading carefully with social networking.

But could that be the future face of the industry driven by the cloud? Movie making in financial services may never be the same again.

The Smartphone Wars

David S. Cox — Wed, 29 Jun 2011 12:21:00 GMT

It’s been almost fifty years since Maxwell Smart, Agent 86, goof-balled the mobile phone into the popular imagination when he used his shoe for clandestine conversations. A lot has happened since then in the ‘smart’ phone world.

Angry Birds and Plants vs. Zombies are now out on Windows Phone 7. Nokia has released the amazing N9 with its Carl Zeiss lens. Windows Mango is on the way. And didn’t we get a sneak glimpse of Nokia’s new Sea-Ray just recently?

Plus, the iPhone 5, apparently, is also coming soon to an Apple Store near you.

All this brings to a head the iconic battle for market share in the Smartphone Wars. But smartphones are no longer just about communications, they are entertainment devices as well. And laptops and desktops are also communication devices.

If Agent 86 was operational today, what mobile technology would he use? Would there be a watch phone, a glasses phone; maybe even a mind phone – a chip embedded in our brain so we could communicate telepathically? Certainly there would be new devices to keep us enthralled. We would laugh at them today and use them tomorrow.

A friend recently showed me his new Google Android phone while I showed him my Windows Phone 7. “Very pretty,” he said, “but my phone is really a computer.”

Then it hit me. Have we come to accept that the device market is divided into three parts – smartphones (I exclude cellphones), tablets (sometimes called slates) and PCs (sometimes called laptops or desktops)? Many analyst reports show by the year ‘whenever’ tablets and smartphones will replace PCs as dominant devices.

But what if these devices are all just computers that come in different shapes and sizes?

Is what is really happening in the computer industry what happened long ago in the car industry? The Model T Ford came in one shape, size and color – black. But it wasn’t followed by the Model i-Ford. Instead we were treated to a variety of different types, models and colors - sedans, sports cars, racing cars and station wagens. And just when we thought the market was saturated, along came the Smart Car and the Stretch Hummer. Interestingly, they are all more empowered by computers.

Personal computing devices, PCs, are now becoming available in different shapes, sizes and colors, with different engines (operating systems) but similar applications. And you can make phone calls from all of them.

A distinction is often made between consumption and production devices. But as new ways of engaging with computers emerge – voice, touch, video, and gestures – the distinction between consumption and production will become blurred. It is the physical keyboard that is becoming obsolete not the PC and maybe the virtual keyboard as well. After all, the QWERTY key board has done well to survive since 1873.

So instead of looking at three basic form factors, aren’t we really just looking at one, but in multiple versions? And as devices become more varied and more powerful, thanks to new chip technology and the cloud, aren’t the Smartphone Wars really a side show in a much bigger engagement?

We Are What We Tweet

David S. Cox — Sun, 26 Jun 2011 11:16:00 GMT

Written by David but inspired by Damien.

For years, a business card has been the ultimate power statement, defining who we are by the title we have and the firm we represent. After a handshake we naturally exchange them. But what happens afterwards?

I have more business cards than I know what to do with. Once I have them, I rarely use them again.

Many I sadly lose.

But all this may be about to change. A new way is emerging for us to identify ourselves, build personal brand and influence others and that it is through our social identities. An exchange of tweet names through our smartphones may soon become the new cool way to seal a business relationship.

The nature of tweeting creates an opportunity for our deeper personas to emerge and to transform the way we interact and influence each other. It can fundamentally alter our concept of identity; how others see us and how we see them.

On a flight from Chicago to New York a colleague engaged an interesting fellow traveller in conversation, but instead of business cards they exchanged tweet handles.

As a result a Twitter exchange followed and the relationship journey continued through following each other’s tweets. By developing relationships in this way our ability to have influence and impact also increases. Through investing in our social presence we may become more influential as individuals developing our personal brand in a way that was previously inconceivable.

Our business cards might say Director, Banking and Capital Markets. But this says little about who we really are. In contrast on Twitter we might be a technologist, writer and gastronomic adventurer. Our tweets are even more revealing. We are what we tweet and who we tweet with. Our Twitter DNA unveils us for the whole world to see.

And Twitter is full of alluring identities and revelations:

Human rights, politics, jazz, Dad

Reporter, Business Insider, Designer, Sous Chef

Chief of Confusion, Social activist, Spouse, Mum, Sister, Mother of 3

Actor, Writer, Prince of Swim Wear, Lord of Dance

Many of us are already being judged on the level of our influence. Companies like Klout, PeerIndex and Twitter Grader are in the process of grading people on their level of social influencebased on our presence and activity on Facebook, Twitter and LinkedIn. In other words we will be assigned a number that reflects how influential we are. In the future firms may not just want to know our credit score when we apply for a job, but our influence score as well.

Like vinyl records, business cards are ceding ground to a new era of social identity and influence based in the cloud. It is also creating a more level playing field between those who are already famous and those who might one day become so.

You don’t have to be Lady Gaga to have influence on the internet.

(tw) @davidstcox

Reflections on SIFMA 2011

David S. Cox — Fri, 17 Jun 2011 12:10:00 GMT

Now that SIFMA 2011 is behind us, let’s take a moment to look back on a conference whose conversations and content mirrored the extremes of our post-crisis world.

This year the Leaders Forum explored two main topics – Dodd Frank implementation and the use and impact of social media – two themes that couldn’t be more different.

On the one hand how does the industry embrace the freest form of technology – social networking – while on the other support the stiffest regulation since the 1930s? Think Facebook merging with Con Edison and you have some idea of what’s involved.

But there were other extremes. New devices are ‘all the vogue’. Slates and tablets are disrupting the front office while the cloud is redefining the way technology is deployed.

“If a bank CIO doesn’t have a cloud strategy they’re asleep at the wheel,” declared Stanley Young, CEO of NYSE Technologies.

The data market also reflected deep divisions. Low latency market data providers at one end of the exhibition halls vied with analytical and visualization kings at the other. In the world of big data, it’s no longer enough to deliver the goods, you’ve got to be able to absorb it and make sense of it as well.

This theme was reinforced by Gillian Tate of the FT who remarked that the publishing industry had become polarized between commodity news on the one hand and analysis and commentary on the other.

But, when it came to social media, we had to look to Jim Cramer for the entrepreneurial perspective. For Jim, a master of the verbal and more recently the viral, print was dead and social media the new mouthpiece for financial services.

But the industry seemed more anxious about compliance than the right to bare tweets.

Which brings us back to financial reform. And Dodd-Frank certainly cast its long shadow over the conference. But, once again, it was the FT’s Gillian Tate, who provided us with the broader view. The issue was not so much financial reform but financial repression as governments seek to reduce the highest ratios of sovereign debt to GDP since WWII with a yield below inflation – a stealth tax on investors.

But financial reform did reinforce the need for financial firms to get on top of the data. Effective risk management and real time reporting are now compulsory. While some vendors outwardly expressed outrage at the exigencies of Dodd Frank they must have inwardly rejoiced at the emergence of a problem that can really only be solved by the more effective use of technology.

And the good news from the exhibition halls was that technology is more pervasive, more powerful and less expensive than ever even though licensing models might have to adapt a bit if the cloud becomes ubiquitous.

While the industry debated inside the conference, the markets outside swung violently from hope to despair, reminding us that, whatever was going on inside our industry, recovery is still a work in progress.

The World According to Twitter

David S. Cox — Sun, 12 Jun 2011 12:07:00 GMT

Passing by a colleague’s desk I was really impressed by his Twitter activity. Suddenly I felt that I was missing out on something big. The whole world was tweeting leaving me behind. Here was I, an occasional writer on social networking and technology, but essentially a non-Tweeter.

I had to do something urgently to restore my street credibility.

I have always been a little cautious about Twitter. Tweets are really short and brevity has never been my strong point. Also, in British English a ‘twit’ is a mentally challenged person. And yet Twitter seems to have become the mouthpiece for the world’s intelligentsia.

Throwing all caution aside, I spent the weekend upgrading my Twitter activity. I had been a member for a long time but rarely tweeted. My first thought was to find friends on Twitter and follow them. So I trawled my email accounts and my network on LinkedIn.

Shock, horror hardly anyone I knew had an active Twitter account, never mind an array of tweets to boast of. Suddenly, the awful truth dawned on me. I was moving in the wrong circles!

By being lackadaisical about Twitter, I had reduced myself to a community of people who were essentially unknown. And according to Oscar Wilde the only thing worse than being talked about is not being talked about.

And Twitter is full of famous people who are talked about.

Take this tweet apparently from Larry Kudlow (I say ‘apparently’ because sometimes you can’t be sure if it really is Larry – the really famous are often parodied in false Twitter accounts):

“2^nd half econ depends on dollar. King $ great for growth. Sinking $ will sink econ. Think oil going up or down. Bernank are you listening?”

Is the Chairman of the Federal Reserve really unaware of the economic impact of the exchange rate? Of course he is aware. But this is not just a message to Ben. Larry could have sent him a note. In fact it is a message to all of us. The real message is that Larry and Ben are movers and shakers on our economic stage at least according to Twitter.

So this is great. Finally, I can now move in the right circles. No longer an unknown twit, my voice will also be heard. Perhaps if I get really famous on Twitter someone will create a false or parody account about me.

Then I will know I really have arrived.

Risk Management 2.0 – it’s closer than you think

David S. Cox — Thu, 09 Jun 2011 18:21:00 GMT

It has been a couple of years since the worst financial crisis in decades, and it is clear that we need a fresh approach to managing troubled markets.

For years weather forecasters have been trying to make accurate weather predictions, but a little known phenomenon called the ‘butterfly effect’ – the ability of small changes in one part of the world to create major storms elsewhere has frustrated all efforts.

So it is with financial markets, small changes in one part of the world can have devastating consequences elsewhere.

So whether we are trying to anticipate the weather or manage volatile financial markets, we can never have too much data. And the demand for data is growing exponentially helped by game changing developments in database and computing technologies.

But how do we absorb all this information. Human beings are still calling the shots in financial markets despite the huge growth in electronic trading and there is a limit to what the human mind can absorb. Is the trading room of the future a mass of trading screens to manage systemic markets?

At least one technology company offers a very different perspective. Aqumin’s AlphaVision has the potential to replace several screens with a few or even one. By converting 2D market data into 3D market insight, AlphaVision makes it possible for large amounts of data to be represented in graphic form as buildings, sectors and colors to track rapidly moving markets as the markets themselves move.

Now a trader that once followed a handful of securities can see opportunities across several, and not just instruments, but markets as well. Traders, risk and investment managers can get a holistic view of markets by just looking at a single screen.

But AlphaVision is more than just data visualization; it’s about taking the management of risk to a completely new level. Thanks to the latest Excel and SharePoint add-ins, AlphaVision has become a collaborative tool for managing risk across the enterprise.

At SIFMA on Thursday, June 16^th, Aqumin will provide us with a glimpse of the future of risk management with a live demonstration of their new solution for managing systemic markets – AlphaVision, at a breakfast sponsored by Microsoft.

We hope you will be able to join us.

AlphaVision™ Live Demonstration & Breakfast Seminar

Thursday, June 16th, 2011 8:00am – 10:00am, East Suite 4th floor

Hosted by Microsoft Partner Aqumin

AlphaVision™ provides a fresh and compelling approach to risk management by converting huge amounts of 2D data into 3D images making it easier to spot trading opportunities, manage risk, measure latency and many other variables through a dynamic view of markets that can be shared with a variety of users both inside and outside the firm.

Register for Session: fsmkt@microsoft.com

Next Generation Risk Management in the New Age of Structured Products

David S. Cox — Thu, 09 Jun 2011 13:57:00 GMT

Even before the financial crisis, financial firms struggled to get their enterprise risk act together. Then as now, structured products added a whole new layer of complexity. The problem is how to get on top of the data. Without the right data, risk management, in today’s high frequency markets, is like driving a Ferrari at night through a dense urban area without the benefits of illumination.

But we are approaching a new age of structured products – one in which a deeper understanding of the risks and returns embedded in individual portfolios and securities is essential. We can no longer rely solely on rating agencies and probability theories. We have to understand the underlying assets and be able to analyze them individually.

Professional risk management has become compulsory, thanks to Dodd-Frank. But, the lack of relevant and/or timely data is still frustrating the achievement of a holistic and, in some instances, real time view of many firms’ risk profile.

And the amount of data we need to manage risk and reporting has increased almost exponentially. Not only must we aggregate more data and ensure it is timely and accurate we must be able to analyze it quickly and effectively. Dark markets and opaque securities offer scant relief to troubled markets and demanding regulators.

Meeting these challenges is beyond any one provider. We need a joint approach in which different partners come together to offer unique solutions. We also need a highly scalable tool for the pricing, valuation, and risk management of today’s complex instruments and portfolios.

If we can’t price risk, how can we manage it?

In the meantime, technology is changing at a dizzying rate. Cloud computing, streaming data services and advanced risk analytics together with game changing developments in database technologies and data visualization are creating new tools for financial firms to navigate troubled markets.

But keeping up-to-date with these changes is a major task in itself.

To learn more, join Thomson Reuters, Numerix and Microsoft at SIFMA for a discussion around the different dimensions of data management and data analysis together with the business and technology trends that will build the risk management culture of the future in the new age of structured products.

Solution Center Session: Risk Management Thought Leaders Panel:

Improving Risk Management and Transparency for Structured Products, Exchange Traded and OTC Derivatives through Effective Data Management, and Innovative Analytic Models

Wednesday June 15th, 3:15 p.m. - 4:15 p.m. Hilton NY, Madison Room

Featuring Numerix and Thomson Reuters hosted by Microsoft