Tablet Innovation: A Few Degrees of Separation

January 25th, 2011

By Mark P. Dangelo

www.Innovative-Relevance.com

With less than a 1% market share in 2010, tablet computers were a sideshow for most businesses especially when it came to housing and mortgage finance.  Tablets were viewed as a specialized consumer computing devices, which would be replaced by smart phones.  At least that was the thinking before May 2010.

In 2011, the number of distinct tablet computers coming to market is now over 50 from noted manufacturers including Apple, Samsung, RIM, Panasonic, LG, and Fujitsu.  The unit volume for 2011 is estimated to range from 40 to 50 million or roughly 15% to 20% of all “PC” shipments worldwide.  An impressive one year performance for a market thought to have been not important for enterprise solutions. 

What made the difference in a short nine months?  Most would point to the “Apple” phenomenon and its iPad – but the reality is more complex and opportunistic for competitors seeking a few degrees of separation.  It is this division that will define market leaders in real estate, mortgage documents, LOS systems, servicing, and yes, even fraud.  If we can understand the consumer and economic changes, the use of tablets and their technologies can be integrated into business model changes.

A Decade of Permanent Change Forthcoming

As laptop and desktop numbers continue to decrease across an aging domestic population (i.e., per the WPO, one in two will be over the age of 50 by 2025 – up from one in five in 2011), tablets and their unique applications represent a new delivery channel and distinction to not only identify prospects, but to retain progressive consumers and homeowners for the next decade. 

As wealth concentrates and with fewer prime buyers available, the channel methods used to create volume will decline as we continue to deal with a housing supply that is between 3 and 4 years at present rates.  In general, mortgages for the next decade are being forced by markets, standards, and regulations to become more commodities – than unique products within a financial services supply chain.

Additionally, as the Federal Reserve noted this last week, a decline of 1.4% in 2010 (i.e., $311 billion) in the net financial asset base for American consumers does not bode well for future activities or ability to deal with shocks[i].  This continues to be a multi-year trend downward. 

Couple this with lasting mortgage lending realities as noted in the Wall Street Journal[ii], the trend is to downsize further still, and to increase productivity and efficacy.  How?  This will be multi-faceted and include the use of mobile interfaces, data segmentation and mining, and of course, predictive behavioral analytics.

As the aging consumer changes their minds and adjusts their actions, the lenders abilities to reach and predict a new normal are starting to yield early results.  By incorporating new outreach solutions beyond basic VRU’s and call centers, lenders are focusing on the interfaces and channels growing among the most prized of homeowners (i.e., high ratings, less risks, affluent, technologically savvy).  Professional investors are recognizing this and shifting their strategies for new startups or transformations to those organizations a new consumer – the problem is most firms and money are shifting into Asia[iii].  America’s fascination on copy-cat solutions has precipitated transfers that if left unchecked, will make matters worse for jobs and income levels increasing competitive needs for distinction.

Factor in that traditional wallet and paper solutions disappear to be replaced by robust smart devices by 2016 containing cash, shopper cards, identity, and history.  The use of tablets represents a logical shift into the mobile consumer seeking to simply their life while promoting privacy.  If you have your doubts about this radical transformation, research Starbucks new eBucks, the TSA, the 30 plus vendors offering mobile cash, electronic shopper cards, and the list goes on.  It will be interesting to see how will this be captured in future credit reporting?

However, with every new channel, the practices and processes needed to ensure security, privacy, and functionality have to evolve as well.  For tablets, the learning curve and optimal solutions are just beginning as a new rush for gold begins.

So What Does it All Mean?

It has been stated by successful investors, that when financial newspapers start to consistently publish articles on an emerging technology, “it is time to pay attention and take it seriously.”  In the last two quarters, this has been true regarding the mainstreaming of tablet computers and their mobile apps and stores.

Whereas, we have rapidly framed the drivers for robust tablet adoption, the more challenging aspects are those within the middle and back offices and the technological certifications needed to define, develop, and deliver the data across evolving telecommunication mediums.  This will include:

·         Requirements definition and validation,

·         Testing harnesses and certification / promotion approaches,

·         Modularity and compartmentalization of functionality,

·         Data integrity and management,

·         Interoperability standards,

·         Process interfaces and toolkits,

·         Consumer / homeowner privacy and security,

·         Integration with legacy systems (e.g., CRM, EIA, LOS, servicing, securitizations), and

·         Outsourcing of development and third-party, public / cloud networks.

The aforementioned list is standard operating procedure for traditional solutions and channels, but with the unique interfaces of tablets and their inherent mobility, the implementation aspects are not commonplace nor are their sufficient skills readily available. 

A common fallacy of tablets for the mortgage markets is that they have to be bundled with proprietary solutions built on top of commercially available technologies – that is, an app tightly coupled to a platform that is only purchased in their entirely from a single vendor.  That 1970’s mindset is counter to the principles of future certified apps available across functionally rich markets.  It flies into the frameworks of mainstreaming solutions around SaaS, Cloud, and PaaS, IaaS, DaaS, and others.  Stated differently, vendors are looking to lock in lenders in the near term, while capitalizing on the fears of an industry in recovery.

Lenders and brokers should look to vendors and solution providers that promote the iterative adoption and lasting adaptation needed for the evolution of tablets – not repeat the same practices of lock-in that were common in the CRM, LOS, and servicing world leading up the meltdown.  Moving the apps are often straightforward – transforming the legacy data is not.

Tablets, when combined with existing offerings, can provide a clear distinction for consumers seeking mobile solutions and cognitive accessibility with a trusted financial provider – their financial provider.  The leaders of markets in 2011-2015 will embrace the changes and challenges, while recognizing that time-to-market and historical rules of engagement have been altered. 

Without a doubt, tablets are a very promising future real estate and mortgage tie up with consumers.  Traditionally, new technologies and associated practices bring efficiency and efficacy to industries seeking a new path and increased profitability.  2011 will be a pivot point to see if the mortgage industry embraces or discounts the tablet and its unique position within its varied channels.


[i] “Number of the Week: Americans Dipping Into Savings,” The Wall Street Journal, Mark Whitehouse, January 22, 2011

[ii] “Lenders See Little Choice: Layoffs,” The Wall Street Journal, Matthias Rieker, January 21, 2011

[iii] “A Dip in the Valley,” Financial Times, Richard Waters, January 20, 2011

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2011 – Uncertainty Yields New Spectrums of Modern Innovations

December 20th, 2010

By Mark P. Dangelo

www.Innovative-Relevance.com

As a New Year dawns 2010 is now firmly in the rearview mirror. Whereas, history produces apparitions of the time gone astray and haunting views of lost opportunities for an industry battered by lingering negative sentiments and poor volumes, now is not the time for a walk down memory lane.

The period of 2011 -2014 represents the creation of a new face for the housing and finance markets. Moreover, the spectrum of changes that are needed and desired will require widespread end-to-end innovations that will yield new leaders, while casting established players into forced M&A’s.

As we enter the fourth year of financial system modernization, 2011 will likely produce 5 to 8 unavoidable noteworthy industry mergers as margins continue to shrink and business models fail to change after three years of struggle – LOS, data aggregation, and of course, servicing.

Yet, while individuals and organizations focus on the allure of political actions to stem change, innovations are reshaping the need for regulations. Major modern financial innovations – data, modularity, asset grouping, cloud computing, and mobility — are fundamentally changing nearly every aspect of the financial value chain (e.g., homeowner, originator, broker, servicer, issuer, investor). The real “fight” resides within emerging non-traditional areas.

For 2011 – 2012, with volumes low and prices stagnant, the major trends will include:

1. Data is the new Coinage: 2011 will usher in the beginning of a new and growing class of investment data pioneers eager to aggregate and deliver multi-dimensional information demanded by regulators seeking transparency and liquidity (e.g., Thomson-Reuters, Moody’s). Utilizing strategic alliances and joined together with robust technology innovations, data will be accurately assembled and mined across five taxonomies (i.e., 1) Content and Repositories, 2) Integration and Standardization, 3) Manipulation and Filtering, 4) Value-Add and Discovery, and 5) Market and Security Analytics) to meet the price points of even the smallest broker, originator, or servicer.

2. Commonality for Commoditization, Distinction for Competitiveness: Why build it from scratch, when you can leverage or assemble it from existing solutions? Across the manufacturing world, this approach has become a standard practice. As finance and its markets seek out innovation, the use of and assembly with common platforms, data repositories, and technologies will provide a path for cost-efficient, timely solutions sought after by investors, homeowners, and financial consumers. Moving forward, and taking a page from the discipline of flexible manufacturing, financial innovation will be concentrated on the competitively distinctive, modular compartments (i.e., functionality, processes, “i” solutions), which create barriers to entry, while establishing loyalty and behavioral linkages with the most profitable homeowners and consumers.

3. Moving Beyond the GSE Safety Net: The on-going saga of receivership regarding the Government Sponsored Enterprises (GSE’s) has created market expectations and obligations which are unsustainable. Whereas, the Financial Reform of 2010 took aim at the dealings of Wall Street — ABS’s, MBS’s, derivatives, consumer protections, financial stability — the unlimited support for GSE’s (and the aforementioned reform’s failure to address) have displaced the critical urgency needed for their disposition and the lasting need for interconnected private capital markets. However, the 112th Congress may not be a passive investor in footing implicit and explicit debt guarantees now in excess of over $5 trillion. Look for new private ATS markets, enabled by REG AB, ready to pick up the GSE market share, while the politics of their taxpayer liabilities will drag out for most of 2011.

4. Regulations are Cosigned to a Different Priority: Regulatory guidance is traditionally equivocal and subject to interpretation – and it is ill-suited for rapid technology and data advances currently dominating operational systems. Technology and markets move much faster than regulatory guidance. So, rather than struggle against the markets, new regulations are once again focusing on the “spirit” of the rules in an attempt to remain relevant. This interpretation of regulatory behavior has precedence – it was and remains the guiding principle for SOX implementation and adherence since 2002. For the next three years, detailed guidance addressing historical deficiencies – REG AB, Basel, Article 122a, Topic 820, NRSRO’s, et al – will be implemented impacting billions of investors and consumers in conjunction with individual issuers, trustees, and market operations. With all good intentions sought to right a wrong or seek retribution, regulations can produce unintended consequences. These “gotcha’s” will crop up during 2011 – 2014, but their downside pain will not truly be known until the end of the next “super-cycle.” But like all regulations, they will feed into a new super-cycle starting in early 2012.

5. Mobility will be the “App” for Homeowners and Market Leaders: Whereas, personnel have selectively embraced the interfaces and features of mobility, their enthusiasm does not translate into direct organizational results – quite the contrary. Without a comprehensive understanding of the channel facing mobility and the market evolutions underway, misguided decisions will be made —likely contributing to a greater than 70% failure rate of mobility initiatives not meeting expected measurements and quality. For the early leaders of mobility, roughly 5%, their organizations embarked upon a dual competency series of programs – for personnel and the organization. 2011 will witness an explosion of applications and secure mobile data especially pre-LOS, LOS, and for servicing (in an effort to reach out to and maintain a link to disaffected homeowners). This technology taxonomy will witness a 30% to 55% increase in 2011 within the IT budget – as legacy investments are reduced.

For 2011, a few of the ancillary trends incorporate:

1. A Rebirth of Mortgage Bonds: Private mortgage bond markets are beginning a resurgence. In 2011, as the government tackles the GSE’s (and with “Plan B,” C, and D alternatives), the global risk to yield ratio will rise along with volumes. Underwriting, along with common data standardization from origination through securitization (and pool management), will produce confidence and aid in the disposition of government market interventions and assets.

2. Tablet computing unites with cloud computing: The rise of complex tablet computing operating environment along with the introduction of thousands of applications developed every month, will accelerate the use of cloud computing. The dual use of these devices will also force an examination of all policies and procedures regarding privacy, security, and data.

3. Return of the Investor: The investor will finally return in 2011 seeking out new opportunities for investment – that is risk attributed investment. New exchanges (e.g., DelphX, SunGard), underpinned by granular data discovery programs, will deliver transparency and liquidity desired by global regulators. “Junk will remain junk,” but quality assets will be sought after.

4. The obsolescence of the Chief Strategy Officer (CSO). The days of the CSO are numbered. As the need for innovation turns from a whim to a core competency, the Chief Innovation Officer will replace the CSO in many executive teams and boards. This 50 year ideal has run its course.

Finally, as these aforementioned trends gain success, and subscriptions to their DaaS (Data as a Service) underlying applications and repositories increase, look for an expansion of the housing markets with differentiation residing in the customization of reports, channels, intelligence, customer services, and interfaces.

As we prepare for a new year, it has been said, “We don’t fear death – we fear being forgotten.” For some, this fear will be realized as they cling to traditional ideals and principles in the hope for a renaissance – the” same old lang syne” particularly as rates gravitate to normal. For other providers and vendors, the pain of adoption and adaption to new consumer and financial modernization trends will result in industry leadership.

So, as the economic recovery sputters and job recovery is a full two years away, the spectrum of innovational changes will take place across a broad range of solutions. So put the eggnog away.

2011 still holds a great deal of pain for those in traditional housing roles, but it holds vast opportunities within and across the six structural areas of growth and innovation for financial system modernization – 1) Data and Discovery, 2) Modularity and Compartmentalization, 3) Technology Innovation, 4) Capital Markets, 5) Government Regulations, and 6) Situational Uncertainty.

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The (i)’s Have It

November 16th, 2010

By Mark P. Dangelo

www.Innovative-Relevance.com

As the holidays approach, one of the most asked for gift genre’s surrounds (i)ndividual gratification devices – iPad, iTouch, iPod, iPhone, and  iShuffle.  Since Apple’s initial 2001 device series début, a breadth of new consumer behaviors and technology solution industries have been developed.  Moreover, robust “App Stores” have been created to promote adoption, spur entertainment sales, and lock-in loyal consumers with premium content and pricing.

As these devices have gained in sophistication and functionality, new mobility market segments have been formed and expanded within healthcare, finance, entertainment, capital markets, and even housing.  And, how can you argue with such stellar success in the last decade? 

The i-Reality

With nearly 300 million iPod’s, over 60 million iPhone’s, and 10 million iPad’s (from zero in just 9 months in 2010), the widespread consumer utilization of “i-like” devices has forever altered the interfaces and interactions within the global consumer base of 25-45 year olds.  This is a profitable bracket within a growing affluent segment that has an average yearly income above $50,000.

And, that is just Apples’ success.  Full-featured tablets are now being offered from stalwarts Samsung and Rim (i.e., BlackBerry) as the size of the tablet and netbook markets for 2011 are projected to reach 75 to 90 million units.  Additionally, there are predictions that the demand for these new tablets alone will grow 150% to 180% per year until 2012, reaching an annual sales volume over 60 million units by 2013. 

Looking beyond the most recent mobility offering of tablets, there is a growing base of smart devices that reached sales of nearly 400 million units in Q3 2010.  Of that number, nearly 25% were attributed to open source operating systems such as Google’s Android. 

Estimates now place the number of sophisticated mobile devices at nearly 6 billion in just five years – roughly 90% of the global population with 85% having a built-in QWERTY keyboard (physical or digital).  

So while the markets for these device classes grow at hyper rates, why is it important to those in the housing and financial markets? 

Banking, Finance, and Housing

Today, there are approximately 18 million Americans who use some form of mobile digital cash or banking services – a 50% increase since 2009.  What is more, nearly 60% of the retail population wants mobile cash, credit card replacement, shopper programs, and of course, bill paying. 

Similar to the ideas behind TSA mobile check-ins at the airport, consumers could use two-factor identification (i.e., a secured, mobile device and something unique to the user such as a fingerprint or code),to not only purchase goods, but to pay taxes, send confidential information, and even shop for and purchase a home.  As consumers continue to frustrate traditional behavior models, the use of mobility devices and applications, even during tough economic times, is becoming the “new normal.”

Today, there are nearly 1 billion mobile users who do not have any consistent retail banking services – an untapped, minimum equivalent of nearly $10 billion in top line revenue.  Those trends are expected to increase another 70% in just 24 months.  The business case that was once singularly focused on areas of “nice” or “elastic” are now evaluated against bespoke solutions of “concrete” and “regulatory” (see May 2010, MBA NewsLink, “In Times of Renewal, Everything has Value – Not Everyone Sees It”).

For homeowners increasingly burdened and frequently aloof, the internalization of mobile services within their daily lives continues to witness an expansion in services, functionality, and features.  The result is that promising mobile offerings are not only being delivered for origination, but new functionality is being planned for servicing and securitization tapping into atypical behaviors in effort to create profits and stickiness within consumer classes.

For the enterprise, the introduction of robust tablets provides new mobility and features for capital markets, exchanges, clearing, and even settlements.  These new mobile channels may offer new integrity and differentiation to financial products and the investors who fund them. 

As mobility’s capabilities expand, banks will increase their householding, cross-selling, and recovery of troubled assets, while decreasing their costs for customer services (e.g., VRU’s, ATM’s), product sales, and marketing. 

Whereas consumers will sacrifice their landlines, homes, and even communities, they have a growing and permanent attachment to their mobile solutions.  Yet, mobility is not all good news as the markets rebalance and seek a new bottom – a double bottom.  What are the risks and immaturities surrounding mobility?

Downside Risks

Mobile challenges remain and are increasing in sophistication.  By 2012, over 60% of all mobility applications will be dependent upon data from a remote server somewhere in the cloud.  However, with the widespread use of data come challenges with security, privacy, and even countermeasures (e.g., network, device, and remote destruction of data while a device is powered off).

Additionally, whereas many groups will focus singularly on the “i-like” devices, the growing market power resides within the commonality of their operating systems resulting in a race to dominance among the four largest tablet and smart phone players – Apple, Google, Microsoft, and Nokia.  The wildcard vendor that is the most common for the enterprise is BlackBerry – for numerous reasons not the least of which includes a perception of “trailing” innovation within the expanding space. 

With the convergence of complex mobile operating systems, the common platforms criminals and hackers have been seeking are starting to arrive as the scale and volumes have reached a level that works in their favor. 

Already, there are 1,500 malware signatures for smart phones – a rapid increase in number and sophistication in the last 12 months. Within the last 30 days, there have been significant security flaws for mobile banking applications, including those operating with Android and iOS.  Correspondingly, it is astonishing that less than 10% have any credible protection for this growing base of malware, theft (financial, transaction, and identity), and information loss.

To make matters worse, IT departments are ill-prepared for dual use mobility (i.e., personal and corporate apps within a single mobile device).  With or without explicit permission, over 80% of mobile users are dual users and a majority of them behave within this operating model every day. 

As mobility grows, the “cat-and-mouse” game that transpired against rudimentary exposures is being replaced with determined and highly developed intrusions orchestrated by very skilled delinquents. 

* * * * * * * * *

The ability and underlying need to profit from the growing “i” devices has ostensibly arrived.  However, the approaches and techniques needed to exploit the evolution of mobility have not reached a maturity that provides for the non-repudiation or bullet-proof operating environment that must be present to secure sustainable consumer trust.  

As 2011 arrives, look for an expansion in the ancillary markets surrounding the devices and their common operating systems – new programming methods (QoD), testing and harnesses (QoS), data management, and security. 

What is more, processes and deployment will alter the value equation of mobile profits and underlying market expansions.  The “i’s” have framed the markets – but they represent only early generations in what will prove to be a longtail series of offerings across the mobility segments.

For finance and housing, first-movers will find initial success against a growing base of subscribers.  Yet, will the industry segments be willing to funnel investments from cash-generating legacy systems into embryonic mobile applications and a consumer base that they don’t understand?  How will it impact costs?  What are the profit models and transformations?  Where can an organization turn for answers?

Whatever you believe, it is never wise to ignore the markets – and its consumers.  Mobility has arrived for the masses across finance, banking, capital markets, and housing.

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