As cash becomes quaint, are ATMs on path to obsolescence?

From The Conversation. Before the advent of the internet, the greatest gain in customer convenience within retail banking came from the creation of automated teller machines (ATMs).

Is it time for the ATM’s requiem? Old ATM via

ATMs led to significant advances in how customers access financial services because – coupled with the direct deposit – they freed workers from so many routine tasks. No more depositing a paycheck in person, inquiring about balances or paying utilities solely during banking hours. ATMs enabled impromptu dinners and last-minute shopping over the weekend.

But now that we have so many other alternatives to fulfill our banking needs – we can deposit a check with a snap from our smartphones – do we really need ATMs? Why do we require physical cashpoints given that mobile payments and e-commerce continue to grow, heralding the “death of cash”?

Claims that the ATM is a passing technology are almost as old as the idea of a cashless society, and for a variety of reasons it’s probably premature to predict its demise.

The rapid embrace of the digital and resistance to the traditional by today’s youth may eventually bring about the ATM’s end, but for a long time to come, the ATM will likely remain central to our relationship with money.

Slow pace of change

First off, banknotes and ATMs are two of the most ubiquitous products in the world. Whereas banknotes have social meaning, cashpoints recede to the background of everyday life. Most urbanites typically stick to the same three to five cash machines for most transactions.

Banknotes and coins still represent 9% of the eurozone’s economy and 7% in the US, according to the Bank for International Settlements. Even in almost cashless Sweden, cash still makes up 3% of the economy.

Secondly, people like the freedom to choose between alternative payment options. So even as we use smartphones more often to make purchases at the grocery store, credit cards are still how we buy most things online, and we keep cash in our wallets for smaller items.

Thirdly, changes in retail payments have proven to be very slow rather than disruptive, and their path differs from country to country, suggesting it’ll be a while before the ATM is displaced.

To illustrate this long-winded process of innovation, consider that the first cash machine emerged in 1967, yet the device became mainstream only in the 1980s.

Today, most of the 2.6 billion bank ATMs currently in operation still run on Windows XP – an operating system Microsoft stopped supporting last year. The industry plans to upgrade and even make the switch to non-Microsoft systems, but that change may not take place until around 2020. That’s largely because the average life of an ATM hovers around six years.

Another example is the contactless ATM, which is beginning to slowly take hold with the rise of smartphones. It could make the transaction more secure and reliable by reducing possibilities for card skimming as well as offering the advantage of “client present.” Yet my own research came across references to ATM manufacturers considering devices that would interact wirelessly with customers as early as the 1990s. So it’s an open question why it took so long for this functionality to emerge.

Industry growth

In the meantime, the global market for ATMs continues to expand, but this growth is increasingly skewed and uneven. Global shipments of new ATMs reached a record 466,000 in 2014, up 5% from the previous year, according to London-based Retail Banking Research.

On a regional level, the picture is much more varied. Double-digit gains in the Asia-Pacific market contrast with double-digit declines in North America and Central and Eastern Europe.

Allied Market Research expects that growth to accelerate in the coming years. The US-based group forecasts the number of ATMs to surge 11% a year through 2020.

A fragile future?

Despite that optimistic forecast, the future of the ATM may be fragile as its once cutting-edge functionality becomes ubiquitous through other devices.

Back in 1975, technology companies IBM and NCR promised customers that ATMs would, in the not too distant future, be a one-stop shop for all their banking needs, from making deposits and dealing with account inquiries to making account transfers. Today all of that can be done online, while the functionality of most ATMs in developed countries has been cut down to the bone.

Despite this, the ATM still appears to have a home within banks’ self-service strategy, which is based on greater complementarity rather than cannibalization among delivery channels and means of payment.

The “omnichannel” is the buzzword that will dominate the industry over the next five to seven years. It envisions enabling customers to do their banking and interact with their financial institutions however they like — at the branch or ATM or via the internet or a mobile device.

And even as banks strive to make customer interactions more seamless, they’re also slow to push full automation too quickly because it reduces opportunities to engage in high-margin sales – think mortgages and other loans and services.

The process of balancing convenience through automation with maximizing sales opportunities involves reorganizing the ATM fleet to ensure high availability and an enhanced customer experience to retain, and even increase, customer loyalty while not losing customer trust.

Millennials and the future of banking

Perhaps the biggest issue shaping ATMs in the near future will concern the choices of millennials, those for whom the internet, mobile phones and plastic cards are a fact of life, checks are unknown and cash is quaint.

They challenge financial institutions and their business models to do more faster because they have easier and faster access to better technology than offered by the banks’ legacy systems through the multitude of apps on their smartphones, wearables, tablets and elsewhere.

Left to their own devices, millennials could spell the end of the ATM by 2035 or thereafter.

But that’s still a long way off, and cash – the raison d’etre for the ATM – is still king. Even for most advanced economies, cash represents about half of transactions below US$50.

So it will be a while before we see the end of the crisp paper bill and the coins that fill jars across the globe. In other words, “Long live the ATM!” – so long as there remains a need for after-hours and quickly dispensed cash.

Author – Bernardo Batiz-Lazo, Professor of Business History and Bank Management at Bangor University

What Apple’s new music streaming service will mean for underpaid songwriters

From The Conversation. Earlier this month, Apple launched its long-awaited subscription-only music streaming service. Costing less than US$10 per month, Apple Music will compete head on with Pandora, Spotify, YouTube and Tidal.

Apple’s iPod revolutionized the music business. Will its streaming service do it again? Reuters

Although subscription-based music services have existed for more than a decade, many still wonder whether Apple Music will again revolutionize the music business, like iTunes. The more important question, however, is what Apple’s entry to the music streaming business will mean for underpaid songwriters.

The promise of online streaming

Online streaming offers many benefits. It allows music fans to access content anytime, anywhere. If Apple Music can include a wider variety of music than Pandora and Spotify, it will move us closer to what commentators have referred to as the “celestial jukebox” – the proverbial place where music is always at our fingertips.

On-demand services also respond well to our changing habits of entertainment consumption. Gone were the days when we sat behind the television set every week waiting patiently for the latest episode of our favorite show. Instead, we now binge watch through cable on-demand, Netflix or Amazon.

Although consumers remain reluctant to pay for online content, last year the music industry received, for the first time, more revenue through online streaming than CD sales. When one takes into account the industry’s 18% equity stake in Spotify – worth about $1.5 billion – the revenue-generating potential of online streaming cannot be overlooked.

The music industry’s (relative) well-being

Music business executives remain vocal about the challenge posed by the internet and new communications technologies. The industry, however, seems to have been doing quite well recently.

Taylor Swift’s latest album 1989, for example, sold more than 1 million copies in the first week alone. Top executives also continue to receive compensation packages worth tens of millions of dollars. The problem with online streaming therefore concerns neither Billboard Top 40 artists nor industry executives.

If anything, the arrival of Apple Music will generate more revenue. Although the industry’s total income may initially decline when some iTunes downloaders switch over to the new subscription-based service – causing reduced sales in digital downloads – that amount will return and grow as the subscriber base expands.

Unfortunately, the same cannot be said about professional songwriters.

Consider Spotify. The service claims a distribution of “nearly 70%” of its revenues to rights holders. According to The New York Times, Spotify “generally pays 0.5 to 0.7 cent a stream (or $5,000 to $7,000 per million plays) for its paid tier, and as much as 90% less for its free tier.”

For a song that has been streamed 10 million times in the paid tier, the total royalties will be between $50,000 and $70,000. This arrangement sounds attractive, until the royalties are divvied up among the record label, the performer and the songwriters (including the composers of both the song and its lyric). If the songwriters receive only 10% of the total royalties, their cut will be between $5,000 and $7,000.

That amount will be further reduced if the 10 million streams also include the free tier. For example, on Pandora – a different service that has similarly meager payouts – Pharrell Williams received only $2,700 in publisher and songwriter royalties for 43 million streams of his Grammy-nominated song “Happy”.

The professional songwriters’ oft-overlooked pain

Thus far, musicians have been highly dissatisfied with the royalty payout from online music services.

For professional songwriters who do not perform, few can earn enough money through these services to put food on the table, pay for electricity and equipment and forgo part-time work. Even for those who manage to bring in additional revenue through concerts and tours, the frequent need to perform and travel takes away valuable writing and recording time.

In a recent interview, Björn Ulvaeus of ABBA said he “doubted spending all that time on writing songs would be possible in a world where Spotify is the main source of income … as [his group] would have had to spend much more time touring in order to make a living.”

If professional songwriters are to succeed in the brave new world of online streaming, a new compensation model will have to be developed.

That model could feature a minimum royalty payout or a higher rate for online streaming. It could also include a small cut of profit from the record labels’ equity in streaming services – some of which was reportedly obtained with very limited up-front investment.

Also worth reviewing is the “blackbox” from which royalties for songs from back catalogs have disappeared. Even though the record label may have received only a fixed sum for licensing its whole catalog, a songwriter whose song has yielded 10 million streams deserves some royalty.

Apple could have revolutionized the music business by charting a new course for compensating professional songwriters. Yet nothing reported thus far – other than the lack of a free service – suggests a more generous royalty payout than Pandora or Spotify.

Potential competition concerns

Apple Music will raise additional questions about competition, affecting musicians and consumers alike.

From Pandora to Spotify to Tidal, virtually all existing streaming services are technology start-ups. Apple, by contrast, is the world’s most profitable company with an enormous war chest and reportedly 800 million credit cards on file.

Once Apple enters the market, it is unclear how effectively the existing services will be able to compete or how many new players can still enter the market. It is no coincidence that iTunes remains the most dominant format for digital music. While Google can certainly stay competitive, it is doubtful that the next Pandora or Spotify could emerge.

It is therefore no surprise that the attorneys general in New York and Connecticut have already launched an antitrust investigation into the music streaming business. Although they have yet to target Apple, the timing of the launch is suggestive – not to mention the company’s recent $450 million settlement of its e-book price-fixing lawsuit.

In sum, despite the considerable attention Apple Music has recently caught, it remains to be seen how this new service will improve the lives of underpaid songwriters. If anything, the service has raised more questions than answers.

Author: Peter K Yu – Professor of Law and Co-Director of the Center for Law and Intellectual Property at Texas A&M University

Who Reads Social Media Small Print?

From The Conversation. Most of us don’t read the social media small print – and it’s a data goldmine for third parties

You may read paper, online is no different. Signing by Shutterstock

The history of human experiments often focuses on biomedical research and the gradual changes in acceptable practice and ethical considerations. But another class of human experiments that has had its own share of controversies is the study of human behaviour.

Internet Mediate Human Behaviour Research (IMHBR) is primarily defined by its use of the internet to obtain data about participants. While some of the research involves active participation with research subjects directly engaging with the research, for example through online surveys or experimental tasks, many studies take advantage of “found text” in blogs, discussion forums or other online spaces, analyses of hits on websites, or observation of other types of online activity such as search engine histories or logs of actions in online games.

It’s big business and the pervasive use of these methodologies is not only by academics but also corporations and governments seeking to support evidence-based policy decisions or to nudge societal behaviour.

Even though the basic principles of “respect for the autonomy and dignity of persons”, “scientific value”, “social responsibility” and “maximising benefits and minimising harm” are the same for this type of research method as for any other, the following issues often pose particular challenges for internet-mediated research: the distinction between public and private information, confidentiality, and informed consent. There is an urgently need to establish clear codes of ethical conduct for IMHBR.

Whose information is it?

The distinction between public and private domains is vitally important since this greatly affects the level of responsibility and obligation of the researcher. For human behaviour research online, however, it is often difficult to determine if participants perceive an online forum as “private” or “public”. While almost all internet communication is recorded and accessible to the mediating platform, such as Facebook and Twitter, and much of it even publicly accessible, users of these platforms may nevertheless consider those communications to be private, despite click-signing the terms and conditions of the service provider.

To quote professor John Preston’s testimony to the House of Commons science and technology committee on responsible use of data:

People treat social media a bit like they treat the pub. They feel that if they go into a pub and have a private conversation, it does not belong to the pub; it is their conversation. They interpret Twitter or Facebook in the same way – as a place to have a conversation.

This was also one of the contributing factors in the Samaritans’ radar debacle where they proposed an alert system to flag when people were tweeting potential distress and suicidal messages. In its post-investigation communication by the Information Commissioner’s Office to the Samaritans, the ICO stated:

On your website you [Samaritans] say that ‘all the data is public, so user privacy is not an issue. Samaritans Radar analyses the tweets of people you follow, which are public tweets. It does not look at private tweets.’ It is our view that if organisations collect information from the internet and use it in a way that’s unfair, they could still breach the data protection principles even though the information was obtained from a publicly available source.

Read the small print. Terms and conditions by Shutterstock


Anonymisation is one of the most basic steps for maintaining confidentiality and showing respect for the dignity of research participants. It is also a requirement imposed by the Data Protection Act 1998 when dealing with personal data. The need to protect the anonymity of participants is even more pressing when the research uses data from online sources where access to the raw data cannot be controlled by the researcher.

At the same time, the wealth of secondary information sources that can be mined in connection to any hint at the identity of a participant is making it increasingly easy to de-anonymise data. This was publicly shown by journalists for the New York Times who followed the web tail of user No. 4417749 in the AOL Search Log in 2006 and were able to identify her – and also by the lawsuit against Netflix for insufficient anonymisation of information disclosed in a prize competition database.

Terms and conditions that no one reads

In order for informed consent to take place, it is vital that the participant is fully aware of what is being consented to. Unfortunately, current online business practice has heavily eroded the concept of informed consent by habituating people to click-sign terms and conditions forms that are too long and unintelligible to understand.

Sometimes driven by social pressure to join the network their peers are using, people readily skip over the details and give their consent for allowing corporations to access their data for a wide range of purposes. A hint at the dangers of normalising such attitudes towards the concept of informed consent was given by the statement in the controversial 2014 “Facebook news feed manipulation experiment” – a secret study on “emotional contagion” that involved changing what 689,000 users saw from their friends’ feeds to see if it influenced mood.

One of the researchers attempted to defend the study, saying that participants had provided consent because “it was consistent with Facebook’s data use policy, to which all users agree prior to creating an account on Facebook, constituting informed consent for this research”. The data use policy, however, does not provide any information about the nature of that specific study, instead speaking only of “research” in general terms.

Various organisations and learned societies, such as the British Psychological Society, the Association of Internet Researchers, the British Association for Applied Linguistics, the Information Commissioner’s Office, as well as our own research group at Nottingham University and many others are currently actively engaged in formulating and improving the guidelines for internet-mediated research.

As part of this work we are currently running a survey to ask citizens which conditions they would like to impose on researchers for making their social media data available to research studies. Ultimately, without clear guidelines and transparency, we’re hiving out decisions about us and our information to companies, governments and researchers, without us knowing what it will be used for.

Author – Ansgar Koene – Senior Research Fellow, Horizon Digital Economy, CaSMa at University of Nottingham

Moula Closes A$30m Investment Round

FinTech Moula Money has announced that it has closed a $30m investment round led by Liberty Financial Pty Ltd, NCN Investments and a group of private investors. Moula was the first lender of its kind in Australia, providing small businesses with access to funding by using multiple data sources to rapidly assess creditworthiness.  They also increased the available loan size to $100k. We covered Moula’s business model in a recent post.

Pushing to Build Asia’s Biggest Bank

CEO Budi Gunadi Sadikin wants Indonesia’s Bank Mandiri to be the region’s largest. In this McKinsey interview, he discusses the consumer-banking explosion, the impact of digitization, and the grooming of future leaders.

Indonesia’s Bank Mandiri was formed in the late 1990s in response to the financial crisis that had gripped much of East Asia. Today, the 60 percent government-owned institution is Indonesia’s biggest bank, with much of that growth attributable to chief executive officer Budi Gunadi Sadikin, who joined Bank Mandiri in 2006 to head its retail-banking operations. Since becoming CEO, in 2013, he has continued to focus on digital consumer transactions, spearheading, among other things, efforts to make peer-to-peer money transfers as easy as sending a text message. In this interview, conducted by McKinsey’s Rik Kirkland, Sadikin explains how he’s preparing the next generation of banking leaders to manage the industry’s evolution.

Link to Video

Link to Transcript


Payday Lending’s Online Revolution

Payday Lending has been subject to considerable regulation in recent years, but using data from our household survey’s and DFA’s economic modelling, today we look at expected trends, in the light of the rise on convenient online access to this form of funding.

We will focus on analysis of small amount loan – a loan of up to $2,000 that must be repaid between 16 days and 1 year. ‘Short term’ loans of $2,000 or less repayed in 15 days or less have been banned since 1 March 2013.  These rules do not apply to loans offered by Authorised Deposit-taking Institutions (ADIs) such as banks, building societies and credit unions, or to continuing credit contracts such as credit cards. More detail are on ASIC’s Smart Money site.

The law requires credit providers to verify the financial situation of applicants, and to ask for evidence from documents like payslips or Centrelink statements, copies of bills, copies of other credit contracts or statements of accounts or property rental statements. The number of documents a lender asks for will depend on whether they have relationship data, credit history or bank statements. If households receive the majority (50% of more) of income from Centrelink, the repayments on the small amount loan (including any other small amount loans held) must not exceed 20% of income. If they do, potential applicants will not qualify for a small amount loan.

From 1 July 2013, the fees and charges on a small amount loan have been capped. While the exact fee will vary depending on the amount of money borrowed, credit providers are only allowed to charge a one-off establishment fee of 20% of the amount loaned, a monthly account keeping fee of 4% of the amount loaned, a government fee or charge,default fees or charges and enforcement expenses. Credit providers are not allowed to charge interest on the loan. This cap on fees does not apply to loans offered by ADIs such as banks, building societies or credit unions.

DFA covered payday lending in a recent post, and ASIC has been highlighting a range of regulatory and compliance issues.

So, we begin our analysis with an estimation of the size of the market, and the proportion of loans originated online. The value of small loans made has been rising, and we now estimate the market to be more than $1bn per annum. We expect this to rise, and in our forward modelling we expect the market to grow to close to $2bn by 2018 in the current economic and regulatory context.

One of the main drivers of this expected lift is the rise in the number of online players, and the rising penetration of online devices used by consumers. Today, we estimate from our surveys about 40% of loans are online originated. We estimate that by 2018, more than 85% of all small loans will be originated online.  As we highlighted in our previous post, the concept of instant application, and fast settlement is very compelling for some households.

Pay-Day-June15-3The DFA segmentation for payday households identifies two discrete segments. The first, which we call disadvantaged are households who are likely to be frequent users of small amount loans, often on Centrelink benefits, are socially disadvantaged, and with poor work history. The second segment is one which we call inconvenienced. These households are more likely to be in employment, but for various reasons are in a short term cash crisis. This may be because of unexpected bills, illness, unemployment, or some other external factor. They may even borrow for a holiday or family event such as wedding or funeral. They are less likely to be serial borrowers.

We see that both segments are tending to use online tools to seek a loan and may also be accessing other credit facilities. Our prediction is that by 2018, of the total of all small loans applied for, more than 35% will be applied for by disadvantaged, and 45% by inconvenienced via online. Together this means that as many as 90% of loans could be be sourced online. More than three quarters of these applications will be via a smart phone or tablet. As a result the average age of a small loan applicant is dropping, and we expect this to continue in coming years. This helps to explain the rise on TV and radio advertising, directing households with financial needs direct to a web site. Phone based origination, as a result is on the decline. We estimate there are more than 100 online credit providers in the market, comprising both local and international players. Online services means the credit providers are able to access the national market, whereas historically, many short terms loans were made locally by local providers, face to face. This is a significant and disruptive transformation.

Pay-Day-June15-4We finally look at the segment splits in terms of number of households using these loans. We note a significant rise in the number of inconvenienced households, to the point where by 2018, about half will be this segment. This is because the rules have been tightened for disadvantaged households, and online penetration for inconvenienced is higher.



ING DIRECT Introduces ‘One Swipe’ Banking And Apple Watch App

ING DIRECT has introduced true ‘one swipe’ banking, allowing customers using Apple devices to easily check their transaction account, savings, mortgage and superannuation balances with just one swipe.

The ‘Widget’ feature makes use of the Apple iOS 8 Notification Centre, meaning if customers choose, they no longer have to unlock their mobile device or even open their ING DIRECT app to check their balances, they can simply swipe down on their home screen and their ING DIRECT account balances will be available.

ING was one of the first Australian banks to provide the pre-login balance feature, which is used by more than 98 per cent of their mobile banking customers and which displays account balances by simply tapping the ING DIRECT app icon.

ING DIRECT on Apple Watch

ING DIRECT has also launched an app for the Apple Watch which can be configured to display a range of account balances, while the mobile banking app has recently been updated with a security feature allowing customers to place a ‘hold’ on their Visa debit card, preventing it’s use until the customer choose to release the ‘hold’.

ING DIRECT Introduces ‘One Swipe’ Banking And Apple Watch App

More than 70 per cent of ING DIRECT’s mobile interactions are by customers using Apple devices.  The ‘one swipe’ banking feature is not activated by default and is only made available to customers who chose to configure it through their iOS 8 Notification Centre.

Westpac. St George and CBA, as well as Optus also have plans for banking/payments on the watch.

Release of the Spectrum Review Report

The Minister for Communications and the Parliamentary Secretary announced the release of the Spectrum Review Report, prepared by the Department of Communications.

In May 2014, the Minister for Communications announced a review of the spectrum policy and management framework. Established in 1992, the current framework led the world in how it dealt with the complexities of spectrum management. But today, more than 20 years later, the fast changing nature of technology has dated the framework. It needs to be modernised to reflect changes in technology, markets and consumer preferences that have occurred over the last decade and to better deal with increasing demand for spectrum from all sectors.

The purpose of the review was to examine what policy and regulatory changes are needed to meet current challenges, and ensure the framework will serve Australia well into the future.

Under the Terms of Reference, the review was to consider ways to:

  1. simplify the framework to reduce its complexity and impact on spectrum users and administrators, and eliminate unnecessary and excessive regulatory provisions
  2. improve the flexibility of the framework and its ability to facilitate new and emerging services including advancements that offer greater potential for efficient spectrum use, while continuing to manage interference and providing certainty for incumbents
  3. ensure efficient allocation, ongoing use and management of spectrum, and incentivise its efficient use by all commercial, public and community spectrum users
  4. consider institutional arrangements and ensure an appropriate level of Ministerial oversight of spectrum policy and management, by identifying appropriate roles for the Minister, the Australian Communications and Media Authority, the Department of Communications and others involved in spectrum management
  5. promote consistency across legislation and sectors, including in relation to compliance mechanisms, technical regulation and the planning and licensing of spectrum
  6. develop an appropriate framework to consider public interest spectrum issues
  7.  develop a whole‐of‐government approach to spectrum policy
  8. develop a whole‐of‐economy approach to valuation of spectrum that includes consideration of the broader economic and social benefits.

The Spectrum Review Report highlights the need to simplify the current framework to remove prescriptive regulatory arrangements and to support the use of new and innovative technologies and services across the economy.

The report recommends simplifying processes for new and existing spectrum users and increasing opportunities for market-based arrangements, including spectrum sharing and trading.

The three main recommendations are:

  1. Replace the current legislative arrangements with streamlined legislation that focusses on outcomes rather than process, for a simpler and more flexible framework.
  2. Better integrate the management of public sector and broadcasting spectrum to improve the consistency and integrity of the framework.
  3. Review spectrum pricing to ensure consistent and transparent arrangements to support the efficient use of spectrum and secondary markets.

The report is the outcome of a review conducted by the Department of Communications in conjunction with the Australian Communications and Media Authority, and included extensive stakeholder consultation.

The legislative reforms would:

  1. establish a single licensing system based on the parameters of the licence, including duration and renewal rights
  2. clarify the roles and responsibilities of the Minister and the ACMA > provide for transparent and timely spectrum allocation and reallocation processes and methods, and allow for allocation and reallocation of encumbered spectrum
  3. provide more opportunities for spectrum users to participate in spectrum management, through delegation of functions and user driven dispute resolution
  4. manage broadcasting spectrum in the same way as other spectrum while recognising that the holders of broadcasting licences and the national broadcasters would be provided with certainty of access to spectrum to deliver broadcasting services
  5. streamline device supply schemes
  6. improve compliance and enforcement by introducing proportionate and graduated enforcement mechanisms for breaches of either the law or licence conditions
  7. ensure that the rights of existing licence holders are not diminished in the transition
    to the new framework.

Implementation stages would commence following the passage of legislation. This would again include ongoing consultation with stakeholders and progress over a period of some years.

The Government is currently considering the report and will prepare a response in due course. Stakeholder feedback on the report is welcomed.

The report is available at:

How Tesco’s Loyalty Card Transformed Customer Data Tracking

From CMO. Insights from Tesco about how to harness the power of customer data. Knowing is not enough, you have to apply the insights and transform.

There were no Big Data systems in 1995. In fact the term wasn’t even be discussed until more than a decade later. But that didn’t stop the UK-based retailer Tesco going ahead and building a Big Data capability.

Speaking at the Retail TECH X conference in Melbourne this week, former Tesco CEO, Sir Terry Leahy, discussed the company’s early foray into data-driven decision making. He credited it as a key reason why a retailer, who in the mid-1990s was ranked a distant third in its market, was able to surpass the performance of its two biggest rivals several times over two decades later.

Loyalty card revolutionises Tesco’s performance

Sir Terry joined the retailer as a marketing executive in 1979, and led the company from 1997 to 2011. He said the key for Tesco was Clubcard, a loyalty card introduced in 1995 that allowed the company to connect and respond to customers through data, rather than through more traditional methods.

“Data is absolutely priceless in transforming the relative position of a business,” Sir Terry said. “It was the first example of what is known today as Big Data.”

Before 1995, Sir Terry said computers were simply not powerful enough to hold information both on product movements and individual purchasing behaviour.

“It was absolutely transformational for the business,” he claimed. “We could treat customers as individuals. And we could learn what they were interested in, what their behaviours were, and we could tailor and target all of their marketing so that it was relevant to that individual consumer.”

Sir Terry said in the year before Tesco launched its ClubCard, Sainsbury’s was worth twice the value of Tesco. Within a year Tesco had overtaken Sainsbury’s. By the time he left the CEO role in 2011 Sir Terry said Tesco had outperformed its rivals tenfold.

“And it improved the productivity of our marketing, between 300 and 1000 per cent depending on the application,” he added. “We were able as a percentage of sales to spend less on our marketing going forward, it made it so effective.”

Understand the true nature of your business

Sir Terry’s formula from boosting the performance of Tesco started with building a true understanding of the true nature of the business.

“We all want the business to be doing well, but that may not be the truth of it,” Sir Terry said. “Today data plays an incredibly important role in bringing into the organisation from outside an accurate picture of how the business is perceived. And it is absolutely crucial that the organisation finds a way of bringing the voice of the customer into the business, because that’s the most reliable voice – that’s the one you should navigate the business by.

“It may be painful to hear, but if you are prepared to listen to what the customer is saying, and if you are prepared to change your business on the basis of that, then you’ll always be in business and stay connected to the customer.”

Performance monitoring through data

The company used data extensively to monitor changing customer preferences, leading to a series of industry innovations that served to transform its performance. Data also led Tesco to introduce the convenience format, going against industry wisdom that suggested that bigger was better.

“Customers were saying they were getting busier and busier, and needed a store that was handier and closer,” Sir Terry said. “So we miniaturised the supermarket into Tesco Express. In 1996 the first one opened, and today there are thousands all over the world, and most retailers no feel it is essential they have a convenience store format as part of the line-up.”

Tesco was also the first food retailer to sell online, and maintains the largest share of any food retailer in the world, holding close to 50 per cent in the UK.

Sir Terry said for an organisation to successfully implement a data strategy, it also required those who were working with data to take a leadership role within the organisation, as data can often lead to conclusions which run counter to conventional thinking.

“Knowing is not enough – you actually have to do something about what you know about customers,” he said. “You have to change the organisation. And it does need different decision-making structures actually to respond to data. It’s got to be actionable or it’s of no value at all, and that takes leadership.”

But despite the heavy investment in technology, Sir Terry said it would have all come to nought had the company lost its connection to its customers – something many consider has happened since he departed in 2011.

“Technology is just a tool,” Sir Terry said. “What matters in the end is the relationship between you and the consumer, and your ability to understand how their lives are changing.”

Apple Pay Plots New Territory—Including Las Vegas and China

The Payment War continues. Interesting commentary from Brand Channel.

After many decades, it’s still interesting to watch Apple continue to push the envelope around its primary business model.

Apple Watch is a prime example, as it plunges the brand deeply into the fashion world as well as the personal tech sphere that it already dominates. Intriguing new wrinkles include the just-uncovered fact that a loophole in security would hypothetically allow a thief to use someone else’s Apple Watch to make Apple Pay payments with the owner’s credit card data, according to

While the Apple Watch launch may have somewhat overshadowed the company’s Apple Pay platform, the latter’s list of participating vendors keeps expanding—including its newest addition, Cole Haan.

“The Cole Haan enthusiast is on the go and online at all times,” said David Maddocks, chief marketing officer at Cole Haan, in a press release. “The mobile wallet in our popular mobile application made perfect sense for the Cole Haan customer who wants to stay stylish at the touch of a button.”

Las Vegas is getting in on the Apple action as well. Apple Pay is now making its way to The Cosmopolitan hotel and casino there, where consumers will be able to use it at the front desk, restaurants and bars. According to Digital Trends, however, it can’t be used to buy chips for gambling—yet.

All of that may be table stakes, though, compared with Apple’s biggest target for Apple Pay: China.

China is Apple’s second-biggest market by revenues and snaps up more iPhones now than the US, according to CNBC. “We very much want to get Apple Pay in China,” CEO Tim Cook told a Chinese news agency.

The company reportedly is in talks with Alibaba about bringing Apple Pay to China using Alibaba’s Alipay to process transactions. Apple has been eying the China market for some time, according to Zack’, but regulatory hurdles have made it difficult for the company to enter the market.

As with smartphones, Samsung looms as a formidable competitor in mobile-pay systems after its acquisition earlier this year of Massachusetts-based startup LoopPay, according to The price, it was reported, was $250 million.

Will that be enough for Samsung to arm wrestle with Apple Pay as its smartphones have done with iPhones? The answer likely will come quickly.