Luiz Zorzella shares an article designed to help improve strategy by understanding your net Interest margin (NIM).
If you are a bank executive and want to manage the bank’s business strategically, you must understand the key drivers of your bank’s profitability and the trade-offs they imply.
For example, to some extent, banks can trade the cost of deposits for efficiency ratio by making it more convenient for clients to make deposits.
At the same time, the equilibrium of these trade-offs depends on a number of external factors which change all the time. In our example, while the status of the labor market impacts banks’ efficiency ratio, the compression of interest rates impacts the attractiveness of low-cost deposits.
Take interest rates for example. In 2019 10YTs paid on average 2.14%. They then fell to 0.89% in 2020 (a 125 bps reduction) and up to 1.42% in 2021 (a 53 bps increase).
The NIM of JP Morgan, Bank of America, and Citibank have been decreasing, having lost between one and one and a half percentage points in the same period. To put this in perspective, my rule of thumb is that banks need around one percentage point of NIM just to pay their cost of equity to hold banking assets, which is not accounted for in the NIM formula.
Read the full article, HOW TO ACE IT STRATEGICALLY BY UNDERSTANDING YOUR NIM, on Amquant.com.
Luiz Zorzella shares a summarized evolution story on Open Banking.
If you are thinking your response to what is happening around Open Banking, this will provide you with some valuable historical context on how events evolved to get us where we are today:
It all started with online banking.
Before Open Banking, banks thought it would be a good idea to give their clients access to their accounts using the internet.
So, since clients could access their accounts using online banking – some start-ups realized that if these customers provided them with their bank login information, they could log in on these accounts and manage them on their behalf.
Also, at that time, legislation was evolving.
In most of the World, there is customer data that banks cannot share, even if authorized by the customer. For example, credit data.
However, in recent years, if, on the one hand, you see a tightening in data privacy protection, on the other hand, you also see the relaxation and regulation of financial data sharing.
These two factors – the spreading and deepening of online banking and the regulation of financial data sharing, beget a whole generation of fintechs.
These start-ups had algorithms that logged in your account, copied the information displayed on the screen, interpreted that information and used this data to populate their database to provide you with their services.
Key points include:
- The fallibility of algorithms
- Accessing client data and functionality
- Three types of APIs
Read the full article, Trailing the Peculiar Origin and History of Open Banking, on Amquant.com.
Luiz Zorzella shares an article on the growth of open banking, the factors that “repress” adoption, and possible solutions.
As you probably know, worldwide, Open Banking is one of the hottest trends in financial services.
Not only is it growing at a breakneck speed, but also its success is inspiring regulators and players in other sectors like finance and insurance who now wonder how to replicate the model.
This article is a high-level review of what is happening in Open Banking today.
As I said, Open Banking is growing. To understand how fast it grows, consider that the UK (the pioneer in adopting it) formally started this journey less than three years ago, followed by Hong Kong, the EU, South Korea and Singapore. In the US, the Consumer Financial Protection Bureau joined the race in 2019. Twenty other countries followed suit, including Canada, Australia, India, Japan, Israel and India.
As a result, high growth rates in each market are being compounded by the entry of new markets.
For example, in Europe, when a market opens, it has explosive growth, which tends to stabilize in the single digits range (per month) once it reaches ~8 API calls per inhabitants per month. But, as the UK “stabilizes”, new entrants like Italy, Germany and France push the averages up.
Key points include:
- Screen scraping solutions by Fintechs
- Emerging intermediaries
Read the full article, Open Banking Market Unleashed, on Amquant.com.
Luiz Zorzella shares an article that identifies key insights for improving a service team’s performance and results.
If your firm is organized around service teams, you may find that understanding and managing their contribution is difficult.
It is not easy because it depends on several logic leaps that sound intuitive but are opaque.
For example, you may set goals and even reward them for keeping the clients in their portfolio happy. You may achieve this through a combination of client satisfaction surveys (e.g. “how happy are you with our services?”) and management assessments (“I think clients are happy with Sam”).
However, are you sure you measure the right things? And are you sure the weight of these factors is commensurate with their real importance to your business and your clients?
Intuitively, service teams should make their clients happy (and I am not saying otherwise).
However, how does happiness compare with cross-sales?
To answer these questions, you should take a closer look at the contribution of your service teams.
There are three crucial ways service teams produce financial results to your company:
They provide services to their clients efficiently.
Clients pay for services.
The income produced by these clients for services by the end of a year minus their variable costs is the contribution of that service team to the company.
They also reduce attrition and risk.
Points covered in this article include:
- Setting goals and defining priorities
- Defining the starting point of the pool for incentives
- Understanding and managing KPIs
Read the full article, How To Have Value Indicators For Your Service Team, on Amquant.com
The power of writing a list should never be forgotten. Luiz Zorzella has compiled a six-point list of tools and approaches that improve efficiency.
If you ever thought:
‘Hmmm… wouldn’t it be nice if I had a one-pager list of the tools that people use to improve process efficiency?’
Then today is your lucky day!
I have listed below my compilation of the main tools and approaches I found which other executives and consultants use to directly or indirectly process efficiency.
And, even though this list is not exhaustive, I have never found anything more useful than it to make sure you are not overlooking anything important.
By the way: if you see anything missing, please send me a note and I will be happy to include it in the next edition of this list.
The six areas of efficiency on this list include:
- Managing demand
- Organization alignment
- Value creation
Read the full article, 6 ITEMS FOR YOUR EFFICIENCY LAUNDRY LIST, on the Amquant website.
Luiz Zorzella takes a leap into the arbitrary world of luck to explain how unforeseen forces should be considered when shaping strategies.
8 months ago, I drafted an article explaining why you should do a sensitivity analysis of your strategy to luck.
I was planning to publish it in March of this year, because of St Patrick’s.
That draft started with “Now is the time to be bold.”. I pointed out that the largest Canadian banks were trading at 1.3x their book value – suggesting that investors believed that they were better off if banks kept their money as capital, rather than returning it (US banks were not as uniformly good but were doing just fine).
Then COVID happened and I abandoned my draft and now Canadian banks and the largest US banks are trading close to book value.
That is how Lady Luck works. She is a whimsical diva and she does not take sides.
Points discussed in this article include:
- When times are good
- When times are bad
- Applying luck break scenarios to strategies
Read the full article, SENSITIVITY ANALYSIS: LUCK, on the Amquant website.
Luiz Zorzella takes an adventurous look at two choices innovation-based businesses may or may not choose to pursue to illustrate how emotion is an underlying driver of innovation.
Companies that decide to compete on innovation-based businesses have 2 potential paths to choose from: with or without “emotion”.
Years ago, my wife and I traveled to the NorthEast of Brazil. There, we went on a tour on the sand dunes on a buggy.
Fifteen minutes into the tour, I was convinced that that was going to be the high point of our trip. The dunes were beautiful, the tour was fun and the driver knew exactly where to stop to get the best pictures.
Then he turned to us and casually asked: ‘so… with or without ‘emotion’
He can speak in code because most tourists already know what it means: do you want to continue the rest of the tour like the first fifteen minutes (which were great) or do you want him to ride the dunes like a lunatic, flipping the buggy and sliding large dunes sideways? That is the “with emotion” option.
Companies that decide to compete on innovation-based businesses have 2 similar options:
Points covered in this article include:
- The two choices
- The pros and cons of each choice
- The most commonly preferred option
Read the full article, The Exciting Path Of Strategic Innovation, on the Amquant website.
Leadership has its own set of unique challenges during times of crises; Luiz Zorzella provides a post that identifies a few of the common obstacles faced and how to overcome them.
During a crisis, we are all pushed to make strategic, life-changing decisions. Often we need to make these decisions under a lot of uncertainty and with incomplete and faulty information.
Below, I review some of my favourite cognitive biases with a couple of examples of how they may be influencing your and your counterpart’s decisions.
You can print this list and keep it in your drawer as a checklist on how to survive yourself and the other survivors during this period.
In the early days of a crisis, there is a lot of uncertainty: at the macro level, questions like how long the crisis will last, how effective the solution will be and, what will be the direct and indirect impact of this on your business, your clients, partners and competitors are very troubling questions.
On top of these, micro questions like how will these change the demand for your products, what emerging business models will be successful and what implications all these changes will have to your risk profile; and individual questions like what is the impact on the your health, your team’s and your loved ones and what is the impact on your job security, growth prospects and personal investments.
Areas covered in this article include:
- The need to hide vulnerability & overconfidence
- Ambiguity aversion
- Availability heuristic
- Group think
- Belief bias, confirmation bias & outcome bias
Read the full article, 5 Demons Who Flourish During Hard Times, on the Amquant website.
Luiz Zorzella shares measures on how to mitigate security breaches through cyber attacks during this crisis.
The estimated impact of the Coronavirus Crisis continues to be revised up.
Over the past couple of weeks, sequestered trying to minimize the number of fatalities, we have seen economic forecasts being revised, every time painting a more dire scenario.
Goldman Sachs and Morgan Stanley, for example, are forecasting a 24-30% drop for US’ GDP on Q2 and a jump in unemployment to double digits and a Global contraction this year.
These actions are praiseworthy – especially considering how often banks are seen as slow to respond.
Areas explored in this article include:
- Vigilance on cyber security, risk & compliance
- Repricing your risk
- Supporting your customers and stakeholders
- Reviewing your strategy
Read the full article, Crisis? Prepare Your Bank for Battle, on the Amquant website.
Luiz Zorzella shares key points that can help leaders evaluate and address their approach to change to ensure better outcomes.
Strategy & Value
For the past 10 years, financial services firms have publicly acknowledged that they needed to change. Chances are, your organization was one of those.
Commoditization meant a systematic erosion of margins for banks; reduction in interest rates has been challenging both interest and non-interest income sources of banks and investment firms as well as the economics of insurance; and technology has posed a constant threat of disintermediation and radical value-adding substitutes.
However, just like the proverbial frog in the heating water, most business leaders have responded incrementally – aiming at matching the pace of change they observed in the market and improving their results within the parameters of their existing business model.
The problem is that change has arrived and it does not look like we expected. While COVID-19 ravages lives, economies and markets, clients and stakeholders alike are looking at financial service firms and asking that they help them weather the storm. They are calling you to change with them.
Points covered in this article include:
- Find you calling
- Evolve and decommodotize
- Reforge your ways of working
- Take the technology plunge
Read the full article, Is this Crisis Your Strategy Crucible, on the Amquant website.
Pieter Lekkerkerk describes current alternative pricing models making inroads in car insurance in the US: pay-per-mile and driving-score based pricing.
In the last few decades car insurance premiums have traditionally been set based on o a risk assessment questionnaire (typically covering the car, its usage, the driver and her/his background among others), enriched with data from e.g., credit bureaus and the Department of Motor Vehicles (on e.g. traffic fines). In the wave that saw the disruption of many business models in the past few years two main alternative pricing models have emerged:
- Pay-per-use: A rate per mile or minute driven, sometimes complemented by a fixed charge (e.g., MetroMile)
- Driving score-based rates: Tariff is based on the risk implicit in the driving behavior of the driver (speeding, sharp braking etc.)
Areas covered in this article include:
- The relevance of these models in the Brazilian market
- The impact of alternative pricing models in the US
- Key differences between the US and Brazil in claim
- Winning models for Brazil
Read the full article, Alternative Pricing Models in Car Insurance, on the Mirow and Co. website.
Luiz Zorzella shares a survival guide to Clay Christensen’s opus, including impressions, recommendations, and thoughts on how business leaders can use his ideas to drive success, growth and transformation.
If you work with innovation and strategy and are responsible for the future of your business, you probably read Clayton Christensen’s 2 most famous opi: The Innovator’s Dilemma and Competing Against Luck (aka the “Jobs To Be Done” book).
If you have not, do it and you will improve your chances of not going extinct.
Over the years, I had the chance to see some of the concepts described in these books applied in real-life situations. Some of these applications were successful and rigorous and confirmed my admiration for the amount of impact compacted in such simple concepts.
However, more often than not, I have seen the concepts, approaches, and terminology he formulated deformed, mutilated and distorted into grotesque parodies – both intentionally and unintentionally.
Content in this article includes:
- Competing against luck
- Agree on what is an useful insight
- Know thyself and avoid mirages
- Think 2 steps ahead
- Find the heart of darkness
Read the full article, Survival Guide to Clay Christensen’s Opus, on the Amquant website.