Movenbank and Its Hidden Risks

October 4, 2011
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Brett King is everywhere. He presented multiple times at Sibos. He’s on the docket at BAI Retail Delivery. He’s the featured speaker at an upcoming Backbase webinar. King, who I count as a friend, has got it going on right now!

All this activity comes as King prepares to launch Movenbank, a startup bank that he says will revolutionize banking. In other words, it is a good time for King to be everywhere.

To my mind, the exposure has led to a fair amount of hype surrounding Movenbank, and even some negativity. So it was to great interest that King announced at Sibos last month the “launch” of Movenbank. (The bank won’t actually be live until later this year.) The “launch,” as it was, amounted to a peak into the apparent central innovation at Movenbank: something King calls “Cred.”

While details are certainly sketchy, it appeared from King’s pitch at Sibos that Cred will be something like a super credit score that Movenbank will use to dictate all of its interactions with consumers, from underwriting to customer service. Cred will take into account not just the consumer’s credit score, but his social media influence and the degree to which he works with Movenbank. Think of it like a rewards program on steroids.

I have little doubt that Bank Innovation readers will find the idea of Cred enlightening and appealing. The idea that a consumer who is rewarded for, say, tweeting positively about a bank has a certain appeal, particular considering banks’ dismal approval ratings. No doubt, Cred is a sophisticated invention if anything because bankers are so overwhelmingly hungry to make sense and take advantage of social media data. Any venture claiming to tap the social media data ocean should have little trouble raising a VC round or three.

This attraction to social media data was a predominating theme at Sibos, and certainly within Sibos Innotride, a sort of conference within a conference (which I simply could not find appealing, despite four separate attempts to “get into it”). This idea that “big data” will lead to great returns and insights was not relegated to just the out-of-the-box types, like King, but was also espoused by Hewlett-Packard, Microsoft and SAP.

I’m going to tell it to you straight: “big data” scares the bejesus out of me. We are still just months removed from a credit crisis that was in large part a result of a belief that data, analytics and scoring would yield better underwriting. And now, bankers are going to augment the existing data set with analytics derived from, uh, Twitter? At Finovate Fall last month, Lighter Capital said it was funding startups, in part, based on the number of “likes” the startup got on Facebook. Are the number of “likes” a true indicator of a venture’s likelihood to return to Lighter Capital its investment dollars? In some way, yes. But in other ways, not at all, most notably because a successful manager of a business is not necessarily one who scores Facebook “likes.”

Cred strikes me as a nice theory, but a bear to put into practice. By adding a whole slew of data points into its underwriting, Movenbank is potentially opening itself to risks it simply cannot know or understand, much as CDOs contained risks that were beyond the comprehension of even the brightest Ph.Ds at Goldman Sachs.

I don’t have to tell Bank Innovation readers that I am all for innovation. I love King’s thinking, and I am sure he has thought through the risk implications of Cred; I look forward to understanding the thought process behind Cred. Additionally, I agree that big data will have its applications in banking. But I want to state clearly that too many banking startups today are not taking into account the enterprise risks their innovations might foster. These risk-laden innovations are raising consumers’ product expectations beyond what is feasible when practicing sound risk management. Put another way, it’s all fun and games until someone gets hurt.

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2 Responses to Movenbank and Its Hidden Risks

  1. marywisniewski on October 5, 2011 at 4:47 pm

    Frank, George, Brett: Thanks for driving this discussion. You all have great points and, to be honest, I’m not quite sure where I stand in this debate. From the underwriting side, I share JJ’s fears of incorporating newer tradelines of sorts into figuring out how consumers will behave. For me, a lot of my social data isn’t completely current or even a perfect portrayal of who/what I am. Still, I’m very interested in how players will/are using social data. The space is exciting and certainly the last couple of years have shown how credit scores can’t mitigate all risks. Strategic defaulters showed us exactly what defying credit score logic looks like.

  2. [...] what I wrote in October [...]

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