There were some very pertinent issues discussed in the conference relating to the above, but what stood out, according to me was the discussion on convergence in financial services. The unanimous opinion in the conference and among the panellists was that convergence or in simpler terms, product bundling in financial services is here to stay.

Insurance and banking have come together very successfully in Europe and bancassurance is one of the fastest growing distribution channels in India as well – players like Canara HSBC in fact are committed to a pure bancassurance model;  There has been convergence between credit and insurance products (home loans with  a insurance cover on the side). Credit cards and insurance. Investment products and insurance – so whats the futuristic view?

Imagine one single relationship through which ALL your financial needs are done – you can transact, invest, loan, insure and save. Seems like a brilliant idea, and not surprisingly everyone present appeared to be in love with the vision that was presented – including yours truly. But when I was thinking about it on the way back to Pune, I realised this is exactly the kind of behaviour that got companies like Microsoft into trouble in the first place. Sure, you can argue that this is not the same case – the customer will be given a choice. But my argument is, at what point does the benefit of a seamless transaction exceed the cost of conducting a supplementary transaction – purely from a customer perspective.  Further, the “bundling” will always come at a price and the customer may not be aware that he could have other choices.

My concern with convergence is that customer angle may just get missed out and in our hurry to keep customer service at the centre of the solution, we may actually end up doing a dis-service!

There is such a thing as too much convergence and my guess is its not all good.

There have been mixed reactions to this proposal. Part of the business community believes that this is a firm step ahead from the Obama administraton, re-affirming commitment to the causes espoused during the presidential campaign and a serious attempt to thwart greed in Corporate America. However, there has certainly been uproar from the business community, especially banks, who have been at the centre of the financial storm.

Among the strongest voices raised against the proposal has been Jamie Dimon’s (The chairman and chief executive of JP Morgan Chase) and among the strongest voices supporting the proposal is Alan Greenspan’s which says “If they are too big to fail they are too big”!

With JPMC’s ~220,000 employees and US $2 trillion in assets, Jamie Dimon has something to worry about. In a strongly worded open-editorial in the Washington Post, Jamie Dimon argues that no company can be too big to fail and as a corollary possibly, every firm should be allowed to fail, if circumstances deem it so. 

He argues that the proposal to contain growth will not only ultimately make US banks non – competitive but would also leave the customer ill- served. Size brings with it many advantages to a customer and artificially containing size will prove counter productive. Needless to say, Dimon’s editorial has led to another round of debate.

The developments in the US led me to think about issues closer home. When the UTI fiasco happened, the Government ultimately bailed it out of the mess. What would happen, if SBI or (horrors!) LIC should fail? You bet the government would step in –  it simply has no other choice.

So when we talk of all things sustainable, should Corporate Growth figure in it as well? The question is a good one and I believe that intentions from both sides are good as well.

I do think it would be impossible to insulate the economy if the biggest institutions that have more than 10% of the country’s deposits fail one fine day. JPMC (and the other big four of earlier eras) have given similar free market arguments, “investor and economy benefits” arguments.  It may  also be worthwhile to analyze some of the claims by Jamie Dimon and other big banks – whether incremental size really delivers measurable benefits to customers? Will there always be benefits in increasing size to infinity or whether at some point it becomes a burden and raises administrative costs and challenges (forgetting the risk for a moment).

But on the other hand, a proposal like Geithner’s would at some level question the very fundamental basis on which every business is run –  to parody a key accounting concept, the “growing concern” basis. Further, even if banks do manage to “shrink and separate” on paper, you can be sure that there will be room enough to manoeuvre control from the back door.

If not explicit caps on size, I think there should be enough disincentive created for incremental size or business to control the risk.  Yes, no one can predict black swans – if we could, we wouldn’t let them swim around. But if there is anything that can be done to minimize the effects of their occurrence, lets do it. Maybe Dimon’s expanded resolution authority could be the answer after all!

PS: and now comes the news that Jamie Dimon is being discussed as a potential successor to Tim Geithner!

Companies therefore commission research where the starting hypothesis is that the market is great and there is money to be made and the research agency is asked to prove it. The research firm promptly goes around collecting data to support the hypothesis and the point is made to the Board. So if all goes as per plan, there are a lot of promotions. If the “opportunity” turns out to be a mirage, you know whom to blame.

So, if this is what companies need research for, then why should firms (like us?) bother with methodology, sample sizes, segmentations, Porter’s five forces, SWOTs and what not. My entire team devotes itself to ensuring rock-solid credibility and we believe that clients want us to deliver the truth as we see it and not what they want to see.

Anyway, it took me a moment to respond to my prospective client, but when I had gathered my thoughts I told him that the kind of research he referred to possibly existed but I could quote instances when our research just turned the client hypothesis upside down – and we stuck by it.

The scene was this – a global insurance player wanted to enter the Indian market in a particular niche which they thought was unexplored and held potential and they could quickly step in and gain first mover advantage. This particular market was so niche and so under – documented that we had to think of new and innovative ways to size it up.  Our initial results said there wasn’t much of a market. We were of course, not ready to say that to the client right away and extended our research to cross check and (further cross check!) our sources and analysis. After this, we had an intensive three day peer review of the report, but our conclusion remained the same. We finally had to go back and tell the client what we thought. Our client was quite shocked and hadn’t expected this – in fact, so confident were they that they were processing the licence in parallel. Needless to say, the client’s Group Board wasn’t amused by our report at all and we had to face three rounds of review and grilling before the client finally decided to shelve entry plans. Its been four years now, but there’s still no foreign player in this niche in India!

Does this prove all research is credible? – My answer is if a research firm stakes its reputation on it, it better be!!