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The ideal digital bank would respect customers' privacy and relate to them as human beings while offering an array of simple, easy-to-use mobile and online apps.
January 7 -
The recent proposal for the U.S. Postal Service to sell banking services invites comparisons to Walmart's equally controversial, and ultimately abandoned, 2005 bid for a banking charter. Both would-be financial industry game-changers are large and ubiquitous, but there are some notable differences.
June 23 -
The next decade should be a payments-industry renaissance, but thanks to established market shares and persistent consumer and merchant habits, familiar names will remain at the core.
January 22 -
The digital-only offshoot of Customers Bank combines edgier technology like letting consumers snap photos of their driver's license to open accounts with a new business model that counts on interchange revenue rather than fees.
January 20
There are a number of banking debates that pop up regularly, including the war on cash, the end of the branch and the death of banking. The last debate concerns two camps: incumbents and new entrants. Todays blog post is inspired by exactly this argument between Michal Panowicz of mBank (an incumbent) and Brett King of Moven (a new entrant) on Twitter.
Incumbents believe they can change and adapt and keep up with fast technological change. New entrants claim that incumbents have the wrong mindset and, like Kodak and Nokia, will miss the mark and disappear.
The first camp claims to be protected by rules, regulations, compliance and high barriers to entry due to governance, gaining a bank license and dealing with complexity. The latter group claims that none of that matters, and believes they can attack specific pieces of the system with new business models based upon next technologies.
The incumbents say that they are building new technology structures and reforming their original operation. They admit that legacy systems have been a challenge, but point out that they are being overhauled, and that most of the new tech sits on top of that structure anyway so they can build great user experiencesregardless of the form factor gaining access.
The new entrants claim that if the core is rotten then the rest will be rotten. They say that banks are hampered by heritage, stuck in the mindsets of the past, and have no chance if they dont destroy themselves, rebuild and start again.
Its a fun argument to watch, but its an argument thats irrelevant. In fact, I will be so bold as to say that the discussion is meaningless. Its a bit like the argument between a zealot and an atheist. They can talk about it until the sun sets, but they will never get an answer.
The truth is that some startups will eat some of the banks lunch, whilst some incumbents will adapt and survive by changing their business models, partnering with innovative new startups and acquiring companies that cause concern.
Moreover, history dictates that the death of banking isnt going to happen. Most banks are 100 years old or more. Name any other industry dominated by players that have been around for a century or more.
Airlines? Maybe. Most airlines have their roots back into the 1900s and have grown through acquisitions and mergers, just like banks. There are new players out thereSouthwest, EasyJet, Ryanairbut most airlines have been around a long time.
Grocery stores? Probably. Most have high barriers to entrythe store network and margin squeeze through volume playand have players who have been around a long time. Wal-Mart started business in 1962, Tesco in 1919. But that doesnt mean new players like Aldi and Lidl will fail to make an impact.
Pharmaceuticals? Ah, now thats a business based upon product innovation and patents, which then control the supply chain through copyright. Sounds a bit like music, but drugs are harder to copy. GlaxoSmithKlines roots date back to 1715, and Pfizer to 1849.
And this is where the argument of the new entrants falls down for me, as they continually compare banking to music, entertainment, film, photography and similarly digitally disrupted industries. But these are the wrong industries with which to draw comparisons, as these industries dont have tight regulations, high barriers to entry and strong capital requirements. The only similarity is that banking, like music, entertainment and photography, can be a pure digital play.
Banking is therefore similar to these firms. But unlike these industries, it also has many commonalities with pharma, grocery stores and airlines. These are markets with a strong store distribution footprint, tight controls and high costs of capital similar to the incumbent model of banking.
My view is that saying some geek in a bedroom can create the Uber of banking is like saying that some nerd in a garage can create the next Pfizer. It is highly unlikely to happen, as the incumbent will have the time to adapt. They may get hurtvis-à-vis British Airways with EasyJet and Ryanair or Tesco with Aldi. But the incumbents will find a strategy to survive and thrive in the new world, even with these threats.
In fact, the nearest we have gotten to the Uber of banking so far is Bitcoin, as I discussed in a