So just to set the scene (as I feel this could spiral into a complete rant). We’ve reached a key moment in consumer banking. A junction:
- There are more banks entering the market this year than in the past 100 years combined
- The Payments Council introduced the 7 day account switching service
- EU have agreed terms on a ceiling for credit and debit card interchange fees
All of this combined, strategically doesn’t work in a commoditized race to zero. This free banking bullsh*t that has been common in the UK (yet completely uncommon around the world).
Banks have to make money (duh). If someone said you could stay in a hotel for free, you would immediately ask “Where’s the catch”. There’s always a catch. What I find most disturbing about this strategy is their tactics for creating revenue, for example; overdraft and penalty fees – kicking you when you’re down essentially. Talk about Stakeholder alignment.
I don’t want to discuss physical branches too much, partly because it’s boring and partly because I think we’re all agreed that banking is going to be predominantly online in the future. The efficiencies for all parties are unquestionable. But it’s just whether an omni-channel approach will be better. I personally think by having branches you satisfy the 1% of customers that take up 50% of resources. You know, the ones that would rather ask a question then googling it themselves.
The first form of bank comes from Babylonia, around 2000 BC, where groups of merchants made grain loans to farmers and traders who carried goods between cities.
Nothing has really changed since then.
The core concept of a bank is to act as a ‘safe’ place for people to hold their money with them earning interest on deposits, and lending money to people who need it. The simple metric being interest charged to people being lent money is higher than the interest gained from the people who keep money in their account.
If you want to argue nuances on this compared to current market systems then you’re going to miss the point. Dis-engage and think bigger.
As here’s where the real issue is.
I was at the Innovate Finance global summit a couple of weeks ago, surrounded by middle aged white men in navy blue suits. This old boys club is not going to save the banks.
If they want to be leaders, if they want to stand up and be counted, then find the right people to promote from within, find diversity, find technical knowledge, not someone who simply knows how to code, someone who has a deep understanding of the balance between technology and human interaction.
Re-skill some of your employees in technology. Send them to general assembly, etc.
Go for a trip down to google or facebooks offices. Come and see me and everything thats going on in Level39.
Interestingly, earlier this month BBVA Chairman Francisco Gonzalez announced that BBVA will be a software company in the future. Thats a bold statement, but it certainly shows intent, something no other bank has had the balls to do.
It’s not all negative though, and this is also why banks have been able to ignore innovation for so long. The barriers to entry are tremendously high (cost in the millions, and time in the years).
Banks are in an incredibly strong position, as they have trust (let’s be honest, they do), they have the resources, they have the regulation. And they have the core, the nucleus, the account.
I would start with building an API on top of current accounts. Creating a sandbox environment, and letting people play.
“Applications designed by a banker look like what a banker can imagine”
– Bernard Larriviere, director of innovation for Credit Agricole
Look at what people like the Currency Cloud or Twilio are doing. Providing a foundation for innovation to be built on top of. Allow customers to put themselves forward for labs type set ups, where they can be made aware of new situations. Either in a controlled environment or real life money.
I played around with a new mobile payments app a couple of weeks ago as Tesco in Canary Wharf was chosen as a trial site. I thought it was ok, it didn’t save me much time, and I’m not interested in loyalty programmes or digitalising a Tesco club card, so I’m not their ideal customer. But I trailed it, I interacted with it, using real money in a real environment.
This may come across as a bit of a rant, and you would be right, it is. A completely unedited rant. But it’s holding the developed world back. The developing world won’t have these problems, they don’t have ridiculously silo’d legacy infrastructure. Similar to how they don’t have phone lines, they don’t need them. Why the hell would I want a centralised phone in my house, if the communication is for me, come directly to me, to my phone (and soon to be watch).
As technology ebbed and flowed from one language and platform to the other I can see why the decision makers were weary to take a position. A bad call could cost millions and waste years of time. Facebook did it with html5, but they also learnt and re-trenched, and I bet they aren’t afraid to make a big decision next time it’s needed. Sometimes no move is the worst move of all.
The essence of how the banks see technology is what’s inherently wrong, and changing a culture often comes from seismic changes at the top. These changes then need to filtrate down through the company. This takes time.
The new stance towards technology is one of connectivity and the sharing of data, this is what can then be manipulated on more granular levels to create real value for customers.
The power is still very much with the big players, but it is beginning to wane. Interest and therefore momentum is starting to gather for the new entrants, and with technology these shifts can become very profound very quickly. This race to the bottom strategy has yielded no positive results, there is no differentiation between banks and no value is being gained from account holders, now let’s see what the race to the top is going to look like.