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How banks can beat the telco’s at the mobile game

In the 1990s, I spent a long time studying bank trends and the future strategies banks and other would take. 

The conclusion I came to is that there would be a general cross-industry bank trend, where non-banks would enter banking and, in order to get banking skills, would acquire banks. 

The end-game would be that banks would acquire and merge with retailers, telco’s and other bank-like companies whilst bank-like companies, such as retailers and telco’s, would merge with banks. 

Two decades later, that prediction hasn’t come true.  

Banks are still banks and non-banks are still non-banks. For all the forays of non-banks into banking, banking still remains the core domain of banks.

Sure, there’s been some erosion of the periphery – savings, investments, loans, credit cards – but the core remains the banks primary domain: the deposit account.

This is because the core account is based upon the transaction.

The payment.

The piece that everyone says is commodity, but it’s actually the sticky bit that allows banks to go for the share of wallet around it.

Core transaction services are the stomping ground of banks and it’s the reason why they are so loathe to lose it.

But as the Payment Services Directive, Faster Payments and more encroach into the system, more and more non-banks are starting to attack that core bank capability.

Transactions are no longer a bank’s domain.

It’s why M-PESA has shaken the Kenyan banking system, as Safaricom takes over the core processing of payments across this country to become the nation’s number one bank.

And it’s the reason our friends at Banking Review write about some new research from Amdocs, which states that banks will end up in a head-to-head battle with mobile carriers.

The telecommunications industry is on a collision course with the banking sector … that’s the finding of new research from customer experience systems provider Amdocs, which interviewed 120 telecommunications service providers across the Asia Pacific region …

The survey found 95 per cent of all telecommunications operators have an active, defined strategy towards mobile payments, with billing on behalf of app stores and virtual goods, and prepaid top-ups the top three most popular markets being pursued.

If that statistic isn’t enough to scare bankers, there’s more. Over three quarters (84 per cent) of telcos surveyed are pursuing bill payment services, 79 per cent are investigating peer-to-peer money transfers, and 76 per cent are working to offer point of sale or wireless services to enable the purchase of products. And it’s all about the money, with new revenue streams the reason given by 83 per cent of those surveyed when asked the major benefit of pursuing mobile payments.

It's good scary stuff.

But I have to spread a little sprinkle of salt on this cauldron of change.

And my salt says that banks have been very good at stopping any non-bank stealing their turf over the past two decades.  That's why we haven't seen a cross-industry merger and acquisition spree yet.  

It still may happen and telecommunications firms and banks may merge and become one in the future but, for now, the idea of mobile carriers and other non-banks eating the banker’s lunch is nice in principle but, in practice, a head-to-head with the mobile carriers is unlikely.

After all, any non-bank that tries to get into a bank’s core domain of stickiness is going to be seen as a predator and, being especially adept at deflecting predatory activities, are banks just going to sit and let this happen or will they move the goalposts?

I suspect the latter and that’s what we’re seeing right now: the goalposts moving.

Banks are moving from basic transactional services – which the mobile carriers will attack – and into what I will call Transactions Plus.

Transactions plus, or Transactions+ if you prefer, is where banks demonstrate their worthiness by showing you that it’s not making a payments transaction that is important.

You can now make a payments transaction with anyone: a mobile carrier, Western Union, PayPal, Square … you name it.

What’s important is the ‘+’.

The + is everything that goes with the transaction: the cash dispenser, the online access, the contact centre focus, the budgeting system, the app …

This is how banks in the tweenies – the teenage years of the new millennia – will make their gains and differential.

They will focus upon the everything that goes around the transaction, rather than the transaction itself.

This is just as true in commercial banking, where corporate value-added services are the key, as it is in retail banking due to the basic transaction itself being commoditised.

The issue therefore is to realise that what was once the core stickiness for a bank service – the transaction – is no longer core.

This is the piece that has been yielded to the non-banks and is no longer a focal point for the bank.

And that is the point that Banking Review has picked up on, in that the core transaction processing of a payment is now an area where banks are head-to-head.

It is why banks need to focus upon the Transaction+.

For banks that understand this, they are creating stickiness elsewhere in the system.

For banks that don’t understand this … goodbye.

 

 

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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9 comments

  1. Chris,
    Am I detecting that you are softening your view in respect to disruption in the retail banking space?
    I don’t think the challenger to banks are telcos. I think the challengers to banks today are in fact handset manufacturers and their App stores. Today a bank needs permission from Google Market or Apple iTunes to publish their App and allow customers to access mobile banking. Who would have thought a few years ago that a bank would need to ask Apple for permission to allow their customers to access mobile banking? Who would have thought mobile banking would be fast becoming the dominant day-to-day access channel?
    The thing that is abundantly clear is that actually no one will be able to dominate in the future, and that banks need to be very open to working with external partners, platforms and new technologies as they emerge. The view that if you want banking you go the “the bank” is already dead in my opinion. We’re just seeing an industry in the throes of adapting to a much more distributed environment.
    The challenge with this is that existing organization structures, P&L, technology platform, risk and compliance policies all will be heavily impacted as these changes occur.
    The challenge is not competing with Telcos. The challenge is staying relevant as day-to-day interactions with banks change.
    Banking in the future will be something you do, not a place you go.
    BK

  2. I agree with Brett, I think banks are in real trouble here and unless they start to keep up with the current digital financial marketplace they are in for some tough times in the future.

  3. I agree with Brett, I think banks are in real trouble here and unless they start to keep up with the current digital financial marketplace they are in for some tough times in the future.

  4. Having worked in both the Telco industry for several years and now working in the Banking industry, I don’t agree with the above article.
    Yes the banks are going to fight for their business, but the Telco’s, currently having their core value add revenues squeezed by app stores – Apple/Google/Amazon/Nokia/etc, are desperate to partner with organisations that will enable them to take mobile payments. Paypal is fighting for this business tooth and nail, and as you have stated is far from the only option.
    The banks aren’t in a position to do this:
    – long development time-frames
    – Deeply entrenched business models
    – Lack of ability to implement dynamic ideas
    Seriously… there are still numerous banks unable to allow their customers to change their PIN’s at an ATM.
    Imagine if I was given access to a home loan at the lowest margin and best market rates that my lender could source from around the world, would I refuse to take it up because it was provided by bitcoin, or paypal, etc, etc? I’d be there in a flash if it saved me $5k a month on my mortgages.
    I bet I’m not the only one with no love lost on my current banker.
    Only those capable of the most rapid change will survive into the decade without ending up as simply a dumb pipe, and that’s not an idea that I have ever heard ascribed to a bank.

  5. Having worked in both the Telco industry for several years and now working in the Banking industry, I don’t agree with the above article.
    Yes the banks are going to fight for their business, but the Telco’s, currently having their core value add revenues squeezed by app stores – Apple/Google/Amazon/Nokia/etc, are desperate to partner with organisations that will enable them to take mobile payments. Paypal is fighting for this business tooth and nail, and as you have stated is far from the only option.
    The banks aren’t in a position to do this:
    – long development time-frames
    – Deeply entrenched business models
    – Lack of ability to implement dynamic ideas
    Seriously… there are still numerous banks unable to allow their customers to change their PIN’s at an ATM.
    Imagine if I was given access to a home loan at the lowest margin and best market rates that my lender could source from around the world, would I refuse to take it up because it was provided by bitcoin, or paypal, etc, etc? I’d be there in a flash if it saved me $5k a month on my mortgages.
    I bet I’m not the only one with no love lost on my current banker.
    Only those capable of the most rapid change will survive into the decade without ending up as simply a dumb pipe, and that’s not an idea that I have ever heard ascribed to a bank.

  6. Interesting points raised by y’all but you do not address a fundamental point: banks have not been disrupted in the past, even though we all thought they would be.
    Historically, this is because the banking licence protects the industry. That licence has been eroded – vis-a-vis my point about transactions – but is still in play.
    This is why nothing has displaced core banking in the past and, although I agree with you Brett re banking is not a place you go, the ability to hold and move funds is still in that banking domain and hence is still the key to how we exchange value.
    Whilst fund holding is protected by licence, banks still have a core position.
    However, that position is changing as others eat into the core, e.g. mobile firms with transactions, which leaves banks as potential ‘dumb pipes’.
    This is why the point of my piece here is that banks that recognise that threat – the ‘dumb pipe’ threat – are building the transaction PLUS.
    They are focusing upon the value add of the complete experience, not just the transaction.
    As I say: “For banks that understand this, they are creating stickiness elsewhere in the system. For banks that don’t understand this … goodbye.”
    You don’t agree?

  7. Interesting points raised by y’all but you do not address a fundamental point: banks have not been disrupted in the past, even though we all thought they would be.
    Historically, this is because the banking licence protects the industry. That licence has been eroded – vis-a-vis my point about transactions – but is still in play.
    This is why nothing has displaced core banking in the past and, although I agree with you Brett re banking is not a place you go, the ability to hold and move funds is still in that banking domain and hence is still the key to how we exchange value.
    Whilst fund holding is protected by licence, banks still have a core position.
    However, that position is changing as others eat into the core, e.g. mobile firms with transactions, which leaves banks as potential ‘dumb pipes’.
    This is why the point of my piece here is that banks that recognise that threat – the ‘dumb pipe’ threat – are building the transaction PLUS.
    They are focusing upon the value add of the complete experience, not just the transaction.
    As I say: “For banks that understand this, they are creating stickiness elsewhere in the system. For banks that don’t understand this … goodbye.”
    You don’t agree?

  8. (Many) banks should become “dumb pipes” – this is where their competitive advantage lies and by focusing on this they could optimize their services, gain economies of scale, reduce complexity (and costs) and optimize their capital structure. Just because “dumb pipes” aren’t as sexy as the customer UX at the top of the stack doesn’t mean they can’t be a good business. The banks fail miserably by trying too hard to play all layers of the financial stack which forces them to have incompatible cultures, cap structures, skills in a sub-optimal “all-in-one” package. Why? Short version: management types generally prefer running bigger and “sexier” businesses and care more about this / their “position” than the outcomes… iow few volunteers to put their hands up and run a well-oiled, profitable, focused collection of pipes. Especially if the jargon calls them “dumb” (which quite frankly is irrelevant)

  9. (Many) banks should become “dumb pipes” – this is where their competitive advantage lies and by focusing on this they could optimize their services, gain economies of scale, reduce complexity (and costs) and optimize their capital structure. Just because “dumb pipes” aren’t as sexy as the customer UX at the top of the stack doesn’t mean they can’t be a good business. The banks fail miserably by trying too hard to play all layers of the financial stack which forces them to have incompatible cultures, cap structures, skills in a sub-optimal “all-in-one” package. Why? Short version: management types generally prefer running bigger and “sexier” businesses and care more about this / their “position” than the outcomes… iow few volunteers to put their hands up and run a well-oiled, profitable, focused collection of pipes. Especially if the jargon calls them “dumb” (which quite frankly is irrelevant)

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