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How the decomposed bank will compete

Building upon yesterday’s discussion – where your product is
a username, your processing is an API and your customer engagement is just an
app – I was talking to a bunch of banks and new entrants about Big Data opportunities
today and realised ONE BIG THING.

Banks need to start making strategic decisions before it’s
too late.

This is not a new big thing, but it hit me squarely and
clearly as I was talking about the fact that banks are trying to evolve to keep
up with EVERYTHING.

They want to be the payments processors, the customer engagers,
the mortgage providers and more.  That is
old world thinking.

The old world is the one where, because the bank has the deposit
account, the bank tries to leverage that relationship – which is proprietary,
locked in and difficult to change – to get more share of wallet from insurances
to loans.

THAT IS THE OLD WORLD.

Y’see, as I was talking about banks being decomposed into constituent
pieces where customers will determine their relevancy, I realised that this
means banks have to refocus upon where they’re really, really good.

Banks are not good at everything.  They are good at some things.

Some banks are good at customer relationships, some are good
at products and some are good at processing. 
Some are good at relationships and processing, some are good at products
and processing and some are good at products and relationships, but I’m not sure
I can think of any that are good at everything.

That’s why there are so many new entrants and upstarts
getting into banking and finance.

The upstarts are trying to eat the margins from products,
processing and relationships.   Upstarts
are focused upon products (Zopa, Wonga, Kickstarter etc); processing (Currency
Cloud, Fidor, Stocktwits etc); and relationships (Moven, Simple, Alior etc).

Incumbents are hell bent at preserving the status quo,
ceterus parabus, caveat emptor and a bunch more Latin stuff.

In fact Latin is where the incumbents might belong, as the
old language of integrated processes that deliver the product, process and
service is just where that dialogue belongs.

Customers will not live with that.

THE NEW WORLD IS ONE THAT BREAKS UP EVERYTHING, and then
integrates it back together again.

The new world is where banks offer APIs to process,
usernames to access and apps to service.

Banks will not offer all of these.

Some will focus upon the process, some will focus upon the
product and some will focus upon the relationship.

To process, they will offer APIs to ensure they can get
volumes on their wiki; to manufacture, banks will make sure their product is
the most pervasive and ubiquitous on the net; and to relate, the bank will
aggregate and integrate everything into simple apps that customers love.

That’s the real challenge here: how to be the bank fit for
the 21st century by focusing upon what you’re really, really,
really, really, really good at.

And you’re not good at everything.

You know that, I know that and your customers know that.

So make a  strategic decision
to focus upon what you’re really, really, really, really, really good at, and
then market the hell out of it to make sure everyone knows that’s what you’re really,
really, really, really, really good at.

Either that or let the new guys nibble at your best bits
leaving you with the bits you don’t want.

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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One comment

  1. Amen.
    Either regulation or competition will force banks to focus on becoming one of
    1) More of a wholesale bank. Reading the book what would google do, effectively if you build a truly open system, and create an incredibly low cost scale solution… You can gain / hold on to the kind of market share that makes that focus worthwhile. Focus on simplicity and speed is one route to becoming the scale, banking infrastructure supplier.
    2) More of a Retail bank (even in Corporate). I think of the BT Wholesale / Retail split from the early 2000s. Why can’t this happen in banking?
    Banking is far too complex for all but the mega corporates and wealth customers. One day a bank or similar will solve that, and when they do the game will change.
    When that will happen is a good question.
    I look at bitcoin as a pointer to the type of distributed banking infrastructure we could see the in the future. Who is Bitcoin’s Google?

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