This is the sixth post in a series about why banking will be free (you can find Parts One, Two,Three, Four and Five if you want to).
In this area let's get into collaborative technologies and, more specifically, collaborative competition.
It seems like an oxymoron to talk about collaborative competition and yet for years we talked about coopetition, which is almost the same thing.
Cooperate or collaborate to compete implies both cartels and price fixing but, in today’s reality, has nothing to do with this, or should not. Rather it’s the idea of collaborating to improve business models through robust and reliable open source architectures, whilst identifying the components internally that differentiate within these collaborative models for competitive purposes.
Let’s illustrate with an example that’s top of the list today: risk.
When Lehmans collapsed last September, it happened to be the same day that the SIBOS conference started in Vienna.
SIBOS had various themes and finished on the Thursday with a great presentation by Don Tapscott, the author of the book Wikinomics.
Don talked about his whole approach to the social network stuff and the new age of the internet youth of digital natives, and illustrated the power of such thinking with a great story about writing his latest book.
Apparently he finished the book at Christmas time and asked his son what he thought of it. His son said that it didn’t matter what he thought about it but what the collective view was, and offered to create a Facebook group to critique the book.
“Sure”, says Dad and son dutifully created the group at lunchtime on Christmas Eve.
By the end of day, 300 teenagers amongst his son’s peer group were actively reading, digesting, dissecting and critiquing the book such that, by Christmas Day, it had pretty much been re-written and was far better for it.
That’s the power of the collective, the collaborative cohesion of the whole rather than the fragmented view of the one.
Now I know I’m starting to sound like someone writing about the Borg in Star Trek, and maybe I am, but I took on board Don’s words, particularly his appeal at the end of his presentation.
He made this appeal at SIBOS and then again at BAI’s Retail Delivery two months later, both of which I was attended, and here’s what he said:
“The risks in the financial system must be better managed in the future so why don’t we create an open source group for risk managers? A Facebook for Risk Professionals if you like. This group could then share and discuss risks in the financial systems and have contributions from all. Effectively, risk management becomes an open source arena so that everyone can build a more robust, reliable and resilient future.”
Since he proposed such a system, what’s happened?
Duh ... not much. Or not much in the risk management space that I can identify anyway.
It seems we’re all waiting for the governors to come up with their plans before implementing ours, but isn’t that wrong?
Which brings it back to the theme of collaborative competition, which is another dimension of the new economics of banking.
Collaborative competition says that for things that are commodity or things that are industry wide issues and structures we should just widgetise and gadgetise, and make them plug and play processing capability and knowledge that is available to all.
These pieces add little value, are commoditised, should be free or near free, and paid for by ... advertising or not at all.
That’s the nature of collaboration. For example, through Google ads we can give away lots of knowledge and processing power, so why not have Google ads pay for banks' commodity processes and transactions.
Then, as a bank, you focus upon the bits where you differentiate. These are all the customer-centric parts of engagement, acquisition, delivery and fulfilment.
The result is that we could outsource compliance and plug AML/KYC into our client account opening processes by dropping in a cheap widget of functionality from a third party.
We could drop a gadget into our system for payments processing too - just use a white labelled processor - and even find a wiki for a bit of credit risk management based upon an open source structure.
Then we provide a little bit of service improvement by offering SmartyPig as our savings vehicle for kids, for example, whilst focusing upon our own deployment of service around high-end wealth management for the kids’ mums and dads.
The only bit of our banking operation we’ve developed and deployed in this model is wealth management servicing.
The rest – all the processing, compliance, risk and ancillary products – we’ve just dropped in as widgets of functionality into our banking structure. And those bits are all the bits of collaborative competition therefore.
We may compete with the providers of our widgets, but we also collaborate with them to use their processing where it makes sense or where it makes our own infrastructures more robust and reliable.
The result is that banking starts to look more and more like the car industry.
A quarter of a century ago, car manufacturers prided themselves on having the best manufacturing.
They produced all of the car's components and the manufacturer with the best components offered the most expensive cars.
Today, nearly all cars are based upon standardised and commoditised manufacturing of the pieces.
The manufacturer no longer manufactures, but just assembles the pieces into the whole and adds their own unique recipe of chassis and engine to differentiate.
BMW in 1980 manufactured 1,000’s of unique components for their cars; today they just assemble them. But it’s still BMW and the final product is still an aspirational brand that shows that they may use commodity components which VW, Ford and others use, but they assemble them into a brilliant car that swishes, swooshes and whizzes far more sleekly and smoothly than many others.
That’s how banks will compete.
All the components they just get off the assembly line of banking functionality, but the banks that assemble them to address a specific target audience in the most appropriate way will win that audiences business.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.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...