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Banks should be cannibals

After my blog about the multichannel myth last week, it made me realise that banks need to become cannibals.

Banks should launch new channels that eat their old ones alive, rather than trying to bolt these new channels onto their old bank.

Banks can only be brilliant at one channel – the branch, the call centre or the internet – and the other channels are an addendum. This means the other channels cannot compete with specialists who build for that channel, so they fail. 

Therefore, launch new dedicated bank structures for each channel, rather than trying to mix them together.

Eat your old channels alive!

But it goes beyond that and links back into my series of Banking on a Widget / Banking as a Service.

You see the world is changing and changing fast. When Twitter can go from unknown to mainstream within a year, you know the world is changing fast.

Equally, and as mentioned in previous blogs, if I can now run a business that is 80% cheaper today because of a broadband connection, how come banks have not reduced their fees similarly?

How come a euro cheque for €100 is processed for a fee of over €10 in the UK (this is true!)?

How come it costs a £0.40-£0.50 per transaction on a business account for payments out of the account, when it costs the bank nothing?

How come, when customers are performing all the administration of their accounts through internet access, that they have to pay the bank a fee for an account?

It should be, and will be, free!

Why not have a bank account funded by Google ads?

Why not offer a complete financial service including credit facilities, funded by customers accepting to receive sponsored advertisements before they see their statements?

Take this even further.

What if the customer could design their banking world?

This is surely possible if the customer is allowed to integrate best-of-breed widgets for each of their financial needs – savings, loans, transactions, mortgages, insurances – into each of their channels of choice – mobile, internet, telephone, branch.

This way the customer can design their financial management to suit their lifestyle.

What does this mean for the traditional bank and its branch structures?

It means that the bank of the very near future will see consumers and corporates taking pieces of financial functionality from specialists who offer this functionality at very low margins in the form of widgets.

For the traditional bank, it will mean that the specialists will steal the high margin streams of business – savings, loans, mortgages, insurances – because these providers, which may well include traditional banks, will offer such financial functionality at a fraction of the cost of traditional processing rates.

This is because the new players will be offering better technology platforms at razor thin margins, because they have no overheads of structure, are low-cost and low-staffed, and are specialised and targeted at just that functionality through that channel.

This is what Zopa and SmartyPig are offering through the internet for loans and savings, and what firms like MoBank are building through the mobile for payments.

This leaves the traditional bank with a very expensive branch infrastructure, as their premier channel of choice for distribution and focus. That branch will be left with transactions, because all the sexy stuff will be taken by these new, razor thin margin players, who design for their electronic channels of choice.

In other words, the branch is processing commodity transactions for no margin with limited ability to upscale to more profitable business.

Oh dear.

Another reason why traditional banks need to rethink their economics, structures and approach before their business will be disrupted beyond recognition.

This is the seventh in a series of thought pieces about the new world of banking:

Part 1: Why banking will be free (Part 1)

Part 2: Why banking will be free (Part 2)

Part 3: BaaS: Banking as a Service

Part 4: BaaS: Banking as a Service (Presentation)

Part 5: The New Economics of Banking

Part 6: Collaborative competition

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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  • Great view. I am right into the widget like concept. The only thing I might question is whether you might even need widgets, rather than just one.
    All that is required is an authentic knowledge of what the authentic you wants to happen and do it for you. ie. pay (a bill), tell(a friend), show (some information), get (something or some information).
    Reduce the process for the user to a very simple action, which could have context sensitive meaning/outcomes in different circumstances.
    I don’t think that it would necessarily be a bank but payments might be part of what ‘it’ does.
    You are right about the ‘free’, but not the advertiser supported model, at least not in the currently seen form. Although nothing is really free, the merchants may subsidise a portion of ‘it’ and so might every other service you interact with. Costs will be reduced for all the participants and the consumer will have no perception of paying for the service or ‘it’.
    It is going shatter a few worlds. I’m already doing it and it seems to be going ok so far and scaling looks good, the only problem is which infrastructure do you use and will it be reliable enough at scales never contemplated before? The other option is just let people use the interface they want, give them a choice. Keep the important stuff in your domain and just interface with whatever the means of the moment is, ie twitter, email,text, mobile.
    It is the killer application customers have been looking for -someone they trust to listen to them (and for them) and do what they want done – reliably and very easily.