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The Susan Boyle Bank

I’ve talked before about the new economics of banking and how the businesses we ran ten years ago should now cost 80% less to run.

For example, 80% of the costs of the Financial Services Club would have been in mailing, telephone and printing ten years ago, sending out newsletters and invitations, calling people to chase up and printing brochures.

Today, it’s all electronic via a broadband connection with most of the costs, apart from time, being free.

This blog is free; it’s free to email thousands of people every day; and it’s free to view or download pdf brochures, videos and podcasts.

Result: the economics of distribution of electronic media should have resulted in costs coming down 80% as the only cost today is the physical cost of a store, a branch or a meeting.

This is why newspapers are going out of business day after day after day.  It is why record shops and video stores, along with traditional media production firms, are running scared of the internet and banks should feel the same way.

But they don't, as these economics are not reflected in most bank fees and charges – my bank rates have just gone up to process electronic transfers!!

This has to change as new operators are entering banking and seeing opportunity. We talk about the fact they have to be regulated, but most work out a model that needs different regulation or even no regulation.

For example, PayPal is a payment services provider.

They’ve been operating for a decade, covering almost 200 countries and most major currencies.

They have millions of active users (over 70 million last count) and yet where’s their banking licence?

Sure, they’ve got one now via Luxembourg but, before, PayPal were purely an Ireland-based firm regulated by the UK's FSA across the EU as an emoney Institution. In other words, the traditional bank licensing regulatory model is different.

This is the fear some banks have of the Payment Services Directive (PSD), which will allow payment services providers to enter all European markets without bank licences.

Similarly, Zopa changed the regulatory model.

Their model is one whereby they offer a platform for buying and selling loans. They don’t provide loans and so, up until they offered insurance on loans, they were outside the regulatory system too.

So, new providers with new models at razorthin margins can enter the banking marketplace and slice away profitable bits of the business on a viable basis outside the regulatory system.

Then the question is how to get critical mass.

Ah. It takes years to get to critical mass in banking doesn’t it?

It’s a matter of trust. Who do you trust with your money, why and how?

Well let me tell you that a lot of folks don’t trust banks with their money no more. No way Jose.

They’re more likely to trust the tobacco firms than the banks according to this recent Harris poll.

So who do you trust?

New brands?

Cool brands?

Retail brands?

Sure. That’s why Tesco and Virgin are piling on pressure to create fully fledged banks in Britain, along with new banks like Metro Bank.

Meanwhile, back to the question of critical mass.

This point is best illustrated by Susan Boyle.

Susan Boyle?

Sure, you’ve heard of her. The Britain’s got talent lady with the bushy eyebrows:

Susan boyle

She has only appeared once on the programme for four minutes four weeks ago, but is already a worldwide phenomena appearing on Oprah Winfrey and more.

If you want critical mass, how about appearing on a UK TV programme as an unknown and one month later being in the Top 5 most watched videos online.

Watched by over 186 million people so far.

That’s critical mass.

Oh yes, and that's not just #5 in the Top 5 this week … Susan is fifth in the most viewed videos online ever.

Ever, ever, ever.

And it only took four weeks to get there.

So don’t let anyone believe that new financial providers can’t launch new razorthin margin business models and not reach critical mass in fast cycle turnaround.

The world has changed, and PayPal and Susan Boyle show you just how much.

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 article, this is so true. We have been discussing with banks in the US about the non-banks disruptive potential and the viral nature of online forces for the last year and for the last months there has been a shift in attitude. This reminds me the story of IBM and Microsoft, where IBM believed they controlled the customers because they were the “hardware”, the most important piece of the computer while Microsoft was “just” the software, the applications, they did not realize customers are loyal to the brands they see and perceive as their “service providers”. By offering online services, non banks are the face in front of the new generations, where banks are almost nonexistent, making it easy for them to disconnect the banks from their most important asset: their customers.

  • Great article, this is so true. We have been discussing with banks in the US about the non-banks disruptive potential and the viral nature of online forces for the last year and for the last months there has been a shift in attitude. This reminds me the story of IBM and Microsoft, where IBM believed they controlled the customers because they were the “hardware”, the most important piece of the computer while Microsoft was “just” the software, the applications, they did not realize customers are loyal to the brands they see and perceive as their “service providers”. By offering online services, non banks are the face in front of the new generations, where banks are almost nonexistent, making it easy for them to disconnect the banks from their most important asset: their customers.