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Extremely Vital Statistics

I found a mixed bag of themes this week as I’m scooping up numbers.

First, some interesting numbers include the fact that Google has 750 people working in their Payments Division, having just hired PayPal veteran Osama Bedier to lead it.

This is at the same time as PayPal hire Blackhawk Network founder Don Kingsborough, to go after the retail store network and take on Visa and MasterCard.

And just as Facebook  announce they are opening a Payments Unit too.

Change is afoot.

As one panellist at the conference I'm at this week said, during a discussion of new competitors: “We reached a digital inflexion point in film a decade ago and Kodak did not follow it. Five years later, they made no more film. The business model had fundamentally changed. Banking is at a similar inflexion point today.”

This followed a keynote presentation from Deutsche Bank who alluded to banking being like the music industry.

Music was profitable until the internet killed the radio star by giving it away for free.

Napster became huge during the early 2000’s until two things happened.

First, the legislative battlefield began to close down the illegal distribution of music; and second, Apple launched iTunes to go with the iPod.

In 2004, digital music represented just $20 million of the $25 billion revenues of the industry, as most digital music was being distributed for free.

Since then, music industry revenues have declined by 30% but, luckily, Apple launched iTunes in 2003 and, in 2010, the ten billionth tune was downloaded.

The change in the business model had occurred, from physical stores and CDs to online downloads and Amazon.

Similarly, thanks to iTunes, the business model had proven that you could move from illegal downloading to most people feeling comfortable paying 99 cents for a song to have it legally.

This is why, by 2009, digital music represented $4.5 billion revenues, or 27% of the global music industry revenue flows.

It is also why the songs now cost $1.29 per tune, up from 99 cents.

The business model has changed; the inflexion point has been reached; the world has moved on.

Will this happen in banking?

That’s the question and the answer is:


Google illustrates this with the growth in their payments business which is not a payments business.

Google are growing their Payments Division primarily from their focus upon the advertising profit pool, rather than necessarily making profits from payments per se.

The business model has changed.

And it’s changing fast.

For example, Techcrunch published one article last week that stunned me with its opening lines:

  • Facebook has over 600 million users;
  • Twitter had 25 billion tweets last year;
  • Tumblr has a billion page views a week; and
  • Zynga reached 100 million users on Cityville in just six weeks.

Critical mass can be reached in days, and businesses can be wiped out overnight.

Just ask Tower Records.

Meanwhile, as we see this growth in social networking – Facebook gets 30 billion pieces of new content every month! – much of it is being driven by women, who represent £13 trillion in consumer spending and, by 2025, will control 60% of the UK’s private wealth according to Odgers.

If Comscore says women are the majority of users of social networking sites and spend 30% more time on these sites than men; with mobile social network usage being 55% female, according to Nielsen; then I’d take a close look at this as a bank.

And I'd take a close look FAST.

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 piece as ever Chris.
    I have read your blog regularly since we met at Sibos last year and you always give the landscape view, which I believe lots of the industry watchers appreciate and understand. Despite your efforts, what has been missing from the banks is action, and the lack of understanding that the landscape is changing without them.
    From someone who delivered innovative change in a matter of months and not years within one of our financial institutions, I know it can be done. There are just not enough people doing it.
    Your piece today reminded me that when this is all over, which is likely to be within the next two years, you will have documented and commented on the transformation of banking as it has happened. As the David Starkey of our industry, I look forward to reading the book!

  • Barry Nolan

    No question that ‘advertising revenues’ are an enormous opportunity for Issuers – especially the opportunity to replace lost ‘interchange revenue’ post Durbin. Comfortably, at a meager 5% CTR/CPA annual basis, this would translate into $52 NET revenue per cardholder.
    Asides from obvious Issuer inertia, the key challenge is in the term ‘advertising’ – it has an instant consumer ‘recoil’. The key to achieving an advertising profit pool is a monetization model that in fact enhances the user’s experience. Some of the very best in web2.0 achieve this:
    *Google Adwords draw up to 8% click-thru rates because they’re search relevant
    *foursquare rewards enhance the check-in experience/motivation
    *groupon group buying dynamics means I gain greater savings
    *mint recommendations means mint makes money when I save money
    So if advertising/offers/rewards/whatever, especially if they have a high degree of serendipity, are UX enhancing, then its a gold mine, and a fascinating frontier to explore.

  • Jeremy Kidd

    I’m with @Jacqui. First of all, spot on with your review of Chris. I can see him sitting back in a comfy chair in the corner of a bar in the City and smugly telling a roomfull of sad bankers “I told you so”. I also agree with your observations of the banks. Granted, it is their job to be careful and risk averse, but we’ve been in the limbo of everyone waiting for someone else to make the first move for far too long. Somebody’s eventually going to have the guts to make a disruptive play in this space and if one of the big banks don’t do it soon, PayPal will become a bank and start causing some trouble… Oh wait, they already have http://www.businessweek.com/technology/content/jun2007/tc20070614_606853.htm Oh wait again, that story is 3+ years old. What the heck is everybody waiting for?

  • Chris Skinner

    Thanks for the comments and Jacqui, Jeremy … you are too kind 🙂