The good thing about blogging is that I have a public record of my thinking. Hence, I can claim that Banking-as-a-Service (BaaS) is mine. That’s because I was presenting the idea ten years ago and blogged about it in February 2009. Now, no idea is unique, and the BaaS idea was purely based upon the fact that apps, APIs and analytics was delivering modular computing, object-oriented code in an open sourced, internet-based structure.
Now, of course, it is all the rage and the stream I chaired at Money2020 Europe yesterday was all about Open Banking and Digital Transformation. What struck me during this dialogue is something I say in nearly all my presentations, so excuse me if I bore you, but there is a fundamental requirement to move from the old banking structures to new ones. The old banking structure arose from the Industrial Revolution and is focused upon the physical distribution of paper – cash and cheques/checks – in a localised network of buildings and humans. The new banking structure needs to meet the Digital Revolution and focus upon the digital distribution of data in a globalised network of software and servers.
The two structures are completely different and that’s why we are looking as Naspers, the $112 billion investment fund https://www.naspers.com/about call it, business reincarnation. We need to burn the old business down and then, like a Phoenix from the ashes, build anew. That’s a tough call and it demands different thinking.
For example, because the old model controlled everything including the customer – who owns the customer? we do! – it meant that the bank could abuse the customer relationship. The bank focused upon selling products through channels that punished or tricked the customer into hidden charges and fees. The new model means the bank control nothing, especially not the customer, and demands that the bank thinks differently. The bank now has to focus upon providing experiences through information enrichment that rewards the customer with a better lifestyle, financially and generally.
That’s what Open Banking and BaaS is really all about. Driving the bank to become an open partner with firms that focus upon the components of experiences through APIs, apps and analytics. The bank sources all of these components and puts them together into their platform, where the customer has a duly vetted and structured service that is beyond traditional expectations. After all, customers don’t want to have to subscribe to 1,000 FinTech start-ups they don’t know, to find the 10 they want to use. They want the bank to do that. The bank does the due diligence on their partners and brings them to the customer, for a better customer experience.
All of this clearly requires different bank thinking and, over lunch with BBVA, I realised it’s all about New Bank DNA. The genetics of the bank need to start with customer-centricity and build the digital structure from the customer-centric view. It must throw away the old margin models of hidden fees and charges and focus upon the new margin model of expected fees and charges in return for safe management of my data. It is my data I value, and that is going to be the key.
In fact, during the lunch, we discussed how firms like Google and Facebook abuse customer data: if you’re getting the service for free, then you are the product. I truly believe that in ten years, customers will pay for services like Google and Facebook in a decentralised network where they own their data stores and structures themselves, and pay for them.
This came up again in a panel at the end of first day, where a question rose to the top: will banks in the future just become safes for financial data? Luke Weston of Amazon Web Services picked up on it and said we should remove the just and financial to reframe the question as: will banks in the future become safes for data?
Spot on. That is the future role of a bank. Funnily enough, I was blogging about that eight years ago in 2010. I really should focus upon today rather than the future …