Philippe Gelis warns that banks are in danger of being usurped by the newer crowd – those who are already trusted by the customer.
Google, Apple, Facebook and Amazon (GAFA) will likely never become banks. For reasons of profitability, regulation and growth rate, it is simply unappealing to the big four tech companies.
In a recent informal chat with the manager of a global bank’s venture capital arm, I finally understood their main fear: becoming the mere white labels of GAFA – where the end product appears to the customer as though it comes from one of GAFA, when in reality it comes from a bank. Let me explain a bit more.
Same old services
A bank’s products and services are completely undifferentiated from those of other banks.
A mortgage is a mortgage, independent of the issuing bank. A loan is a loan. Credit cards, debit cards and payments to name a few more banking products and services are much of a muchness across the sector.
The only 2 true differentiators are:
The real price. I say “real” because they are so good at hiding fees and commissions that it is often hard to compare.
Does bank marketing ever move or excite anyone (apart from the banks’ marketing teams, maybe?) Can you remember the last time a bank advert made you sit up and take notice? I for one cannot. It is more a matter of covert influencing to be sure that the customer will remember the brand, rather than smart marketing to build excitement and community.
The rest, as I said, is much of a muchness.
Customer support is usually awful.
There may be some minor differences in quality of user interface, but they are minimal, and certainly little to no real significant change has occurred since all banks updated their old interfaces in the early 2000s.
Worse still, banks haven’t created any major innovative products that have contributed to societal improvement since the advent of the ATM in the 1960s.
The cool kids on the block
Google, Apple, Facebook and Amazon provide the services and products that people – and not only young people – use on a daily basis for such a diverse range of functions, which have essentially become indispensable.
They are the ones people trust and like. With Apple, in particular, a lot of people would even say they “love” the brand.
What banks fear most is GAFA owning the customer relationship in the future and that they become the mere white labels at the back end of the process. Let me explain a bit more.
If you trust Facebook, why not acquire a loan through Facebook? Facebook will not provide the loan, as the company is not a bank, but they will auction your loan to a pool of banking partners and then select the best offer for you.
You won’t care which bank the loan comes from, be it JP Morgan, Santander or any other. What you look for is a frictionless process to get your loan at the best conditions.
In such a scenario, banks do not own the client relationship and merely compete on price, creating significant pressure on their margins and profitability. It is a bit like when a company provides white-labelled products to retailers like Carrefour or Tesco.
In most industries, there are very few ways of building very profitable businesses. You may have a technological/know-how advantage, you may have a monopolistic/oligopolistic position (although, by default it can hardly last forever) or you may be protected by some kind of regulation, creating a barrier to entry.
In most countries, banks have historically held an oligopolistic position protected by regulation. Regulation is now Fintech-friendly and bank oligopolies are no longer sustainable.
To finish, I will share a little story. Every time I fly from or to London through Gatwick airport, I am inundated with HSBC advertising, effectively aiming to convince me that it is the world’s super mega top bank.
I recently went to one of their branches to open a EUR bank account to hold some euros.
Me: “Hello, I’ve come to open a EUR bank account.” (Given that I am already a client and I have a GBP account I thought it would take 5 minutes.)
HSBC: “Sorry, but we do not offer EUR accounts.”
Me: “OK. I’m already a HSBC client, I have a GBP account, so I just need an account to hold some EUR. Is it not possible to add a EUR account?”
HSBC: “I’m sorry, we do not offer on-shore EUR accounts in the UK. What we can offer you is an off-shore EUR account in a foreign subsidiary of HSBC, outside the UK.”
So it really took 5 minutes and I left without a EUR account.
The gap between what banks advertise they are – in this case “The world’s local bank” – and what they really are is a black hole.
Every time something like this happens, the relationship between banks and people worsens and the opportunity for GAFA and Fintech firms in general to disrupt the banks grows.
The next 5 years in Fintech will be exciting. Do you think banks should fear GAFA? What can they do to combat this potential threat or are they already powerless to stop it from happening?
What will banking look like in 5 years’ time? I’d love to hear from you in the comments.
This article first appeared in Which-50.com. It is reprinted with permission.