Fintechs are re-writing the rules. But bank still have an ace or two in the holes
When Amazon launched their online bookstore in the early days of the internet, it was easy to ignore a clunky website with pretensions of being an online bookseller. Especially since Amazon ran up huge losses for those first few years.
Of course now it’s a different story. Amazon is the “everything” store, and bookshops, consumer electronics and even cloud computing have been changed forever.
I have argued elsewhere that the banking industry is going through its own “Amazon moment.” It feels different from the book publishing and bookseller industry’s Amazon moment because at least bookstores had just one threat to focus on: Amazon.com. Banking has threats from all sides — from fintechs, grocery retailers such as Pick ‘n Pay and Shoprite locally, and mobile operators.
I’ve also written elsewhere that a company’s transformation begins with its purpose. The clearer you can be about your purpose, the clearer you will be about how your business needs to transform.
Given this, I think there are three ways that the banking industry can respond.
The first is to go on the offensive.
When faced with change, it’s natural to focus on the biggest threat, rather than the biggest opportunity.
I would argue that this is the time to stop defending the game and start attacking. The beauty of the banking industry is that you can do both at once. If you look at unsecured lending for example, we see retailers offering “buy now, pay later” credit on groceries. We’ve seen similar offerings from fintechs who have partnered with all the important e-commerce players in South Africa.
The defensive position would be for banks to grow their credit card business and unsecured lending portfolio. The offensive play would be to see opportunities that other players may have missed. Banks have the raw data to build unique insight into individual customers’ earning and spending patterns. This information is gold to somebody with the foresight to see opportunities where others see threats, and to capitalize on them.
The second way banks can respond is to realize that they can’t do it alone. Now is the time to find creative ways of partnering with other players to create a financial services ecosystem. Maybe it’s a platform partner, or a new channel.
Of course, it may be too late to partner with some large retailers. Then again, retailers may have blind spots that banks can see because banks have been doing banking for many years. Retailers have access to customers that banks may not have. Now is the time for banks to get comfortable with finding partners. Our research bears this out. In our Tech Vision 2021 research report, we identified multi-partner systems as a key trend. We called this trend: From Me To We. You can read the full report here: Banking Technology Vision 2021
The third way the banking industry needs to respond is by looking at its culture, decision-making, and relationship with risk.
It’s possible that innovation hubs inside individual banks have come up with the exact same solutions that the fintechs later implemented. But it may be that those initiatives were killed internally because they threatened an existing product line.
The old case study of Kodak comes to mind. Kodak invented digital photography, but decided not to commercialize it because they foresaw that it would kill their film business.
What happened instead was other companies introduced their own digital cameras, and Kodak’s film business died anyway. Changing a culture and an approach to risk can be very difficult. But it seems to be a key obstacle to banks’ response to the new market conditions.
So if you believe banking is facing its Amazon Moment, and if you believe that transformation begins with purpose, these three things may give you some food for thought. Do you agree with this analysis, or have I missed something? Please drop me an email or contact me on LinkedIn, I would love to hear your thoughts.