The last time this happened, banking reinvented itself

On the face of it, the news is scary for banking. Fintechs, neobanks, bigtech companies, super apps like Vodapay and Shoprite’s Money Market account (accessible via USSD or on the new Shoprite app) are all chipping away at the lucrative payments market.

But this is not the first time banking has faced a game-changing upheaval in the payments space.

During the Great Depression people were short of cash, so stores in the US started giving credit.

The famous incident that led to the invention of Diners Club and the birth of modern credit was when in 1950, founder Frank McNamara hosted a client dinner at a restaurant and realized he had left his cash in his other suit, so his wife had to pay. He launched Diners Club with 27 restaurants and 200 cardholders.

In 1958, Bank of America responded by offering BankAmericard — the first card that allowed monthly instalment payments on purchases.

Other banks couldn’t compete on their own with BankAmericard, so in 1966 a group of banks formed the member-owned Interbank Card Association which then became Mastercard.

In response, that same year, Bank of America started licensing its card to other banks. To compete more effectively, BankAmericard’s issuing banks got together to form a consortium to run BankAmericard. They renamed it Visa in 1970.

The theme in these stories is that banks continued to thrive even while payments were being reinvented all around them. It’s a story of how banks competed (by offering different experiences) and collaborated (by forming Visa and Mastercard).

The other observation is that it took 20 years from the launch of Diners Club for Mastercard and Visa to be established. And that Visa and Mastercard were established in the same year. So it took both 20 years and a single year to reinvent the industry.

That’s what we’re seeing again now. It’s taken around 20 years since the first banking websites started offering rudimentary transactional capabilities to where we are now with banking apps that allow you to open an account, give you a settlement figure on your vehicle and pay your traffic fines.

But it’s also taken just 18 months since the start of the pandemic to reinvent payments. We are now a digital-first payments landscape.

There are three main areas that banks exploited 70 years ago to remain relevant, and which they can do again: the customer experience, the mobile wallet and innovation. And before you say there were no mobile wallets in the 1950s, I would argue that a credit card is the progenitor of the mobile wallet we see today.

My colleague Luis Rodriguez likes to talk about banking’s “Amazon Moment.” He writes that retailers faced one threat — Amazon — so it was relatively easy to identify and counter the threat. By contrast, banking faces multiple threats, all which add up to an Amazon Moment for the industry. No banking offering is safe. Whether it’s mortgages, asset finance, revolving credit, cross-border payments, forex, unsecured lending or simple bank accounts, neobanks, fintechs, bigtechs and even mobile operators and online retailers are doing their best to offer customers and merchants something easier, cheaper and more convenient.

The good news is that with the right blend of collaboration and innovation, banks can once again look forward to a long and prosperous future.

You can read more about Banking’s digital shift in our report Back to the future of payments: Reflections on how banks can drive payments innovation.