To Bank or Not to Bank

(this blog originally has been published in Dutch language on by the author)

What if:

  • Fintech- and other IT companies take account for basic banking services?
  • Banks realize that the banking institution is no longer required to offer financial products and services?
  • Crowdfunding platforms take a share of the banking functions on their behalf to go.

If these “ifs” are facts, has disruption done its job and united new powers?

Or maybe not at all?
The disruptive result would have been that basic flows have migrated from bank to IT products. IT products with improved security aspects such as Block chain technology, fast and efficient processes. Fintech runs up with major changes to banking, money transferring, mortgages loans, personal loans, business loans, asset management, fund raising.

Banks can no longer afford to attribute their slow and inflexible image for the entire package of cash services to the regulations and directives.

We do not wanna be a bank, it is because of our valuable data

There is much speculation whether Google and Apple will bump the existing big banks from their thrones and take over their monopoly. But there is no war or bank race. IT giants which own a banking license persistently will not be associated with being a bank at all. They want to use the data, the information from the payment streams. This enables them to gain a valuable profile of the man behind it. They use the money flow as a source of information, not as a business model. That is long since no longer a dream but a reality.

Trending topic #unbundling

The bank actually is a collection of facilities and services offered by people and systems. With a maze of interconnected systems. If any of these systems needs to be renewed, the banks meet a serious time and money consuming legacy problem. About as much time and money to launch a completely new Fintech company.

Banks currently are in a period where the range of banking services being torn apart. Startups get hold of a part of the banking package. Loans are provided through crowdfunding and payment by pay-platforms. Their business model are whether based on commissions or on data resourcing.

Decoupling (#unbundling) of the banks is in full swing. The image below from the article Is there a future for banks in the value chain? Illustrates the future decoupling.

Unbudling Financial Services

Repositioning of banks

It is therefore necessary for the banks to rearrange it selves.

In the technological dynamics of now, the artefact organization and methods are simply insufficiently future-proof.

Let’s enumerate the strengths and distinctiveness of banks

  • Trust for hosting our money (basic banking)
  • Relationship based on that trust (social, human contact)
  • A place where we can buy and be advised about all our financial affairs and needs (comfort)
  • The basic function of a bank is to transform short based money into long term money

Trust takes time but if the Startups are able to prove the absence of #fails and scandals, I think we’ll decide to lead our money on their platforms on short term. If the replacement of the banking forces as mentioned above takes place by a faultless, cheap and the best customer service, it seems a matter of time that the established banks are displaced on a large scale as a financial services provider.

Trust and face to face contact is not tied to a physical location

It amazes me when banks still are proud of their ‘innovation’, also when it are just minor adjustments in the old banking area. For example ATM machines on which only displays have become tablets. Overall nothing new to add. And look, these devices are still central installed on the floor of a bank building.

If banks decide to combat IT companies at the API level that’ll turn out to be a wrong strategy

If the banks really want to respond quickly to the dynamic developments in order to protect their services and products, there is still a strong cultural problem. The banking culture is hierarchical and controlling.

Banks have the urgency to act radical and intrinsic in their repositioning. Compliance, regulatory and supervisory authorities will not encourage this movement in any case!

As financial products and service cannot do without bank building, they fail

How can a bank act agile?
Bank managers and directors unite. The momentum is here to brainstorm about dynamic acceleration and innovative visions. Strategic think tanks come alive.

Maybe these people also could visit the IT department within their bank. Probably this dept. works agile scrum. And it could be wise to adapt this method also at the management and board level. Not as a goal but as a method in order to create flexible and culture processes and dynamics.

I hope the strategic think tanks are not challenging their selves to define long term visions with long-term plans and even write them down in big sized reports! Long term plans have to be superseded tomorrow due to the dynamics of market developments.

Banks in their repositioning will have to choose a truly distinctive position. And they will be challenged to accept the consequences of daring.

My recommendation to banks is not establishing a fixed route to their future, but to identify the future and use this as a guide to proceed. To migrate the old banking institution into the new world.

Some examples for banking positioning:

  1. The bank acts responsible for the impact of money in society. ‘I as a bank only lend money when it will be used in favour of X’.
  2. The bank allows its mid- and back-end infrastructure available for IT companies like Google, Apple, Amazon, etc. Or even in a network with strong new smaller Fintech Startups. The bank itself can simultaneously act on its infrastructure in a personal ecology where it offers financial services with personal customer relationships.
  3. The Bank positions itself as a trust based partner community. In this scenario, not as co-partner as mentioned under the second bullet, the bank accepts that some financial services and earnings of the past from now on be taken over by other companies. In this community, a customer funding model can exist. Where the bank cannot of does not want to finance by regulatory reasons or non-product availability, customers may help other customers against reasonable interest rates. The anonymous crowdfunding can be completed more socially within a community.

In the second scenario, consumers can integrate the basic bank service into their lives.

Banks and IT companies are integrated and cooperate. Money transferring and savings are fully integrated in our devices and life. When a personal advice for long term complex financial matters is desired the bank can take its role. Whether in a personal meeting or online. This principle can apply to both private and corporate services in the real economy.

How unreal and naive this scenario of cooperation between the Banks and IT companies may sound. Still I think this may be a potentially powerful model as a result of the disruption.



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