April 26, 2012
I’ve been writing now for a few years about Banking 2.0 – a general term that I use to describe what financial services will look like when it discovers open, social, API enablement, mobile and all the other business and technology trends that are converging today. I wrote a post recently that suggested Apple and Google are the big threats to traditional banking. I had some response to that post, in particular Thomas Wieberneit suggested that banks have already been commoditized and that the consumer needs, and over time will, regain more power in the customer/bank relationship. He suggested that the factors that create a situation where consumers are the weak party in the power balance would be no different under a model where Google or Apple where the dominant provider.He contends that;
Ultimately the players that should walk into the void should first and foremost demonstrate the strong ability and willingness to put the customer first and base their services on the premise that significantly contributing to their customers creating value makes money for them. This is a total mindshift from where we are now.
Following on from this I had an interesting exchange with Jane Rygaard from Nokia Siemens Networks. Now given her employer Rygaard can clearly be expected to be a little carrier-centric but it was interesting to hear her contention that it is more likely to be carriers rather than Apple or Google who is likely to be the strong players in a Banking 2.0 world. One of the reasons that Rygaard believed carriers will be the king makers going forwards is potential concerns that consumers have around the privacy of their financial data. This view is one shared with various banking people I’ve been talking to lately who also suggest that Banks sit on a far higher level of the trust spectrum than do companies like Google and Apple – at least in consumers minds. Rygaard pointed out a study they commissioned in 2010 that found that telecoms operators were seen as the second most trusted group, after banks, for securing personal information.
As an example of this being put into practice, Rygaard pointed to M-PESA and initiative from Safari.com a Kenyan mobile operator. M-PESA is a cashless money transfer solution that was originally developed to power microfinance but has since expanded to widespread use as a branchless banking service. This example would suggest that this high level of trust that people have in telecom operators should provides an opportunity for them to offer more targeted and relevant services to consumers.
I think the M-PESA example points to something else – the fact that in developing economies the mobile network is often the best way to disseminate information (and services built upon information) out to a community. The rise of banking 2.0 mirrors the rise of mobile networks in developing countries. Much as many of these countries did not have fixed line telco services and jumped directly to mobile and mobile broadband, so too do many of these countries have negligible banking service and instead will jump directly to Banking 2.0 – often this will be provided directly by the mobile provider themselves.
Will this trend then continue to the developed world/ Will we see telcos leverage the existing billing and comms channel they have with customers to provide value added financial services on top of what they already do? There is absolutely no question that they have the resource, technology and reach to do this, but I wonder about their ability to execute upon the opportunity.
As I see it there is a triangle of industries with the ability to re-invent banking. We have the banks themselves, the technology companies (Google, Apple, Facebook) and the carriers.My gut feel is as follows;
- Banks – have the regulated monopoly position and existing cash reserves. Barriers are risk aversion and negative propensity to innovate at the core
- Telcos – sit atop a burning platform (voice revenues plummeting) and have significant reserves but are also generally slow and cumbersome and risk averse.
- Tech companies – They lack consumer trust but naturally understand the power of the API, the network effect and social as a strategy
There’s no givens in this game – it’s going to be super interesting to watch this battle unfold.