Brett King

Posts Tagged ‘PayPal’

Can you do banking without a banking license?

In Bank Innovation, Customer Experience, Future of Banking, Retail Banking, Strategy on June 4, 2012 at 08:59

Clearly, to be a deposit taking bank and offer products like Mortgages, loans, savings accounts and so forth, it would be easier to have a bank charter. However, today the lines between banks and non-banks offering financial services is blurring faster than speculative investors dumping shares for Facebook.

There are many types of ‘banks’ or organizations that use the word ‘bank’ to describe their business activities such as Photo Banks, Seed banks, Sperm Bank, DNA bank, Blood Bank. There are also organizations that use the word bank in their name for other reasons like the “Bank Restaurant” in Minneapolis, JoS. A. Bank Clothiers and others. JoS. A. Bank offers a Pre-paid Gift Card program for individuals and corporates that has the name “Bank” in it’s offering, but isn’t regulated by industry. Bank Freedom, from Irvine California, offers a pre-paid Mastercard Debit Card but isn’t regulated as a bank.

Despite some claims to the contrary, it isn’t actually illegal to call yourself a ‘bank’ or have ‘bank’ in a tradename. In some states in the US, you might have difficulty incorporating yourself as a “Bank” if you have bank in the name of your company and you’re intending on offering financial services. But then again CIticorp, JP Morgan Chase, HSBC and others don’t actually have “Bank” in their holding company name. You don’t need the name ‘bank’ in your name to be licensed as a bank, and having the name ‘bank’ doesn’t force you to be a chartered bank either.

Then there are the likes of iTunes, PayPal, Dwolla, Venmo, Walmart, Oyster card in the UK, Octopus in Hong Kong, and the myriad of telecoms companys who offer pre-paid contracts, who regularly take deposits without the requirement of a banking license. In some markets, this has resulted in a subsidiary ‘e-Money’ or basic deposit taking licensing structure, but these organizations do not have the restrictions, regulations or requirements faced by a chartered bank. For more than 7 million Americans, 11 million Chinese and many others, their basic day-to-day method of payment in the retail environment is a pre-paid Debit Card (sometimes called a “general purpose reloadable” card). The pre-paid market is expect to reach an incredible $791 billion in the US alone by 2014.

When a bank account is not offered by a bank
What’s the difference between a prep-paid debit card account in the US and a demand deposit account from a chartered bank? Both can be used online commerce and at the point-of-sale. Both can be used to withdraw cash from an ATM machine. Both allow cash deposits to be made at physical locations. Both can receive direct deposit payments like a salary payment from your employer. Often pre-paid debit cards can offer interest on savings also. So what can’t a pre-paid card do that a typical deposit account can?

Most prepaid cards don’t allow you to write cheques (or checks), deposit more than a few times a month, keep a balance in excess of $10,000, make transfers/payments that exceed $5,000 per day, and/or going into the red with an overdraft facility.

For many customers who use pre-paid debit cards, these are not restrictions at all – and thus the card represents an alternative to a typical bank account from a chartered bank. Behind the program managers of pre-paid cards there is an issuing bank with an FDIC license in the US, but the program manager is not regulated as a bank. That nuance may be lost on some, but for the customer they are generally completely unaware that there is a “bank” behind the card – they simply see the program manager as the ‘bank’ or the card as a ‘bank account’ based on the utility provided by the product.

Bank Freedom offers an alternative to a checking account, although not technically a bank

Today PayPal, Dwolla, Venmo and others offer the ability to transfer money via P2P technologies that mimic the likes of the ACH and Giro networks. I think it is fair to say that no one considers these organizations to be ‘banks’, but until recently (certainly prior to the Internet) we would have considered the activity of these businesses to be “banking”. Now you could argue that PayPal is more like a WesternUnion than a Bank of America, but the point is that these organizations are increasingly attacking traditional ‘bank’ functionality.

Then you have P2P lenders who in the US have offered more than $1 billion in loans since 2006, despite not having banking licenses.

If only ‘banks’ did banking…
Today banking is not restricted to those with banking licenses. Banks no longer have an exclusive on the business of banking. If they did PayPal, iTunes, Dwolla, and the myriad of prepaid debit cards would be illegal. They are not. If they did, you couldn’t deposit money on your prepaid telephone contract without visiting a bank branch. If they did, you couldn’t send money to a friend without a bank BSB, sort code or routing number.

The assumption that only banks can do banking is a dangerous one, why? Because often, like any other industry suffering from competitive disruption, the only thing that forces positive change on an industry mired in regulation and tradition are competitive forces. Sometimes those forces result in the complete disruption of the industry (see Telegraph versus Telecoms), other times it results in fragmentation.

Are there banks who don’t have banking licenses? There are hundreds of organizations today that are doing banking activities that don’t have bank charters or licenses. Can they call themselves a bank? Some do, but they obviously don’t need to in order to offer banking-type products and services, and those that do generally have a regulated bank charter behind them through a partner. Like Post Offices around the world that offer a place to pay your bills or deposit money on behalf of a regulated bank, this activity is not illegal, nor does it require regulation. Why? Because the partner bank who has a charter is responsible for ensuring their agents and partners stay compliant within the legal framework

The activity of ‘banking’ is going to become a lot less defined, owned or identifiable in the next few years as many non-banks start infringing on the traditional activities of banking, and as banks are forced to collaborate more and more to get their products and services into the hands of consumers. While we still have banks doing the heavy lifting, much of the basic day-to-day activities of banking will become purely functional and will be measured by consumers on the utility of that functionality, rather than the underlying regulation of the company or institution that provides it. Thus, customers won’t really care if a bank is at the front end or what it’s called; just that they can get access to banking safely, conveniently and securely.

What will regulators have to say about this? Well that’s an entirely different matter.

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Beyond the Branch – New Distribution Mechanisms

In Bank Innovation, Engagement Banking, Future of Banking on February 1, 2012 at 15:40

There’s a great deal of discussion and debate around what will ultimately happen to banking as a result of the massive changes in connectivity, utility, mobility and customer experience taking place right now. One thing is for sure, the world is changing.

We see PayPal owning online payments, with others like Stripe hot on their tails.

Square is attempting to disrupt the POS and circumvent the existing payments rails by going cardless.

Simple and Movenbank are vying for the new definition of the ‘bank account’.

Telcos like Rogers applying for banking licenses, and ISYS pitching head-to-head with banks for mobile wallet dominance in North America.

We also see Facebook and Twitter becoming increasingly dominant channels for customer dialog.

New Disruptors Abound!

Intermediate or Disintermediate?

So will banks get disintermediated in all this? Well, yes and no. In economics,disintermediation is generally defined as the removal of intermediaries in a supply chain: “cutting out the middleman”. So there’s not too many middlemen in the typical retail banking distribution chain. To some extent in financial services this is already happening with the decline in stock brokers, insurance agents, etc in favor of direct. However, conversely, a bunch of newer aggregators and intermediaries are popping up as the interface to the bank or payments providers.

New intermediary plays in the last couple of years include Square, iTunes, Simple, Mint, and others. Probably the most interesting new intermediary to emerge in the last year or so is Google Wallet (or Google, or THE Google wallet – not like THE facebook though…) If you doubt the veracity of my statement, here’s proof – after just over 18 months of operation, Square supports 1/8th of all US merchants. They didn’t exist 2 years ago.

So we’re likely to see more variations on a theme in banking and payments, where new players are coming into the ecosystem and offering value beyond the traditional methods of distribution. In its purest form, this will be simply a challenge to the branch-led distribution model. How so? Ultimately, with mobile banking and payments, the branch and resultant paperwork processes becomes a convenience “penalty” for transactional and basic onboarding. This friction is a target for disruptors.

Disruption and Disenfranchising

The disruption that is occuring in the customer experience is all about removing friction in outmoded or outdated processes for customers. Whenever you tell a customer he needs to fill out manual paperwork, or visit a physical location today, you’re going to increasingly get kickback from a segment of the market. While many will argue passionately for the role of a face-to-face interaction and the “richness” of the branch experience, the reality is that there are two reasons why most customers will balk at that.

Firstly, they don’t have the time or they perceive it is faster to go an alternative route – convenience was always a key driver for disruptors like Amazon and iTunes. Secondly, we’re being trained that you can open pretty much any non-bank relationship completely digitally today – so KYC (Know-Your-Customer) issues aside, the push is for rapid digital onboarding of customers. In usability terms we call the later a design pattern and it ends up driving consumer’s expectations becuase it is a entrenced behavioral expectation.

Digital natives won’t be able to figure out why you can sign up for Facebook, iTunes, PayPal and other relationships completely electronically, but your bank still requires a signature. It defies logic for the modern consumer, and no amount of arguing regulation will overcome that basic expectation.

The end result of this is that banks being the slow, calculated and risk adverse organizations that they are, will likely allow disruptors the opportunity to come into the space between the bank and the consumer as a ‘friction’ eliminator.

Secondly, geo-location and contextuality of banking products and services, will mean a marketing and engagement layer that is built on either event or location triggers to recognize the need for a financial services product and the capability to stimulate an engagement or journey in real-time.

The mobile, wallet and tablet are all key components in this shift, as is social media and the cloud to some extent.

The outcome?

In the end banks will, for basic products, no longer exclusively own the end consumer. They’ll simply be the underpinning bank manufacturer that supplies the product to a new distribution channel or channel partner.

So will banks be disintermediated? Not really, but they will be disenfranchised, losing direct relationships with customers as banks adapt to becoming pervasive providers of bank products and services, when and where you need them. A split between the distribution and manufacturing of retail FI products will be the core outcome.

Banks can not possibly own the telcos, mobile operating systems, marketing companies, retailers, locations and other elements that will drive the delivery of banking products and services in the near future. This is where the customer will live – this is where they’ll engage. I won’t come to your branch, download your “App” or even visit your website to directly engage the bank if someone else can deliver me that product as I need it

When your Telco becomes a Bank

In Customer Experience, Economics, Future of Banking, Mobile Banking, Mobile Payments on September 8, 2011 at 16:46

The announcement that the Canadian carrier Rogers Telecom has applied for a banking license should hardly come as a shock to the retail banking fraternity. There is already a plethera of mobile carriers fully engaged in mobile payments right now, from Safaricom in Kenya, Orange (with Barclays) in the UK, the ISIS collaboration in the US, LG Telecom in South Korea, and the list goes on. Everywhere you look right now, there are carriers trying to muscle in on the mobile wallet and payments space.

Should Banks be Worried?

They should be terrified.

The fact is that it makes perfect sense for mobile operators to start thinking about offering banking products and services as we dispense with plastic and start using our mobile phones as payment devices. Increasingly, banks are being detached from the end consumer by a technology layer. Let me prove it.

PayPal reinvented the customer experience layer around payments, and in doing so set the benchmark by which Peer-to-Peer payments are made. Sure there are banks at the back-end of PayPal, but today I can take out my phone or get online and send you money and all I need to know is your email address or your mobile phone number. This is compared with the average wire transfer which requires account number, account name, bank name, bank address, SWIFT Code/ABA Routing Number or IBAN, etc, etc. Now we’re all wondering why it’s simpler, and in many cases cheaper, to use PayPal than a wire transfer through our traditional bank. Why go back to complexity and friction?

Today, if a bank wants to allow their customers access to Mobile Banking they have to go through a layer of technology called an App Store (or Marketplace). Sure, there is HTML5 and mini-browser mobile sites, but the fact is that if you want best-in-class interaction and engagement, you need to go App. So today, a bank must ask Google, Apple or RIM for permission to have clients access their bank via a smartphone.

Mobile Carriers are a significant threat to day-to-day banking

Are Telcos a Threat to the High Street Bank?

Well, yes and no.

If you look at broader offerings of financial service products, then mobile operators really don’t want to play in that arena. What most of the mobile operators are looking to do is play in the payments space, taking control of the wallet on your phone or offering pre-paid debit card type services.

In 2008 about 17% of the US mobile subscriber base were on prepaid deals, but since the GFC (Global Financial Crisis) approximately 65% of net new subscribers are prepaid users. In emerging markets like India and China 90%+ of the subscriber base is prepaid, and the same counts for sub-Saharan Africa, and broadly across Eastern Europe and Asia. So what does this have to do with banking?

Prepaid subscribers for mobile phones generally speaking are more likely to be at the lower end of the scale for retail banking (less profitable, underbanked) or even in the unbanked segments. These are customers who don’t have extensive multi-bank relationships, and who increasingly are moving to products like prepaid debit cards to facilitate their day-to-day banking needs.

So guess what happens when you combine a prepaid debit card with a prepaid mobile phone? It’s a marriage made in heaven! What’s the difference between making a telephone call, an ATM withdrawal or a debit card transaction at a merchant – they are all just transactions from a value store.

It’s likely that as Telcos figure this ‘secret’ out that they will be aggressively going after that marginal layer of customers that are underbanked, and promising utility that a bank can’t provide in the payments space. The combination of prepaid phone deal with a prepaid debit card will likely result in the loss of around 10% of the retail banking consumer market in developed economies in the next 5 years in my opinion, as they migrate to this type of modality.

So What? We can Afford to Lose a Few Marginal Customers!

This will be the justification for lack of action from many retail banks; that the loss of these less profitable customers is not a bad thing. There’s two problems with that logic.

Firstly, this shift will create momentum behind changing payments behavior that will fragment day-to-day banking for many customers. Increasingly even your best, most profitable customers will be abandoning the old ways of payments to go for the utility of a combined mobile phone and payment device. Once I am managing your day-to-day spending activity, I can start to influence your decisions, spending and choices for more complex financial products too.

Secondly, the fact is that even these ‘marginal customers will likely be extremely profitable for Telcos, because to them it is just new revenue, and they don’t have all the expensive infrastructure that banks have around the very traditional (some would say antiquated) retail banking system.

The implications for banks is that they lose touch day-to-day with customers, and the day-to-day retail front-end of banking becomes owned by telcos, App stores, social networks and marketing organizations. The bank becomes the back-end manager of risk and the product manufacturer, with the lowest margin of the whole value chain.

Will the US be last in the drive towards a cashless society?

In Economics, Future of Banking, Mobile Payments on September 1, 2011 at 23:50

Although it is a long-time off yet, we can now envisage a time when most of the developed world, and indeed most of the developing world will no longer deal in hard currency. There are a number of drivers for this:

1. Impact of mobile payments
2. Tighter money laundering requirements, and
3. Cost of physical handling versus electronic transactions

Since the mid-20th century many have heralded the impending cashless society, but it may be that the emergence of mobile payments is the final tipping point in that outcome. Indeed, empirical evidence is already available that cash is in serious, if not terminal decline.

Strong incentives

For years regulators and governments have worked to track the movement of physical currency across border, and in the case of terrorist financing and criminal activities. The Financial Action Task Force developed 40 core recommendations in 1990 (revised in 1996) designed to reduce the risk of money laundering, but the greater part of the effort was focused on the movement of hard currency and it’s role in criminal undertakings. The reason for this is that it is harder to track currency, and if it can move freely around the system, the criminals, terrorists and “evil doers” can support their activities without restraint.

The strongest case for the removal of cash is around criminal activities. David Warwick posted an excellent review of the issues around cash and it’s active involvement in crime in a recent post entitled “The Case Against Cash”. In it he cites the following facts:

“Now consider that low-level drug offenses comprise 80% of the rise in the federal prison population since 1985 (though those numbers have begun to go down in more recent years)…The vast majority of those illegal transactions are cash-based. Greenbacks are also the currency of choice for Mexican drug cartels, which funnel between $19 billion and $29 billion in profits out of the United States annually, according to the U.S. government.”
David Warwick, CBS Interactive Business Network, Aug 2011

The biggest costs and risks are in cash

In recent times in places like the Netherlands, the cashless society has already started to become a reality. In 2010, the Amsterdam City Government moved to create ‘cashless’ zones in the De Pijp and Nieuw-West (New West) districts as a result of rising crime rates. You can now only use Chip and Pin to pay in those locations. This has been successful enough that it is now being rolled out across other districts in Amsterdam.

In Ireland, Belgium, Netherlands and other locations, banks are increasingly going cashless to reduce costs and crime. In recent years banks like SNS Bank in Utrecht and National Irish Bank, were two such European banks to commence the move to Cashless. Both cited the rising costs and risks of dealing with physical cash, and low volume of real ‘cash transactions’ in-branch, as a metric for justifying the move.

Emerging economies may be first

In the Philippines, Kenya, Somaliland, Nigeria, Senegal, India and other such locations, the success of mobile payments and remittances is starting to see a dramatic shift in the day-to-day operation of the economy. In Somaliland where there are no ATMS, and almost no banking infrastructure, mobile payments enabled by mobile operators, the hawalad and money changers, might mean this province could become one of the first cashless societies.

The key to moving away from cash, is reducing the reliance on cash day-to-day. RBA Governor Malcom Edy noted that cash use in Australia had declined from 40% down to 30% of traditional ‘retail’ payments. In the UK, cash usage is also in decline, with the UK Payments Council estimating that it will represent just 0.8% of retail payments by 2018 (this is down from 90% in 1999). In both cases, the use of Debit Cards has been cited as the contributing factor.

In Rural India, Sub-Saharan Africa and the Philippines mobile payments are booming

It’s all about behavioral shift in payments

The shift towards cashless requires reducing momentum in the ‘cash system’ by shifting to alternative modes of payment. The Debit Card has been an obvious ‘cash-killer’ in places like the UK and Australia, whereas mobile payments have had a much more rapid and profound effect on emerging economies. So with Peer-to-Peer (P2P) mobile and internet-based payments rapidly accelerating, and the move to NFC payments – the likelihood of ‘saving’ cash from terminal decline looks less and less likely. Check out PayPal’s P2P solution using NFC enabled Android phones for example.

In this regard, the EU with it’s strong support for debit cards, chip and PIN and increasing mobile enablement, and the emerging economies of Africa and Asia with both low friction against cash and the pressing need for financial inclusion, probably mean that the US, who is so strongly and emotively married to the ‘greenback’ and stuck with outmoded mag-stripe will likely be among the last to go largely cashless sometime in the next decade.

The momentum for these changes are building and it is a longer-term trend that will change the way we view banks and money in the very near future. The more friction you have, the more consumers will find workarounds. At the end of the day, a mobile or P2P payment will have far less friction than a cash payment.

The Total Disruption of Bank Distribution – Part 3

In Bank Innovation, Customer Experience, Future of Banking, Technology Innovation on July 12, 2011 at 07:37

Massive spend on innovation at the front-end of retail financial services

Putting aside conjecture of whether or not we are in a bubble at the moment around tech, social media, and mobile services (which I believe we very well could be), the reality is we are seeing a flurry of massive investment in new distribution models and organizations acting as either technology or behavioral enablers. We’re used to seeing big numbers for M&A activity in banking, but we’re not used to seeing such a flood of start-ups and non-traditional competitors facing off against traditional players at the retail side of the business.

In just the last 3 years there has been more than $7Bn in private equity, venture capital and private investment made into non-traditional financial services start-ups that challenge existing models. This is the first time globally that there has been this scale of challenge to the traditional retail financial services space from start-ups in the technology arena. To illustrate the level of activity, here are just a few recent investments in the New York fintech space alone (source: Quora):

SecondMarket ($15mm)– marketplace for illiquid financial instruments; secondmarket.com
Kapitall ($7.3mm)– discount brokerage with gaming elements; kapitall.com
Betterment ($3mm)– online brokerage for small investors; betterment.com
Plastyc ($2mm)– mobile based banking for the underbanked; plastyc.com
AxialMarket ($2mm)-
online middle market i-bank; axialmarket.com
BankSimple ($3mm)- online/mobile banking interface; banksimple.com
Covestor ($11mm)- platform to find SMA providers and invest with amateur traders; covestor.com
Hedgeable next generation investment management firm; hedgeable.com

However, in addition to these plays you have very some serious initiatives now doing major business in the space that used to be considered the sole domain of ‘banks’. Here are four examples:

Personal Financial Management

Mint was acquired by Intuit in September of 2009 for $170m. Mint has experienced meteoric growth in customer base. Today Mint has more than 5m customers willingly giving their personal financial data, bank account and spending information to receive the benefits of fine tuned recommendations for financial services investments and credit products.

Businesses like SmartyPig, which has a collaborative play with the industry, are very successful at stimulating simple behaviors like savings for specific goals. SmartyPig has raised over $1.2Bn in deposits for the partners banks it works with such as Citi, West Bank, BBVA, ANZ, etc. They utilize social media to encourage your friends and family to assist you in your savings goals. For example, my kids were able to use SmartyPig to solicit assistance from their grandparents, uncles, aunties, etc to help with their savings goal.

Admittedly, we also seen Blippy and Wesabe crash and burn in recent times. However, the readiness of the investment community to experiment in the space of services that are complimentary or competing directly with traditional FIs is clearly increasing.

P2P Lending

Lending Club, Prosper and Zopa are just three examples of recent successes in the P2P lending space. Lending Club is lending around $20m a month in loans, and have lent more than $300m, with an average loan size around US$10,000. In France, FriendsClear has recently announced that Crédit Agricole will be joining their efforts in a collaboration of sorts; exactly how this will work is still under wraps.

Zopa has lent more than £150m which means they are now approaching a 2% market share of the total UK retail lending market. Zopa’s average loan size is around GBP 5,000, but what is more significant is their Non-Performing Loans (NPL) ratio. Major U.K. banks typically recorded NPL ratios in the 2%-3% range from the mid-1990s through to 2007, but by the end of 2009 Lloyd TSB’s gross NPL was as up to 8.9% and HSBC’s hovering around 3% (source: Standard and Poors). So how did Zopa perform in this environment? Zopa’s NPL ratio sits at around .9%. That’s 10% of Lloyds and 1/3rd of the best bank in the UK HSBC!

Zopa's NPL Ratio is 10% that of Lloyds TSB in the UK

So how is it that a social network that lends money between its participants is better at managing loan risk than banks that have been at this for hundreds of years?

The key here is the positive psychology of social networks versus banks. If I lend money off a bank and I’m having difficulty paying that back due to loss of income, or just having a hard time making ends meet, I’m likely to let the loan slip and wait for the bank to chase me. P2P networks like Zopa, on the other hand, are finding customers proactively contacting them to make payment arrangements when they can’t meet their monthly commitment. Why?

Firstly, there are people at the end of the loan – not a big bad bank who “can afford the loss”. Secondly, the fact that there are people at the end of the loan versus a bank means that people are more inclined to prioritize paying back their loan to other people, over that of a large institution. This positive peer pressure is producing astounding results. I also asked Giles Andrews from Zopa about why he thought Zopa was better at managing lending risk than banks…

“I think our low defaults aren’t just because of P2P but because we built a better credit model, taking more account of over-indebtedness and affordability than banks”
Giles Andrews, CEO, Zopa.co.uk

Who would have thought that social networks would be better, safer, and more efficient at lending than retail banks?

In fact, P2P lending has been so successful that in recent times both Umpqua Bank and Fidor Bank (a start-up online, direct bank in Germany) have incorporated some P2P as a component of their bank platforms. Why take all the risk yourself as a bank, when some customers are willing to cover the risk themselves? But don’t think that P2P is just easy money. Wall Street Journal reported in June of this year that 90% of Lending Club’s applications were refused.

Maybe that’s why P2P is good business – because they actually take fewer risks than banks?

Pre-paid debit cards, E-Money Licenses and Payments

Amex, Greendot, NetSpend and Walmart are just three organizations that have recently made big pushes into the prepaid debit card arena in the US alone. Significantly, the US now has 40-60 million underbanked consumers (source: FDIC, Financial Times), half of whom have college degrees, and 25% of whom are prime credit rated. Many of these are opting out of the traditional banking system, but carry a pre-paid debit card. The pre-paid debit card industry will account for more than $200 Billion in funds by the end of 2011 along (source: Packaged Facts).

Top 5 reasons people get a prepaid Debit Card

The financial crisis has accelerated the increase in those whom no longer participate in the formal banking system. Since the financial crisis 60% of new mobile phone users in the United States have been no-contract, pre-paid phone users.

“As an economy becomes richer and incomes rise, the normal expectation is that the proportion of the unbanked population falls and does not rise as is now happening in the United States…”
Washington Post, December, 2009

Combined with increased account fees from big banks recently affected by reduction in interchange revenue, and modality changes, I think we can expect that increasingly customers who don’t need complex banking relationships will opt out of the banking system by using prepaid debit cards and in the future prepaid wallets enabled via NFC and mobile Apps.

In the UK Google, O2, BT and others are looking seriously at the combination of prepaid debit cards type functionality into a wallet. Google already launched their Google Wallet earlier this year, and we can only see more and more of this action in the coming months.

The raft of P2P payments, mobile payments and mobile enablement are bewildering at the moment. Undoubtedly, we’ll see many variations of mobile payments in the near future. With PayPal predicting $3 Billion in mobile payments in 2011 alone, the future of mobile-based prepaid debit cards looks very healthy.

Conclusions

We’ve never had such a concerted, technology-led explosion of retail financial services solutions that are directly in competition with the traditional players in the space. While some of these initiatives are complementary, increasingly we’re seeing startups that realize you don’t need a banking license to play on the fringes of the banking system. When you only know one way of running your business you will be increasingly challenged by customers who don’t relate to the questions you ask, the processes you have in place, and the insistance on using outdated physical artifacts and networks.

This is the first time we’ve seen a global attempt at reinventing the way banking fits into our lives on a day-to-day basis, and it is bound to create massive friction for a sector known to be very attached to traditional modes and models. One thing is clear, increasingly banks will be competing with new businesses that are faster, better, more relevant and aggressive than the long-held bastions of traditional savings and loans.

These businesses will embrace and exploit changing modality. These businesses will love disruptive customer behavior, they’ll encourage it!