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Saturday, October 21, 2017

The Future of Banking Probably Isn’t Banking

With companies like Google, Apple, and Amazon getting involved in payment transactions, banking as we know it could dramatically change.

I spent over 10 years working for a bank and I loved it. I think their days are numbered though, probably; mainly as I believe the services and products they provide will be gradually replaced by large tech companies who have better relationships with consumers.

It’s a much-written-about fact that companies don’t want to become the next Blockbuster or HMV  video and music stores replaced or heavily impacted by digital competitors like Netflix, iTunes and internet file-sharing. Most banks are embracing “digital” — with cutting-edge apps, new payments methods, trying new technologies like blockchain or wearables and getting funky with cool new social media campaigns — all in an effort to stay current; but I still think they will be replaced.

Why? Because they are mainly just banks — they provide credit or debit and digital services to access that money and not much else.

Tech companies like Amazon and Google offer a whole range of products and services, building deep positive relationships with consumers that allow the introduction of further products and services. Gmail? Yes, please. Google Maps — love it. A new Google service that I can use to pay for all my subscriptions from one place — sign me up!

That may sound glib — but consider:

Amazon Cash

This is a relatively new service from Amazon where consumers can load cash into their Amazon account via physical retailers, via a barcode. It’s aimed at consumers that don’t have bank cards — but it raises some interesting possibilities, such as: If I was Amazon, what would I do next?

Right now, it works like this:

  • Consumers add money to their Amazon account by handing cash over in a retailer.

  • They can then spend it online.

But what if Amazon (or some other tech company) also:

  • Does a deal with retailers allowing consumers to use their Amazon (or similar) account in-store and not just online?

  • Allows consumers who actually do have bank cards/accounts to be paid, instead, into their Amazon account — perhaps by offering no fees, or interest, or free services like Prime?

  • Then perhaps they mention that they also offer credit. Need a small loan to buy that TV in Walmart? No problem, we can do that. Just click here!

Note that there’s no bank involved in any of that process, just a tech giant who already has a relationship with a consumer offering them some more services, on top of all the other services they offer.

Isn’t That Just Amazon Being a Bank?

One could argue that what I just proposed is just Amazon becoming a bank — and perhaps legally, they may require a banking license for certain products — but I think that would be the same as saying that Netflix is a video store. Video stores are gone, replaced by a new way of consuming films and tv shows.

Is using your phone to spend money in a physical store from an e-commerce company account  that doesn’t involve a bank-card, bank account, or bank branch  actually the same as using a bank?

And what if it isn’t a phone you’re using, but instead a new technical innovation released by a tech company?

Also, think about this:

Phone payment systems are training their customers not to need bank cards, i.e. not to need banks.

A lot of banks have embraced (reluctantly or otherwise) Apple Pay and Android Pay — where their customers can pay in retailers, with a touch of their NFC-enabled phone, the cash still coming from the customers’ accounts.

This behavior may seem like a bank using the latest tech to its advantage, but it’s also training their own customers to not use the most common payment method apart from cash — bank cards.

This is potentially removing the mental association consumers currently have between buying things and their bank. If and when they switch to a competing service that allows them to also pay using their phone, whether it’s a true “bank” or not won’t be important.

Great Customer Service Doesn’t Mean You’re Immune to Change

Banks (along with a lot of other companies) use NPS (net promoter score) or other customer satisfaction metrics as important success tools, as they should. Customer service is the foundation of success in a company.

However, if you’d asked me in the 1990s how likely on a scale of 1 to 10 was I to recommend my local video store to a friend, I probably would have said 11! They served actual popcorn and let you keep the movies 2 nights! But I watched Spectre last night again on Netflix. And that video store has been shut about 16 years.

Investing in Great Tech Isn’t Enough

Most banks are probably fully aware of the threats of other digital players — and have responded by investing wisely in digital services, bringing out new websites, apps, Alexa Skills, blockchain systems and more. All of this, though, may not be enough if those other players also do all of that — and can also offer a host of other services that attract their customers and build better relationships with them.

My main hypothesis is that it doesn’t really matter how “digital” a bank goes, or how happy their customers currently are, other companies that have better relationships with customers will gradually take the business away.

What Can Banks Do?

To survive and thrive, banks should invest in adjacent services and products — which some banks are already doing, for example, my old employer’s app to help potential mortgage customers find a suitable area to live in. It’s still banking-related but also offers features that banks wouldn’t usually provide; you don’t even have to be a customer.

Banks should view themselves as what they currently are — enablers of financial transactions that more and more other players can and will offer, along with a myriad of other non-financial services.

Banks should try to heavily diversify, to align and collaborate with other companies, and try to become more than just a company that their customers are simply used to using, as opposed to wanting to use.

Reprinted from Medium

  • Andy is an engineer and an innovator - passionate about the future of technology and where it will take us. He recently joined the Incubator team in Liberty IT, and is excited about what they'll create together.