Has Banking's 'Uber Moment' Arrived?

So deeply embedded in the minds of most people is the equivalence of 'Uber' and 'disruption' that it appears that no amount of pedantic argument in the opposite direction is going to shift opinion. Uber is as synonymous with disruptive innovation as Coke is with cola, irrespective of the protestations of Prof. Christensen, or indeed Mondato Insight. The battle is lost.

Nonetheless, the futility of the distinction was laid bare recently during a speech by the former head of Barclay's Bank, Antony Jenkins, entitled Approaching the Uber Moment in Financial Services. Even without having read or heard its contents, anyone with even a passing understanding of financial services or the digital economy is likely to understand, at least in broad terms, what moment he was envisioning. The digital transformation is beating on the door of the bank on your local Main Street or High Street.

 

Uber: The CX King

 

In a reprise of comments originally made last November, Jenkins warned that the result of the Uberization of banking may well be that your local bank branch shutters its doors: Jenkins believes that, even by the most optimistic forecast, banks will be required to slash their workforces and close 20% of their branches. For Barclays this would mean the loss of 26,000 jobs world wide. More pessimistically, he believes that in 10 years' time banks worldwide will be half their current size, which for Barclays would be equivalent to closing 700 UK branches and losing 60,000 jobs. This needs to be set against the World Economic Forum's predicted decline in general office and administrative employment of 5% in the 2015-2020 period.

Quite how shocking this sounds may well depend upon what age you are: a survey by the British website uSwitch found last year that almost two thirds of young people haven't set foot in a physical bank branch in the previous three months, whereas more than three quarters had accessed online banking. This cohort is more likely to be annoyed by a poor mobile banking service than not having a local branch of their bank. Moreover, one in four millennials in the survey said they believed a big Silicon Valley company such as Amazon, Google or Apple could offer better financial services to their generation than The City. A different survey of millennials in the United States put that figure at half.

This hints at one of the core messages that banking futurists such as Brett King, one of the forces behind Moven, have sought to emphasize (recognizing, of course, King's interest in the realization of his predictions): that Customer Experience (CX) based on 'mobile-first' usage will determine who succeeds and who fails in the bank of the future.

 

WhatsAppening?

 

Last year, in what Jim Marous at The Financial Brand labelled 'The Great Digital Banking Debate', King went toe-to-toe with Michal Panowicz of mBank. During the course of the debate, Panowicz laid the charge that businesses such as Moven were "not banks - just a skin on top of real banks." King retorted that Uber didn't own taxis, yet consumers still considered them a cab firm.

In this comment King, perhaps unwittingly, highlights the problem with the Uber comparison. Uber leverages other players' existing infrastructure to bring customers a superior product and customer experience. Being able to replicate that qualitatively better CX in banking is the basis upon which the success of products like Moven and Simple are predicated. In the process of improving the CX, Uber also transformed consumers' relationships with taxicabs: no longer did the customer search for and chase down cars; cars came to the customer. And in doing so, Uber also managed to drag up service quality among regular taxis.

The analogy is imperfect on a number of levels. While alternative financial institutions (AltFIs) may behave like Uber or seek to mimic its success, banks are not the taxi industry. Uber could have continued success even in the absence of taxis, but AltFIs need the presence of the prudentially regulated underlying banks to be able to offer their services, even if in the process they have eviscerated same said banks' suite of retail products (at least under their own brand names). Uber broke down the doors of a highly-regulated industry by flouting the law and daring politicians and regulators to catch up. Given the current political mood in most countries, and the widespread experience of financial crises of the past decade, that is an approach in financial services that is unlikely to survive for long, and is clearly undesirable. The risks of expanding the "sharing economy" into financial services was laid bare just a few weeks ago in China, when Ezubao, a P2P lending platform that had taken in USD$7.6 billion, was discovered to be a Ponzi scheme.

Rather than having its "Uber moment", it might be more useful to consider whether the financial services industry is having its "WhatsApp moment": the wave of upstart startups in the financial services industry, just like OTT players in telecoms, have a parasitic relationship with the underlying infrastructure and its owners: without somebody maintaining cell towers and laying fiberoptic cable WhatsApp isn't a great deal of use.

Similarly, what gives AltFIs their agility is precisely the fact that the are not banks, and do not have to adhere to capital ratios and allow themselves to be subjected to prudential regulation, yet they still depend on someone doing so in order to function. AltFIs need to be able to assure customers that their monies are safe. For that, they need banks. It is one thing to get in a random amateur driver's car. It is quite another to entrust them to look after your money.

In many respects, debating whether Fintech startups are disruptive or not misses the flip-side of the argument: it is clear that incumbent banks (Techfin, as Chris Skinner has labelled them) are caught in the classic innovator's dilemma scenario: customers do not like change when it comes to banking. This means that they are both reluctant to switch banks, and are often unhappy when their bank changes something with which they are familiar and comfortable. As Skinner put it, "Change implies risk, and general banking should avoid risk in the eyes of both the bank and their customer."

 

FaceBank?

 

During his time at the helm of Barclays, Antony Jenkins oversaw the bank becoming a pioneer in its use of technology, from mobile phones to wearables, even to the point of sitting out the launch of Apple Pay in the UK in order to plough its own furrow. As such Jenkins is very much aware of the potential risk that Fintech could pose to retail banking. However, irrespective of whether the banking industry is having a "WhatsApp moment" rather than an Uber one, the lessons to be learned from telecoms suggest that his predictions may be somewhat alarmist. As Mondato Insight discussed last year, banks, for all their faults, still retain consumers' trust, and as noted above, consumers remain conservative and risk-averse when it comes to their banking choices.

The data-rich personal finance dashboards that were so evident at Finovate Europe two weeks ago represent the space where the Fintech wave meets the Techfin shore. Opportunities abound for all classes of players, including banks. And while the closure of half a country's bank branches sounds dramatic, it need not be. Both Uber and WhatsApp cut prices and raised quality in their respective spheres. If customers are no longer visiting branches because they are enjoying a better CX and availing themselves of better-suited financial products via their digital finance dashboard, they may hardly notice the absence of a physical branch (indeed, for some new entrant banks, that is part of their USP). And while care needs to be taken to ensure that the vulnerable and those unable to use digital technologies are not abandoned, banking's WhatsApp moment is likely to be a cornerstone of The Fourth Industrial Revolution. Perhaps the only question remaining is how long until you can control your finances from Facebook?

© Mondato 2016. Mondato is a boutique management consultancy specializing in strategic, commercial and operational support for the Digital Finance and Commerce (DFC) industry. With an unparalleled team of dedicated DFC professionals and a global network of industry contacts, Mondato has the depth of experience to provide high-impact, hands-on support for clients across the DFC ecosystem, including service providers, banks, telcos, technology firms, merchants and investors. Our weekly newsletters are the go-to source of news and analysis in the DFC industry.

 

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Mondato is a boutique management consulting firm specializing in strategic, commercial and operational support for the Digital Finance & Commerce (DFC) industry.
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