How Retail Banks Are Being Displaced, Diminished and Disintermediated by Tech Startups and What They Can Do to Survive
James Haycock, Shane Richmond
Relational Loss39 is a concept that explains the importance of cohesion and relationships in teams. Individuals feel that as teams grow they lose support, which would buffer stressful experiences as well as help encourage positive performance.
The Deviant in this context who will question the team’s assumptions, rebal against conformity and be willing to ask ‘wait a minute, why are we even doing this at all?’ This was a role that Steve Jobs frequently played at Apple, for example, especially in the company’s early years. Every team should have a deviant.
Patty McCord, who was chief talent officer at Netflix from 1998 to 2012, wrote in an article for HBR34: ‘The best thing you can do for employees is hire only “A” players to work alongside them. Excellent colleagues trump everything else.’ To support this belief the company also has a rich severance package that allows it to discharge people who don’t cut it as A players.
In 1997, Jeff Bezos, told investors that Amazon was focused on the long term. He said: ‘If you’re long-term orientated, customer and shareholder interests are aligned. In the short term, that’s not always correct.’ In other words, when companies make decisions based on the next quarter’s results, they are prioritising share price and not value to the customer which may lead to the right outcome for one important stakeholder but potentially a negative one for an ultimately more important group.
Mark Zuckerberg, Facebook founder and Chief Executive once said: ‘The biggest risk is not taking any risk . . . In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks.
This is how the scenario plays out: first, the banks are displaced by new entrants offering better customer experiences and price. Then their revenues are diminished, as they’re relegated to a position of an undifferentiated utility in an environment with higher rates of switching. Finally, the arrival of a new technology, like the blockchain, challenges the banks’ core competency, as the new players bypass their services, disintermediating them entirely.
MaxMyInterest, a US startup that calls itself the ‘intelligent cash management solution’, demonstrates a similar idea by helping maximise savings returns. The service, which is still at a relatively early stage, helps easily move customer’s money between accounts to get the best interest rate at any point in time.
This is a very big risk. As the offerings of the banks are not that differentiated the relationship with the customer has a very high value, much more, potentially, than any other industries. There’s currently an inertia with getting the customer to move from one bank to another . . . So if one of these startups make it easy for me to go from working with bank A to working with bank B, because in reality, you’ve created a layer on top that allows you to replace the bank on the back end but retain the relationship with the customer on your own, you are in fact destroying my revenue model.
LevelMoney, which launched in 2012, is another US-based PFM which targets millennials looking to pay back student loans and to start saving. The business received $5m investment from VC KPCB and as of January 2015 had 700,000 users before it was acquired by Capital One.
The objective of Google is not to create a payment solution. The objective of Google is to be able to address the issue that they’re having, which is the cost-per-click model is becoming less transparent of what benefit the advertiser is getting from that click.
In the case of Google Wallet, they can say, ‘Well, that customer that browsed X and Y, I can confirm to you that they went and purchased your product and here’s the proof.’