It feels like every business is at risk of disruption. Today, business models either evolve or they get re-invented.
From Amazon changing retail to Instagram making everyone a photographer to Uber allowing anyone with a car to be their own transportation consultant (i.e. 'taxi'), the constant is rapid business evolution. Brands that have failed to adapt, like Kodak, have disappeared and the brands that have appeared in their place, like Instagram and Uber, have grown in scale and value incredibly quickly.
But through it all, one sector has managed to remain for the most part static: Retail banks remain almost unchanged. And yet the financial landscape is rife with innovative fintech companies offering everything from crowdsourced loans (such as Prosper and Lending Club) to mobile wallets and payment (such as Apple Pay). With so much innovation in the space, and so little change from banks, rarely a day goes by that people don't talk about their impending disruption—or as people say the coming “Uber moment” for banks.
And it's true. Banks have to change. It is not enough to offer online or mobile banking. People today want brands that fit with their lifestyles. But in too many cases the answer from banks to the lifestyle challenge is simply to launch a new deals service or credit-card point scheme. A few banks are definitely trying to do things differently: Barclays in the UK has an internal innovation team working on services such as its notable P2P payment service PingIt or Fidor in Germany, which established a reputable community where real financial questions are answered by reliable and transparent sources.
But even with these banks, the core business remains unchanged, and also, they are exceptions and not the rule. So like the landline phone, will banks soon mostly disappear? I think not.
Interestingly, while new technology is what people perceive as the threat to traditional banks, the innovative business models originated by tech companies like Uber are what offers banks a lifeline. However, transforming their businesses to those models will require a change in thinking and strategy on their part.
Over the course of my career I have worked with many banks, and one thing that is almost universal is the desire to increase product penetration with customers to prevent churn. The thinking is that the more products a customer has with the bank, the more difficult it is for them to leave. As a result, banks create more and more products in the hope that one will appeal and they can get you to sign up for your second product with them…or hopefully your third.
It is product-focused thinking, and it has to change.
The power of multiple products is not churn management; it is platform servicing. Take Amazon as an example, it creates new products that focus first on providing a better service when used in combination. For example if you have a Kindle, it is easier and faster to get a book than if you order it, and if you have an Echo, you can simply talk to your house to get news or other web based info—and of course it makes ordering things from amazon easier as well. In both cases, the services are complimentary to the core but are developed to fit within the lifestyle of a connected consumer.
This is service thinking and it helps to create the platform business models like Amazon and Uber that are thriving today. But what does it mean for banks? How can they get started down this path?
By thinking differently about their scale, breadth of products, and how they use consumer data, banks already have the ingredients to transform themselves into platform business models. Below are three simple (or at least simple to write) recommendations:
- Make life easier: Don't just build products that offer a better rate (or other incentives) when you have more than one. Build products that work together synergistically to make life more convenient.
- Make your competitors your allies: Recognise that no one will use your platform exclusively (just like we don't shop at one store exclusively), so think about how you can open-source your platform to allow fintech companies to build on top of the platform you already provide, not beside it.
- Flex your data muscle: Look at data as a tool to personalize experiences, not just target marketing messages.
But the first step in all of it is shifting from a product mindset to a service mindset, where you put the customer first.
Justin Peyton is APAC chief strategy officer for DigitasLBi