I read an article on TechCruch today, philosophically describing how the banking industry could go the way of other industries that have failed to properly keep up with technology and society. It brings up that banking could be in the same position as telecom companies are in now, of being relegated to offering their services to third-parties, a term called "dumb pipes". Dumb pipes, as described in this article, is how telecoms (AT&T, Verizon, etc) are no longer the go-to place for getting phones as they were even five years ago. Think about this, how often do you talk about your phone carrier versus your actual phone?
If you're like me, hardly ever. Now think about what these telecom companies offer now in terms of services. They are selling more than just phone and TV service, they are offering streaming deals, mobile hotspots and other devices. One thing that the telecoms have invested millions, probably billions of dollars of investments into is their infrastructure. That investment is now taken for granted and some of that is even outdated (i.e. copper). They are also struggling to keep up with the times and what society wants in terms of communication because services like Skype and Google Hangouts; they offer free or cheaper alternatives. Even Google Fi makes carriers irrelevant as we can now get our service through Google. But that service actually uses the current telecom companies, it's just Google has "rebranded" the service.
Think about that same situation with banks. What the article refers to as "unbundling" basically means is that the basic services banks rely on are being "rebranded" by third-parties. One example of this is Simple. This is a strictly online financial institution. I signed up for them about two years ago to see what they were about. They offer all the basic checking account services I need and actually use. The difference with them and other banks is that they have no brick-and-mortar locations, it's all done online. But, they are backed by a much larger bank. A company that takes the place of another to offer cheaper and/or better services. Google Fi similar much?
Another good example is Prosper. I've been hearing quite a bit about this company and I'm currently deciding if I'll be investing with them. The premise of Prosper is what they call "peer-to-peer" lending. Why go through the hassle of going to a bank, fill out tons of paper work for a loan and not get the money, or have high interest rates. Or even go through this work for just a few hundred dollars? With Prosper, people can sign-in, request a loan for whatever amount they want/need and say what they want/need the money for. Then investors decide if they want to loan the money to that person. If this catches on, banks might be hard-pressed with being able to compete. After all, with a peer-to-peer model, there is less operating expenses, such as maintaining a brick-and-mortar location.
What this comes down to is that banks, just like the telecom companies, won't disappear anytime soon. The idea is that they won't be the go-to players like they used to be when people need something. They'll become "dumb pipes", offering the foundation for companies and consumers to conduct their business and watch everything happen behind the scenes.
The interesting thing about this article is it doesn't go into much detail, it's more of a thought provoking message. What are banks going to do to stay relevant as more and more people go digital, use online banking and go into branches less? Being in banking myself as the IT Manager of a community bank, we've been talking about how our future branches are going to be smaller because there isn't much foot traffic. Maybe us in the Financial industry need to think about how we can make banking more human.
Relating to the fear when ATMs [automated teller machines] were invented and used, everyone worried that human tellers would become obsolete. It's the 21st century and we still have human tellers because people still want that human experience, especially with money. While we all focus on staying relevant with technology, banking has a unique opportunity to keep the value human experience just as relevant. And as always, stay safe goblins.
Fun thing about the ATM situation, knowing people in the banking industry, they've shared that there are some experimental branches that are completely and entirely ATM oriented, only staff they have are those who reload the ATM's. And not to sound like a wet noodle, I don't really mind not having to deal with humans, sure sounds a bit anti-social, but it doesn't really add or detract anything from the experience, I want money, I get money, yay. With or without a person smiling and handing it to me, the experience is the same... Maybe I am a little anti-social...
ReplyDeleteI wouldn't say you're anti-social, it's how our's and the younger generations are now. The reason we are discussion if branches should be smaller is because there is less foot traffic, because there isn't much need for people to go into a branch anymore.
DeleteBesides the fact I work at a bank, I hardly go into mine. The only reason I do is to either access my safe deposit box or handle something that I couldn't online. When I got my home mortgage, it was all online or over the phone.
Interesting concept. I find that I never go inside branches anymore- the first time in a couple years was when I bought my last car a few months ago.
ReplyDeleteAs long as there is cash, we will always needs a physical interface to a bank or credit union. If there was a bank-agnostic ATM, I could literally be anywhere.
Not that the tellers aren't nice. :)
Great article, Jimmy.
Thank you for that. I do agree that cash is a big factor, but with a lot of online services, banks do need to do more to keep customers coming into branches.
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