There is a certain buzz among Fintech startups these days–“you don’t need to be a bank to offer banking”. They also have an underlying belief that banking will be a thriving business with increased digital adoption and this space is up for grab. The recent announcement on the payment banks licensed by RBI in India is a formal acknowledgment. The range of license awardees varies from telcos to pure play tech companies with no banking experience.
How will these non-banking startups learn banking and offer it to their customers? Well, the possibility is that they would not be interested in learning banking in the same way as the banks in the past have been.
The traditional approach to the banking has been “high touch”– build a deep relationship with your customer, segment them, find their needs and offer a new product to suit their requirements. Customer acquisition has been the key. Once you acquire them more-or-less they will stay forever. These new-age banks would be “no touch” and will be heavily powered by digital technology.
Products are commoditized already
What products you want, what should be the features – we used to ask the banks looking for a technology platform. The platform needs to be tweaked to suite your requirement. These features and the variations power your products. But the same questions if be asked to these new banking entrants – they would refuse to accept that a feature here and there can really differentiate them in the market. All the innovations in banking products that were possible – haven’t they been done already? Isn’t banking one of the oldest running businesses? Can there really be a standout differentiator between a savings, a loan or deposit account? I think “no”; banking offerings based on features and products have been commoditized already.
And when an offering reaches a level of maturity that it looses its differentiation, it may be the right time to expect them to be offered as a service. There is still a possibility of differentiation on the service (how the product is offered).
What does it mean to traditional banks?
The retail and payment space will be under intense competition in coming years. They will have to cede ground to these nimble players that would offer a new app even on a fortnightly basis. They will redefine how the banking service is offered to the customer. While the large banks grapple with their traditional business and technology setup, the new banks would be highly agile with no legacy. The engagement model of the banks with the customers will get re-defined.
The traditional banks may have to forgo fees like minimum balance if they have to stay in this segment. They really have to offer meaningful service to command a service fee.
So the net impact could be – the traditional banks will have to loose money & market share in a low-value transaction and will have to re-discover their engagement model with their retail clients. That is quite a bit of challenge to be addressed for an industry that has not been known for agility and innovation.
How does it impact the technology vendors?
We would be a new age banks, don’t ask us questions about technology platforms, not even business requirements because not only we don’t know, we would not care. We would be interested in evaluating how our bank will be accessed by the customers – how will it really interest them? Our teams have lots of ideas about customer experience. But please don’t ask questions about which general ledger code to use.
So the technology vendors for these banks have to be a business service provider as well. The entire offering would be required as to be offered as a service without getting into the engine room details on technology and business configuration. The new entrant banks can’t think beyond the ‘app’ and they don’t think they need to. They just need to focus on the digital engagement model with the customer and rest of the banking to them is just a service. So can they select a banking platform, choose the banking product to offer, pay the license fee on pay-per-use-basis and launch their offering on the internet? Essentially can they set up their banks in hours and days instead of months of requirement studies and implementation process?
Banking APIs & App stores will be the future of banking
Banking-as-a-service will standardize the data sharing across the banks if they expose the banking APIs on the cloud. This is the real elephant in the room. This will result in a true power of collaboration across the banks. The banks have been secretive always – least data sharing among them. They share data only when asked by the regulators. But if a secured and regulated way of sharing banking data through standardized APIs emerge among the banks; the biggest beneficiaries would be the end customer. Who wants to remember the multiplicity of login credentials and a variety of accounts in different banks? That will also open up the space of a banking aggregator.
Will that be an an Uber moment for the traditional banks?