Today when we think of loan or a financial product, the first thing that comes in our mind is bank. You want to have mortgage, go to banks, you want to have credit card, go to bank, you want to make a deposit, you go to bank, you want to wire, you go to bank. Though many may argue that they use online banking but that’s still a bank and unless there is a very strong reason for you to go to a 3rd party, you try to consolidate financial matters through one single institute & the first choice is bank.
Their brand power, accessibility & trust factor is unprecedented. 3rd party vendors are not more than your corner convenience store where you go when you need something in emergency, but weekly/monthly grocery is through Walmart or any big retail store. While price is certainly a factor, availability everything under one roof is also very convenient. Same is the case with bank however as opposed to big shop pricing discount services at bank are often expensive as opposed to 3rd party. There is a premium to exchanging currency or do a wire transfer. Though lot of it is attributed towards the fact that they can charge that premium without churning a big chunk of their business, but the other factor is high operational expense that they’ve to occur. While our parents were used to banks, we’re using a combination of services to well fit our need, but it’s diluting the dependence on bank. As the shift grows banks have to take a different approach competing with startups & they’re well poised to do so.
While they’ve the customer base, well capitalized and have the infrastructure & regulatory clearance. They however may lack the thirst to innovation & are slow to move. I however think that the best approach for them is to partner up with startups & built a marketplace.
Now while banks have their own arrangements and partnership for every product they offer, they do operate more like a close loop system, but I think it’s time to change it. They should instead turn into a hub to offer multiple services. May be like Amazon but white label. At the moment they’re operating more like United Airways but what if they shift their model to Expedia with a white label badge. You want to transfer money from A to B, you’re presented with 2 options. Be there in 4 hours, it’s cost $10, be there in 2 days, cost $1. On backend banks have APIs of startups which provide those services and banks can use those startups to find the most efficiency way to perform a specific service. Win for banks and win for customers. Customer churn rate will reduce and banks will keep their branding.
There has been recent cases where banks have partnered up with startups providing them the branding but if they do it well, they should just actively pursue it as a business line. I don’t expect big banks to buy into this idea soon, but the one that does will emerge as a winner and won’t provide space to startups to displace them.
My bank of future will have very few branches and will have partnered up with 100s of startups offering services and competiting for best quality & cost.
Let’s see who that’ll be in 5-10 years