Are banks safe from the threat of sharing economy platforms? Does the financial sector have the right concepts, or is the type of thinking typical the setting for disruptive players?
Sharing economy platforms
Sharing economy platforms are the fruit of the new technical possibilities that have opened up. Some prominent examples are Uber, Booking.com and Airbnb. These enterprises have shaken up traditional industries and forced companies to rethink their business models.
The platforms are breaking existing value chains in their respective industries and decoupling certain formerly linked functions. The functions are standardized and efficiently implemented via a single platform. Existing providers have underestimated the significance of such decoupling of functions in many cases (for example, a contact center is no longer required to call a taxi or rent an apartment.) This is eliminating differentiation among competitors, turning such services into commodities. Market entry barriers that formerly afforded certain protections against competition are swiftly disappearing.
Another interesting aspect is that these platforms have made it possible for new providers to enter the market. Offerings have become more diverse and more attractive for consumers. Markets have grown along with the new offerings (for example, more people utilize car services due to Uber). Older, established providers have been largely unable to derive any advantage from this shift, however. Partly because sharing-economy platforms are considerably more innovative than traditional providers. The former are continuously developing additional offerings so that older industry players are struggling to keep up. These agency and booking sites have grown with incredible speed.
What is the situation in the banking sector?
For a number of reasons, value chains in banking are only slowly coming under pressure. In the past, many standardization attempts have failed (like the recent “superbank” model). Most functions are seen as too important to dispense with or outsource. There is too much fear of losing control. Thus banks are still performing many activities themselves which hold scant differentiation potential.
And there is not substantial concern over new market entrants, as entry barriers are deemed too high. Capital requirements, regulatory requirements and customer reluctance to switch are seen as affording solid protection. Negative interest rates too are playing a role in making it uninteresting to enter the market.
Banking is not considered a particularly innovative industry, as innovation has apparently not been greatly necessary thus far. Because of risk considerations, lawmakers and regulators have looked askance at innovative solutions, undermining their viability.
In view of this, it takes little imagination to arrive at the view that the torpor of the banking industry is setting the stage for a disruptive new player to emerge.
What banks can learn
We in the financial sector remain stuck in old attitudes about how money is made, who the competitors are and how we see them and how we gauge what customer needs will be. While understandable, this is a dangerous mindset, clinging to ideas that seem to be the given framework. The only thing certain is change, so it is key to stay prepared.
The following are the lessons that I believe should be learned by banks that are interested in meeting the new challenges posed.
- Structures should be as adaptable and modular as possible to allow rapid steps to take advantage of emerging situations, offerings and technologies.
- There has to be a clear profile of the target customer group. This is essential for promptly recognizing new technologies that could pose a threat.
- Create a culture of openness to change! Step 1: Propose some change or other to your team and then analyze together what the reactions were.
- Jettison unnecessary ballast! For there is one thing we can be sure of: These new competitors will not have that ballast in competing against us.
Start by jettisoning the ballast of “formalities”. Finform can quickly and reliably take these burdens off your hands.
René Oppliger, CEO Finform
René Oppliger is an attorney with twenty years of experience working in compliance.
He is now Chief Executive Officer of the fintech and regtech company Finform.