In the 1990s, I spent a long time studying bank trends and the future strategies banks and other would take.
The conclusion I came to is that there would be a general cross-industry bank trend, where non-banks would enter banking and, in order to get banking skills, would acquire banks.
The end-game would be that banks would acquire and merge with retailers, telco’s and other bank-like companies whilst bank-like companies, such as retailers and telco’s, would merge with banks.
Two decades later, that prediction hasn’t come true.
Banks are still banks and non-banks are still non-banks. For all the forays of non-banks into banking, banking still remains the core domain of banks.
Sure, there’s been some erosion of the periphery – savings, investments, loans, credit cards – but the core remains the banks primary domain: the deposit account.
This is because the core account is based upon the transaction.
The piece that everyone says is commodity, but it’s actually the sticky bit that allows banks to go for the share of wallet around it.
Core transaction services are the stomping ground of banks and it’s the reason why they are so loathe to lose it.
But as the Payment Services Directive, Faster Payments and more encroach into the system, more and more non-banks are starting to attack that core bank capability.
Transactions are no longer a bank’s domain.
It’s why M-PESA has shaken the Kenyan banking system, as Safaricom takes over the core processing of payments across this country to become the nation’s number one bank.
And it’s the reason our friends at Banking Review write about some new research from Amdocs, which states that banks will end up in a head-to-head battle with mobile carriers.
The telecommunications industry is on a collision course with the banking sector ... that’s the finding of new research from customer experience systems provider Amdocs, which interviewed 120 telecommunications service providers across the Asia Pacific region ...
The survey found 95 per cent of all telecommunications operators have an active, defined strategy towards mobile payments, with billing on behalf of app stores and virtual goods, and prepaid top-ups the top three most popular markets being pursued.
If that statistic isn’t enough to scare bankers, there’s more. Over three quarters (84 per cent) of telcos surveyed are pursuing bill payment services, 79 per cent are investigating peer-to-peer money transfers, and 76 per cent are working to offer point of sale or wireless services to enable the purchase of products. And it’s all about the money, with new revenue streams the reason given by 83 per cent of those surveyed when asked the major benefit of pursuing mobile payments.
It's good scary stuff.
But I have to spread a little sprinkle of salt on this cauldron of change.
And my salt says that banks have been very good at stopping any non-bank stealing their turf over the past two decades. That's why we haven't seen a cross-industry merger and acquisition spree yet.
It still may happen and telecommunications firms and banks may merge and become one in the future but, for now, the idea of mobile carriers and other non-banks eating the banker’s lunch is nice in principle but, in practice, a head-to-head with the mobile carriers is unlikely.
After all, any non-bank that tries to get into a bank’s core domain of stickiness is going to be seen as a predator and, being especially adept at deflecting predatory activities, are banks just going to sit and let this happen or will they move the goalposts?
I suspect the latter and that’s what we’re seeing right now: the goalposts moving.
Banks are moving from basic transactional services – which the mobile carriers will attack – and into what I will call Transactions Plus.
Transactions plus, or Transactions+ if you prefer, is where banks demonstrate their worthiness by showing you that it’s not making a payments transaction that is important.
You can now make a payments transaction with anyone: a mobile carrier, Western Union, PayPal, Square … you name it.
What’s important is the ‘+’.
The + is everything that goes with the transaction: the cash dispenser, the online access, the contact centre focus, the budgeting system, the app …
This is how banks in the tweenies – the teenage years of the new millennia – will make their gains and differential.
They will focus upon the everything that goes around the transaction, rather than the transaction itself.
This is just as true in commercial banking, where corporate value-added services are the key, as it is in retail banking due to the basic transaction itself being commoditised.
The issue therefore is to realise that what was once the core stickiness for a bank service – the transaction – is no longer core.
This is the piece that has been yielded to the non-banks and is no longer a focal point for the bank.
And that is the point that Banking Review has picked up on, in that the core transaction processing of a payment is now an area where banks are head-to-head.
It is why banks need to focus upon the Transaction+.
For banks that understand this, they are creating stickiness elsewhere in the system.
For banks that don’t understand this … goodbye.