Fifteen years ago I attended a brainstorm session entitled 'The threat of the non-bank', one of the many brainstorm sessions of the strategy department of ING Bank. At that time supermarkets started offering out banking products and the Dutch bank was closely observing this. Through their wide network of branches supermarkets had great reach and they started to spread their wings to utilise it.
Fast forward to the present day and we might finally see this threat materialise on a much larger scale - this time in a different format but based on the same premise, Reach. Technology has made it possible to have instant reach - no longer the need for expensive branches and thousands of employees. The friction of growth has been eradicated and a viral spread could eat the traditional bank without it having much chance to defend itself. The Bank of England's Mark Carney expressed his worries at the World Economic Forum when referring to the disruptive power of Transferwise, the British start-up reaching the $1bn valuation mark.
But why can't banks innovate from within and why do they let their bread and butter be taken away from them right under their noses. Ironically, being innovative has actually lead to their demise. Financial Engineering with it's 'highlight'- the CDO -the stuff that taught the world that you can't spend more than you can make '- has put the banks in the dog house. Any field where they have tried to break the status quo is being scrutinised. Like their Pavlovian brothers this is resulting in a culture of conditional reflexing - innovation means risk and is therefore bad.
The weakened defences of banks have created a gigantic opportunity for new entrants into the FinTech space. They are not subject to old-fashioned IT infrastructures, hierarchical reporting lines and management by fear. They don't have to pass on the costs of employing hundreds of thousands of people as legacy of their historic way of working. They are attracting the engineering talent of those that want, and more importantly can innovate and think outside of the box. As Eric Schmidt eloquently put it, 'Managements job is not to mitigate risk or prevent failures but create an environment resilient enough to take on those risks and tolerate the inevitable steps.' Those steps are being taken on every banking activity out there and the speed of client acquisition is unprecedented. Alibaba raised $80 billion to set up a wealth management side in just 10 months - something that traditional banks used to take decades to do. How? REACH - by having access to millions of investors through their e-commerce site they have created the fastest growing mutual fund in all time and its size is only topped by three US money market funds. Historically banks could rely on balance sheets and trust to retain clients, there simply was no alternative. Present day - Apple has twice the amount of cash as the US Treasury and could decide tomorrow to enter the game (fully). But ironically cash is not what will shape the banks of tomorrow it is how do I read and reach my customers that will. F/m=a