Fighting fire with fire?

I recently spent some time with the Board of a large African retail bank, reflecting on the threat and the opportunity that the so called ‘fintech’ revolution brings. The noise around the likes of Square, Venmo globally, or Zero, Tyme and Yoco locally is strident and ceaseless.

It’s a debate that’s gets stylised too quickly and easily between two opposing camps:

– the ‘fintech fundies’ who believe traditional banks will simply fail to survive under the tsunami of new ways of paying for goods and services; 
– the ‘naysayers’, who believe that the core banking, transactional infrastructure is too big to replace in most developed economies.

As is often the case, my role was to balance the debate, and tease out of the Board a greater level of consciousness and awareness of the issues. At the same time, we sought to create more clarity on the potential intended and unintended consequences of their current strategic plans, given the fintech backdrop.

I have long contended that the last banking product was invented in 1397, in Italy by the Medici Bank, who by then had clearly defined the same three banking products that we still use today:

– the loan
– the deposit account
– the current account

Whilst the world around those products has changed significantly since then, banks have continued to quietly and effectively leverage those three products to make a ton of cash.

Fintech started in 1966, with the advent of the first Automated Teller Machine (ATM) in the London suburb of Enfield. But what did this actually do? It simply heralded a new access route to the cheque account. Todays’ all singing all dancing ATM machines now merely give you access to the remaining products: deposits and loans.

The cellphone apps that we use today continue the theme: a new access channel and route to transact against the three banking products. Yep, it’s more convenient than going to the branch, easier than phoning a call-centre, but intrinsically it is the same as the introduction of the ATM. New clothes: same body underneath.

ApplePay… Well you’ve guessed where I’m going now. An easy, convenient access channel to spend money. PayPal…. Ditto. They are just new, sexy current account access routes. 

Behind the scenes the reality is that every app-transaction, every ApplePay debit, every PayPal purchase is being enabled by… {big drum roll} … the traditional banks, using traditional banking platforms, running complex, sophisticated and highly bespoke systems which are damn nearly impossible to replicate (or understand).

So, is it all a myth, a fad? Of course not.  The digital native apps like ApplePay, the digital native banks like Zero, and ally, are beguiling and bewitching the banks’ customers. If you lose direct access to your end customer, then the likelihood of traditional banks being commoditised as back office, transactional services providers is very real.

And why do ApplePay, or the many equivalents, want to be your access route to making payments? Because they want your data, which they then leverage in a multitude of ways, and they want you inside their ecosystem for as long as possible to cross-sell their wares – whether that be a phone or an associated ‘partner’ product or add-on.

As with many hype curves, the impact of fintech is being massively exaggerated in the short term but, being massively underestimated in the long term.

So, what would I do if I was a legacy bank?

Continue the stout defence across the daunting regulatory moat for as long as possible, preventing lots of new ‘real’ banks starting up, slow down the loss of customer relationships and data by offering your own ‘digital immigrant’ apps and tools that are nearly as good as the digital native raiders, whilst launching a new offensive that would make a real difference: new, innovative banking products that can actually make a difference to a banking consumer.  

The revolution that traditional banks need to drive is not yet another access channel change, to a product invented in 1397. The banks need to fight back on their own territory. Banking. There isn’t a fintech product yet that has fundamentally changed the 1397 product set. Customers may enjoy the new access routes, but what they really need are more flexible, lower costs and agile banking products that actually make a difference.

So, banks – it’s over to you. Fight fire with fire. Innovate, adapt and change the core, and show consumers that there’s life left yet in the (very) old dogs. Fail to do this, then a long slow and lingering route to being a back-office provider of infrastructure awaits. Just ask Kodak how that feels.

And what would I do if I was leading a fintech?

Exactly the same. Banking is a legacy industry crying out for product change and disruption. Focus on the movement of money, and not merely the access point to the customer, and then fundamentally shift the balance of power away from the transactional, infrastructure-based banking keeps defended so well by those regulatory moats. To do so, you need a new, digital, based view of how to make money, or an equivalent of money, move, transact and re-appear exactly when needed by the consumer, and not tied back to the product set of 1397.

So, Fintech players – it’s over to you. Take the battle to the product and don’t become another wannabe ApplePay or PayPal. Fail to be different, then you will fail to be anything. Just ask the creators of the Amazon Fire Phone how that feels? Fighting Fire with Fire…

Ian Russell is the CEO and Founder of Disrupting Consultancy, a niche Board advisory company focused on the power of positive disruption and digital tools to create a whole new clockspeed and performance trajectory for business.

Ian’s last corporate role was as CEO of BCX, Africa’s largest technology company, with a turnover of around $2bn and a workforce numbering 10,000 employees. Prior to this, Ian was an ExCo member at Telkom, and one of the driving forces behind the recent turnaround of the once ailing telco. Ian’s original background was in supply chain and procurement, and he has been a CPO multiple times, in the telco, FMCG and financial services sectors.

Ian is a vibrant professional speaker, having spoken to everyone from major CEOs to aspiring students. He energizes and illuminates groups with his extensive, and authentic, business knowledge, irreverent style and strategic ‘Future Fit’ mindset. As someone recently said, “after listening to Ian, you’ll never think the same way again!”

Ian’s latest book, “The Other End of the Telescope” is released in April 2019, and has been described by Dion Chang, Futurist and Founder of Flux Trends as “the wisdom of 25 years of hindsight, distilled into one potent antidote for the Kool Aid being consumed by most businesses as they attempt to face a new world order in which all the old corporate rules no longer hold sway.”

All Royalties from the book will be donated to the Christel House SA School, which is the South African offshoot of the American Christel House Foundation. In the school there are over 1000 children from the local communities, from 3 years old, through to graduation at the age of 18. 

To enquire about the advisory services we offer, Ian as a professional speaker, or his book, please contact me here