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The era before platform economy—a look back
In the days of my (banking) apprenticeship in a small financial institution with only 250 employees more than 30 years ago, we were—no irony intended—terribly busy with technical innovation. At that time, the concept of platforms was not even remotely conceivable.
ATMs were already well-established, but introducing bank statement printers and, above all, getting retail customers to switch to them was a laborious process. Banks purchased the first PC predecessors and gradually replaced the central typing office. Document readers arrived next and as a first step made half the document processing team redundant. Every customer advisor was supplied with a commercial HP calculator (which, however, only a few actually knew how to use). Then came fax machines! POS card payment replaced the eurocheque. Customers bought their first futures contracts. Banks once knew how to carry out technical innovation, no doubt about it.
But they did not keep it up—at some point, there was a break. On the threshold of Web 1.0, customers who wanted to retrieve their bank account statements over the Internet had to switch to a direct bank. For whatever reason, further development and innovation were pushed into separate banks or, in the case of large banking associations, even utterly ignored. The “our-customers-don’t-want-that” mantra became increasingly prevalent.
Catching up to “digital is the next big thing”
Those who miss out on Web 1.0, will not embrace Web 2.0 or mobile solutions later. If an industry indulges in an almost 20-year innovation break, trivial stuff such as an account balance app naturally seems like disruptive magic. When it became increasingly clear from around 2012 that digital was “the next big thing” in banking, those responsible were busy elsewhere and didn’t pay much attention—after all, the branches needed to be renovated. Interestingly enough, however, bankers found it exciting to communicate with their children via WhatsApp. Wasted time.
For several years now, the industry has invested enormous sums in their endeavors to catch up. Unfortunately, the amount of burdensome legacy is so large that we are left with the impression that the definitely appropriate and important initiatives and use cases are five or more years late and have zero competitive differentiation. As a result, we have witnessed the “do-something-digital” wave. Whatever you do is (almost) irrelevant, since everything is so disruptive—the essential point is to ride the wave somehow. Lost in action, lost in operations.
Platform economy or contextual banking
We call it contextual banking, others refer to it as platform economy. Banks and insurance companies may have already (almost) lost some business areas strategically without ever realizing or acknowledging it.
To put it in simple terms—we already buy everything from Amazon anyway (Amazon’s share of online trade in Germany is at 40%), so why not also buy our current accounts, cards, loans or investments there? And anyway, who knows us better? Did you know that Check24 recently obtained a banking license?
We, however, think that it is very short-sighted to just consider existing platforms. New platforms—or rather ecosystems—are currently springing up everywhere at high speed, and they will significantly change the way we interact online.
After all, every platform’s goal is to offer exciting content to keep users hooked for as long as possible. This, however, was never “old” Amazon’s goal. They were all about process efficiency. But it is the goal of “new” Amazon—with offers such as Prime, Amazon Music + Movie etc.
Where will the journey take us—who are the trailblazers in the platform business?
Anyone wanting to see what is possible in platform economy should turn their attention to China. Hardly any of the major players are more advanced than Tencent and Alibaba, who merge functional offerings (“buying something”) with social content (“exchanging with friends/family”). So on each of these platforms, you can talk to your friends, transfer money, search for shopping offers, e.g. a new car that you can buy on the spot, insure directly on the platform and pay with a loan.
AliPay then handles the actual payment. And afterwards, you can proudly share pictures with friends—via the platform. By the way, you can also “en passant” invest money into he world’s largest money market fund—launched by Alibaba and managed by Blackrock. This leaves only one unsolved question: since the Chinese spend 7 to 8 hours(!) a day on the platforms—who actually needs a car?
These are extreme examples and most likely not compatible with European data protection regulation—that’s for sure, but still they represent one version of the future which more than clearly suggests where the journey is headed. These kinds of customers are not likely to return to the newly renovated branch. And how keen are customers on the new banking app …?
Platforms—the living space of the future: what does platform economy actually entail for established banks?
Established banks can of course continue with what they are doing anyway—reducing costs. Trouble is, platforms are so price-aggressive at the customer interface that income drops faster than costs. In the long run, “shrinking to glory” just doesn’t work!
We can only advise established players to address the platform issue as soon as possible. Build your own? Is that even possible? Or cooperate? Who is responsible for this in our company? Does anyone know anything about it? How do we find out about exciting developments? Is our technology even ready? How do we manage both the old and the new world?
These technical questions about platform economy, however, are accompanied by much more fundamental issues—how is change management meant to work in an organization that has banned innovation and in the past 10 years has shifted the blame for lack of innovation beyond small product features onto the regulatory tsunami? How do we as a bank create emotions and retain our customers? Or how do we develop better products? Which features really make sense and for which ones are customers willing to pay? And once we have developed new products—how do we ensure that they are launched in a powerful way?
The platform model becomes the guiding principle of contextual banking
At zeb, we too are unsure about which platform will ultimately prevail and what exactly this means for banks. The Austrian School of Economics offers orientation. Friedrich August von Hayek speaks of competition as a “process of creative destruction” and J. A. Schumpeter sees progress in pioneering entrepreneurs establishing “a new combination”, which specifically fuels creative destruction. For us, two things are certain within this framework of ignorance:
- In the future, we will conduct our banking business to a much greater extent in places where we are already (digitally) active. After all, back in the analog world our bank branch wasn’t on the other side of town. So, it’s all about “digital proximity”. The platform model will be the guiding principle of contextual banking. And this is not about digital versus analog world, platform versus old world, convenience versus … . It’s simply about the question of how we spend our personal lifetime. I personally don’t fancy searching for a parking space to then have to stand in line in a bank branch. Nor do I care for mobile solutions that cost me time and annoy me. Life is already hard enough without having to deal with the shortcomings of my bank. And Amazon and their buddies have always delivered well.
- EVERY institution had better get started VERY quickly—first small steps, getting involved, learning, improving, qualifying employees, transforming.
The trouble with exponential growth: it starts off slowly. But when the party really gets going, late starters are unfortunately out of the game.
The good news is that banks once knew how to innovate. Why should they not rediscover this ability? “Quick and decisive” sounds like a good idea.