The Uber Moment Of Banking Is Coming, There Is Nothing The Banks Can Do.
I often speak and write about the disruption of technology in the finance world, but there has yet been the 'Uber' moment of banking. The door has been wide open for somebody to come and disrupt the industry, the main reason is the banks and financial institutions have been slow to react to the digital revolution. After coming across a Google concept on LinkedIn the other day it is clear they have been developing a way to disrupt and improve the whole market. I have been talking about this concept for a number of years and if executed will completely take over the whole market. The concept is an application that allows the customer to interact with all financial institutions when searching for products. Similar to a compare website, but it also allows you to have all of your banking holdings visible and accessible on one page.
Click the link for the Google demonstration.
This particular model would have not worked a couple of years ago, but the timing of this is key. In January PDS2 is coming in to place across Europe, PDS2 is a European directive that essentially is forcing the banks to open up the information they have for other financial institutions to be able to have access to this information. So if you have a bank account at Barclays and want a loan with Santander, Santander will be able to access the information without requesting from the customer, although gaining the customers permission. What this does is allows companies to use the information the banks already have as demonstrated by Google in the above link. This becomes a game changer in the market for a whole number of reasons, but firstly it will create a lot more competition among the banks as they will have to offer much better products to attract and maintain their customers. I believe what Google have demonstrated above will be the end of banking as we know it. If you can access all of your financial holdings in a secure place this stops the need of having numerous banking applications as well as paperwork, which essentially creates the convenience factor everyone is looking for in the modern world. Not only this if this application then allows you access to compare your financial solutions and find the best products to suit you then it is not only adding convenience to the customer but also potentially saving them a lot of money on an annual basis.
For example a customer has an application that brings all of their financial holdings in to one place. The application then knows when that customers mortgage rate is going o finish, the application then promps the customer and also gives them the cheapest options in the market. It then also points them in the direction of how to apply for the product weather it be direct to the lender or through a broker. Not only this, due to the fact the application holds all of the information the lender or broker would require, the process then becomes seamless.I can see the application essentially holding information such as credit reports, company accounts, tax returns, payslips, pensions information, investment information, copies of ID and anything else that could be needed when applying for lending. This essentially makes the application valuable not only to the customer, but also to any professional advisers they may use, also valuable to the lenders as they could take the information from the app when underwriting debt. If eventually all of the information is then open upon the clients permission (such as a credit report), then we would get to a stage where people would not have to supply any documentation when looking to purchase financial products. This is adding real value to the client by savings them time, making their life convenient and potentially saving them a lot of money. Obviously this process could be replicated for insurance products and almost any financial product a customer has.
The problem for the banks with this concept is they lose full control of the customer, meaning the customer is communicating to the bank through an intermediary application. This is exactly how Uber have taken over the taxi industry, they still use tax drivers that are not employed by them and they connect the customers through their platform to the drivers. In turn making life more convenient for the customer whilst also saving them money but leaving no control of the customer to the taxi driver. This causes huge risk for them as the customer could be taken away from the bank at any time as they are not actually working together directly, as can jobs from Uber to their tax drivers. The only way banks will be able to manage the risk would be if they create their own version of this concept. They would need to allow their customers to have access to other banks financial products through the banks own application e.g. If you bank with Lloyds but have a Halifax mortgage, you are able to view your Halifax mortgage through your Lloyds banking app. There is a similar company that has executed this concept for their financial planning business in the US, the company is called Pesonal Capital. They allow customer to use for free and then when they have more than $250,000 in holdings, they urge the customer to speak to one of their financial advisors to get assistance with their investment strategy.
With this business model the APP creator (Google in this case) would not even have to create their own banking products to become profitable and would just need to point their customers in the right direction. This increases profit margins hugely and once up and running there will be minimal ongoing costs to keep the business running. Everything in banking has a million compliance hoops to jump through, which is great for the protection of the customers. If the compliance hoops are jumped through correctly and the regulator is happy then this will be the concept that changes the banking world as we know it.
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