Is there going to be an Uber of banking? An Airbnb? Will Amazon become a bank? Will Alibaba establish its own financial system?
"Facebook and Google came in and just focused on engaging the user and capturing data.” - Choudary
Noted Australian fund manager Hamish Douglass of Magellan recently questioned the soundness of investing in banks over the next decade for precisely these reasons.
“Ultimately, technology and platforms are going to fundamentally undermine the competitive advantages of these big retail banks in the world,” he told The Australian Financial Review’s Vesna Poljak.
“The regulators have taken one slice out, platforms will take the next slice out.”
Underlying the uncertainty is the nature of platform economics. Where once the branch ruled supreme, the future will be digital and platform based.
Branches worked because banks needed to harvest deposits from the community and lend out the money. They needed to be secure, the bank needed local knowledge. A physical branch network was the answer.
In a digital world, customers are no longer acquired physically. And that brings a seismic shift in the economics of financial services.
In the past many rivals had the brands, the networks and the products to attract customers. Where they competed was on price and costs.
Today the costs of manufacturing financial products have either plummeted – because of technology and process improvements – or are external – the price paid on funding markets.
The new challenge is the cost of acquiring customers and the answer is platforms: network efficiencies offer the potential to add multitudes of new customers at marginal extra cost.
One of the global experts on platform economics is Sangeet Paul Choudary, co-author of Platform Revolution and the author of Platform Scale.
Sangeet was briefly in Australia and conducted a highly engaging session with the ANZ board - after which he explained how the platform revolution would play out in banking in a podcast with bluenotes.