Bank changes? Not So Much.

Last week, I spent time at SIBOS, which is the world’s largest banking conference. Whilst there, I participated in Innotribe, the stream SIBOS dedicates to matters of innovation in financial services.

Something interesting was very evident.

Basically, the crowd settled into two camps. On the one hand were those that predicted that innovation in financial services – particularly those driven by new channels (mobile) and new business models (social, etc) were about to overthrow banking as we know it.

On the other, were those who were interested in new models, new distribution and new ways of doing things, but were highly sceptical that anything very much was about to radically change in the short term.

I have to admit, though I was once a bank-innovator full time, I am in the latter camp.

I simply don’t see the makings of any major technonic change happening in banking.

Here is why: innovations that change the world don’t happen overnight. Breakthroughs generally don’t make money for the people that invent them. And the more traditional and hidebound and industry, the more resilient to radical changes it is.

Banking is pretty resilient. As I said at SIBOS in a back meeting somewhere, banking has the advantage that nation-states will prop it up even if things go badly wrong. That’s what we saw in the recent financial crisis, where government everywhere stepped in to save banks from themselves.

Banks, you see, are too important to be allowed to fail, no matter how cool the disruption that (may) threaten them. I cannot see that changing for any reason in the short term, and, indeed, it is not changing.

Despite the crisis, despite an economic outcome almost too terrible to forgive, many banks are back making profits like nothing ever happened.

But there is another reason I think any prediction of the end of banking is vastly premature.

The financial crisis should have been a golden opportunity for new business model financial start-ups to make a killing.

Peer to Peer lending, which is the practice of facilitating loans between people without the intermediary of a bank is a case in point.

During the crisis, banks stopped lending.

Ergo, P2P should have been a winner.

Except, for some reason, P2P hasn’t really taken off. Even when it had a perfect storm of factors that should have made it a hit with consumers.

I think new models will be important eventually. In, maybe, a couple of decades.

That’s how entrenched and established the banking system is. Banks themselves will need to allow the models to change before they really will.

The point I am trying to make, I think, is industries do not change overnight. Even when it looks like a disruption has occurred in a short time frame, there is actually a long history of factors that led to the appearance of an overnight change.

Those factors are bubbling away behind the scenes in banking. It just hasn’t been happening for long enough for the changes to show up in any spectacular way.

12 Responses to“Bank changes? Not So Much.”

  1. Franc
    September 27, 2011 at 7:48 am #

    Hi James. It is very true what you wrote. I am still in the banking industry and deal with innovations for many years, and every day I am experiencing “resistance” to breakthroughs in banking first hand. In my experience the biggest obstacle is the fact that banks are not really forced to make major changes, no matter how well or poorly they do their job. Greetings.

    • James Gardner
      September 28, 2011 at 5:37 am #

      Our experiences are very similar. Resistance does indeed seem to be futile, at least from the perspective of innovators.

  2. September 27, 2011 at 4:33 pm #

    P2P not really taken off. Really?

    Zopa has already taken 2% of the UK market in less than 6 years. Double the share of the Co-operative Bank already.

    HSBC has 7% and Barclays 13% – how long have they been around?

    And its a lousy market for lenders.

    And don’t forget Ratesetter (Oct 2010), FundingCircle (Oct 2010), Yes-Secure (June 2010) and Quakle (Oct 2010).

    And don’t forget how long it takes to get a banking license…

  3. James Gardner
    September 28, 2011 at 5:39 am #

    Banks stopped lending for a couple of years.

    Why has Zopa not achieved close to 100% penetration in the UK market in those circumstances if there was a tectonic change under way, since it did not stop lending?

    Ergo, any change, if one is coming at all, will not be the massive overnight shakeup that some predict, which, I think, was the point of my post.

  4. September 28, 2011 at 9:02 am #

    I’m struggling to find to any disrupting business that’s ever grabbed 100% of its market less than 10 years, regardless of the sector.

    Nearest I can think of is mobile phones – and that’s still not at 100% after 40 years.

    Apple’s iPhone?

    Is that a failure with its 5% market hold?

    Maybe time to get a reality check on real market disruption?

    100% is pure fantasy.

    Unless, of course, you can show us one…

  5. September 28, 2011 at 7:25 pm #

    Have I? My point was only to question at what point you declare an innovation successful.

    Come on, is Zopa successful or not?

    You say “P2P hasn’t taken off”. I say at 2% when the competition’s best has only 13%, it has. Remember in relative terms, someone’s lost nearly 18% of their share!

    Given that Zopa has moved from zero to hero in less than six years, I’d call that short term – rather I’d call that amazing – when no bank has materially broken ranks in 20 years.

    How much share does a product or company need to take to be disruptive – I’m guessing “tectonic” is synonymic for disruptive?

    • James Gardner
      October 2, 2011 at 2:34 pm #

      Yes you have.

      P2P has not materially changed the game in banking. That was my point.

  6. October 4, 2011 at 6:42 pm #

    Hi James ,

    Couldn’t make Toronto so appreciate your insight.

    Isn’t it a fact that most of the wannabe “new banks” want to layer themselves over existing infrastructures ( ie. those with deposit taking banking licenses ) in order to avoid the disappointment and expense of being refused an FSA banking license ?

    I think these models could work in the USA where two ambitious startups are going to test the market next year.They could also work in the UK provided they can find the right partner !

    • October 14, 2011 at 9:34 am #

      And, of course, that is the challenge! Which banks here would partner up if someone came up with a stunning new model?

  7. October 14, 2011 at 1:49 pm #

    Also see the blog post referenced below.

  8. January 2, 2012 at 4:29 pm #

    A friend of mine met a girl on crutches and when the topic moved onto why she was on crutches she told him that she was attacked by a shark. My friend pissed himself laughing. Then he realised noone else was laughing but staring daggers at him, she said: “I’m not joking.” She really had been attacked by a shark and lost a lot of flesh and muscle on her leg.

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