The latest World Payments Report by Capgemini pointed to some key trends for 2016. The payments front end
is rapidly changing with new non-bank entrants providing newer ways of bringing customers and merchants together. Other than many Peer 2 Peer platforms that surfaced a few years ago, we've also seen the entry of Apple, Samsung and Google into the fray.
What's interesting to me is to see the Innovator's Dilemma in full effect, a theory put forth formally by Clayton Christensen in
his book by the same name.
According to me, the biggest priority for banks today should be to maintain the customer front end. They've traditionally occupied a safe and comfortable position in the business ecosystem as the primary brokers of money. But that's changing rapidly. Even
today, most of us we don't even think about our bank or credit card issuer when we transact. They are in the background enabling the service. What we instead interact with is our phone or the retailers website or App. Even when we pay with a credit card, the
motivations and interactions are with the retailer, or our mobile phone. The card is just something that has to be swiped. That by itself was not a risk until recently especially because the banks motivated us with reward points and airline miles.
Then the Target REDcard came along. Based on existing technology, its a proprietary payments network that manages to bypass most of the inherent fees by middlemen in the payments ecosystem, and offers us a straight 5% off our purchase. And now we have Apple,
Samsung and Google threatening to steal the customer front end. Add to the mix innovations like WalMart Pay, WalMart shopping App, and the WalMart gift card put together, and who needs a bank? The unbanked have a new way to manage their money.
As most banks already agree, there is nothing really preventing technology firms from becoming banks. Just like there was nothing to prevent Amazon from evolving to sell everything, even Television shows, and groceries.
The innovators dilemma stems from the inertia that is gripping the system today. The attention is on the revenue streams of today, and how they can be influenced by new innovations such as the online shopping malls that banks successfully created. The attention
should now be on the new revenue models of tomorrow which are gradually replacing the revenue streams of today.
As we have seen with disruptors such as Uber, and Airbnb, the models for tomorrow may well arise from being intermediaries of value. Banks actually have something far more tangible in the form of customer trust and relationships, not to mention the world's
entire commerce infrastructure. We've already seen BBVA partnering with Dwolla, and acquiring Simple. Some other leading banks are doing the same. They key is to establish partnerships with agile innovators even as aggressive technology and business process
transformations are undertaken internally. The immediate priority is to maintain the ability to influence the business models of the future by staying in front of the customer, and not in the background enabling transactions.
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