22 June 2018
Konstantin Rabin

konstantin

Konstantin Rabin - Kontomatik

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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

What If Google Made Fintech

10 May 2016  |  40008 views  |  3

 

Google Company — now renamed to Alphabet — started as an academic project on Stanford University exactly 20 years ago. After these two decades Larry Page and Sergey Brin, the students, who developed BackRub search engine that became the foundation for Google.com, are leading one of the biggest companies in the world (listed #40 on Fortune 500 and #1 on the Fortune 100 Best Companies To Work For). How did they manage to do that? What was their key to success, with which Google became the main player in the IT industry?

The answer is pretty simple: openness. Almost everything Google did — and still does — was based on open and free access. This approach allowed quick embracing of Google’s works, like Android mobile system, while the business was always in paid search results optimization and advertising. There are company’s commercial products as well, such as enterprise mail systems, customized search engines and so on, but the core services and products—Google Search, YouTube, Gmail, Google Maps, Google Docs, Google Translate, and Android, of course—are free and open to developers through APIs and SDKs.

Google Money

Now, lets imagine Google enters the financial industry or starts as such company. How would banking environment look today? First of all, it wouldn’t be that closed and expensive for its clients. Google with its “don’t do evil” motto would start offering financial services that would be as open and free as its current products. It means that the company would provide APIs to its banking solutions, giving developers tools, which would allow access to the information hosted by the service and to the features that could be used elsewhere in the web. Many third parties could then create their own innovative products based on Google’s engine, thus increasing the number of users and enabling wider adoption of the company’s product. It’s a win-win situation, which already proved itself with the Google’s current offer for the Internet.

Of course, the service would be free, since Google would make profits on corporate versions of its product, advertising, big data mining and analysis, partnerships and probably other ways of making money on the information the company would acquire with this service.

Reality Bites

This is so much different from what we see today: banks build fortresses around their services, making everything closed and proprietary. They charge fees for almost everything, although they are not poor companies running on losses. They use old-fashioned tools and interfaces, which often are not user friendly, intuitive, nor elegant. Their procedures are ineffective, time-consuming and costly, but this mainly results from regulations imposed on banking sector.However, even these procedures can be implemented with smooth user experience—it’s just a matter of innovative approach and usage of tools already present on the market. Unfortunately, because of their corporate, stiff structure, banks are not as creative and agile as Internet companies like Google. Even though the latter is a huge company itself.

We can only speculate how the financial world would look like, if it was driven by innovators such as Google. Nevertheless, based on the company’s philosophy and the today’s financial market, it’s safe to say it would be definitely better for customers, with cheaper and more user-friendly products tailored for every need. The good news is, this change is going to happen anyway, with or without Google in this industry.

TagsRetail bankingInnovation

Comments: (5)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 10 May, 2016, 18:32

"They charge fees for almost everything, although they are not poor companies running on losses." Actually maybe that's how banks are not poor companies running on losses? It's not a secret that Google makes nearly 90% of revenues and 98% of profits from only one product, Google AdWords. 

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Konstantin Rabin
Konstantin Rabin - Kontomatik - Warsaw 11 May, 2016, 06:59

Well, banks could certainly live out of client deposits without charging any unnecessary fees...if only the banks could optimise their processes.

Yes, Ads are the core revenue stream of Google today. Would it still be main contributing over 90% in 10 years from now? I doubt that.

Next to this, Google integrates advertising in its products like gmail. Hence, Google Ads are happening outside of the search engine itself as well.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 11 May, 2016, 09:30

Sorry but AFAIK every successful business that optimizes its processes does so to cut costs and increase profits, not to eliminate existing sources of revenues. Doing free service accelerates the race to the bottom and I'm glad banks aren't going down that path. I meant Google AdWords in the broadest sense of the term i.e. ads appearing outside Google SERP viz. AdSense ads appearing on other Alphabet properties like YouTube and GMail as well as on third party properties like Amazon, Flipkart, blogs, etc. Frankly, I doubt if Sergey Brin / Larry Page themselves know what percentage of their revenues will come from ads 10 years from now, so I won't bother hazarding a guess.

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Konstantin Rabin
Konstantin Rabin - Kontomatik - Warsaw 12 May, 2016, 09:36

Well, I think it goes a bit further than that. Say the availability of previewing Domain Authority in search results is of a significant importance for me. Luckily there is a plugin available for Google Chrome that allows be to combine my favourite browser with an essential tool. If this plugin wasn't available, perhaps I'd have to use a browser made by MOZ (and probably there would be one)...hence google would get less data, less impressions, less income. That's what the banks don't get.

As for the costs and profits, banks are already losing their sectors. PayPal, TransferWise and many others are offering better and cheaper solutions..and the presence of bank fees is something that would result in lower volumes, hence profits. Is there anyone using a paid personal email account? Why would then anyone pay for having a bank account?

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 12 May, 2016, 10:58

By the same token, Google should stop charging for its ads. Volumes will soar. So will profits. I'll save a big bundle I pay for Google Ads every month. But I don't live in that dream world. 

In the real world, Revenue = Rate * Volume. No matter how high Volume gets, if Rate = 0, Revenue = 0. Since Profit = Revenue - Costs, Profit = 0 or negative, as long as Revenue = 0. 

So, high volumes by itself does not generate profits.

Over the years, members of my family and I have opened scores of bank accounts in several countries including India, USA, UK, etc. We have never paid any fees for any of those accounts. If Google or someone else enters the market believing in a hypothetical world where all banks charge for a bank account, they won't last a day.

Google is a publisher. Things like impressions, data, matter to its core business model. Banks are in the deposit taking and lending business. Things like impressions, data don't matter to its core business model.

Banks earn interchange every time someone pays a merchant via PayPal via credit card or funds a PayPal account via credit card. ICYMI, TransferWise is increasingly executing cross-border transactions via traditional banking channel and paying fees to banks because it's increasingly unable to find matching transactions on either shore. Therefore, I fail to see how banks have lost anything to PayPal or TransferWise. On the contrary, the way I see it, banks are shedding customers, not losing customers.

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Konstantin has taken part in various projects in the European financial industry for the last 4 years. Currently Konstantin is heading marketing at KontoX - a European developer of bank API. In additi...

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