Bank accounts are not heavily branded, barring a few exceptions like the one from IndusInd Bank, which tries to create a strong brand for its bank account on the back of differentiators like return of canceled cheque. (For the uninitiated, banks return canceled
cheques to customers by default in USA but they retain them with themselves in India, so returning a canceled cheque to the customer is indeed a differentiator in the Indian context.)
Despite the commodity nature of bank accounts, some of them (e.g. Citi, HSBC, HDFC Bank, Kotak Mahindra Bank) have a greater cachet than the others.
Some banks in the first cohort are known to reject potential customers who don't belong to their ideal target audience (middle income and above). According to an ex-banker, banks make a quick call on the economic strata of walk-in customers based on their
dress and English fluency.
Even banks in the second cohort reject potential customers, as I saw it happen to my driver.
On a side note, when I went to open a Jan Dhan account with a PSU bank a few years ago, the branch manager threatened to reject my application on the grounds that I spoke fluent English and lived in a tony neighborhood. Apparently those traits are red flags
for the target group for whom the modest zero-balance account was created. But I digress.
Coming back to the people who were rejected by the banks they approached, they will go to some random bank - say Random Bank Limited or RBL - that will entertain them and reconcile themselves to having a bank account with less cachet.
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Let's say a GAFA (Google Apple Facebook Amazon) or some other Big Tech company wishes to enter banking. Since it does not have a banking license, it would need to partner with a bank (or apply for a banking license itself, something most
of them have shown an aversion to, given the regulatory overhang that comes with the charter).
A couple of years ago, Google partnered with Citi and Stanford Federal Credit Union in the US and announced plans for issuing checking accounts branded as Google Plex. Ditto Apple with Goldman Sachs for credit cards. While Citi and Goldman Sachs are big
names, some of the other financial institutions in the list of Google Plex / Apple partners are closer to RBL.
Suppose a Big Tech Co partners with RBL, as
Google did with Equitas Bank in India earlier this year. All of a sudden, people who reconciled themselves to an RBL account will suddenly become proud owners of a
Google Bank Account. They can flash their debit card with Google logo - as they to other cards like
Aadhaar - in their circle and brag about having a Google account. That the account is actually held at a random no-name bank is a detail that will escape most people who will be suitably impressed with the Google logo emblazoned across their
cheque book, passbook and other items.
As we can see, in this manner, a Big Tech Co can enhance the stature of a nondescript bank.
Over time, even a customer who qualifies for an account with HSBCs and Citis might open a "Google Account" - not only because of the overwhelmingly superior brand image of Google but also because Google Plex might provide a more frictionless onboarding and
ongoing experience compared to the digital banking alternatives offered by megabanks.
The same people who would never deign to open an account with RBL directly might not know / care that their Google-wrapped account is actually from RBL. To paraphrase the tagline of an old ad run by Compaq to announce that it was replacing Intel with AMD
CPUs on its market-leading line of personal computers: "When it says Google on the outside, nobody cares which small time coop bank or credit union is on the inside".
When this happens at scale, megabanks would start losing customers from their core target market to Big Tech + RBL Bank. If they let this trend go unchecked, they could eventually get wiped out.
It is conceivable that Big Tech could disrupt Big Banks by following this playbook.
It they do that, Big Tech + RBL would become quintessential success story of
Disruptive Innovation.
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For the uninitiated, according to the theory of disruptive innovation advanced by Late Professor Clayton M. Christensen of Harvard Business School, many a giant incumbent faces The Innovator's Dilemma and finds its market share getting steadily eroded by
(what I call) a CHILL entrant.
To qualify as a Disruptor, a product must be CHILL:
CH: Cheap
I: Inferior quality
LL: Low end target market.
Ergo:
* Uber did not disrupt yellow cab
* iPhone did not disrupt smartphone / Nokia / Blackberry
via https://hbr.org/2015/12/what-is-disruptive-innovation
(https://twitter.com/s_ketharaman/status/1399282077850275840)
At this juncture, lest we get too drunk on the Kool-Aid of disruption, we need to keep two things in mind:
- Big Tech can only disrupt megabanks, not banking. The banking industry will itself continue to flourish, just in a new world order where a few big banks will be replaced by many random small banks.
- While we've portrayed RBL as a CHILL entrant, it can't achieve diddly squat by itself. It's only by partnering with Big Tech that a small coop bank or credit union can disrupt megabanks. To that extent, this is disruptive innovation by partnership, a twist
on the classical disruptive innovation theory.
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Google recently announced that it is killing its Plex bank account initiative. According to
Wall Street Journal, which broke the news,
...the company would now focus primarily on “delivering digital enablement for banks and other financial services providers rather than us serving as the provider of these services.”
In other words, Google will pivot from Fintech to Fincumbent (definition
here).
According to some industry analysts, there's more to Google's decision to kill Google Plex than meets the eye. You can find my take on this topic in my thread titled
Why did Google kill Plex? on Twitter.
OP: “Banks are worried about disintermediation, and I think it's likely that Google executives were getting signals that banks weren't on board with what Google was going to do.”
Me: Shouldn't that be pinnacle of glory for a nonbank getting into banking? And encourage Google to forge ahead with Plex - even at the cost of killing its Cloud SBU for Banking vertical?
(https://twitter.com/s_ketharaman/status/1444672337438130183)
Notwithstanding the reason for Google's decision to pull the plug on bank accounts, the threat to megabanks from Google has gone away - for now.
But that's not to say that some other Big Tech company won't take off from where Google left. As long as it's a firm with similar consumer appeal as Google, it can use the Google Plex playbook to disrupt megabanks.
While the threat of disruption of Big Banks by Big Tech has receded momentarily, it has not disappeared.