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Modelling Banking's Future on Apple

Modelling Banking's Future on Apple

Source: BAI Banking Strategies

When looking for models to emulate, banks are better off picking Apple rather than Google - Apple, after all, has branches.


Frank Partnoy recently wrote a fascinating opinion piece in the Financial Times about the coming world of smaller banks. If you’re not familiar with Partnoy, he is a professor at the University of San Diego but, more importantly, the author of many books analysing the whys and wherefores of the financial markets with Infectious Greed: How Deceit and Greed Corrupted the Financial Markets and F.I.A.S.C.O being two of the most notable. He’s well worth reading if you get a chance.

Frank’s article asserts that the age of the big banks is over, as they are burdened with too much staff and inefficiency. He asks the question: “How many people does it take to operate a modern bank and how much should such a bank’s shares be worth?” and answers it by saying that “in the future, improved technology will reduce the number of human beings needed to allocate capital, as it has done in other service industries … contrast the employment numbers for banks and technology firms. HSBC and Google obviously differ in substance but both companies are focused on innovation and service, and also have roughly similar market capitalisations. The striking difference is that Google generates these numbers with fewer than 30,000 employees – not even as many people as HSBC is laying off.”

This led me to pose the question: who generates more value and how? Partnoy is right to equate banks to technology firms, as many of them are just that. John Reed, the CEO of Citigroup in the 1980s, famously declared that “banks are just bits and bytes.” Yet, if banks are just bits and bytes, then why are they so excessively over-manned? Well, it’s obvious I guess: because they have branches. Banks are large-scale retailers with many stores that serve consumers and businesses. Without that store network, banks would obviously be able to run as pure tech machines, and some already are and some will.

I regularly cite firms like Chi-X Global and ING Direct as among the firms that are getting the technology platforms and processes right. And maybe one of the best examples is eBank, in Japan, which claimed in 2009 to support over three million customers with just 193 staff; 15,000 customers per member of staff is the dream for an ultimately automated bank. Right now, those numbers for most banks would be more like 1,500 customers or less per staff member.

Equally, revenues and profits per employee should be more akin to tech firms than current banks. But this is predicated on the basis that the banks have no branches and therefore need far fewer people … and banks have not let that paradigm shift happen yet. It is why so many new entrants – like BankSimple and Movenbank – are moving into banks’ territory on the basis of fully automated offers, as the banks have left that competitive space wide open.

Like book retailers, music retailers, holiday retailers and more, financial retailers will start to feel the full force of the technology shift of consumers to remote banking via mobile Internet. And what does that mean for a bank? That they should be more like Google? No. Google has around 23,000 employees worldwide and nearly all of them are developers. Banks have to offer direct customer support through people, as they are service companies. Google is not a service company – it is a pure technology play. I don’t see an 800 number to call when my Google search goes wrong, but I sure need that when my payment is messed up or my payment card hasn’t arrived.

This is why I would contend the more salient model for a bank to emulate, and most banks agree, is Apple. Apple has stores. They have cool stores. They have genius bars for advice. They have great staff and highly automated point of sale. They are engaging in store and online. Their user experience is second to none. Sure, they have issues – all firms do – but Apple wouldn’t be the world’s most valuable company – it’s market cap recently exceeded Exxon’s – if they weren’t doing something right.

And the thing about Apple is that they cover all the bases – they are developers, deployers, distributors and drivers of consumer technology – just as most banks are for finance. That is why banks need to model their future on Apple. Taking the Apple model, their stores need to be re-energised to be cool and engaging. The number of stores must be reduced to a tenth of today’s numbers (would Apple really have a store on every main street?) which will reduce staff numbers by similar levels. Their online, mobile Internet services have to be so easy and engaging to operate that customers are more comfortable dealing with a bank through these remote services than with any other provider, even for complex requirements. Then banks will absolutely realise their value and achieve Partnoy’s vision of a world of bank efficiencies.

And just in case you think the numbers aren’t as damning as Partnoy’s opinion piece opines, consider that Google generates around $1.5 million in revenue and $391,000 income per annum per employee and Apple’s comparables are over $2 million and $513,000 per annum per employee. Meanwhile, the equivalent numbers for Bank of America are under $250,000 revenue and a nearly $60,000 loss per employee per year and $181,000 revenue/just $44,000 income per employee per year for HBSC.

This shows why the banking industry has to change. The numbers just don’t stack up. If we allowed free rein to competitive forces in banking, the technology-oriented new entrants would have decimated the banks by now.

For example, take PayPal. PayPal’s employee numbers aren’t generally made available but I’m guessing that they employ a maximum of 3,000 people worldwide – the most quoted number is that PayPal employs 2,000 of the 17,700 total eBay workforce – and will have revenue of $100 billion and income of around $7 billion this year. That would equate to $50 million in revenue per annum per employee generating $3.5 million in income each.

Sounds much more like the bank of the future. End game.

Mr. Skinner is chairman of the Financial Services Club, CEO of Balatro Ltd. and comments on the financial markets through his blog the Finanser. He can be reached at

BAI Banking Strategies

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