Watching new banking strategies unfold, suchas the recent roll out of Simple, I’m struck by the idea that whilethese developers may be re-envisioning the banking experience for adigital audience, they don’t seem to be doing much to re-invent thebusiness model that supports retail financial institutions. As aresult, are these new products truly moving the industry into thefuture or simply creating a new competitor in an old arena?
Recently, I examined a number of these new bank offers in a reportwe published in June, Banking 2.0: Innovation, Disruption, and the BetterIdea, in which I pointed out that most of these banks are frontends to existing banks and further, that the debit card used toaccess money on deposit is a prepaid card. Finally, one of theprimary banking partners for this kind of offer is one that fallsbelow the Regulation II threshold, thus debit card interchange feesaren’t regulated. As I pointed out in this analysis, this is notmeant to disparage these companies, since they are recreating theuser experience and piloting new ways to think about theconsumption and delivery of financial services and for that, theyshould be taken seriously.
Rather, these new products don’t address the fundamental problemthat retail banks face, which is a dismantling of the historicalbusiness model, one based on interchange and exception fees; sincethese new banks depend on existing interchange fee revenue streamsto fund their offers. I have to question then if this is reallymoving the industry forward towards a new business model or justputting on a fresh coat of paint? As the market absorbs new featurefunctionality, creates new digital means of accessing funds ondeposit, and offers higher level of convenience and relevancy toconsumers – isn’t that worth something to the end user? I suggestthat this is the perfect opportunity to break through the conceptof free services towards a model that is more balanced acrossstakeholders.
That means that consumers should pay their fair share of the costof services and what better time to connect fee to value than whenan industry is expanding services. I would challenge theseforward-thinking developers to consider how best to move theindustry into the next generation of services through theestablishment of a sustainable business model based on a balancedbase of revenue streams and designed to once again highlight theadvantages a highly sophisticated financial services industryoffers to all its stakeholders.