In in a recent PYMNTS.com blog post, “Has Unbundling Lost Its Cool?” Karen Webster argues that the unbundling of services made possible by regulations like the revised Payment Service Directive (PSD2) in the European Union, and technologies like open APIs, is not what consumers actually want. After listing a number of examples of unbundling, like the shift from buying music albums to buying individual songs, or adding the ability to finance individual purchases, rather than using a traditional credit card, Webster writes:
Most consumers often don’t really like living in an unbundled world. And really successful businesses these days are figuring out how to give consumers better bundles — not unbundles….
Consumers like bundles because too much choice among unbundled features costs them time and creates uncertainty over how things might turn out when choosing among them.
And time and uncertainty can cost businesses sales, since people tend to stick with what they know, rather than buy an unbundled something they don’t know.
Webster points to the limited success of digital-only banks:
The [antidote] to the millennial’s so-called hatred of traditional banks hasn’t really taken off as investors envisioned. Even the largest and oldest digital banks have only converted a few million customers.
Turns out that consumers, even millennials, want more from banking services then just a prepaid card that works just like a debit card product offered by their bank. Why? Because there are many other services wrapped around debit products that consumer’s value — peer-to-peer payments, bill payments, alerts, to name but a few that don’t always come “standard” with a digital banking product but do with what most banks provide with a checking account.
This actually aligns well with we at Mercator Advisory Group have been arguing in our own research on Open APIs; that the value of open APIs and “unbundling” is not merely increasing competition, but enabling financial services companies to construct new bundles of services from various providers. For example, in the future, banks will be able to transparently provide their customers with a complete financial picture, something that is only possible today through complex, brittle technologies designed to work around existing online banking platforms. Faster payments systems like Zelle will be able to add back in valued consumer protections like dispute resolution and purchase protection, for a fee. Unbundling actually unlocks value by making it possible to add things like fraud detection in contexts where it wasn’t possible before.
Webster ends up by answering her own question in the negative, in the context of platforms that will act as a new generation of bundlers:
Platforms will use technology to narrow those options further and payments to close the sale. Vertical ecosystems will emerge — in fact, they already have — within existing platforms that leverage a critical mass of consumers with suppliers that offer use case expertise or products….
Consumers can get the best of all worlds, an option without the risk or friction that an unbundled world creates for them. Businesses win by profit-maximizing the features they take to market to the consumers who really want to buy.
The platforms that enable that experience securely and without friction will win by making it possible to bundle the things that innovators have spent the last five years pulling apart.
In short, unbundling is just one half of the value equation: you have to unbundle products that no longer meet market demands in order to reconstruct their components into products that do. That is the challenge, and opportunity, for financial institutions today. For more discussion of this topic, I refer readers to the publicly-available webinar Mercator released this past April, a link to which can be found here.
Overview by Aaron McPherson, VP, Research Operations at Mercator Advisory Group
