It’s not Silicon Valley Banker’s should fear its Seattle & Hangzhou.

The rumours of the death of Retail Banking have been greatly exaggerated for a few years now. Banking CEO’s have been chasing each other like lemmings, traversing Route 101, hobnobbing with startups and sounding the alarm that the hoodie clad, kale eating, limousine liberal tech startup founders they are meeting are coming to eat their proverbial lunch. An industry acronym has been coined and now everyone is a #FinTech. All it would seem you have to do to become a card carrying member of this club is launch an incubator, seed / invest in a startup or run a hackathon. And you don’t have to do it alone there is a plethora of service providers from traditional to new ones that see themselves as startups (why not?) to do that for you. But there is a reality check taking place.

Having knocked back this heady brace of cocktails now comes the hangover. The looming rate rises have made access to “free capital” a little more scarce with investors starting to ask terribly old-fashioned question like “so how do you break even?” or “what’s your acquisition cost exactly?” All of a sudden the press like vultures that have identified a rotting carcass and are gathering stories most notably the New York Times which recently published this piece.

But this isn’t just a US phenomena similar discussions are being had in London, Singapore and India where prompted by some speculator self inflicted implosions people are asking the same question of startups’s if “they are now merely service providers” to an industry that has successfully staved off disruption since the Renaissance period from whence it came.

The short answer, in my opinion, is “yes (for the most part).” While there are exceptions to the rule most startups so far have failed not merely because there is “an enormous moat that surrounds and protect the existing financial industry.” Or that a spate of #Trumpian deregulation is about to crash like a Tsunami and make innocent victims of these founders and companies. The real reason is that a lot of the so called innovation has stopped short at being elaborate (sometimes admirable) efforts at enhanced user interfaces in the absence of a true value proposition that solves for a pain point of a customer accompanied by legitimate business models. I learned a long time ago at business school from a fabulous professor (Phil Anderson @ Insead) that given the choice between selling #Vitamins and #PainKillers always go with the latter. Too many startups have been offering vitamins that require the customer to commit to a service with deferred and sometimes unclear benefits. Bank’s saw this coming and were prompted to galvanize their considerable resources to build, borrow or sometimes buy their way to serve the same or similar experiences (a good example was #BBVA’s acquisition of #Simple which to date has seen the Spanish Banking giant write down $89.5 of the $117 million in ploughed into acquiring the company).

That leaves us with only a handful of startups that are genuinely innovative and creating new business models, #SOFI as the New York Times points out being an example. But that in itself is not worth slitting our tequila-stained wrists for. After all the last dot-com bubble burst but companies like PayPal came out of it and created a generation of entrepreneurs who have been driving change across a broad spectrum ranging from finance to the auto industry. And while the New York Times was too polite to explicitly call out that a shit-ton of these startups are going die on the vine, they were right in suggesting they are the new vendors for Banks. In fact just six months ago while presenting to #IBM on banking disruption I called out that Bank’s don’t need to fear startups as much as mega tech firms like them do. Though with suppressed valuations all they have to do is yank out their sizeable cheque books and do what they do best #BuyChangeWith(their)Change.”

However, the beef I have with the New York Times article is that it potentially lulls those Silicon Valley touring CEOs into a false sense of security that normal service has resumed after a heady fling with disruption. That they can rely on these new born-again service providers to stave off the threat of disruption. The reason is simple (pun intended). Disruption may have been touted by startups and enabled by infrastructure from tech giants (like #Google & #Facebook) in the Valley but the real change will come from Hangzhou (home of #Alibaba & it’s ~ $65 Bn financial subsidiary #AntFinancial) and the other sleeping, but rumoured to be rousing giant, in Seattle (#Amazon). #Ant is already raising a war chest of $3 Bn to fund global acquisitions including money transfer giant #Moneygram having

consumed or taken sizeable stakes in payments players in #India, #Thailand #Philippines and #Korea. Its target, not the latte sipping hipsters in New York and San Francisco, but underbanked, underserved and migrants workers. This should scare the bejesus out of Retail Banks for five reasons:

  1. #Amazon and #Ant have incredible war chests and the patience of their investors to play the long game.
  2. They know how to digitally stack em’ high and price em’ low to the point where they will operate below your cost of doing business as many high street retailer has experienced.
  3. They get data better than anyone else and know how to monetize it and chip away at innovation till they make game-changing breakthroughs.
  4. They own logistics and customer acquisition in their markets like no one else. Firms like #UPS that do it for a living are looking increasingly irrelevant when faced with the juggernaut of fulfilment capabilities these firms are building. In short they have the ability to make that formidable moat around financial services look like an annoying puddle you skip over.
  5. Finally, and most crucially they are or buying brands that customer trust and expect to deliver on price and connivence the twins that any digital parent has to sire to stay relevant in today’s world.

So is it game over for Retail Banking after all? Hell no. A small group of CEO’s like Singapore’s #DBS Bank’s Piyush Gupta has called this out already and is figuring out how to deepen the moat and fortify his company to deal with that threat. Asian Bank’s may actually be advantaged as #Ant is a very real competitor to them, unlike #Amazon to US Banks given they still operate in stealth mode offering finance capabilities and tends to buy firm more to silence competition rather than leverage it (remember #Zappos?). But being demob happy at the death of Silicon Valley’s challenge to Banking is possibly the dumbest thing you could do as the CEO of a Financial Institution.

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