Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale.
A great quote from Marc Andreessen from his article Why Software is Eating the World. I fully agree with his thesis. The examples he uses are as compelling as they are accurate to explain why software, and the digitized solutions that it provides, is dominating the economy and making our world a smaller place. In financial services he calls out Square and PayPal as leading examples of innovation. I would agree with him on this as well. My problem is that all of the real innovation in financial services is coming from startups that are turning existing customer pain points into opportunities and solving access and demand issues that banks are too slow to address, or are too blind to see. Bruce Kasanoff & Michael Hinsaw’s recent article 7 Ways to Disrupt Your Industry proposed the following seven steps to dominate your industry:
- Totally eliminate your industry’s persistent customer pain points.
- Dramatically reduce complexity.
- Cut prices 90 percent (or more).
- Make stupid objects smart.
- Teach your company to talk.
- Be utterly transparent.
- Make loyalty dramatically easier than disloyalty.
The financial services startups are taking the first step of the Kasanoff-Hinsaw process to heart. Square is tackling credit card merchants, PayPal is dominating on-line payments and fund transfers, a company like ZestCash is focused on short term lending, and the list goes on. All of them are eliminating financial services pain points one specific problem or product at a time. In the solving for their specific pain points these companies disrupt financial services in a piecemeal process that banks, specifically, are slow to notice. The disruptors are able to do this as they are not tied to legacy technology, institutional memory, bureaucratic hierarchies, or existing process limitations and risk aversion. Banks on the other hand have all of these issues and more.
So startups are able to focus on specific pain points and solve for them with new technology this, to me, is only one side of the issues facing banks. The other is the fact that startups have a significant edge on distribution – The App! They maybe solving specific pain points and a Bank can easily dismiss them as they are not full service financial institutions but what happens when someone can build their own bank out of Apps? The image below is form my own iPhone. I live in Canada so Swipe = Square, and Fast Cash = ZestCash. Sure I have apps from all of the banks I deal with but that is mostly to keep up with what they are doing in the mobile space. I check my balances and transactions via Mint, I transfer money and pay on-line via PayPal, the point is I have the flexibility to build my own bank via applications from multiple sources – The Bank of Me! The Bank of Me is personalized and help me self actualize making me extremely happy, but not brand loyal.
But why are banks falling short in offering similar or superior offerings to compete and beat the startups? My opinion is banks are failing for three main reasons:
- Aversion to risk – manifested in the fear of the new
- Failure to expose services
I have written before about the inability of large financial institutions to foresee their own irrelevance (If you don’t like change – You’ll like irrelevant less). It is the inability to change their perception of reality that stops innovation at a large bank. Most times they are not able to identify their competitors. True a full shift to a process patchwork of applications is not going to happen overnight but banks cannot see it as even a possible outcome.
Fear of the new
Great bankers make their career by managing risk. Very few stick their necks out to take a leap and sponsor or try something new. Past failures and the institutional memory that these failures create stunt original thinking and as time passes the cyclical nature of banking ideas have them constantly insourcing and outsourcing essentially the same process and or product. Or recreating existing processes in new systems because the aversion to risk forces innovators back into existing, approved boxes. Innovation is stunted by fear.
Failure to expose services
A common catch phrase that you hear time and again related to banking transformations is SOA (service oriented architecture). In theory SOA is a great concept. In practice it has not opened up banking enterprise functionality as originally anticipated. SOA, put into practice on any project, tends to add significant complexity as changes are normally required on the provider of the service, the consumer of the service and the enterprise service bus. Normally the complexities that arise tend to be solved by taking what should be an enterprise service and turning it into a process, or consumer specific service. This eliminates the possibility of build future composite applications, like internal and external facing mobile applications, out of these services. So when you wonder why your bank doesn’t have an “app for that” the answer is simply because it doesn’t have a good method for exposing legacy functionality.
What if the bank did? What if they could quickly develop and deploy internal and external facing Apps quickly available immediately across multiple channels? What if they could put these offerings out as quickly as startup competitors? Well as Marc Andreessen said above the technology required to do this is now readily available. This technology is not service driven but data driven. It is not concerned with existing process but true human interaction. It doesn’t put out static processes it is contextually aware (who you are, what are your goals and what information is relevant to you and your current task).
I’m not currently ready to say I have found the promised land of exposed enterprise functionality but the limited amount of time I have spent recently with ThoughtWire has me believing they are finally on the right track. ThoughtWire is working to weave together a much more intuitive experience by leveraging a rich, semantically meaningful set of useful context. They are unlocking the data and capability that an enterprise already has to empower people to be better informed, more productive, and more satisfied. ThoughtWire believes, and so do I, that an integrated experience is more important than integrated systems. Their technology allows an enterprise to overcome the barriers imposed by legacy technologies while putting their existing data to work. I’ve seen it in action and I am more than impressed.
Want an App for that? Let me know and I’ll introduce you to ThoughtWire and help you understand how they can immediately help your bank.