Why Banking Needs Even More Disruption

Question MarksThere’s no question that in our business we’ve seen more than a few ‘disruptive’ technologies. You could even argue that the entire industry has become conditioned to the notion of disruption—every day, it seems, there’s a new startup, a new device, a new paradigm, and of course a flood of new apps, all designed to make life easier for professionals and consumers alike. All of these inventions have done their part to move the industry forward.

But what if the changes don’t go far enough?

What if many of the innovations don’t reinvent the industry as much as they refine existing capabilities? What if the new technologies we marvel at are time-savers (which is surely a good thing) more than game-changers?  What if basic functionality has gotten much easier but is still too hard?

There have surely been ground-breaking advances along the way. A number of online-only banks have sprung up to offer services that are both more varied and less costly than some of their traditional counterparts, ramping up competition in the process. A full roster of mobile applications from startups and multinationals alike has changed consumers’ core perceptions of day-to-day money management. Mint.com helped shift the landscape with technology that identifies and organizes transactions made in virtually any account, boosted by search algorithm that finds personalized savings opportunities.

Simple logo

BBVA recently announced a deal to acquire startup Simple. Image source: Gizmodo.com

The innovation isn’t letting up anytime soon, and the money is there to support it. Just last week, BBVA, a Spain-based multinational whose U.S. subsidiary Compass operates close to 700 branches, announced a deal to acquire Simple, a fledgling venture that has taken numerous apps to market. By itself, the deal is not exactly gigantic—the $117 million price tag is puny compared to, say, the $19 billion that Facebook is willing to shell out for What’sApp.  (Now there’s a deal that’s got many marketers scratching their heads.)  But the Simple acquisition is interesting for a number of reasons.

First, Simple is not a bank in any sense, in fact, it doesn’t even hold customer accounts. (That function is currently managed by Bancorp, though BBVA will eventually take it over.) More interestingly, perhaps, Simple is essentially built on the notion that traditional banks do things wrong. Its founders have been loudly critical of existing practices, which is why they don’t charge fees but instead create services around data-driven behavioral patterns.

The key belief here is that while banks are content to show consumers what they have left in their checking accounts, those same consumers must also do mental gymnastics to incorporate factors such as rent and groceries before deciding what they can actually spend. Simple’s services helps with that thinking, and will in turn propel changes in end-user behavior. Moving forward, these are the kinds of innovations that the market will demand.

Some industry professionals are making the case to go even further. Aman Narain, global head of digital banking at Standard Chartered, stresses that insight into current finances does not by itself enable action. So what actually might help?

Imagine a personal finance application that estimates a user is spending too much on cabs when it rains, automatically checks the weather, and makes a recommendation via the mobile device to carry an umbrella or raincoat. There are endless possibilities: It could match financial information with health concerns to guide decisions at a grocery store or a restaurant.

Yes, the Big Brother aspect to all this is obvious. It’s a little intimidating to think that the smartphone, in its own way the most personalized computer ever, could be so personal as to make the best decisions about what we spend money on, entirely based on our own best interests. Yet that’s exactly how the best technology works—it doesn’t make decisions for us, but it changes the way we make decisions. And those products have a much, much bigger and better memory than we do.

In our business, the core product is money—it’s personal, visceral and vital, and it helps enable the acquisition of every other product. That makes comparisons to advances in other industries seem like a stretch. Our industry has good reason to be proud of the innovations we’ve taken to market. We’ve come a long way. But we can, and must, go much further.

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