I didn’t go into Apple because it was a tech stock. I went into Apple because of the value of their ecosystem-Warren Buffet
Imagine a scenario where every retail bank is like Goldman Sachs’s platform Marcus which is a pure play digital bank. It accepts savings from its depositors on an exclusive online platform by offering much higher yield (in bps) than other savings platforms/banks without any minimum deposit needed, much simpler terms and conditions coupled with FDIC insurance. In fact, platforms of the future can offer yields comparable to high yield corporate bonds which are usually perceived to be riskier than treasury bills or government bonds. On the other hand, Marcus provides personal loans and other consumer credit at a higher rate than the deposit rate making a healthy Net Interest Margin (NIM) without the burden of investments in branches and headcount of a traditional bank. The problem is that the online model can be easily replicated. In a perfectly competitive world, this would mean differentiation based on rates i.e. a price war or a race to the bottom. How, then, will digital banks compete, if at all they are named as such, in the future.
The answer : an unbeatable experience ecosystem that frees up their clients’ time for higher order tasks and in some cases for better experiences in the same ecosystem.
This statement is like saying Apple, Amazon, TenCent, Alibaba, Baidu or highly capitalized tech companies are best poised to leverage Artificial Intelligence, vast reservoirs of data, capital and sticky clients tied to an ecosystem, to create an unbeatable experience. This scenario doesn’t seem too unlikely considering that the competitor set for banks has been redefined around data today. Banks face not only other banks, FinTech and Tech Fin players but rather any competitor defined by two terms ‘experience’ and ‘ecosystem’. This article examines a future where there are two options i.e. banking is an experience in an overall experience ecosystem or it becomes the core of a continuously evolving ecosystem. The differentiating factor, then, becomes the ability to transform ordinary people into…