“The future of the banks lies in becoming service providers.”
A few days ago I was giving a talk to some young university students and I asked them the following question: Would you rather put your money in a bank that Google would hypothetically open, or in BBVA or Santander? I was surprised that 100% of them responded Google without hesitation.
I don’t know if banks in general are realizing that the whole concept of “bank” and “banking” as we know it is changing. For the majority of the “millennials” the banks are, at best, largely useless entities that basically serve as a place for them to have their paychecks deposited each month. And that’s for those that work…
Very few of them confirm needing the services that a bank offers, much to the contrary of what happens with Google, which provides them with their daily necessities, communications, and services. These natives to the digital world have a different concept of banks and surely a different model in mind for managing their income.
Therefore, banks should ask themselves how their results would be affected in the case of a hypothetical banking service from Google coming to light and revolutionizing the concept of banking with a service that would allow for paycheck deposits and charges, directly linked to your gmail account. It would be home to your receipts and payments, and allow you to make payments, transfers, and sales through gmail in a quick and easy way throughout the whole world. You’d be able to ask for microloans for online payments and make installment payments for an item that you buy online all from the comfort of your Google account. Only with these services can they triumph with a middle-class clientele.
Furthermore, Google could offer big advantages in the form of low interest rates and zero commissions. The “core business” of Google wouldn’t be centered on the commissions or the interest since they have other sources of income that keep them going, which is exactly what would allow them to offer such attractive conditions compared to a traditional bank. They would have no need for branches when they already have a personal branch with each active Gmail account, and they wouldn’t need marketing campaigns to capture clients with the millions they already have. Lastly, they wouldn’t need users to download a new app because they would simply integrate a new “Money” app into the Android operating system that comes preinstalled on millions of smartphones.
Google would also open up the doors to their being able to add innovative services that a traditional bank wouldn’t dream of launching. For example, they could tack on a platform for home rentals with a flat rate where users could upload their available properties. The tech company would manage the rentals and could even offer joint purchasing options for housing in addition to new mortgage models. Think about new models that would be much more versatile and made in the same vein as the financing options that different automobile companies offer with their “alternative leasing” options.
“What will clients need in 20 years? That is the real challenge.”
Google is much better at understanding how millennials think since they are the ones behind a big portion of the new digital trends. I suppose Google would have to do some research regarding the legal obstacles that exist in terms of offering this type of service. However, with $250B, they could do away with many of the banks of the world and become the new major player in worldwide banking, revolutionizing the concept of “the bank”.
Traditional banks need to rethink their role and think about what they will be and what they want to be in 20 years because I don’t believe that the path lies only in some services going digital and releasing a plethora of Apps. On the contrary, they should think about and design new and innovative services, redesign the purchasing model, the housing model, and study the habits of the younger generation. In short, redesign the model of banking, and of the bank. They should think about becoming a new type of entity that understands the real needs that their future generations of clients, who are perhaps just now starting primary school, are going to have when the time comes.
Personally, I think that the future of the bank is to become a service provider more than a financial entity—a service company with a deep understanding of the relationship between clients, needs, & services.