Unbundling of the value chain in finance – The digital effect! Part1

Can finance ever be unbundled?

The way money and all of its manifestation works (as we know) is through a value chain controlled by banks and delivered as a whole through its branch networks.

I however believe we have entered a critical infliction point and the unbundling is well underway.

The unbundled offering spectrum is broad ranging from on-demand insurance (for example Slice), to Funding (say withkickstarter) for project finance to Individual loan (with sites like Lendingclub). WeChat, or Paypal for payments.

I see you are still a skeptic. As much as we would like, our opinion are based out of experiences local to us.

So MPESA, Kenya, i2i Funding India, FonePay Pakistan, Mobilepay Denmark and the list is only growing.

Technology is enabling the consumers in ways that was unimaginable only 20 years back and there is a group of people that is working hard in all corners of the world to slide the rug from under the conventional banks unless the banks starts thinking otherwise.

So why is this happening?

The positive two sided network that the banks used to own and provide services on has been juiced dry. They and this is important, in their existing shape and form have nothing to offer to their customers. The world in which the banks would set the levy and charge the customers who queued up to get the services are done with.

No the banks will not wither away and die either. They do have provide a core function in our lives and will continue to do so but how much that will be done by them is now up for debatable.

The magic sauce

Let me expand on the why. Look at the mobile app stores today. In 2016 worldwide app store revenues hit beyond $35 billion. At&T on the other hand in 2016 made staggering $146 billion in revenue. Here is the catch. How much capital investment and man hours did AT&T put in to their venture to reach this bar and how much capital investment did the app stores put in to reach their $35 billion mark.

The world as we know it is changing, i cannot emphasize this enough. AT&T represents the old world It needs the physical to survive. Any of the app store on the other hand are totally digital in terms what they produce and what they consume. On top of this the two sided network that the app stores sit on is driven by 3rd parties (the app developers). Apple or Google does not tell them what to make. The only thing they have done is opened themselves up to these new players and manage the network operations.

Unlike AT&T or banks around us, Apple and Google are not hogging the value chain they deliver on.

If banks continue to hog their value chain its not that they will die but they will have to put in and maintain a whole lot more then these new digital players that are working in a new type of network which is digital in nature and open to all.

In this new arrangement the winner cannot take all. They have to share the pie to remain relevant and still grow and that is why these new networks are growing. They are not only allowing to share the revenue but they are allowing to share it with countless many.

Positioning

The banking industry needs to reconfigure itself from vertical thinking to horizontal thinking and then within that horizontal pulverize what it can offer.

The previous vertical positioning mantras of investment, commercial banking will not slide so easily.

The horizontals are products, distribution and the customer. The banks need to figure out which segment are they willing to become masters off?

So the next questions is how do we implement this?

This bit i will try and explain in Part2 of this post.