Web versus Bank. A very spooky thought
Something unusual is happening. China’s internet industry is taking on its banks. This is really interesting for two reasons. First, people in banking have assumed that regulators would not allow internet players into the savings system. Second, it’s an obvious play.
As the FT pointed out recently, the efficiencies of a new venture with contemporary IT and the will to try translates into better deals for typical savers.
And Chinese are big savers. But up to now they’ve had very limited choices. Now it seems that saved yuan are going one-in-12 to the new guy, Yuebao.
At the core of the typical bank is a computer. Probably a lot of them. Mostly barely integrated. A big, cumbersome load of baggage with little of what we take for granted today in terms of flexibility and utility.
Wrapped around the typical bank is a lot of real estate, a lot of people and a lot of “product”, heavily segmented and barely integrated. In this model, product is king and the real estate and people are a channel to customers.
What Alibaba and others are doing is offering a better version of the core. That is, the bit where you leave your pay or some savings. The idle cash that, in the case of a typical retail bank, amounts to a huge amount of deposit cash that costs the bank very little to have and which boosts profit margins.
Alibaba is posing two tough questions at once. First, can banks compete for idle savings – and if not, what does that do to margins? Second, are the “channel” services liable to similar treatment – a better value proposition or internet “product”?
It really is not hard to imagine a revolutionary wave of internet banking that through competitive behaviour, the advantage of contemporary IT foundations and – it appears – a degree of regulatory support will simply wash through a very traditional business.
About the author
Michael Gill is a counsellor at global business advisory firm Dragoman. He was CEO of the Financial Review Group from 1998 until March 2011.