Eventually every advisor will be a robo-advisor, which means there will be convergence.
Without some marketshare numbers, it’s tough to tell if the banking startups are making a dent against incumbent banks. Josh Brown suggests that banks are quick to catch-up and have nullified any lead that companies like Weathfront could have made:
It wasn’t long before the weaker B2C robo-advisors folded, the middling players were acquired and the incumbents launched their own competing platforms. The miscalculation on the part of the disruptors may have been the idea that they had years of lead time to scale up their assets before the lumbering giants of the industry would be able to fight back. Turns out they only had months, not years. Charles Schwab and Vanguard launched their own versions of the service and the mindshare / market share battle was joined.
From what I see out there, banks are quick to adapt and adopt new ideas into their businesses. While they’re beset with endless legacy IT and technical debt, they churn ahead nonetheless, e.g.:
While past performance is no guarantee of future results, and even though all the company’s results cannot be entirely attributed to BBVA’s digital transformation plan, so far many signs are encouraging. The number of BBVA’s digital customers increased by 68% from 2011 to 2014, reaching 8.4 million in mid-2014, of which 3.6 million were active mobile users.
Acquisition isn’t always failure, or victory
On the narrative framing side, it’s easy to frame a startup being acquired as “failure” and success for incumbents. That’s not always the case, and suggests a zero-sum view of innovation in industries. Acquisitions can have winners and losers – as with valuing anything, like real estate, the valuation could be wrong and in favor of the buyer or seller.
However, in the ideal case of an acquisition, it makes strategic sense for the buyer to spend their time and money that way instead of trying to innovate on it’s own. For the startup being acquired, they’re usually near the end of their gamble of sacrificing profit in favor of innovation and growth and need someone to bring them to the black.
Thus far, it seems like the large banks are fending off digital disruption, perhaps embracing some of it on their own. The Economist takes a look:
- “Peer-to-peer lending, for instance, has grown rapidly, but still amounted to just $19bn on America’s biggest platforms and £3.8bn in Britain last year”
- “last year JPMorgan Chase spent over $9.5bn on technology, including $3bn on new initiatives”
- From a similar piece in the NY Times: “The consulting firm McKinsey estimated in a report last month that digital disruption could put $90 billion, or 25 percent of bank profits, at risk over the next three years as services become more automated and more tellers are replaced by chatbots.”
- But: “Much of this change, however, is now expected to come from the banks themselves as they absorb new ideas from the technology world and shrink their own operations, without necessarily losing significant numbers of customers to start-ups.”
- Back to The Economist piece: “As well as economies of scale, they enjoy the advantage of incumbency in a heavily regulated industry. Entrants have to apply for banking licences, hire compliance staff and so forth, the costs of which weigh more heavily on smaller firms.”
- Regulations and customer loyalty are less in China, resulting in more investment in new financial tech in Asia:
- As another article puts it: “China has four of the five most valuable financial technology start-ups in the world, according to CB Insights, with Ant Financial leading the way at $60 billion. And investments in financial technology rose 64 percent in China last year, while they were falling 29 percent in the United States, according to CB Insights.”
- Why? “The obvious reason that financial start-ups have not achieved the same level of growth in the United States is that most Americans already have access to a relatively functional set of financial products, unlike in Africa and China.”
- There’s some commentary on the speed of sharing blockchain updates can reduce multi-day bank transfers (and payments) to, I assume, minutes. Thus: ‘“Blockchain reduces the cost of trust,” says Mr Lubin of ConsenSys.’
Fixing legacy problems with new platforms, not easy
- The idea of building banking platforms to clean up the decades of legacy integration problems.
- Mainframes are a problem, as a Gartner report from last year puts it: “The challenge for many of today’s modernization projects is not simply a change in technology, but often a fundamental restructuring of application architectures and deployment models. Mainframe hardware and software architectures have defined the structure of applications built on this platform for the last 50 years. Tending toward large-scale, monolithic systems that are predominantly customized, they represent the ultimate in size, complexity, reliability and availability.”
- But, unless/until there’s a crisis, changes won’t be funded: “Banks need to be able to justify the cost and risk of any modernization project. This can be difficult in the face of a well-proven, time-tested portfolio that has represented the needs of the banking system for decades.”
- Sort of in the “but wasn’t that always the goal, but from that same article, Gartner suggests the vision for new fintech: ‘Gartner, Hype Cycle for Digital Banking Transformation, 2015, says, “To be truly digital, banks must pair an emphasis on customer-facing capabilities with investment in the technical, architectural, analytic and organizational foundations that enable participation in the financial services ecosystem.”’
- BCG has a prescriptive piece for setting the strategy for all this, from Nov. 2015.
- A bit correlation-y, but still useful, from that BCG piece: “While past performance is no guarantee of future results, and even though all the company’s results cannot be entirely attributed to BBVA’s digital transformation plan, so far many signs are encouraging. The number of BBVA’s digital customers increased by 68% from 2011 to 2014, reaching 8.4 million in mid-2014, of which 3.6 million were active mobile users. Because of the increasing use of digital channels and efforts to reconfigure the bank’s branch network—creating smaller branches that emphasize customer self-service and larger branches that provide higher levels of personalized advice through a remote cross-selling support system—BBVA achieved a reduction in costs of 8% in 2014, or €340 million, in the core business in Spain. Meanwhile, the bank’s net profits increased by 26% in 2014, reaching €2.6 billion.”
- And a more recent write-up of JPMC’s cloud-native programs, e.g.: ‘“We aren’t looking to decrease the amount of money the firm is spending on technology. We’re looking to change the mix between run-the-bank costs versus innovation investment,” he said. “We’ve got to continue to be really aggressive in reducing the run-the bank costs and do it in a very thoughtful way to maintain the existing technology base in the most efficient way possible.” …Dollars saved by using lower-cost cloud infrastructure and platforms will be reinvested in technology, he said.’ JPMC, of course, is a member of the Cloud Foundry Foundation which means, you know, they’re into that kind of thing.
The app, scheduled to launch in summer 2017, is designed to make it easier for truck drivers to find shippers that need goods moved, much like the way Uber connects drivers with riders. It would also eliminate the need for a third-party broker, which typically charges a commission of about 15% for doing the middleman work.
This is one of those “software is eating the world” things that I would have thought existed already.
[T]he broader goal is to improve the “middle mile” logistics space, which is largely controlled by third-party brokers that charge a hefty fee for handling the paperwork and phone calls to arrange deliveries between shipping docks or warehouses. It would make shipping more efficient and cheaper not just for its customers, but also for Amazon, which
the tech community is celebrating the massive return for Dollar Shave Club’s investors, but $1 billion for a 16% unit share of a market dominated by a brand that cost $57 billion is startlingly small. Indeed, that’s why buying Dollar Shave Club was never an option for P&G: even if their model is superior P&G’s shareholders would never permit the abandonment of what made the company so successful for so long; a company so intently focused on growing revenue is incapable of slicing one of their most profitable lines by half or more.
The point being: that’s a really low valuation and could cause all sorts of annoying and “value destructing” side effects in the spreadsheet.
Source: Dollar Shave Club and The Disruption of Everything
Doctors have obligations to their patients, teachers to their students, pastors to their congregations, curators to the public, and journalists to their readers—obligations that lie outside the realm of earnings, and are fundamentally different from the obligations that a business executive has to employees, partners, and investors. Historically, institutions like museums, hospitals, schools, and universities have been supported by patronage, donations made by individuals or funding from church or state. The press has generally supported itself by charging subscribers and selling advertising. (Underwriting by corporations and foundations is a funding source of more recent vintage.) Charging for admission, membership, subscriptions and, for some, earning profits are similarities these institutions have with businesses. Still, that doesn’t make them industries, which turn things into commodities and sell them for gain.
I suppose it’s worth being reminded that some things just don’t function well as a business. I’m not sure if that means they can’t benefit from disruptive innovation, however.
Some things that are poor businesses
Nice pice on disruption fear driven tech M&A:
From messaging to watches and thermostats, Facebook and Google, along with Amazon.com Inc. and Apple Inc., each want to own the digital platform where people communicate, shop and seek entertainment. The competition is driven by their ability to pay—their combined market capitalization exceeds $1 trillion—and long memories of faded tech stars that didn’t evolve quickly enough.
The four companies are competing to control as much as possible of the tech ecosystem. In Silicon Valley parlance, it’s all about controlling “the platform.” A big reason is to gather data about users, to serve them ads or to anticipate their next purchase.
Cash, Paranoia Fuel Tech Giants’ Buying Binge
As I mentioned, a few weeks back I was in a recorded “think tank” put on by Dell which was, largely, about the changing nature of IT and how CIOs could go about managing it. For those who don’t want to nuzzle up to a 3.5 hour recording (perhaps with a six pack and some chips?), Dell has pulled some highlights:
“What do customers expect in an application today?”
IT is facing competition for the first time ever
The Web Of C-Level Relationships
The Willy-wonky of Servers talks about “persistently, ubiquitously connected to the network era”
And check out Barton’s omnibus overview. For the record, I got a much needed hair-cut the next week.
Nice anecdote about iPads going from zero to full use in mainstream-sounding use cases:
I’m not a “tech” guy, but wanted to give you a perspective from a person who works for a fortune 500 company.
I recently returned from a National Sales meeting, and was amazed with the iPhone market share within our company 95%+. Not to mention that every sales and marketing employee is given an iPad for “work” use. Mine consists of hundreds of apps that are not for work use, which is consistent with other employees. All of our marketing material is now pushed to our iPad, which allows us to do sales presentations on our iPads. After 3 years we get a new iPad.
Contrast that with three years ago, when most of us said we had to have BB’s, because Apple didn’t work well with Outlook. Our PCs/Notebooks had to be Windows based, because that works with the VPN, and we could use Excel for ROIs, and PowerPoint for presentations.
I’m not an Apple zealot looking to convince someone it’s the greatest company in the world, but after what I’ve seen from my company over the past three years I’m now a shareholder of aapl. This is just a perspective from one Fortune 500 company with over 25,000 employees
The sales force is now using iPads