Is it time to challenge Banks’ business model?

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BankSimple motto

The crisis has had a profound impact on how people perceive banks. Because they are identified as the root of the crisis and because they have played an extremely negative role during it (mortgage foreclosure, collection, limited credit) there is a strong resentment against banks. This is especially true for retail banking activities which have been recently put under the spotlight for how they handle credit cards, debit cards and fees.

 

To name of few of the recent weeks highlights:

– The New York Times has a detailed article on how banks are trying to push people into overdraft fees opt-in program

– A video on YouTube of a person who used to work in the collection department of a major bank (BofA) has also gained attention: link to Finextra blog

This resentment has generated some changes in the retail banking industry:

– From the regulator which has passed bills recently that further protect the consumer

– From the bank themselves that are trying to self police as shown by BofA announcement of the suppression of overdraft fees.

 

However, some new players think this environment allows them to try and challenge existing banks on their core business model:

Virgin Money, for its launch in the UK as a bank has announced that that it has plans to bill a monthly fee to clients and thus wave other fees such as credit cards.

BankSimple , an “under the radar” startup aims at creating a new retail bank that would not charge overdraft, transfer, monthly fees, and minimum balance fees.

– On a side note The Boring Bank of Cambridge (personal shout out for the best bank name) promises to make bank trustworthy again but nothing much is known of its business model so far.

 

Do you think these challengers have any chances to grab market share with such strong incumbents?

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  • Dan Rosenfeld

    Cool post! Glad to read about some new banking business models. I like how Virgin and BankSimple are thinking differently, but I don’t feel that they’ll grab market share. Virgin may only attract high-volume customers i.e. those who have many products and accounts. These people will feel it’ll save them $ to pay a monthly fee, instead of paying for each product. More casual or average bank customers want to pay only for the products which they use. A flat fee doesn’t make sense for them, just like someone paying for 1000 cell phone minutes each month, and only talking for 300. (People in UK prefer to “Top Up” or paying only for what they use, instead of paying a flat monthly fee). I’m not sure how BankSimple would replace that revenue, but maybe they have some creative sustainable ideas. So I don’t think either will grab market share, but they could be starting a movement toward the next generation. Experimentation. Innovation. Good stuff. Thanks for the post.

  • Dan Rosenfeld

    Cool post! Glad to read about some new banking business models. I like how Virgin and BankSimple are thinking differently, but I don’t feel that they’ll grab market share. Virgin may only attract high-volume customers i.e. those who have many products and accounts. These people will feel it’ll save them $ to pay a monthly fee, instead of paying for each product. More casual or average bank customers want to pay only for the products which they use. A flat fee doesn’t make sense for them, just like someone paying for 1000 cell phone minutes each month, and only talking for 300. (People in UK prefer to “Top Up” or paying only for what they use, instead of paying a flat monthly fee). I’m not sure how BankSimple would replace that revenue, but maybe they have some creative sustainable ideas. So I don’t think either will grab market share, but they could be starting a movement toward the next generation. Experimentation. Innovation. Good stuff. Thanks for the post.

  • Thank you for the comment. It is definitely interesting seeing actors challenge the [“free” – high fees] revenue model. It seems to me that BankSimple believe that, with the development of their own IT system/infrastructure (with recent technologies and a different architecture in mind) they will be able to radically change their cost structure and therefore make a good living with a no-fee business model. Interesting times indeed!

  • Thank you for the comment. It is definitely interesting seeing actors challenge the [“free” – high fees] revenue model. It seems to me that BankSimple believe that, with the development of their own IT system/infrastructure (with recent technologies and a different architecture in mind) they will be able to radically change their cost structure and therefore make a good living with a no-fee business model. Interesting times indeed!

  • I vote a strong “yes!” to the idea of challenging the business model of today’s banks. Challenging these models is really the only true form of “innovation” in banking. Most banks think innovation is about getting fancy new technology, but evolving a business model is the ultimate in innovation. And that’s exactly what we’re working on.

    I too am following the BankSimple progress, and I hope they do really well. It remains to be seen, however, if their idea is truly an evolution of the business model (will they make money in truly different ways?) or if they are really just creating a better version of the existing model. Either way, I hope they succeed.

  • I vote a strong “yes!” to the idea of challenging the business model of today’s banks. Challenging these models is really the only true form of “innovation” in banking. Most banks think innovation is about getting fancy new technology, but evolving a business model is the ultimate in innovation. And that’s exactly what we’re working on.

    I too am following the BankSimple progress, and I hope they do really well. It remains to be seen, however, if their idea is truly an evolution of the business model (will they make money in truly different ways?) or if they are really just creating a better version of the existing model. Either way, I hope they succeed.

  • Thank you for the comment. For BankSimple, I do believe that challenging the cost structure is key in having more room for (r)evolution.

  • Thank you for the comment. For BankSimple, I do believe that challenging the cost structure is key in having more room for (r)evolution.

  • Thank you for the comment. For BankSimple, I do believe that challenging the cost structure is key in having more room for (r)evolution.