Startups put together by neophytes in cramped basements are probably not going to be the exciting stories in 2018. Could it be about consolidation around companies that have been around for three years or more and have achieved scale? Are the investors likely to come from banks or ecosystem players like Ant Financial instead of traditional sources of startup funding? Banks seem to be more sure of themselves. They still have legacy cost structures but are dismantling them rapidly. Innovation could come as much from within as from outside.
Banking on digital?
This is an interesting one. Easy to get people to sign up for a digital bank account. But for those who’ve toiled in the trenches of customer lifecycle management, getting people to trust you with their money is not the same as getting them to use a chat app or a telco brand. Is it that the handful of digital bank players which are led and/or advised by banking and payment practitioners are more likely to succeed than the next cool looking app linked to a prepaid card?
Banks are building substantial digital banking business models that are premised on a reinvention of the model from the ground up. Automation of backroom operations, AI-based lifecycle management and credit scoring, KYC based on biometrics and integration with national ID databases, blockchain based reconciliation and validation. And of course, the cool looking front-end app and web interfaces.
Does it look like the odds are that traditional banks going truly digital will see more traction and success in 2018 versus neo-bank disruptors?
Will it pay to go cashless?
Yes, of course. But even in the more advanced economies of Western Europe, cash still accounts for over half of payments (Nordic countries apart). This is despite overwhelming evidence that the cost of accepting cash is roughly twice that of accepting electronic payments (Survey on Merchants’ Costs of Processing Cash and Card Payments, European Commission 2015).
It does not help that attempts to take cash out of the system have been via some not-so-convincing user experiences. The Reserve Bank of Australia reports indicate that mobile device-based contactless payments are declining versus plain vanilla contactless cards. On occasion, many of us have fiddled around with our phones at grocery checkouts and petrol pumps to make payments. And then there are payments based on QR code, sound, biometrics. Based on these trends, does it increasingly appear that card-based form factors including contactless and location based payments, like the Amazon Go experience are more likely to succeed?
Lending credibility to startups?
No doubt, there are brilliant new players in Lending and Crowdfunding. A couple have been featured in this column. Excellent value propositions and consumer experience. The challenge is two-fold – awareness and trust. There are companies that are built on solid propositions and are well governed by excellent central banking regimes. However, scale is an ongoing challenge. Perhaps the market will develop as a number of small lending startups, each with its niche segments. These will consolidate over time, similarly to the path that banking has taken in some parts of the world.
Will traditional banks increasingly lend credibility to startups as is happening already or will the ecosystem players like Facebook and WeChat become alternate sources of consumer credit? Are you likely to borrow from either of them for a new car or even a house?
Will machines personally manage your finances?
It depends. Would it boil down to which set of algorithms is better? One entity’s gain is another one’s loss. Therefore how do we as individuals decide which machine is better to trust? As long as there are human factor-based inefficiencies i.e. operational as well as intellectual, the vision of logic-driven algorithms is attractive. Take the human factor out and will we end-up with a bunch of machines playing digital chess with our hard-earned money? Is that a possible scenario? Or are there enough checks and balances in the system? What do you think?
Will customers relate to machine management?
How many of us have got frustrated with Chatbots that get into really odd conversations – “I do not understand that word. It seems like you are getting angry. May I help you?” Some of the bots out there are merely today’s version of Interactive Voice Response trees. Combined with well analysed data, these could be really powerful tools. Despite the promises of efficiency and singularity, it just seems so much better to have a real human voice at the other end of the line or chat. Inefficiencies, mistakes and all. Somehow, there is a species-level familiarity.