The Attractiveness of Being an “Ultra-Commodity” May 27, 2010
Posted by nichebanking in Commodity banking, Niche banking.trackback
Today’s banks and credit unions live in a weird type of commodity limbo-land. They’re too generic to break free from being commodities…yet too proprietary to embrace the benefits of being a real commodity. As a result they’re constantly beating their heads against the wall, not enjoying the perks of being one or the other.
Our plans for the long tail of banking involve utilizing banks in an “ultra-commodity” way. Take an example outside banking: Think of the manufacturing plant that gets hired by food companies to make and bottle ketchup under their brand names. The manufacturer is expert at making ketchup. Yet you don’t see them obsessing over making their own brand of ketchup, and trying to compete in the retail space. Instead, they’re happy being the focused, experts in making ketchup. In other words, they’re happy being the commodity: unbranded ketchup. They know what they’re good at, they know their role, and they are happy simply being the company that produces the private labeled product. That’s their business, and they’ve got a successful model around it.
We don’t see much, if any, of this approach in banking. Please correct me if I’m wrong here, but generally speaking, every existing chartered financial institution has its own name and brand, providing banking services direct to consumers. How could you embrace ultra-commoditization and make a banking business model out of it?
Think this is absolutely spot-on. See http://www.parkparadigm.com/2009/12/28/platforms-markets-and-bytes-video/ > definitely room for super-efficient, scaleable banking platform at the bottom of the financial services stack. But most bank CEOs (like their telco analogs) have an irrational, ego-driven (?) fear of embracing commoditization.
Checked out Niche Banking but unclear as to exactly what you guys are doing. Strategic consulting? Or is it deliberately ambiguous for now…
The idea of a bank being split into manufacturer of products, processor of transactions and retailer of services has been around for a while. It’s just not well practised by banks to split this way because they operate as a cohesive whole under a bank license. This will change.
Checkout:
Banking as a Service
http://thefinanser.co.uk/fsclub/2009/02/baas-banking-as-a-service-presentation.html
and
Let the iWars begin
http://thefinanser.co.uk/fsclub/2010/05/let-the-iwars-begin.html
Banks will commoditise, componentise and then reform into new models of operations over time. How much time is the question.
Chris, thanks for commenting. You are exactly right–”how much time” is the real question. The end result of commoditizing (don’t mind my using the ‘z’ instead of the ‘s’ ! ) and componentizing is absolutely inevitable. My answer to that question is “soon, if I have anything to do with it!”
I think the other big question is, “how many banks will die trying to AVOID this evolution toward ultra-commoditization?” My guess is that most will strongly resist this trend, and it may eventually be the end of them.
Sean, thanks so much for your comment, and glad to hear you’re on board with our thinking. Thank you also for the link as well, to your presentation at eComm. Our venture here is exciting to me because it’s an innovation in the business model of banking…as well as innovation in marketing as well. For some reason we don’t see much innovation in the actual business model in banking…yet.
And yes, our site is deliberately vague. We just haven’t gotten enough ducks in a row to be able to present it clearly. But it’s a banking venture, rather than a strategic consulting service–I can tell you that much.
Please stay tuned, though–it won’t be vague forever, I promise!