We all know the saying “can’t see the forest for the trees” and yet this past week I’ve watched respected intellects, professionals and academics alike surround themselves with fintech trees while ignoring the raging forest fire approaching.
The largest body of sand the banking and financial services industry has ever seen has just started moving in to cover it. The wind has finally gathered enough strength and absolutely nothing will stop what is coming.
We can discuss Afterpay, or how Apple will kill it by moving into the buy now, pay later (BNPL) space. We can discuss how Revolut landed on the world’s most ridiculous valuation. We can discuss those things, pointlessly, or we can discuss what is actually happening and what it means.
There are hundreds, thousands of CEOs responsible for running financial service businesses all over the world who are now seeing the industry that has been protected from fundamental change for so long is no longer safe. The problem they face is that, for the first time, responding to these changes is impossible by using solutions that lie within the existing framework of the industry.
The structures of banking and finance are changing, completely. This week we saw undeniable signs that banking as we know it is dying and the rigid foundations that exist because of it, upon which thousands of financial services companies are built, are no longer rigid at all.
The moat around this industry has been breached and nobody within it knows how to pivot the traditional businesses they run to benefit from the invading hoard that, seemingly, has no regard for convention or rules. This industry is about to be taken over by people who’ve never been in it; people who don’t give two hoots about the industry itself or the backward ways in which it operates.
Apple’s announcement isn’t significant because it’s the first potentially fatal competition to Afterpay, Zip or any other BNPL company. It is significant because of what it undeniably represents.
Afterpay never threatened the banks. It never presented any real competition to them. It placed minor pressure on credit cards (one product) in one demographic that barely used them anyway. It added an extra step to the checkout process for physical purchases, required an app to be downloaded and really didn’t deliver all that much benefit to the customer, in real terms.
Sure, the major BNPL providers did a great job online of making themselves as available as credit/debit cards by offering payments at the click of a button. But they didn’t do so profitably and they didn’t do so in a way that supported their retailers.
They did so in a way that cost those retailers more than they had traditionally paid for transactions, at a time when they could least afford it. This was a huge mistake and opened the door to the fatal competition they now face.
Of course a company that gains the user numbers Afterpay has and the retail networks it did would be a ‘success story’. I don’t begrudge them for their achievements in that regard, and certainly many shareholders would be grateful. But it’s a long bow to draw to say it was ever truly a threat to any single thing at all in the banking and finance industry.
You know what is a threat to banking and finance? Apple.
Apple is a threat because of what it will do to the conscious thoughts of every single person who uses its BNPL offer in the months and years ahead, and I think everyone is missing that.
Imagine this: You’re out running errands. You buy fuel for your car, then stop at the supermarket to get food for home, after that you head to the shops to get a new pair of shoes for work. On the way home your partner calls and asks you to pick up dog food, so you swing by Pet-Barn.
In the space of two hours you’ve been repeatedly caused to think in a way that the banking industry has been fighting to prevent for over 100 years.
You’ve tapped your phone to a terminal four times. You’ve clicked one button and the phone has done the rest. You’ve not needed your bank, not thought about your bank, not considered the numerous steps in the transaction that your bank allows, nor were you given any reason to.
For the first time in modern history you will credit a technology device, and the company that made it, for helping you move your money — and for not charging you a cent to pay for your purchases over eight weeks instead of up front.
This may not seem like a fundamental shift in behaviour if you know the industry and know the complexity of the payments process. If you do, you know the phone needs to be linked to a bank-issued card that accesses a bank-issued account of some kind to access funds, which the bank lets you use based on their predetermined rules. You know the bank’s role is crucial to allowing that technology feature the customer experiences to operate at all.
To the industry professional, banks are still crucial and that won’t change. This week has changed nothing. But that’s because they’ve always been looking at trees when 99% of the population see nothing but forest.
You see that’s the problem with the experts running the industry; they know how it works. But ordinary every day people have never known how banking and finance works.
The experts built their moat and they always made sure to keep the ordinary people out. That’s why banks need licenses and products need disclosing. The industry has always been too opaque for ordinary people — the people it serves — to understand how it works.
But not any more.
So while old mate is out shopping for goods and experts see a bank supporting his needs, he doesn’t. He sees a tech company that’s offering something seemingly so simple to use that he starts wondering why other products in this industry aren’t as simple and easy.
We’ve just handed this individual cause to question the necessity of complexity and if he’s like every other human being in history he will look to the easiest way to do anything.
What Apple has done is remove friction and complexity from a transaction that people have always known could not occur without a bank.
What Apple have done is plant a seed — a seed of a question that will be watered millions of times a day by millions of people every time they pay with Apple’s BNPL product:
‘Why do I even need a bank at all?’
And there it is. There is the single biggest shift in banking and finance this industry has ever seen. For the first time, ordinary people have been equipped, given real cause, to question the necessity of banks in their life at all.
From here comes more questions. Questions that banks should be very afraid of. Fundamental questions of human behaviour as we currently know it.
Why do I put my money in a bank?
Why does my wage go into a bank?
What is a bank?
Does using a bank actually benefit me?
Does letting a bank use my money help me?
All of a sudden the single biggest control mechanism a bank has over its customers — the deposit transaction account — is at risk.
People no longer have to borrow money from banks — there’s fintechs for that. They already buy shares with fintechs, they save money with fintechs, they use credit that fintechs allow them access to. They can buy fractional parts of houses and not worry about a mortgage. They can have their wages paid as crypto and held in a wallet. For a while now, people haven’t needed banks in the retail setting. They just didn’t know.
What Apple did this week was hand people a question they’ve never asked before.
That’s the point; the forest fire is coming.
This is an edited version of an article that was first published in LinkedIn.
