Since the advent of the Internet there has been a great deal of talk about disintermediation and how industry after industry would feel its effects. Today, the blogosphere is awash with commentary about retail banks facing disintermediation. It is assumed that the likes of PayPal, Square, Google Wallet, Movenbank, Simple, Nutmeg and many others will wreak havoc on the industry in the not-too-distant future But is what is happening in retail banking truly ‘disintermediation’ or something else?
Retail banking is different to other industries in that the banks have traditionally played the role of both producer and retailer in the producer-retailer-consumer chain. They both produce and distribute financial services products. But the new entrants are not removing a part of the chain but rather either a) substituting for the existing one or b) adding an additional one. They have found new and innovative ways to create value for consumers. With some notable exceptions, such as Barclays with its mobile payment service Pingit, banks have failed to respond to technology shifts and changing customer behavior patterns and are allowing these more agile players to insert themselves into the value chain. In the case of Simple, for example, it will be a layer on top of traditional banks and, as such, will act as the interface to the customer – it’s certainly hinting at a much better customer experience. Why is this happening? The very simple answer is that technology allows it, customers want it and banks haven’t done it. Evidently the danger is that banks relinquish the customer relationship to others.
So even if the new entrants do succeed in usurping the bank from the chain, they are not removing links in the chain – if anything they are adding more. Clearly this is not disintermediation even if they are fundamentally altering the retail financial services landscape.
‘Promediary’ may be a better term to describe those intermediaries that are proactively pro-customer – disrupting the industry by leveraging technology to give customers what they want. Whatever they’re called one thing is certain: the battle for the customer is about to become much more intense and interesting.
By Marty Carroll, Principal Advisor in the UK