Daniel Marovitz, Earthport’s European President
The banking industry has a number of characteristics that make it distinct; not least that it is the last bastion of near total vertical integration in any major industry. If you question the absurdity of this, look to everyone’s favourite business example – Apple. Apple dominates the smartphones market almost completely, especially when you look not at unit sales (where they certainly don’t do badly), but where it really counts: profit. In the last year, Apple took 97% of all profits in the global smartphone market. They are the indisputable kings of the next generation global computer platform, which in itself is amazing. What’s more amazing is what they don’t do. They don’t manufacture a single component in the phone. Even better, they don’t even screw the things together. The biggest engine in smartphones and the biggest engine in Apple’s profit juggernaut – in the world’s most valuable company – is outsourced.
The fascinating thing is that nobody would ever question Apple as a mobile phone titan. It’s taken as cold hard fact. Which it is; and it isn’t. Apple is the master of design – both hardware and software – and they are ruthless and effective masters of managing supply chain. They have mastered controlling for quality, innovation, and cost (hence all those jealousy-inducing profits) but they know what their core competence is – and what it is not.
Given the towering pile of cash that Apple is sitting on($142 billion at the start of the year) they could easily buy any of the various companies that are core to the phone, glass, microphones, storage, video processing chips, etc, but they don’t. They don’t take the controlling and protective step to “own” the companies that make the parts upon which they so deeply depend. Instead, they manage them, brilliantly. What Apple owns is the Product with a capital P, not the hardware which is the manifestation of the idea. They understand that managing the experience means owning the customer – the pretty, slimline phone is just the artefact of the product.
Banks are only just beginning to think this way. The industryhas not successfully completed the soul-searching to answer the questions; What is a bank? Is it marble branches? Is it websites? It is Apps? Is it giant customer service centres? Or is a bank something deeper: trusted access to money, an easily accessible way to manage income and bills, visibility and insight into your financial life.
So, what part does the bank need to own? There was a time in the not too distant past that every bank ran telephone lines and data lines directly to key clients. Yet there was also a time in the not too distant past that enterprises around the world had generators onsite because they didn’t trust the grid. (In many parts of the developing world that is still standard practice today.) Would a bank in New York City not trust the local utility for core power? Would a bank in London not be willing to use the public phone networks to talk to clients? This is inconceivable these days.
So let’s go further; would a bank buy, rather than build, the core banking software that keeps accounts and deducts fees? Increasingly, yes. There are now a number of large scale “bank in a box” providers that count among their clients the largest banks in the world. If this is the case, what about their ability to pay out the money they hold in accounts managed by that outsourced software?
This is exactly where Earthport comes in. We have created a focused, high quality, resilient, cross border payment service. We wake up every morning and we worry about increasing the scope of our service, adding more resilience to our network, increasing the power of the tools we give clients, and we keep abreast of the never ending stream of formatting and regulatory changes that affect the more than 60 markets in which we do business. What we do is narrow, but we are very deep. We are a classic best-of-breed solution: we don’t solve every payment issue a bank might have (we are not collections specialists, for example) but we provide a solution for a $13 trillion problem with unprecedented scope. Think of as that blazingly bright and clear screen on your shiny new iPhone. Our screen is useful because 100 other vendors provide all the other things that make the phone powerful when we all work in concert. The bank of the future envisions its experience, manages its architecture and vendors, and allows each part to be the best – so they can be the best possible bank.
Daniel’s twitter id – @marovdan