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Commoditization of Banking is occurring. For decades, bank rhetoric has been dominated by “automatic teller machines”, “downsizing”, “reducing personnel and transaction costs” or “shutting down local branches”. To keep up with tech-savvy consumers, banks are now innovating by focusing on multichannel experiences, mobile technologies and social media interactions. Dropping the monolithic app that fitted everyone generally but no one in particular is a megatrend that banks are following in 2016.

Commoditization of Banking

A year ago, PwC Strategy&’s global team of practical strategists were predicting for 2015 the acceleration of the commoditization/differentiation trend of retail banking products, which would force banks to focus more on convenience, simplicity and innovation if they want to keep up with the highly competitive, low-growth, low-margin market. “In 2015, we foresee the acceleration of a trend that’s been under way since the end of the financial crisis: the increased commoditization of retail banking products.” (source: 2015 Retail Banking Trends )

They were correct in their prediction as we’ve witnessed a great shift of the major financial brands that have been unbundling their apps for specific targeting of customer segments.


American Express, for instance, has now several apps, each covering specific segments of their clients’ needs:

  • ReceiptMatch automatically matches the digital photo of a client’s receipt to the transaction on the American Express online statement.
  • American Express UNSTAGED gives music lovers new ways of staying up-to-date on what their favorite artists are doing, upcoming events and even feeds fans cool info about the band during live sets.
  • Bluebird®, a collaboration between American Express and Walmart, allows direct deposits, tax refunds, bill payments, locating nearby ATMs and offers discounts for dining or shopping.

Chase demonstrates another recent example of unbundling a mobile banking portfolio which includes the Chase Freedom® Mobile app in an attempt to enable customers to redeem Cash Back rewards straight from their smartphones and pay at their favorite restaurants, stores or movie theaters. To compete with Apple Pay and Google Pay, they recently launched Chase Pay.


Photo source:

Single Purpose Apps Declining

Digital banking is one of the few remaining sectors that have not unbundled their apps. They still use website architecture that attempts to keep the user in one extensive site/place. Top mobile apps on the other hand provide an immediate one-touch solution to a problem. The top banks have their own engineering departments and have started the unbundling trend, acknowledging the loss of profits to single purpose Fintech apps. Another 10,000 financial institutions purchase their digital banking software from third party vendors. The top ten of these vendors control 81% of that market. By controlling the market and forcing two to five year contracts with their customers, they have a negative incentive to unbundle their apps.

Recent research reveals that 67 percent of American and Canadian millennials are open to using non-financial services brands. The arrival of new Fintech players who offer single purpose apps has forced banks to reconsider their monolithic approach.

Third-Parties Lead

Fintech startups are already taking over entire business segments and profit areas from banks. Venmo is a free digital wallet that lets you make and share payments with friends, while Robinhood offers a zero-fee stock trading service. Further disruptions happened for credit card companies, when startups like Braintree and Square provided low-cost transactions via credit cards, bank transfers or even bitcoin. Fintech newcomers like Simple and Moven want to eliminate banks altogether with their fee-free banking.

Fintech firms have generated this disruption in banking. Customers no longer look to banks to provide top-to-bottom financial services (from payments to loans to savings solutions) within a single app anymore. The evolution is still accelerating. Global venture capital investment in financial technology startups tripled in 2014 and is on path to double again in 2015.


Graph source: Cbinsights:The Future of FinTech and Banking: Global Fin Tech Investment Triples In 2014

Tackling Competitive Pressure

According to Banking 2016: Next-Generation Banking, a new report released by Accenture, banks can counter this competitive pressure by adopting three business models:

  • The “Financial/Non-Financial Digital Ecosystem” model, where banks use mobile technology to become the main provider of financial and non-financial services
  • The “Intelligent Multichannel” model which helps banks engage clients through extended multichannel experiences
  • The “Socially Engaging” model, where the relationship between banks and their customers is powered through social media interactions

These 3 models don’t exclude each other. Accenture indicates that by simultaneously developing all three, banks could double their annual revenue growth rate up to 8 percent, while reducing operating costs by 20 percent. 

Unbundling Apps – Opportunity for Banking Software

So far, new Fintech companies have been targeting consumers directly. “Disintermediation is a serious threat in financial services, with best-in-class start-ups and giant technology companies looking to siphon off profits from traditional banking services. Goldman Sachs sees $11B at risk of leaving the traditional banking sector in the immediate future.”  (source: Trending Credit Unions)

Banks and credit unions control $15 Trillion in assets. 45% of that wealth is controlled by the top five banks, which are reacting to market trends and unbundling their digital banking software. The other 55% will be slow to follow as they are tied to long-term contracts with vendors who have no financial incentive to unbundle their software and become a target of individual apps in the Fintech space.

This market anomaly creates an interesting opportunity for one of the existing digital banking software providers (like Malauzai, MX or Backbase) looking to acquire market share. The first to offer their software as a service with individual features unbundled into separate apps will be able to establish a significant market advantage with banks and credit unions looking to follow consumer trends.

Community Banks and Credit Unions Can Now Lead

An interesting change in the digital banking paradigm results from this new trend. Community banks and credit unions can respond more quickly to market demands than larger banks that are subject to legacy platforms and are involved in the time and expense of their own R&D. Once they start the unbundling process, thousands of new Fintech solutions are already waiting for them to use. They only need to brand and integrate those solutions with their own infrastructure. In 1990, the top five banks controlled 9.7% of the wealth. Partly due to their ability to create their own digital banking software, the first-to-market competitive advantage over other financial institutions enabled the top five to now control 45% of total assets. A reversal of this trend will begin in 2016 as this new capacity to move quickly in the market will bring Fintech companies and smaller financial institutions into an alliance that will ultimately reverse the trend of the largest banks controlling the market.

Author’s Bio:

Bill Sarris

Bill Sarris

Bill Sarris, CEO and Co-Founder of Linqto, Inc.

Bill is a recognized expert in the field of streaming and collaborative technology and the inventor of Linqto’s platform. He has delivered major enterprise software applications for Microsoft, Intuit, Digital Insight, NCR, Stanford and other clients. For Intuit, he developed applications for QuickBooks, Mint and the recent upgrade to QuickBooks Online. For Digital Insight, Bill managed Linqto’s engagement for their new Promotion Suite and Business Banking systems.  With over a decade of experience in financial services applications, digital and mobile banking, his work has received the Forrester Groundswell Award and The Monarch Innovation Award for Banking.

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