Digital banking, a remake of telecoms?

digital banking

By Mung Ki Woo, CEO at Ditto

When the first low-speed Internet access services appeared in the 1990s, it was necessary to use a modem connected to the fixed telephone line and to pay both a monthly subscription and telephone calls to the number dialled by the modem. Soon, the new entrants set off in a frenzy of customer conquest and offered totally free service (free subscription, free calls), supported by major marketing campaigns. Are we not seeing a similar phenomenon play out in digital banking? Customer acquisition budgets are constantly increasing, while service prices are falling. In the telecoms sector, it was not until the emergence of broadband (ADSL) in the early 2000s that consumers finally agreed to pay for the service and players achieved profitability.

“The experience of the telecoms industry brings several insights”

Just as the telecom sector has undergone a major overhaul over the past 25 years, it is likely that the banking industry will undergo a transformation of the same magnitude in the coming years. The experience of the telecoms industry brings several insights. First of all, new technologies make it possible to create totally new services. This has been the case in telecom with Internet access and mobile phones, and in banking perhaps this will be the case with blockchain and crypto currencies.

In addition, we could have three major battlefields:

  • The banking service itself, centred on the current account. As France Telecom (now Orange) in its time had to fight against the new alternative operators, SFR, Free, etc., traditional banks are fighting against new entrants, such as Revolut and N26. What will be their respective market shares in the future? No one knows, but today the former monopoly France Telecom controls only 42% of the Internet access market.
  • Above the banking service, there will certainly be a multitude of new services, provided by new players, as today email is provided above Internet networks by players who are not operators. Early examples of this type include account aggregators (e. g. Tink, Bankin) or payment services (e. g. Lydia, TransferWise).
  • Finally, there is still the “picks and shovels” supplier sector for this new gold rush. They are grouped under the generic term “Banking as a Service”. They are either technical players who propose radically new solutions, both more flexible and massively less expensive than current systems. Or they are regulated entities (electronic money issuers or fully-licensed banks) that accept to be distributed by new entrants.

“History does not repeat itself, it stutters”

Moreover, in Karl Marx’s words, “history does not repeat itself, it stutters”. This stuttering may well come from the digital giants (Google, Amazon, etc.), which were born with the telecom revolution and are all entering financial services, with the global power and ambition that characterize them.

If the example of telecom is any indication, we are only at the beginning of a massive transformation of financial services. 25 years ago, who could have predicted the almost total disappearance of the landline phone, replaced by cellphones and the Internet? The future of financial services is exciting precisely because it is unpredictable.