Receipt Reliance

Bank Disintermediation

By Mark Johnson, CEO Receipt Reliance

Some time ago, Jim Marous from The Financial Brand wrote a great article titled “5 Ways Mint.com Is Stealing Your Customers” and cleverly demonstrated how a product like Mint could over time disintermediate the banks, doing so right under their gaze, rendering them to nothing more than useful backend plumbing. They would become mere utilities.

Banks in Australia and overseas are now offering new APIs to third-party developers/providers. For example, according to an itnews article (ANZ Bank opens up its mainframe) , ANZ  "has opened up its mainframe with around 20 new application programming interfaces (APIs) tapping directly into its two main core banking applications”.

In another article from banking technology, (Deutsche Bank opens data store to developers), Deutsche Bank "is opening its data store to software developers from Germany and abroad as it looks for more digital solutions for its bank clients”.

European banks are now obligated under new PSD2 guidelines to provide for API access of financial data to third-parties, having two years from Jan '16 to comply. Banks in Australia will do so at the RBA behest, and also to take advantage of the NPP, particularly the overlay (convenience) services being introduced as part of the rollout (Read more about NPP here)

So here in lies a dilemma for banks; while there are many types of third-party apps enabled via open APIs that will enhance the banks' appeal to customers and facilitate as yet undiscovered utility and convenience services, there will also be those that can lead down the mint.com path as described via the link above.

Do banks resist the third-party invasion of “mint” type products by restricting the level of access, by hiding behind regulatory bushes or by discriminating? I hope not, as going negative will usually fail.

Or do banks roll their sleeves up and utilise some of that capital they have and compete? I think this is the most likely outcome and indeed that is what we are starting to see happen.

I imagine banks will become great aggregators for customers who have accounts with more than one bank and will provide useful, intuitive and contextual PFM front end tools for them. I imagine they will have the resources to invest in IP or purchase necessary IP protection, hire the right skills and expertise and will ultimately out-compete the majority of third- party start-ups.

Perhaps banks will lose some of their traditional revenue to these third-parties, but there will also be opportunity to introduce new revenue streams for new services they can provide around payments.

Those third-party start-ups that do succeed will do so via a killer app or two that is IP protected or is difficult to reverse engineer. Over time many of these apps may eventually be bought by the banks anyway and the status quo will return. Some disruptors will be successful, but for the most part banks will have out disrupted the disruptors and hopefully the real winners will be the banks' customers.

Footnote:

David Birch, a highly respected and followed commentator and advisor in the payments industry and world expert on digital identity suggests that in 2026 banks will be a place you store your digital identity, not your money. If this is true then banks are in for a busy but very exciting period in their history.