(There Is No) Uberization of Banking

Subscribe TodayIf I had a nickel for every article that talked about the Uberization of banking, financial services, or money, I’d be able to retire and wouldn’t be writing these silly blog posts that try to educate the world on what’s really happening in banking.

One of the more recent uberfication-obfuscation articles came in the esteemed Wall Street Journal with an article titled The Uberization of Money. According to the article:

“Uber is a high-tech middleman that is making the intermediaries of the past obsolete. The financial world is one of the most mediated industries on the planet, and that is precisely what is about to change. Uberization also means using vast amounts of data to make those connections feasible. Whatever the risks, the Uberization of finance is no fad or stunt.”

As much as it pains me to point it out, uberization-sensationalism has been found right here on the pages of The Financial Brand in an article titled The Uberization of Banking. The author of that article claims:

“Uber and Airbnb simplify an existing process and provide an easy customer interface. Before Uber, you could get a taxi or car service and before Airbnb you could rent a property. It was just much more complicated for both the property owner and the renter, especially if the property was in a more obscure location. Again, they have taken the friction out, and created true marketplaces.”

My take: These comments–and many others in the Uberization/Uberfication vein: 1) Misinterpret what Uber really did in its industry, and 2) Run counter to another popular and emerging meme in the banking thought leadershipsphere regarding the rebundling of banking, or banks becoming a financial hub.

What Uber Really Did

Before Uber, the taxi industry in the US was characterized by a very large number of relatively small companies. About the only thing consistent about the taxi experience across major cities in the US were the phone numbers of cab companies (ever notice how XXX-777-7777 connects you to a cab company in practically every area code?).

First and foremost, what Uber did was pursue a consolidation strategy in a highly fragmented industry. But Uber was hardly the first company to do that. Thirty-odd years ago, SuperCuts did the same thing in the haircut industry (I can’t bring myself to call it the hair styling business). To do it, however, it had to create physical locations, own the physical assets, and employ a lot of people.

A little closer to home, an example of pursuing a consolidation in a fragmented industry without having to invest in physical assets is ING Direct. By providing high(er) yield savings accounts without the burden of bank branches and tellers, ING Direct amassed more than $80 billion in deposits by the time it was acquired by Capital One in 2011. (Funny how no one talks about being INGDirectified).

Second–and less important to the banking industry, but not the rest of the world–Uber changed the nature of the employer/employee relationship and concept of employment.

As the author of the Financial Brand article pointed out, Uber changed the interface by which a passenger requested (and paid for) a ride. But without the consolidation and contractor strategies, we wouldn’t be talking about Uber.

The author of the Wall Street Journal article uses examples of P2P lending and crowdfunding as proof of Uberization. But as you can now see, those are examples of the exact opposite of what Uber did, as P2P and crowdfunding approaches create more fragmentation, not less.

Unbundling or Rebundling?

If Uber is fundamentally about industry defragmentation, then the folks (like Marc Andreesesen and the author of this TechCrunch article) arguing that banking is becoming unbundled (i.e., more fragmented) are fundamentally wrong. The author of the TC article claims:

“People, particularly millennials, are moving away from single monolithic banking institutions serving the majority of their financial needs to hand picking the specialized services that work for them.”

Unfortunately (for that guy), there’s no data to prove that. In fact, a survey conducted by the Center for Financial Services Innovation found that two-thirds of US consumers prefer to limit the number of FIs that they deal with. Among Gen Yers in particular, that percentage exceeds 60%. The CFSI data does show that a smaller percentage of Gen Yers do business with the Top 20 banks than older generations do, but we’re talking about a difference between 6 in 10 Gen Xers, Boomers, and Seniors and 5 in 10 Millennials.

Which is why I argued in an April 2015 post that the future of banking is about the rebundling of an emerging set of banking services, where consolidators will provide both the front-end interface and back-end integration to coordinate and simplify the set of banking services a consumer needs (an argument now being adopted by others like @Leimer and IBM).

As Brad Leimer, head of innovation at Santander put it:

“What would a rebundled bank look like from a consumer’s viewpoint? Such a bank would give a dashboard view of all of their services that are financial or tangentially financial. I should be able to choose–through my bank’s use of flexible middleware like Germany’s Fidor Bank already offers—to bundle any service that I want to, that I deem crucial to understanding my financial picture. That, in turn, if the consumer or business chooses to share the data, can help the bank make better product and service offerings, based on my preferences and other companies that I do business with.”

And as reported here on The Financial Brand in an article titled Securing Banking’s Role as Relationship Gatekeeper:

“IBM believes that banks have an opportunity to position themselves at the epicenter of evolving ecosystems, offering a broad range of best-in-class services for the benefit of their customers.”

Uberization or Not?

If you’re an astute reader (who am I kidding, the only people who read Snarketing posts are from the Astutearati), then you’ve realized that I just argued myself into a corner and contradicted myself.

I started off by saying that there is no Uberization of banking because Uber was about consolidating a fragmented industry. But then I basically argued that, thanks to the slew of fintech upstarts emerging, the role of existing banks would be to consolidate, integrate, and, in effect, defragmentize the industry.

The problem here is that misconceptions about what Uber has really done has led to the misuse of the term Uberization. A term we’d all be better off never using again.

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