There will likely be a few more post-mortems on Perkstreet’s failure to create a viable business using a debit-card rewards model (note 1). Whether its downfall was due primarily to unfortunate commodity pricing (my theory), lack of demand from the debanked (see Ron Shevlin’s post), or something else entirely, it’s interesting to ponder just what problems are big enough to support VC-backed bank-like entrants (note 2).
I wrote the following piece for our OBR clients a year ago (note 3). It seems even more pertinent today in light of Perkstreet’s failed $15 million bet.
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Embracing New Business Models for a Digital World
For 20 years, online and mobile banking has been bolted on to traditional business models. Exceptions are few: ING Direct, PayPal, Virgin Money and several other smaller players (note 4).
The bolt-on strategy worked amazingly well. Major U.S. banks have lost virtually no deposit, loan or fee-income market share to upstarts in the Internet era. Robust profits allowed incumbents to build online and mobile capabilities without sacrificing their brick-and-mortar channel.
But the banking world changed in 2008. Worldwide recession, regulatory price controls, an uncertain lending environment, low rates and increased competition from VC-backed startups have all combined to make holding on to market share less certain.
We see three areas where financial services startups could gain ground:
- Digital financial advocate
Positioning: Consumer advocate in the cloud always watching over your transactions and financial well-being; and can tap investors (crowdfunding) to get you some needed cash
How: P2P lend + aggregation/PFM + P2P pay + insurance + service + safety
Who: Mashup of BillGuard + Mint + Lending Club - Virtual CFO/CPA
Positioning: Digital business partner supporting financial activity, accounting and capital needs
How: Payments + P2B lending + aggregation + bookkeeping/accounting + fraud protection
Who: Cross between Funding Circle and Xero - Personalized mutual fund
Positioning: Personalized and highly automated mutual fund/ETF
How: Simple UI + limited options highlighting appropriate choices (think Hipmunk) + systematic savings + automated rebalancing
Who: Betterment on steroids
These businesses require sophisticated software, such as PFM modules, fraud protection, and business management functions. It will be fascinating to watch it unfold.
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Photo credit: ThePeacefulMom
Notes:
1. My apologies to Dan, Jason and the rest of the team. I imagine it’s frustrating to see your valiant efforts reduced to fodder for blog posts. We’d be happy to host if you want to publish a guest post with your observations.
2. If IBM really paid nearly $1 billion for Trusteer, I guess you can add “fighting financial malware” in the category of big problems.
3. See Online Banking Report #208/209 (subscription)
4. Certain other countries have experienced more disruption. But in most developed countries the incumbents as a whole have held on to most of their market share.