Snippings

I think it’s time for another review of terminology and I’ve got a couple of suggestions. Let’s standardise this way: a “neo-bank” is something that looks like bank, but isn’t (eg, my Simple account when I first got it and before they were taken over by BBVA, which is an actual bank, and then shut down), whereas a “near-bank” is something that performs a function traditionally associated with banks but isn’t a bank and doesn’t look like a bank (eg, Wise). Then we have the non-bank, which isn’t a bank and doesn’t perform a function traditionally associated with banks but nevertheless embeds financial services (such as an accounts package that uses transactional data to deliver data-driven liquidity). Oh, and then we have challenger banks.

Challenger banks are not a special or different kind of bank. They are just banks. They may be banks, neo-banks or near-banks or non-banks that perhaps address a new niche, or deliver interesting new functionality into an existing niche, but they are not a distinct category. They are banks. That’s it. So when people talk about the “challengers” to the incumbent big banks, I do not see Monzo in my fevered imagination, but Amazon. It’s BigTech that is the real challenger.

In this framework, my guess is that Amazon would probably aim to be a neo-bank or a near-bank. It will embed financial services, such as small business financing, but will it look like bank. Why would it? Amazon know infinitely more about marketing than I do, so I wouldn’t presume to advice them on. Amazon sees banks as utility providers of the financial services that it is delivering to its customers.

This is not a new idea, by the way. In 1997, one of the first serious articles I ever wrote (with my colleague Mike Young) was for Internet Research (Volume 7, Number 2, p.120-128). It was called “Financial Services and the Internet” and explored the (then new) potential for the new entrants to assemble banking services depending on the customers’ needs while using the emerging infrastructure would allow customers to build their own financial services with, as we put it at the time, “the underlying best-of-breed products originating from a wide range of suppliers”. We also wrote that the manufacturers of financial services (eg, banks) would “retreat to a small range of products that build on core competencies, but supplied to a global market”. It is the techfins (including Amazon) that I wrote about before who are precisely the kind of organisations who can take these products (eg, unsecured personal credit) to those markets.

Two decades after that first article, I wrote about the changing environment and pointing out that changes in regulation “mean the tech giants will soon be able to access customers’ bank account data” and that companies such as Google would take this obvious step in order to gain access to financial services infrastructure without the overheads and scrutiny that a banking licence involves. A couple of years later we see the case study of the Irish central bank’s decision to authorise Google Payment Ireland under the second Payment Services Directive (PSD2). This attracted a fair bit of comment at the time, some of it informed. As many observers (eg, me) pointed out, this does not grant Google with the ability to offer a full banking service including bank accounts, but they don’t need to because with a PI licence they can obtain API access to bank accounts to offer Payment Initiation Services (PIS) and Account Information services (AIS)

(It was obvious move for Google. My good friend Simon Lelieveldt noted in his blog on the subject, that this makes “Google Brexit-proof and PSD2-proof” which would be reason enough to do it, but it’s important to understand just how disruptive this licence might be. In Europe, there is nothing that the banks can do to stop the techfins from becoming a neo-banks. PSD2 means that bank customers will give Techfins permission to access their bank accounts, at which point the techfins will become the interface between the customer and financial services.)