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I landed a full day ahead of M20/20 in Copenhagen to ensure I would be rested and to fully maximize my week in Copenhagen – I used to live in Denmark many moons ago. Restful I was, mournful and despondent also as Loki tricked me, with Tyr‘s help no doubt as the deed occurred on the SAS plane I landed with. I got districated and left my ipad on the plane. Loki’s dirty work for sure. Ensued a full fintech week armed with only an iPhone and my dextrous fingers. I was tech-light in a fintech heavy conference, the male equivalent of Sarah Lund without a gun, ready for the Killing. Imploring the Norse Gods did not help, I was on my own and could only rely on my wits. A tough challenge, so say my most ardent critics.

Be that as it may, let me attempt to relay my impressions and learnings.

First, let’s dispense with the small stuff. “Banks are dead”. There, I said it, and I realize this may sound like pure folly at a time when many seek bank licenses, but more of that latter. Fintech evangelists had said so and no one believed them. Fintech entrepreneurs said so and no one believed them. After all, there was little tangible proof of such outlandish assertions. A year ago, the talk was still about fintech startups partnering with banks, the likes of which would not be out of place with the fairy tales Hans Christian Andersen‘s fertile imagination birthed.

I did not hear many tales of partnership. I did not hear many tales of business as usual. I did not hear many tales of oversold fintech hype or pushback thereof.

I heard many bank CEOs and high ranking executives saying that banks as we know them are dead, each with their own words- and I paraphrase:

 We just launched our corporate venture arm, but frankly, if you ask me, we are not doing enough with startups and with technology

– We want to be a technology company with a bank license

– The future of banking is this intelligent mobile application that will figure out all your needs

– We need to be successful at hiring technologists

– Frankly, what Amazon or Apple is doing gives me much more concern than any other startup or direct competitor we are facing

– We need to learn how to be much more open 

– We are behind technology wise and we need to redouble our efforts

– There is no going back, open banking, APIs, marketplaces are models we need to master very soon

I heard or read similar statements shortly before M20/20 and I am sure I will hear more of the same over the next year. Lest you believe this line of thinking is limited to banking and banks, follow what the major insurers and payment company executives are saying, and the refrains are eerily similar – so said the few insurers present in Copenhagen.

Past the initial mourning phase we all experience after a “close” relative has been pronounced dead, matters tend to get complicated post haste. Although I am now certain most bank executives are convinced a bleak future lies ahead for the complacent ones, there is no consensus for what needs to be done, no universal truth to follow. Succinctly put, the astute observer will have fleshed out two lines of thinking: a) build better with new technology or b) build something radically new.

The former line is equivalent to a wall building exercise – shiny new walls. The historians amongst us will quickly point to the follow of such endeavor. The latter line is equivalent to building bridges, a more exciting endeavor, full of promises shaped in the forms of platform strategies, network effects, “as a service” and so on and so forth. I am inclined to favor the bridge building exercise.

Indeed, we were treated to all sorts of panels and discussions around open banking, APIs, API strategies, PSD2 strategies, bank as a service – yours truly moderated a BaaS panel with a stellar group of panelists.

We were treated to some excellent conversations with crucial points being made, such as 1) business strategies for BaaS or open banking are as important as the technology underpinning such efforts, 2) the purpose of open banking or BaaS is to drive down the marginal cost of delivering a product or service to near zero, 3) one can only achieve BaaS or platforms strategies with a complete rethink of core banking systems. The last point is a key learning which I have harped on over the past three years and in previous posts on this blog. Core banking systems are antiquated and in dire need of rejuvenation. Whether new service provider entrants will take the lead, existing ones will overcome their legacy offerings, or new and mature fintech companies such as Zopa or Klarna, to name but two, will take it upon themselves to build new systems from scratch and succeed remains to be seen. What is certain is that all will try. The industry demands it.

A point which I did not hear being discussed, which is equally material, is how network effects are important to any new financial services model. Arguably few if any new entrants have captured network effects and many incumbents are protective of their current business models, which are not conducive to capturing said effects in the digital world. One way of capturing network effects is to build marketplaces, another is via unbundling and rebundling of a given set of products or services. On both counts we are still in the early stages financial services wise. The rebundling which I discussed in a previous post, is slowly picking up steam. Witness, Klarna and Adyen securing bank licenses, or the likes of Transferwise, Revolut, Monese, N26 adding to their initial offerings (apologies for those I am forgetting). Some of these firms vie to capture network effects as they build their platforms, AND, by the way, they should all be viewed as tech companies with a banking license.

We were also treated to the news that Visa had invested in Klarna. Add to the mix MasterCard’s purchase of Vocalink, and post M20/20 Vantiv’s bid for WorldPay, I am now eagerly anticipating the next acquisitions of payment assets with a strong European presence. Which are the next targets? Who will be the next acquirers? Are these plays defensive or offensive? How valuable will these assets prove to be? My bet is more than we currently realize.

We also were treated to excellent conversations around digital identities (there were a number of ID startups in attendance), blockchain, AI, as well as many panels specialized on one aspect or another of payments. We were also exposed to regtech and regulatory sandboxes. All are subjects I was expecting would be expanded upon.

I did note, with some surprise, omissions or under-representation of certain topics which are bound to pick up steam and become of some importance for the industry.

I list them in no particular order:

– The impact of IoT on financial services at large (for insurance, for payments, for lending, for savings)

– The necessary intersection between IoT and digital identities (identities of things)

– The rise of edge computing and its impact on financial services (banking, insurance, retail, wholesale) especially as the industry is finally espousing cloud computing which is by definition centralized

– The tangible threat posed by Amazon, Apple, Facebook, and more particularly by Alexa and its sisters to brands (last I checked banks or insurers are also brands)

– Marketing to millennials (Instagram, Snapchat and organic brand building, Facebook or Google and paid search)

– How the next generation smartphone operating systems, which incorporate AR/VR (think ARkit with iOS 11) will fundamentally change search/discovery/interaction/education and the implications for fintech and financial services.

– WeChat (anything about WeChat) and AliPay (anything about AliPay), learnings, which can be replicated in the Western World, and which cannot (especially in the context of platform strategies, BaaS, marketplaces)

These last two points are to me the most material blind spots.

Finally, although I am sensing a dearth of interesting new fintech concepts and startups in the US, I see no such marked deceleration in Europe, at least for the time being. I also see many more venture funds active in this space, which may lead to either funding of startups that should not be funded, or valuation creep, or both.

That’s about it for me, and I now ask you: What were you learnings? Your observations?

I wonder if Loki and Tyr will visit me in Amsterdam next year. I also wonder if the organizers will outdo themselves next year. This event was very well put together.





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I recently listened to the My little hundred million episode of Malcom Gladwell’s Revisionist podcast in which he discusses elite universities vs non-elite universities. One of the points Gladwell makes, illustrated with the work of Chris Anderson and David Sally on football – see here for their website and here for their book – is that there are strong link activities and weak link activities.

Gladwell contrasts two sports to bring to the fore the salience of his point: Basketball and Football. There are strong link sports and weak links sports. Basketball is a strong link sport in as much as it is decided, more often than not, by the strongest player on the court. The “strongest” player can dominate a game and win it for his team. Football is a weak link sport in as much as it is decided, more often than not, by the 8th, 9th, 10th, 11th best players on the team. The “weakest” players need to be stronger than the opposing team’s “weakest” players. On the one hand the strongest link can win you the game. On the other hand, the weakest links may win you the game.

This strong/weak link heuristic made me think about innovation within an organizational context and more specifically as it may apply to early stage startups and mature corporations both in absolute terms and dynamically as either evolve over time.

It goes without saying that the business of growing a startup is eminently perilous, as evidenced by a survival rate that barely exceed those of male mantises after a male-female encounter. In that regard, and because of the numerous triggers that result in failure, growing a startup over time is a weak link “game” – you are as good as your “weakest” employees allow you to be, and by the same token operating a startup & strategic execution are weak links, the more so as the startup grows.

On the other hand, innovation within an early stage startup usually occurs thanks to the genius of one individual, an exceptional entrepreneur or technologist. The smaller the team, the smaller the organizational friction, the smaller the potential agency issues, the simpler the complexities facing the startup, the more one strong link will shine and carry the day. Innovation tends to live and breathe in rhythm with the strong link.

As startups grow and mature, they start to encounter, in an increasing fashion, the well known issues large corporations are faced with.  As this happens, innovation switches from being a strong link game to a weak link game. Once the innovation function has to live in symbiosis with the legal team, the compliance team, the IT team, the business team, the executive office, the strategy team and myriad other agents across the organization, it becomes as effective as the organization’s weakest link, be it an ill-tempered lawyer, a timid compliance officer or high-charging business leader.

In terms of culture, early stage startups “speak” strong link innovation while corporations “speak” weak link innovation. These languages, with their respective grammatical rules, spelling styles and lexicon inform how innovative ideas can and will propagate or fail. These languages tend to remain separate with minimal overlap until they were forced to intermingle forcefully due to the transformational diktat that has befallen every organization aspiring to thrive in the digital age – under the assumption that one needs an infusion of strong link innovation in order to transform and thrive.

Some corporations have responded to the language barrier by setting up technology transfer filters ranging from participating in independent accelerators, to building their own incubators or business builders, creating their captive venture arms, and/or investing in independent venture funds. Other corporations, and they are few and far between, have successfully retained strong link innovation traits as they have grown into sprawling enterprises – see Amazon’s management culture as a perfect example.

We can assume the rate of technology change will not abate anytime soon which will put a premium on how skillfully any organization will adapt to said change. As such, the ability to master the strong/weak link divide will, in my opinion, become a competitive advantage for startups and corporations alike.

Below is a non-exhaustive short list of what strong/weak link masters will focus on going forward.


  1. Focus on your strong link capabilities and ride them hard! These make you unique
  2. Build systems to enable your strong link culture but recognize that growth will bring complexities and weak links
  3. Prepare for weak links but honor them as much as strong because they will ultimately be your business backbone if you are successful


  1. Analyze your business to make sure that you have strong link actors.  If so, nurture them.  If not, call HR fast
  2. Analyze your support systems to make sure they are high functioning.  Weak links should not be “bad”.  Raise their quality because these weak links make or break the business
  3. Build a culture around monitoring and raising the quality of weak links continuously

Needless to say that I expect more corporations following into Amazon’s footsteps, the resulting outcome being a blurring of the strong/weak divide. Neither fully basketball nor fully football; hybrid organisms are usually more resilient.

ps:  I would like to thank Michael Meyer for his editorial help





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(I would like to thank Maya Zehavi for her invaluable editorial help as she pushed me to clarify my thinking.)


Every technology has the potential to change us in ways we do not understand immediately. Some technologies impact us more profoundly than others. Those technologies that impact us the most are related to how we define, comprehend and organize ourselves around and with the “Truth” (for clarity’s sake, I define the Truth not as THE ultimate Truth but as a group of axioms a given society accepts as self evident at a given point in time).

Take the printing press invented by Gutenberg around 1440. No one would have been able to forecast its far reaching consequences ranging from the mass production and distribution of knowledge to the circulation of information and ideas. Scholars rightly point out that at its core, the revolutionary potential of the printing press centered around who controlled the “Truth” – and ultimately who developed, managed and benefitted from the Truth or  its multiple sub-truths interpretations. The bloody wars of religion that followed Gutenberg’s discovery in Europe prove the salience of this point as well as how societies undergo tumultuous times when an established set of truths are challenged and a new set of truths emerge.

The advent of the internet, as many have pointed out, is as momentous, or even more so, than the printing press, not only as a new engine of economic growth but also as a vector of change in relation to the Truth. In an era where everyone has access to every data point, where everyone can opine on every piece of data, where a plethora of tools make it ever so easy to share, augment one’s opinion or distort someone else’s, we are left bewildered and lacking obvious, dependable and anchoring truths onto which we can hold on to and trust.

We see this unfolding with the tug of war between old myths such as traditional media outlets and new myths such as social media and the epiphenomenons that are “fake news” and cyber propaganda. We see this unfolding with the promising and threatening gifts AI bestows upon us. We see this unfolding with the rise of crypto currencies and blockchain technology while questions are asked of centralized monetary systems and fiat currencies. We see this unfolding with our diminishing trust in traditional institutions, which, much like the Catholic Church circa 1439 held somewhat of a monopoly on Truth.

Whether entrepreneurs busy crafting tomorrow’s solutions, incumbents (or existing intermediaries) busy protecting yesterday’s solutions, state actors busy ensuring control over a set of emerging solutions, we are all involved in building new truths. The systematic and systemic destruction of yesterday’s truths which the internet enables mires us in a transition phase where we frantically search to realign and rebalance truth.

What does this all mean when it comes to fintech? Most of fintech to date has preoccupied itself with efficiency, the concrete bedrock of technology promises – “We shall build better products and services and deliver them faster and in more transparent ways.” Indeed, the first waves of fintech were enthralled with creating a direct to consumer nirvana articulated around a “better, faster, cheaper”  Olympian paradigm which, as an unintended consequence obnubilated the important disruptive trends assaulting truths.

I contend the real promise of “fintech” lies with rebuilding truth and that the early assaults on the commanding position financial intermediaries have enjoyed is only the beginning of a transformative process.

To be clear, Bitcoin idealists as well as blockchain/distributed ledgers aficionados have always asserted similar views. How can it be otherwise, when so many traditional business models find themselves on the wrong side of new Pareto laws. Yesterday credit bureaus had their hands on sufficient data streams to somewhat accurately deliver truth to score credit. Yesterday, banks owned proprietary distribution channels that allowed them to somewhat control the truth of credit intermediation. Yesterday, the physical truth of your identity was sufficient to give you access to a variety of services with little to no friction to you or the service providers you dealt with. Yesterday, the truth of fiat currency was enough to cater to 100% of your needs.  Yesterday, the truth of actuarial tables was enough to somewhat accurately cover any risk behaviors with some degree of certainty. Finally, yesterday any and all of these above truths were girded by “easily” digestible ethical constructs that helped us navigate gray areas.

Today, we are faced with a Cambrian explosion of data bolstered by ubiquitous modes of distribution. Credit bureaus may only master 20% of available or relevant data. Banks have lost our attention along with a dominant distribution channel position. Our identities have exploded in myriads of sub-atomic particles which we try to use while others try to manipulate them and us. Currencies are metastasizing in front of our very eyes, sometimes in a good way – loyalty points, tokens, crypto currencies, digital currencies, private currencies. Insurers face new behaviors and new risks to cover. Last but not least, ethical issues abound when it comes to how technologies will be deployed to help us rebuild trust.

As an investor, the more meaningful fintech opportunities I see on the horizon center around enabling a new truth equilibrium. This is why core banking systems or policy management systems for insurers are so exciting. This is why digital sovereignty – digital identity schemes, privacy schemes  applying equally as direct to consumer solutions and b2b solutions – are so exciting. This is why distributed ledger or blockchain tech is so exciting, when appropriate. This is why solutions that allow us to make sense (truth) of data such as new generation data marketplaces are so exciting. Any and all of these hold the promise of anchoring us with new truths we can trust. Therein lies the real signal. The efficiency part is only noise.

Four parting thoughts. First, these fintech solutions are much harder to build as they require intense collaboration between various stakeholders – as opposed to the simpler fintech solutions of yesteryear. Second, emerging properties cannot be forecasted easily which is why, although it is relatively easy to “bet” on blockchain or AI or new core banking systems, it is eminently more difficult to accurately predict how tomorrow’s bank or tomorrow’s insurer will look like. Third, not one but many technologies will allow us to build new truths, thusly rendering the endeavor of rebuilding truths eminently complex. Fourth, as a thought experiment, try to imagine what a Truth seeking financial services entity would look like by extrapolating from Wikitribune, Jimmy Wales’ new endeavor.





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Road to Perdition Unbundling

We have all been proven wrong one way or another since the advent of the fintech craze. What differentiates us from one another is the degree in how erroneous we were. In no particular order, we believed Silicon Valley could disrupt financial services, bitcoin would rule the world, bitcoin would fail miserably, blockchain would solve the common cold, robo-advisory would take wealth management by storm, p2p lending would revolutionize credit, banks would be doomed to fail, banks would not be impacted by technology changes, financial chatbots would take over customer service, AI would be the secret weapon banking or insurance was waiting for, software does not need to be regulated, regtech is a regulator’s best friend, open banking and API banking is the new black, PSD2 is our Lord Savior. Although I am most assuredly missing a few nuggets, and as you may notice, some of the above are still vividly being debated and experimented with, you do get my drift. We collectively suck at predicting what is going to happen as novel ways to apply technology are put to bear on financial services.

Be that as it may, we know of two evident truths since the internet graced us with its presence. First, intermediators in any given industry will be disrupted as new business models emerge and effectively unbundle old paradigms. Second, this unbundling has not happened yet in the financial services. The question we are all working toward answering and in the process elevate to a third truth or disprove altogether is: Will a great unbundling/rebundling occur in financial services?

If you are interested in learning more about unbundling as it has and still is occurring in various industries, I urge you to follow Ben Thompson and his web site Stratechery. Suffice it to say, that, at a high level, new business models will disrupt old ones by unbundling their offering, rebundling new features/functionality and leverage at scale by aggregate attention as a result of said unbundling/rebundling.

As noted, we have seen this process at play with Google, Amazon, Netflix, Spotify and countless others. We have not seen this at play in financial services in any meaningful way. First, because financial services processes are much more complex. (There is a logical path towards greater complexity in unbundling/rebundling text, audio, pictures, simple video, music, movies, live sports events – whether the complexity is technical or commercial in nature. I argue that any process that is money centric is eminently more complex to unbundle/rebundle per se.) Second because financial services are heavily dependent on externalities such as regulation and politics. Third, subject matter expertise matters and it does take time for the right entrepreneur to build such expertise that aptly balances fin and tech – the Flynn effect is in full force in fintech and every new wave of startups will be more sophisticated than its predecessor. Fourth, because, in the majority of cases, digital transformations in financial services, whether executed by startups or incumbents, eventually turn into what Ron Shevlin describes as “newish ways of doing things that are already done”. Fourth, because, unlike other commercial activities, many financial services processes pose serious systemic risks in ways unbundling/rebundling movies or music do not. As such unbundling/rebundling in the age of the internet, where in most instances a winner takes all or most stands, may be far from desirable in lending for example. Mariano Belinky, Managing Partner of Santander InnoVentures, often stresses the point that an Uber of lending, however unlikely for many reasons, scares the living daylights out of him.  For those that would like to explore further the reasons why unbundling has not occurred yet, I refer you to this excellent post by Ron which both augments some of my thoughts and serves as a healthy counterpoint.

By no means am I belittling the achievements of a few fintech firms that have reached escape velocity. PayPal (and Venmo) comes to mind as evidence that disruption at scale can happen. So does Klarna, Square or Stripe. Other firms such as Transferwise or SoFi show great promise. It is interesting to note that most of the fintech firms that have reached or are on the cusp of reaching escape velocity are in the payments sector. Arguably payments may be the easiest sector to unbundle/rebundle – as opposed to corporate lending for example –  or the sector via which unbundling/rebundling will occur at scale throughout the financial services industry.  Nevertheless, “Netflix” unbundling/rebundling of a retail bank, to take a specific example, has not happened yet. Why is that so?

Astute readers will have noticed bankers seem to be attracted to certain bank startups like bears are attracted to honey. It all started with BBVA’s acquisition of Simple during the Pleistocene. We were reminded of this truism in more recent times with the acquisition of Compte Nickel by BNPP. Contrary to popular opinion, bankers seldom acquire businesses for philanthropic reasons. The promise of a solid IRR needs to be included in an investment rationale, however fleetingly it is woven in an investment committee’s decision making process. Astute readers will also not have failed to notice that, after the relative lackluster performance of proto neo banks or pfm apps disguised as neo banks, the model is being refined and is delivering promising signs of success. For the doubting Thomas among you, please go check the traction achieved to date by Nubank or Compte Nickel, and even if it is too early to tell, by the likes of Monzo to name but one of the fresh-faced bank startups. (I sincerely hope UK challenger banks will be successful in the aggregate and show the way for future enterprising startups, but I digress.)

I note Nickel, Nubank, Monzo and their brethren have a few things in common: a) repeat entrepreneurs/founders, b) deeply experienced financial services executives, c) opened to more rather than less regulation, d) positioned their value proposition precisely where banks have been ineffective and where retail customers feel the most pain; and last but not least, e) developing new core banking capabilities or even new core banking systems altogether. These startups also have benefitted from the lessons learned from previous fintech waves as well.

The core banking point I allude to is essential. A core banking system is made up of a deposit module, a lending module, a general ledger and a CRM module (KYC module if you prefer). To these core modules, one of course has to add a myriad of other functionalities. Let’s keep things simple for the purposes of this article – even at the risk losing the core banking purists amongst us. To my knowledge, there is no legacy core banking system that can handle real time processing, although some startups are trying to address the issue lately. All are architected around batch processing in one way or another. Now, picture Transferwise successfully achieving the throughput of Netflix or Facebook for example. There is no core banking system in the world that could process such a volume in real time. The same applies to the first startup that successfully unbundles/rebundles a bank checking account at scale and finds itself with 200 million users overnight. As an aside, the CEO of one of the small banks that provides services to the likes of Transferwise admitted the limitations of existing core banking technology to me recently. Framing the issue another way, we can all be assured that Facebook’s or Netflix’s “core banking system” equivalent is architected, built and managed for the massive unbundling and rebundling success they have achieved. Core banking innovation will happen and will be essential to further banking disruption – I will attempt to address this specific point in another post.

We are now at an intriguing junction in the fintech driven evolution of the financial services. Retail customers are relatively more aware of new services than in the past. Banks are more aware of the threats they face. New fintech startups are more sophisticated both from a fin and a tech point of view. Regulators and Legislators are more “engaged”, from the FCA’s willingness to foster competition by nudging a new generation of challenger banks, to the EU’s willingness to pry open the banking industry with its PSD2 directive. Technology companies are establishing themselves as formidable competitors in the payments space – not a day goes by with an announcement from Facebook, Whatsapp, Amazon, Apple or Google. Further, we all are scrutinizing the phenomenal success of WeChat and, redolent with envy, trying to emulate it in our respective geographies while warily noting WeChat’s slow encroachment in the US and Europe.

I argue that all of the above trends are coming to maturity in a synchronistic way and raising the probability that further unbundling/rebundling will occur in financial services in ways that make the past attempts pale in comparison. I also argue that many banks are not prepared for such possibility and the ones that are the most prepared are located in the EU as they are forced to face the consequences of PSD2 – API banking, open banking here we come. Still, most of the strategic moves have been either defensive in nature or prophylactic. Acquiring Compte Nickel may be viewed as a defensive move with optionality for example. Preparing for PSD2 by ensuring one meets a mandate while limiting potential damage may be viewed as a defensive move too. Building an app marketplace and tying it to one’s existing client base may also be viewed as a defensive move.

For the purposes of our discussion, let me outline what I think would be an offensive move while taking full advantage of both attention aggregation and unbundling/rebundling of a feature/functionality set. I will not attempt to weigh in on who may be able to successfully prosecute such a blue print. A well-heeled startup, a forward-thinking incumbent or an ambitious tech giant could equally achieve such a vision with the proper execution and necessary luck.

  1. Isolate and unbundle a checking account. Define the core functionality you want to offer around as simple and functional of a checking account as possible. Simple is good! Basic functionality even better. Not too basic that you do not appeal to a wide enough group of individuals to start with. Compte Nickel is a perfect example.
  2. Build a new core banking system around this unbundled checking account, comprised of a core deposit module, a customer centric general ledger, a KYC module, a kick ass set of APIs, a marketplace interface and real time processing capabilities – no batch please. The goal here is to build the core tech platform that fits a checking account unbundle, no more no less PLUS the ability to plug in n+1 services to that checking account. Note that I do not mention a lending module (I will get back to this later). I believe this may be Monzo’s vision, also what Fidor tried to do before it got acquired.
  3. Once the unbundling occurs, then rebundle by offering, in a marketplace environment, best of breed services. There is a long tail for this, just check Amazon or Netflix’s offerings to convince yourselves of such assertion.

The subtlety here lies in starting with a simple offering, the core checking account, with a defined targeted audience (where traditional banks do not offer good service cost effectively) and turn the PSD2 mandate (if no PSD2, the market will mandate it) upside down. Rather than meet it defensively, make it a core strategic proposition for your customers.

Think of a traditional bank value proposition as a bundle that includes certain features provided for free, others subsidized, and yet others that are revenue/profit leaders. Retail bank customers all use their checking accounts and use to varying degrees the services associated with their account. Some are heavy users of certain functionalities, other light users of other functionalities. The current bundling obfuscates the asymmetry between customers needs and uses and what the bank charges. The entity that first unbundles the checking account and provides it at a cost level that attracts users at scale (first order of aggregation and the beginnings of network effects) while providing a choice of “a-la-carte ancillary services at scale (second order of aggregation and network effects) will blow up the pricing models banks have successfully used to sustain their business model. This I believe lies at the core of a true unbundling/rebundling with proper user aggregation. Customers pay for the bundles of services that more closely meet their needs at an appropriate cost. It should be noted that both the manufacturing capability and the distribution capability of a bank get upended in this scenario.

A few more questions are worth considering:

  • Can this scenario occur if the unbundler does not own the new core banking system? Several pundits believe there is no need to own a core system pointing that a third party could own and operate a “banking infrastructure”. Before hastily answering ask yourself this: Could Netflix or Facebook have achieved their phenomenal success by only focusing on the client interface and customer service while a third party owned and took care of their own core systems? I think not. Actually a new core bank system is one of the competitive advantages necessary to capture value.


  • Can this scenario occur without the need for a license? Several pundits believe so, arguing, in similar fashion to Silicon Valley advocates that new distribution models are only software code and thusly not worthy of licensing requirements. While I am sympathetic to this line of thinking and while I explicitly excluded lending activities from the blueprint above, relegating it to the marketplace, I think some type of bank licensing is needed to reflect the intricacies of segregating, securing, handling consumers’ money and facilitating a host of third party services. One could think of a new type of banking license, less than a full banking license, more than a narrow payment or money license.

Let us now switch our focus to how value is created with the new model I propose from a strategic point of view. The traditional banking model is predicated upon ownership of both manufacturing – production of products and services –  and distribution – whether via brick and mortar branches or digital channels. Ownership of the entire stack and mingling of both distribution and production is what used to create value and what, many bankers hope, will continue to create value. The only rub is if consumers stop using traditional points of distribution or if distribution gets to be reinvented. With the new model, the point of contact is the checking account per se as opposed to a branch or an app and the value springs from two very specific actions which reinforce one another. On the one hand integration between the checking account and a variety of third party services. On the other hand aggregation of a plethora of third party services available to the checking account holder. These two reinforcing mechanisms not only create value differently but they also, relatively speaking, concentrate power with the owner of this new operating chain to the detriment of the legacy producer/distributor. In a model with a long tail of options and informed choice the value of a bank brand diminishes.

Do keep in mind the above can be tailored for many different target markets in banking: SMEs, HNWI, corporate, mass affluent, non-banked. Not only can this blueprint be applied to different segments, I also believe it can be applied to specific subject matters, one example being regtech as a service where a platform could serve as the integration/aggregation layer for many regtech solutions on the supply side and many financial institutions big and small on the demand side.

The Compte Nickel acquisition will make many take notice. BNPP signaled to the market this approach may be the most significant threat to banking – from a bank that already has its very own “digital bank startup” no less; proving that innovation is easier achieved outside of a corporation than inside. On this latter point, further proof of Conway’s law.

I expect the above blueprint to be copied, tweaked, optimized and deployed in the coming years. I expect EU banks to hold an inherent advantage compared to US banks in so doing, due to the pressure they face with PSD2. I expect both EU & US banks to weigh with all their might in favor of delaying regulatory or legal initiatives that facilitate this model. I expect the WeChat success, whether delivered by WeChat or copied by GAFA, to keep incumbents honest and help them recognize defensive plays alone are losing propositions. Basically, I expect the unbundling/rebundling of financial services for the coming 5-8 years to be drastically more vivid than it has been over the past 5-8 years.  One last parting thought, it is inevitable that credit intermediation will be upended as a result of this blueprint. How money is created as well as how capital requirements are engineered in the aggregate will have to be revisited should this model take hold at scale – food for thought for another post.