Chris Herd

@ChrisHerd

How Banks Could Survive the Tech Revolution and Act as Consumer Champions to Save You a Fortune

What has yours ever done for you?

When did you ever come out of a bank and say wow, the customer service was exceptional or felt like you have received tremendous value for money? If you’re anything like me the answer is never.

Someone’s going to do to Banks what Uber done to the Taxi Industry

Taxi’s were never sexy — Uber changed the game. The power isn’t in existing technologies, it’s in re-imagining entrenched institutions while making use of the days available technology. Overthrowing something which has operated in the same way for so long is never easy. People think banks need to operate in the same way as they always have because they can’t imagine anything different. The purpose of this pot is to challenge that perception while challenging you to expect more from the people who look after you money.

Banks have operated in the same way for a century!

They still operate over a time horizon of days instead of instantaneously. They still want to charge you a fee based on a % of the money you transfer instead of charging you what it actually costs to clear a transaction. The fat cats at the top are still enjoying the cream while the rest of us suffer. Banks are an illness and the only remedy is purging them from our system entirely. To rebuild we must burn them to the ground.

The Reality is Banks Take Without Ever Giving Back

Future banks will offer you the same value back that you give them

A challenger has a route to domination based on something no bank in the world has been able to achieve — viral growth. This could be achieved very simply through the anonymization of data you already possess while releasing it back to your customers.

Some challenger banks have tried to build businesses based on the instantaneous transfer of capital, whether that is for payment for goods, conversion of currency or transfer to other individuals. What they have failed to make use of so far is their unique opportunity to exploit all the data they are afforded. To do so they need a niche. There are already hints through the offering of insurance etc. but I believe they should already be doing much more for their customers.

Right now these challenger banks are pleasing customers which has allowed them to grow very quickly — what would happen if they amazed them and gave them value beyond anything they imagined was possible? My Grandmother currently pays £89 a month for the same Sky subscription my Father pays £34 for. If both individuals paid for this through the same bank they would possess that comparative data for every person on the platform that subscribes to the same service.

What this enables them to do immediately is build a product which becomes a transparent database showing customers how much they can save based on what other people on the platform are paying. Simultaneously this would incentivise users to expand the data they provide due to the tremendous value they receive in return in the form of detailed analysis about the recurring monthly expenses where they could make huge savings. They can make substantial savings based on the market intelligence released to them while the Bank accruse masses of valuable and actionable data differentiating them from any competitor.

A bank is the perfect vehicle for this system because their goals aren’t misaligned with their customer (like comparison engines are due to a referral fee business model). From there the Bank would become a platform that allows it’s customers to operate together, utilising the power of solidarity to collectively bargain together and influence the prices available to everyone.The influence grows in line with the number of users, allowing the company to negotiate deals with suppliers individuals could never achieve on their own.

Eventually, this model would evolve to not only advise users how much they can save but negotiate this reduction in cost automatically on their behalf.Information for most services change little from year to year, your Bank could automatically renew your car insurance at the lowest price without the need for you to waste time on comparison sites. The transparency of the service gives you comfort that you pay the lowest price possible for all your recurring expenditure, users simply sit back and save as a by-product of utilising the platform.

So in terms of roadmap, the initial step is to create an accessible database which provides transparency for consumers. Releasing figures that state the lowest value consumers are paying on the platform for every recurring expense would tremendously useful. How do you ever know you are getting the best price for anything? You have a point of comparison with your friends and family — but out with that how do you know you pay a fair market price for anything when compared to the wider public as a whole — the simple answer is that you can’t. In my opinion, traditional banks have been derelict in their duties. Modern banks can analyse the data they are offered then reflect that back to the platform and provide tremendous value to users instead of exploiting them.

Sky is the most interesting niche for me initially due to the ease in which you can save a large number of users a significant amount of money each month.Just providing this information allows users to renegotiate their costs based on the evidence you provide. Imagine how pleased customers would be to realise they could save up to £720.00 a year based on thier banks advice. This might not have value for things like airline tickets, but anything which is a recurring expense — house insurance, car insurance, mobile phone contracts — this becomes a tool which differentiates the new Bank from it’s competitors.

The horizontal expansion is almost limitless

The next step is taking this a massive step further. Instead of simply providing the information to users on the platform, you automatically negotiate the deal to the lower cost on their behalf. I realise initially this involves a lot of human labour negotiating individual deals with service providers, but think of the benefit to users? This is an opportunity for massive growth based on something that won’t scale to millions of users — but it doesn’t have to. This has a real opportunity to be the Banks growth hack like Airbnbs offer of professional photography. Once they have achieved a cost which is adopted by all users they can begin offering that service to new consumers at a far lower price than they can get elsewhere — gaining customers who never even used the service originally incentivises service providers to collaborate. Better yet, every new user who come to the platform provide an independent check against the prices the platform is achieving as anyone who pays less offers a fresh opportunity to negotiate costs lower for everyone.

I foresee a time where you sign up to this new bank, transferred all your payments, and they immediately infors me that they have saved me £50 a month on my Cable TV subscription. I sit back and save as a by-product of having an account. The first thing I would do is tell every person I know. For absolutely no effort, if you switch to this bank account you save a lot of money every year. No catches.

That is revolutionary

For those interested Below is a more detailed overview of how I imagine this bank would operate and how you would be rewarded

Rationale

The GDPR regulation opens the door to a potential revolution for consumer data — which enables banks to operate as a transparent intermediary that is a consumer champion rather than simply exploiting its users. The relaxation of laws, if permission is attained, opens the doors to comparative aggregation allowing a platform which highlights to consumers any costs where they are overpaying in comparison to other users. Initially their data would only be used to analyse their spending against others, reflecting back instances where other individuals pay significantly less than they are. It has to be a bank because they already possess this information simply by operating. A comparison site’s incentives are misaligned as they operate on a referral fee model. They can’t indicate that you are paying significantly more than other people because they depend on the revenue from the companies they would be outting. Eventually, this would evolve to shape the costs you pay based on the influence of a platform intelligently acting as a swarm together in order to achieve the best costs. The bank works on your behalf to achieve better overall costs, while each new users acts as a check that the bank is achieving the lowest cost possible. While this initial foray into collective bargaining only enables the sharing of data — the final step is an autonomous negotiator that analyses everything you purchase and negotiates any costs down to the lowest levels where you are paying more without you doing anything.

Crypto

Bitcoin is yahoo, ethereum is google and bitcoin is the internet in 1994. The reason I believe this is fairly simple, the underlying incentive to mine bitcoin long term is relatively low. The bounty for recording the next block halves every 4 years so eventually the value for mining will be so low in comparison to energy usage that it will become infeasible to continue doing so. At this point the whole network will be forced to consider the possibility that the blockchain will become dilapidated as too few users will be working to mine the next block, whereby ensuring the ledger remains up to date. Either this will occur devaluing the currency significantly or every holder of bitcoin will have to contribute a tiny fraction of coin to pay a decentralised network to keep the blockchain up to date. A more interesting alternative to this, in my opinion, is rewarding individuals for participating in the upkeep of the blockchain. Instead of a proof of work as a product of payment, a proof of service becomes the way payments are made. Every individual is paid a fraction of a coin according to how much money they have in their account for each month of service they provide. To ensure constant uptime, each individual is charged a tiny fraction of their CPU, which runs poof of work calculations collectively resulting in the mining of new coins. Each coin mined is distributed to the individuals involved while 20% is kept for the bank. This is re-purposed later as a management fee and the carry from the investment fund.

Interest

Interest on the account isn’t payable in a traditional sense, but interest is currently terrible anyway. Instead, it forms the investment fund. The interest is reinvested in companies as a Venture capital vehicle, while the holders of the accounts are partners in the fund dependent on the amount of coin held.This unique model creates a ‘network-as-a-service’ as a by-product of investment. Not only do the companies invested in receive capital, they also receive the support of the partners in the fund who are incentivised to assist the companies invested in by any means possible as they are the direct beneficiaries of their growth. The tokens you hold amount to fractional ownership of the fund during periods of liquidation.

Market

A liquidity element would also be required. This would allow individuals to sell their coin at a price decided by a secondary open market whenever they wanted. The economic element of this isn’t quite clear to me yet, but there would be a mechanism to purchase coin which would give you proportionate ownership of the fund comparative to what individuals accruing coin in the above interest method were. This could work under the basis that at the time of investment, new coins are created proportionally to the amount of capital in the account.

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