Bank accounts are not heavily branded, barring IndusInd Bank and a few more exceptions.
The fifth largest private sector bank in India tries to create a strong brand for its bank account on the back of differentiators like return of canceled cheque. (For the uninitiated, banks return canceled cheques to customers by default in USA but they retain them with themselves in India, so returning a canceled cheque to the customer is indeed a differentiator in the Indian context.)
Despite their commodity nature, some bank accounts have cachet (e.g. Citi, HSBC, HDFC Bank, Kotak Mahindra Bank, et al), whereas others don’t (e.g. Bank of Maharashtra, City Union Bank, Punjab & Maharashtra Cooperative Bank, et al).
It’s an open secret in the industry that banks with cachet frequently reject customers who are not in their ideal target group (middle income and above). According to an ex-banker, banks make a quick call on the economic strata of walk-in customers based on their dress and fluency in English.
Even banks without cachet reject potential customers, as I once saw happen to my car driver.
My car driver wanted to open a bank account. Expecting pushback at the branch, he requested me to accompany him to the friendly neighborhood bank situated in my building. When he approached the branch operations manager, he was asked, “Why do you need a bank account? You don’t earn much money anyway”. I had to step in and tell the BOM how much salary I paid my driver. It was only then that he agreed – regretfully – to open the bank account. And this is in a Tier-1 city. Many people from small towns and villages tell me that they encounter this problem regularly with banks in their area. Apparently, bank employee is higher on the social totem pole than drivers, farm workers, et al and their having a bank account risks upsetting their society’s apple cart.
On a side note, when I went to open a Jan Dhan account with a PSU bank a few years ago, the branch manager threatened to reject my application on the grounds that I spoke fluent English and lived in a tony neighborhood. Apparently those traits are red flags for the target group for whom the modest zero-balance account was created. But I digress.
People who were rejected will likely open an account with some random bank – say Random Bank Limited or RBL – and reconcile themselves to a bank account without any cachet.
Let’s say a GAFA (Google Apple Facebook Amazon) or some other Big Tech company wishes to enter banking. Since it does not have a banking license, it would need to partner with a bank. (It could alternatively apply for a banking license for itself but that’s something most of these companies have avoided, probably because of the regulatory overhang that comes with a banking charter).
A couple of years ago, Google partnered with Citi and Stanford Federal Credit Union in the USA and announced plans for issuing checking accounts branded as Google Plex.
Ditto Apple with Goldman Sachs for credit cards. While Citi and Goldman Sachs are big names, some of the other financial institutions in the list of Google Plex / Apple partners are closer to RBL.
Suppose a Big Tech Co partners with RBL, as Google did with Equitas Bank in India earlier this year. All of a sudden, people who had formerly reconciled themselves to a cachet-less RBL account will suddenly become proud owners of a Google Bank Account. They can flash their debit card with Google logo – as they to other cards like Aadhaar – in their circle and brag about having a Google account. That the account is actually held at a random no-name bank is a detail that will escape most people on the back of the smokescreen created by the Google logo emblazoned across their cheque book, passbook and other items.
A Big Tech Co can thus enhance the stature of a nondescript bank.
Over time, even a customer who qualifies for an account with HSBCs and Citis might open a “Google Account” – not only because of the overwhelmingly superior brand image of Google but also because Google Plex might provide a more frictionless onboarding and ongoing experience compared to the digital banking alternatives offered by megabanks.
The same people who would never deign to open an account with RBL directly might not know / care that their Google-wrapped account is actually RBL’s. To paraphrase the tagline of an old ad run by Compaq to announce that it was replacing Intel with AMD CPUs on its market-leading line of personal computers: “When it says Google on the outside, nobody cares which small time coop bank or credit union is on the inside”.
When this happens at scale, megabanks would start losing customers from their core target market to Big Tech + RBL Bank. If they let this trend go unchecked, they could eventually get wiped out.
By following this playbook, it is conceivable that Big Tech could disrupt Big Banks.
It they do that, Big Tech + RBL would become the canonical success story of Disruptive Innovation.
According to the theory of Disruptive Innovation by Late Professor Clayton M. Christensen of Harvard Business School, many giant incumbents face The Innovator’s Dilemma and see their market share get steadily eroded by (what I call) CHILL entrants.
To qualify as Disruptor, a product must be CHILL:
CH: Cheap.
I: Inferior quality.
LL: Low end target market.Ergo:
* Uber did not disrupt yellow cab
* iPhone did not disrupt smartphone / Nokia / BlackBerry— Ketharaman Swaminathan (@s_ketharaman) May 31, 2021
At this juncture, lest we get too drunk on the Kool-Aid of disruption, we need to keep two things in mind:
- Big Tech can only disrupt megabanks, not banking. The banking industry will itself continue to flourish, just in a new world order where a few big banks will be replaced by many random small banks.
- While we’ve portrayed RBL as a CHILL entrant, it can’t achieve diddly squat by itself. It’s only by partnering with Big Tech that a small coop bank or credit union can disrupt megabanks. To that extent, this is disruption by partnership, which is a twist on the classical disruptive innovation theory.
Google recently announced that it is killing its Plex bank account initiative. According to Wall Street Journal, which broke the news,
…the company would now focus primarily on “delivering digital enablement for banks and other financial services providers rather than us serving as the provider of these services.”
In other words, Google will pivot from a Fintech to Fincumbent. (definition here).
According to some industry analysts, there’s more to Google’s decision to kill Google Plex than meets the eye. You can find my take on this topic in my thread titled Why did Google kill Plex? on Twitter.
Shouldn't that be pinnacle of glory for a nonbank getting into banking? And encourage Google to forge ahead with Plex – even at the cost of killing its Cloud SBU for Banking vertical?
— Ketharaman Swaminathan (@s_ketharaman) October 3, 2021
Regardless of why Google pulled the plug on bank accounts, the threat to megabanks from Google has gone away.
But that’s not to say that some other Big Tech company can’t take off from where Google left. As long as it’s a firm with similar consumer appeal as Google – say Apple – it can use the Google Plex playbook to disrupt megabanks.
While the threat of disruption of Big Banks by Big Tech has receded momentarily, it has not disappeared.
