How GAFA Could Disrupt Top Banks – But Not Banking

Bank accounts are not heavily branded, barring a few exceptions like IndusInd’s bank account, which claims superior features like return of canceled cheque, etc.

But there’s still a cachet in having a bank account in some banks (e.g. HSBC, Citi, HDFC Bank, Kotak Mahindra Bank) compared to some other banks (e.g. Bank of Maharashtra, Punjab & Maharashtra Cooperative Bank, etc.). Some banks (e.g. HDFC Bank) push out prospective customers keen on opening an account with them if they don’t believe the prospective customer belongs to their ideal target audience (upper middle class and above). I’ve seen even a bank belonging to the second cohort above pushing out my driver.

Let’s take the “Rejected Lot” i.e. the prospective customers rejected by the banks they approached. They then have to go to another bank that accepts them (say, Random Bank Limited or RBL) and reconcile themselves to having an account in a bank with less cachet.

Now, let’s say GAFA (Google Apple Facebook Amazon) enters the banking industry. Since they don’t have a banking license, they need to partner with a bank having a banking license. Google has recently partnered with Citi and Standard FCU for checking accounts. Ditto Apple with Goldman Sachs for credit cards. While Citi and Goldman Sachs are big names, Standard FCU is somewhat akin to RBL.

Now the rejected people suddenly have a quote unquote Google Bank Account. (Quote unquote because the account may be branded as Google but it’s really an account held at RBL.) Google may probably even issue cheque books, passbooks, and other materials with Google logo on them. When asked, these people can proudly say they have a “Google Account”. Given the huge difference in brand recall between Google and RBL, it’s quite possible that these people’s claim of having an account in “Google Bank” will not be refuted by anybody, at least not by anybody in their modest circles.

As we can see, Google has enhanced the stature of a random bank. Far from commoditizing bank accounts, GAFA’s entry will actually upgrade the brand image of an otherwise unbranded bank.

Over time, even a customer who might / would qualify for an account with the HSBCs and Citis of the world might open a “Google Account” – because Google. They might not know / care about the random bank in the background. Such people would never dream of going to RBL directly.

That means loss of business for the Tier 1 banks among customers in their ideal target market.

If they let this trend go unchecked, this could be start of disruption of Big Banks. (This assumes that GAFA will partner with the RBLs and not the HSBCs and Citis of the world.)

Of course, the disruption would be caused not by tech companies but by their own low-branded brethren whose profile has suddenly gotten upgraded by their association with the GAFA cool kids. Also, GAFA would’ve ended disrupting only the top banks and not the banking industry.