Virtual Banking: A Guide to Innovation and Partnering

Chapter 6 The Smart Pipe Models that Will Survive the Next Generation

“The last buggy whip factory was no doubt a model of efficiency.”

—Peter Drucker, Management Consultant

There is a growing belief in many developed markets that banking as a service or product has largely become a commodity and has been reduced to a “dumb pipe” that simply provides the “plumbing” to lend money, or move money from point A to point B. The traditional way of applying for a loan at a bank branch, or wiring money from one person to another, certainly is outdated with the proliferation of mobile, widely available information, and nonbank companies that provide significant customer convenience and delight. If the financial services industry does not spend more time developing new strategies to stay relevant, the best scenario for most banks might simply be to become the smartest, most efficient “dumb pipe.” We’ve seen some revolutionary changes in the way many products are distributed around the world: music can now be purchased just one song at a time; newspapers and books are now delivered electronically; and, as we discussed, in Korea, food shopping can be done in a subway station and purchases delivered within an hour. There is no reason to think banking won’t also go through a profound change in the way its services are delivered. That does not mean banks will necessarily be replaced, but it does mean that there will be some profound business model shifts that will need to occur to stay in ...