The value that banks deliver to customers is changing – that is one of the currents that runs through Joseph DiVanna’s excellent Redefining Financial Services. I’ve been reading this book (and a few others of DiVanna’s) to better understand where my own company, Zafin, fits into the value proposition of banking services in general. We make pricing and billing solutions for banks, and at least when I joined, I struggled to figure out what that meant exactly. On the face of it, it was quite simple – banks apparently required solutions for pricing and billing problems, and we apparently made those. The fact that I do not come from a banking background of course put me at a disadvantage – yes, I had studied finance and to a lesser extent, banking, during the MBA, but I found it difficult to understand how these enormous organizations could not solve their own pricing and billing problems. That all changed once I read DiVanna’s book.
The brilliant thing that DiVanna does in Redefining Financial Services, is to put the problem into context, specifically a historical context. I had never considered why banks existed in the first place – this somewhat obvious question, despite having a history degree and having studied the medieval period when banking was born, had never dawned on me. If you asked me before I read this book why banks exist today I probably would have said ‘so people have a safe place to store money (ie. surplus)’, and while on the surface that is true, there is much more to the historical context than that.
For example I had never considered the obvious implication that someone living in 1250 AD did not at one point say ‘hey, we should have a bank so we can put our extra money in it’ – but if you stop and think about it – of course that could never be true. You cannot conceive of an invention without first having a need (or what do they say? Oh yes, that necessity is the mother of all invention.) So where did that impetus come from? People were beginning to embark on increasingly risky and lucrative international trade, and were finding that disparate geographic transactions were fraught with known and unknown risks, some of which included identity risk, currency risk, credit risk, and goods risk – ie., here I am with these spices in present day Turkey, how do I get them on a boat, get them over to Italy, find a buyer, collect on the goods (in a different currency mind you), and then get my surplus back home again? When you think of embarking on a transaction like that in the absence of a bank, it boggles the mind that international trade ever existed at all. In any case, some brilliant entrepreneur saw that there was an opportunity to provide guarantees on transactions in different forms, and thus value was offered in the form of contracts that could underwrite this precarious trade.
Fast forward to the modern day – and we see that banks are now in the position where some of that value has been eroded through the invention and commoditization of technologies that can deliver that same value much more easily (ie. cheaply), and we find that we live in a world of online only banks pushing margins on much more established, traditional banks.
What DiVanna then posits is that there are still means for banks to differentiate in the face of this competition to deliver more value to customers. One such example is through innovative pricing and specialized bundling of banking products. DiVanna notes that:
“…small businesses – especially one- or two-person shops or home-based freelancers – are not always well suited to a bank’s product and service offerings, which are laden with fees designed for larger retail and corporate clients.”
~ Joseph DiVanna, Redefining Financial Services, page 94.
This sentence succinctly puts forth the value that Zafin Labs delivers to its client banks – our software solutions work within complex banking systems to pull out meaningful data that can be acted upon, and then to allow banks to innovate by making it easier for example to create new products within a banking production environment. To think of it another way, banking systems have generally been designed with security, and not necessarily agility, in mind. Our innovation is, like the earliest bankers, to see an opportunity (innovation agility) within a difficult problem (complex, layered banking systems). Based on the quote above, there is no reason banks should not be able to offer the right bundles of products to the right customers.