Digital Banking

by Mark Bailey

In 1999, Ofoto was established by entrepreneur Lisa Gansky. At a time when the masses were still using film, it was the first social and digital online photography website. It proclaimed the digital rupture that the photographic industry was going to witness.

Kodak bought Ofoto in 2001 and digital business of Kodak was run by Lisa Gansky. All the rights for intellectual property and digital capture related to digital photography were owned by Kodak.

The first ever digital camera was created by Kodak. As clients switched from film to digital, Kodak was in pole position to transform its entire business and get the best out of that innovation.

Ofoto had 60 million clients in 2008. However, it was bankrupt by 2012. The question is why?

Gansky explained that the reason for the bankruptcy was because Kodak couldn’t manage to transform its old business model which was focused on film to a new digital model.

Gansky also added that 80% margins on film were made by the company. Initially, a new business model with nowhere near that profitability and a different ramping rate wasn’t enough to convince the senior management to authorize the shift. Instead, digital business model was thought to be a side-business.

The executives who ran the company anticipated a slower transition to digital, new markets would grow with film and they would have had the necessary time to ramp down the business film side as the digital took control. However, unfortunately for them, the shift happened way too rapidly. Kodak was too late, because at one moment the film was there and at the next one it was long gone.

In the digital age across industries, this example has been replicated far and wide, even though the fate of Kodak was sealed by photography sector’s innovation. An example of big and powerful companies which are meant to be the frontrunners, but they fail to meet those expectations and just can’t let go of their previous profitable business and make room for relevant and new business lines driven by social interaction or technology.

For the banking industry, these are stark lessons. Not so long ago, one consultant pointed out that the meetings, executive conferences and boardrooms of the banking sector don’t seem to look anything like their customer base. A lot of high-ranking officials are more interested in their impending retirement full of golf courses rather than use of the sharing economy and mobile cash transfers via start-ups.

In business, they have lived in an era of being defensive or aggressive and because of that they are not open. They are not aware of the potential of the social element or sharing or the digital technology. They simply cannot embrace the new trends of technology and it seems like they are on a burning boat.

However, many banks will say that this statement is not true. In May, HSBC announced a $200 million investment in tech start-ups. For financial technology suppliers, Santander announced in July a $100 million venture capital fund.

Over three months Escalator, Barclays’ very own building, ran an accelerator for fintech start-ups. An accelerator program was recently announced by Wells Fargo. Fintech start-ups are seeded and scouted by Citi Ventures. It seems like every big bank is helping a fintech hackathon/lab or bootcamp.

However, there’s just one problem- in retail banking it seems like the changes that have happened are trifling in comparison to other industries, such as travel or publishing. Apart from buying actual books, who doesn’t purchase books online? Instead of going to a travel agent, who doesn’t book their hotels and flights using online platforms and peer reviews?

Across sectors, the behavior of consumers has been transformed however banks in the USA still work with checks. Cash transfers abroad in most countries cost huge amounts in commissions. It takes days to clear payment in accounts. With their doors closed, branches waste hours of precious time.

The own cash of a customer is charged for withdrawals by ATMs. The manager of a US retail bank explained the reason behind this decision by saying that if they allow customers to use certain branch for free, why should they pay a cent for the real estate. He added that the problem has five solutions and all of them don’t include paying $6 in order to withdraw money.

Unless a person from the senior management of the big retail banks has the guts to make a remarkable shift, the banking industry could be drown in a flood of more efficient, cheaper and relevant product providers and service.

Eddie George, CEO and founder of NewFinance, a worldwide  network for millions of fintech peers and start-ups, points out that a pariah is no longer a virtual currency. He also added that Bitcoin is catching up with PayPal and it is now bigger than Western Union.

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