Banking, the long tail, Gen C and the financial crisis

Disruptive technology, products and competitors appear in all sectors of commerce. It is how we take advantage of these that defines our customer proposition and competitive stance for the future. When ignored and magnified by social trends they can have devastating affects for soon to be past industry leaders and their shareholders.

In a recent interview Blockbuster CEO Jim Keyes states:

“I’ve been frankly confused by this fascination that everybody has with Netflix.”

 “I don’t care how many movies are available to me. As my personal taste as a customer, I want to watch the new stuff so whether we have 10,000 movies or 200 movies doesn’t matter.’’

In the Blockbuster Vs Netflix case market cap over the last few years puts this into perspective.

The product (DVD to rent) and the customers (people who want to rent DVD’s) are the same. All Netflix does is take a market where the customer proposition is acceptable and offers one that is good. More choice, flat fees, no late charges and no dragging yourself to a store in the rain. In addition they have leveraged web 2.0 technology providing customer reviews, user generated content and personalised recommendations. The killer app though is more choice, allowing Netflix to generate significant profit renting small volumes of older / niche / hard-to-find films to a much larger customer base than Blockbuster. This is a fundamental of Long tail marketing. In his book The Long Tail, Chris Anderson argues that the future of business does not lie in hits (the high-volume end of a traditional demand curve) but in what used to be regarded as misses (the endlessly long tail of that same curve).

In the Financial services industry there are a number of disruptive companies / products slowly attempting to increase their customer base; Paypal, social lending, mobile payments et al. Is social lending going to damage traditional banking – I don’t think so, the margins are just not large enough compared to the risk and inconvenience. However could a new product in the future significantly erode the market share of financial services providers? Most definitely.

If we look at how younger generations use technology we can see that if a product does not have a feature or function they will build it themselves and then rapidly share it with others. This can be observed with open sites such as Facebook and new devices such as the iPhone (Still no killer financial app). At the same time I observe communities eschewing traditional financial products for their own products that they themselves have created such as Chit funds within Asian communities.

I see the opportunity for and look forward to innovation and user generated financial products. I believe the opportunity is even greater in our current financial climate; consumers are in a panic, with no idea what to do with their assets. Property, stocks and oil are all in decline. Traditionally investors have liquidised these assets to cash or purchased metals. Palladium is falling in value, there is uncertainty over gold. In addition to this confidence in the UK banking system is weakening. The Financial Services Compensation Scheme (FSCS) only guarantees up to £35,000 of savings per financial institution. Where do medium to high net worth customers invest?

Art, until Gen C mavericks start developing killer financial products it would seem:

Against the current backdrop of financial carnage Damien Hurst has recently sold a selection of his work for over £95m at Sotheby’s, significantly above all estimates for the day. Proof enough for me that consumers are still willing to invest, they do however need new products that meet their needs and safeguard their investments.