Sometimes a picture is really worth a thousand words:
This poor guy has to choose one of the six (!) terminals in front of him, depending on the paying customer’s bank card. So far for a ‘user friendly experience’…
Why are crypto currencies, like Bitcoin, Ethereum and 100+ more, so popular? Apart from the obvious fact that a lot of them seem to be an assured goldmine (total market cap close to $600 Billion), people want long for something bigger: change.
Porter’s five forces
For decades, banks have been able to grow steadily by cashing in from people’s interest, mortgage and loan rates. They virtually had all power imaginable; fully in control over global financial products, and how they were sold and pushed onto customers.
Maybe you remember Porter’s 5 forces, a framework to determine how much rivalry a given market can have:
When we take the traditional financial industry as a focal industry, you’ll find that all five forces have low power, thus leading to low overall rivalry.
This is the fact because:
- it’s hard to obtain a banking license (force: ‘threat of new entrants’)
- customers cannot exert influence on financial products (power of buyers)
- banks use very little (asset) suppliers and are not fully dependent on them (power of suppliers)
- everybody is dependent on fiat currencies (threat of substitutes), and
- there are only a few major players that hold majority of power (degree of rivalry)
This results in the continuous stream of gigantic power that financial institutions have had for many years (and arguably, still have).
Lack of urgency to improve the experience
Given this information, why would banks focus on an improved experience? Or invest in design? Why conduct elaborate research studies? Why innovate? Why bother talking to users? Why risking your brand with launching new (new to the world) products? Exactly: they wouldn’t because there wasn’t any incentive to do so. Banks had the most loyal customers of all industries. Not because customers chose to be loyal, but because they were forced to (also see my previous article on banking, loyalty and branding).
Now return to the picture at the top of this article.
This is the direct result of the absence of innovation, improving the user experience or stimulating supply chain collaboration. Furthermore, country-specific regulations and laws, a variety of payment schemes and cultural differences (US: credit, EU: debit) also attribute to a fragmented and incoherent financial experience.
Shift of powers
Now let’s consider Porter’s 5 forces again, but this time with blockchain, crypto currencies and the overall rise of a peer-to-peer decentralized financial solutions in the back of our minds (including services like PayPal, Stripe, iZettle, and others):
When taking a closer look, we’ll see that 4 out of 5 forces now have a HIGH power and thus exhibit an increased level of rivalry:
- Everyone can join (just look at the amount of ICOs launched every day) and obtaining a banking license is easier than ever (at least in the US, EU and the UK) (threat of new entrants)
- Customers are in control and decide which currency to buy and pay with – without any middlemen activity. Look, for example, at the amount of wallet providers out there (power of buyers)
- Direct payment solutions and crypto currencies are the substitute for traditional banking solutions and FIAT currencies (threat of substitutes)
- Because of all above mentioned reasons, rivalry is bigger than ever, allowing for a healthy market place of supply and demand (degree of rivalry)
Taking this in mind, it’s not hard to see why crypto currencies are so hot and happening: they are ‘a ticket out’ of the financial world as we know it. For the first time, the power seems to be shifting from a handful of centralized financial institutions to the hands of the customer.
“For the first time, the power seems to be shifting from a handful of centralized financial institutions to the hands of the customer.”
Not the banks, but the people decide how they want to use their wallet. This is also reflected in the rise of micro-insurance and crowd-funded initiatives, underlining this shift in power.
Whether or not crypto currencies will take over the world is not relevant. The message here is that we see a shift in power that is initiated by ‘the people’ and has so far resulted in a gigantic uptake in the market, first and foremost in crypto-space (nearing USD$600 billion), but moreover by a storm of different (decentralized) payment solutions in various markets (payments, insurance, loans, funding, etc.) Going back to Porter’s five forces, we can clearly see why this is happening: the conventional power balance has been disrupted and a once dominant financial industry is facing rivalry from all sides. If traditional banks were ever forced to innovate, it is now.
And, hopefully one day, our gas station hero can wake up and get to work without having to face the terminal horror depicted above.