Banking Fintech

If you want to convince the bank to change, read this blog

Written by Chris Skinner

Monolith firms are industrial age, while platform firms are digital age. Chris Skinner looks at the significant changes occurring in banking.

I was thinking about not sharing this info, but hey, seeing as you’re good enough to read my blog … here’s the bottom line on digital disruption. (Oh no, Chris said the D-word!)

There’s a slide that’s been doing the circuit for a while. It comes from Visual Capitalist, and charts the change in the world’s largest companies over the last 15 years.

The largest companies by market cap. Source: visualcapitalist.com

As you can see, digital platforms and providers have risen to the top of the heap. I saw this at the same time as reading Geoffrey Parker’s The Platform Revolution. I say Parker, who is one of the co-authors, as I saw him present at a conference recently where he projected this slide.

Geoffrey Parker's conference slide.

The statement is clear: monolith firms are industrial age, platform firms are digital age. It also clearly shows the difference in focus. Monolith firms are heavy lifting physical assets, while platform firms are providing open markets.

This is why the industrial age firms have hundreds of thousands of employees to generate their market capitalisation, while platform firms have just a few thousand. After all, an open marketplace has thousands of other people doing the work to buy and sell on your platform, while a monolith firms does it all themselves.

This is almost like an a-ha moment because, when I look at banks, they are monolith firms. Built for the industrial age, they like to control everything internally. They do everything themselves. Banks are A-grade control freaks.

The idea of opening up to all and sundry in a marketplace is like an enema to them, but they will have to do this to survive in the digital age. I’ve blogged a lot about this lately, but it really strikes home when you think about today’s financial world. Today’s world is one where a PayPal is worth three Deutsche Banks ….

PayPal Holdings vs Deutsche Bank.

… where Ant Financial is one of the largest financial firms in the world (valuation $60bn), and where Stripe has risen from nowhere to be a challenger. Using Geoffrey Parker’s chart, you can see the stark contrast:

Geoffrey Parker chart

The only standout bank is the world’s most valuable bank, JPMorgan Chase. A market cap of $245bn is pretty impressive. But let’s set that against Stripe, a five-year-old. Stripe was valued at $5bn a year ago, but has grown up a lot more in just the last 12 months. It has expanded into Asia and gained investment from Sumitomo Mitsui, the largest Japanese credit card provider, as an investor. Based on that development, I’d double its valuation, but being conservative, let’s stick with last year’s figure of $5bn.

After five years, Stripe’s 400 staffers are generating $12m of value per employee. JPMorgan’s 217-year history (est 1799) and 235,000 people has given it the ability, as the most valuable bank in the world, to generate just over $1m in value per employee.

Some of the cynics will be sitting back and saying, oh yeah, Chris is quoting wildly overrated unicorn figures to make a point that banking is dead, but they’d be wrong. I’m not saying banking is dead. Simply that something has changed, and if banks can’t turn into open marketplaces, they will not survive. These charts make this clear, and if any bank CEO is holding back and believing that the heady days of monolith structures still works, show them this blog. They don’t.

READ NEXT: The excuses banks use to avoid change

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main image: Draw, Shutterstock.com

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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