By Bernard Lunn
A few days ago we covered the 11 new “payment banks” licensed by the Reserve Bank of India (RBI). In that list of 11 was the name of an individual called Vijay Shekhar Sharma who runs PayTM (which we covered here).
A payment bank license is not a full banking license. It is limited to about $1,500 in deposits. In a country where that is approximately the median annual income, that is enough to run a current/checking account.
These are mobile current/checking accounts. They can accept payments in (eg salary and remittances) and make payments out.
These payment banks cannot lend. OK, no threat to the existing banks then? Well not if you assume that lenders are moving to marketplace such as Lending Club, Prosper and SoFi and that origination is moving to platforms such as Kreditech and Iwoca.
This is the unbundling of full service banks in action. Banks will lose:
– The current account to Payment banks
– The lending account to Marketplaces
– The low end of investment account to Robo Advisers.
If Banks think creatively about this, they will see the Rebundling opportunity to create an integrated customer experience. However this does not need to be a bank. A startup can do this as well. If banks cede this customer innovation territory to startups they will be relegated to being low margin, low growth regulated utilities (about as exciting and necessary as electricity or water utilities).
The Alibaba connection is very simple. Alibaba invested $680m in Paytm. Alibaba is one of those tech giants that really worry the banks as they move into banking. Alibaba is also the kind of Chinese route to disruption covered in this session at SIBOS.
The ambition level of Alibaba is stunning. Forget the label Amazon of China. They are the Amazon + eBay + Paypal of China (and by combining all three they create totally new value propositions). And soon of India and the rest of the world. Alibaba understand that most e-commerce ventures and “sharing economy” services such as Uber and AirBnB are really payment companies with a domain specific wrapper.
After India, expect Alibaba to go for Africa and then the rest of the world. Alibaba tapped the capital markets in America but (despite the breathless speculation at the time) have made little attempt to sell anything to American consumers.
This is one more indication of the mega trend we have identified in many previous posts as First the Rest, then the West (the idea that the flow of innovation is reversing and will increasingly flow from the “countries formerly known as emerging” to the developed markets of America and Europe).
This kind of mobile checking account is already happening among the Underbanked in the West. This is the innovation that excited me when I spotted Ffrees in the UK in November last year.
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