Who’s building the banking smart pipes?


On the 11th of March the world celebrates World Plumbing Day. For most of us, this probably doesn’t mean much. Mainly because in the western world we take great plumbing for granted. Working sanitation seems like such a non-event, that the idea of celebrating it seems redundant. But of course like most things in life, sometimes you really don’t appreciate or celebrate what you have (or had) until it’s gone.

In 2011, a magnitude 6.3 earthquake struck my hometown of Christchurch, New Zealand. While I wasn’t living there at the time, many family members and friends were. For weeks after the quake – and in fact months for some – a working toilet was a luxury. It was commonplace to see portable toilets lining some of the wealthiest streets in the city. For many residents it was a wake-up call to how dependent they were on such an unglamorous piece of infrastructure. Suddenly, everyone was talking about their pipes.

The plumbing that sits behind our banking system is similar. As consumers of banking products, it’s unlikely many of us give much thought each day to the infrastructure that supports our banking system. Plumbing that ensures the payments we make to our suppliers happens quickly, or that the money we deposit into our savings accounts earns interest generally aren’t the topic du’jour around most dinner tables. That is of course until something goes calamitously wrong. But even that is rare. For the most part we accept the mundane plumbing our existing banking services reside on, not necessarily questioning whether it’s being adequately maintained or future-proofed for generations to come.

It’s easy to understand why. In terms of utilities, banking ‘plumbing’ is relatively intangible, and therefore much harder for the average punter to get their head around. Unlike an unsealed road full of potholes, it’s far more difficult for someone to articulate what’s wrong with the technology that makes their bill payments take 3 days to process.

Upgrading infrastructure is a costly exercise. If the average consumer of bank products understood the limitations of their bank’s plumbing, and that it was preventing them from accessing innovative new products, they might have something stronger to say about it.

But then of course, they’d have to have some idea of what was possible first. And that’s why new banks, with new plumbing are so intriguing.

Cross River Bank in New Jersey is one of those banks. What makes Cross River interesting is their laser focus on the backend, not everything that comes after that. Why does that matter? Well, many other challenger banks are scared of that exact proposition. They want to own the full end-to-end customer experience, backend to frontend. But Cross River is different. They just want to be the plumbing. Awesome plumbing that other awesome products can build on top of, to provide more choice and selection for consumers.

Many people will argue this is dangerous territory. They’ll tell you that unless you own the customer at the front-end, your business is doomed. And maybe they are right. But maybe, just maybe, being an awesome set of pipes isn’t really that bad a place to be. Given it’s a non-trivial exercise in terms of execution, then done right and built from scratch using today’s technology should land you in a pretty green-field space with few competitors.

Banks like Cross River Bank will be the smart pipes of the future. Banks that don’t move will be the dumb pipes. Smart pipes will be able to KYC consumers once, allowing them subsequently pick and choose from a myriad of financial service products without further compliance headaches.

As a consumer, I’ll choose to go where life is easy. I’ll go to the smart pipes marketplace, where I can shop around for the products I want, with minimal friction. Which ultimately means answering the question about who really owns the customer after all, could be a little less black and white than some people would have you and I think.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.


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