I write because I like writing.  Putting words to paper (if that concept exists anymore) is very cathartic and a way of extracting nagging stories and concepts from my head and etching them in stone (if that concept exists anymore).  The process of writing helps crystallize half-formed thoughts and sharpen them until they can stand alone and defend themselves in a highly critical world. And occasionally the end result isn’t half bad and outsiders “get” what I was trying to throw down.

Given the active dialogue that’s surrounding the last piece I put out (The Copernican Revolution in Banking) I feel like it struck a chord with the Banking and Fintech communities.  The concept now has a life of its own and I can’t control where it goes from here.  I’ve personally been contacted by a handful of Banks, Fintechs and Investors with questions about the piece and have been more than happy to discuss my thesis and observations in more depth.  But, at this point the community knows as much as I do and should help evolve the framework from here.

With this said, I do have a few additional thoughts/nuances worth sharing.

Leverage Matters

I fully understand that comparing the ROE of Banks pre-crisis and post-crisis isn’t entirely fair because of the massive reduction in leverage in the system.  More leverage leads to higher beta and therefore should command higher returns when times are good. Less leverage creates more stability and therefore the expected returns should be lower.  On a risk adjusted basis the pre and post-crisis returns aren’t as far apart as the graph suggests but the net result is the same —— most Banks aren’t able to overcome their true cost of capital and produce economic returns for their shareholders.  This is the foundational problem that needs to be solved and Banks need to find a way to overcome the additional weight put on the system through the increased capital required by the Regulators.  Think of it as a piece of the explanation but by no means should it be an excuse.  The rules have changed and the Banks have to find a way to win in the Brave New World.

Non-Bank Partnerships

There’s plenty of recent “breaking news” about how some of the notable tech brands are looking to partner with Banks to deliver Banking services to their customers.  A question I was asked by multiple very seasoned Banking Executives who understand the dynamics of partnerships is “who the heck would want to win the Amazon teen checking account deal?”  By this they mean that in a competitive bid situation, isn’t the winner really the loser because all the economics have been stripped out of the system by the pretty girl at the dance?  There’s a lot of truth to this statement and having managed many partnerships in my 25 year banking career I would caution any Bank trying to win this or other similar contracts to be very careful.  Winning a high profile deal that has no economic juice in it is a great way of destroying shareholder value unless it serves a longer-term purpose and is structured very carefully.  For instance, scale matters in many businesses and sometimes a single anchor customer can help a service provider achieve scale instantly.  If the Amazon relationship is a justification to create a service that can be offered to other customers (Banks and non-Banks) and helps drive costs down, economic returns can be generated from the customers that come next.  And, checking accounts are extremely sticky so if the contract allows for a renegotiation of terms in the future the power will shift to the Bank if there’s a large embedded base of customers who are being served well.  Most happy customers won’t want to move their money elsewhere so unless the contract has an extremely long tail attached to it the Bank could be fine in the long run.  But, buyer beware is a good adage to follow.

Relationship Management

A few Banking Executives have asked me if Brand has any place in the new world. They’re deadly worried that relationship management is no longer possible because they’ve built their identity and cultures around “being there for all their customers’ banking needs”.  I understand why it’s scary to embrace the concept that the only sustainable strategy is to offer products and services that are the best possible choices for your customers.  And while price isn’t the only dimension that defines “best”, it is a very important decision criteria.  Reality check: This is the world that we’re living in and resistance is futile.  More than one Bank that I’ve talked to is proud of the fact that they have billions of dollars of deposits parked in SAVINGS accounts with the same near zero yield as their checking accounts.  They want to find a way to generate more of them.  How is this helping their customers?  Is this the foundation for a solid “relationship”?  Shouldn’t a good relationship manager (or Bot) contact these customers and offer them better solutions for their parked money?  How would a customer feel about their Bank if they knew that the Bank had superior products but didn’t make them aware of these options?  So, I’ll tie this back to the fundamental definition of what a Brand is.  A Brand is a Promise that When Kept Creates Preference.  So, what “Brand Promise” is a Bank keeping if they’re offering sub-standard products for their customers?  It feels to me like this is the behavior associated with protecting a cash-cow and innumerable business school case studies tell the tale of how cash-cows end.  Slaughtered every time.

I’ll end this post by saying that Kepler came after Copernicus and Einstein came after Kepler.  By way of analogy I assure you that by no means do I think the framework I’ve outlined is going to be the grand unified theory that solves all problems.  But, it is worth internalizing that Copernicus was a kick-ass astronomer and paved the way for the next wave of innovation…..just a thought.




  1. It’s refreshing to see big picture thinking in banking. Less than 0.01% of people in financial services today even think about what the banking landscape will look like in 20 years. That, in itself, is the problem (and the opportunity). Kudos to you Frank.

    Amongst the many permutations of such future predictions, however, my prediction may be slightly different than yours. The map you laid out, and theory of vertical banks, predicates on a future view that segments the banking world by demographics or verticals, whereas I venture to say that products, not verticals, will be the dominant segmenting criteria. This is consistent with your prediction that “Share will increasingly become concentrated in the hands of best-in-class product providers” on page 18, but inconsistent with your “Four Types of Players” prediction on page 20.

    Seismic industry disruptions we know today were spurred by great “beachhead” products, not necessarily great verticals. PageRank for Google, books for Amazon, real-identity profiles for Facebook. Why? Because markets are formed by “jobs done better/best,” and a digital product is just an embodiment of that “jobs done better/best”.

    A critical question to ask, by deduction, is what are the different “jobs” in banking as we know it? What does that “jobs” map look like? Which job, if “done better/best” can truly amass a critical foundation, mothership, or beachhead from which to build the next Amazon, Facebook, Google of banking? That “job” is worth betting on. The winner of that “job” should be on your page 20.

    Would be great if you can also clarify your definition of “Transactional Bank”. Both trade finance and payment worlds can claim that nomenclature; don’t let them. Again, great insights. Excellent graphics and presentation which deserves grade-A on product UX 🙂

    Go Junkies!


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