You probably haven't seen a bank teller since the Bush administration, but you're on a first-name basis with the barista at your neighborhood Starbucks. As the coffee giant's soaring revenues attest, daily trips to the coffee shop have replaced regular visits to the local bank branch as an American ritual.
This is more than just an idle observation. What it means is that, in many ways, Starbucks has more of a hold on you than your bank, and because money is virtual -- because it is so easily transferred from company to company -- the coffee maker can step in and provide services that look an awful lot like banking. In short, a company like Starbucks could ultimately replace your bank -- or at least most of it. In fact, this is already starting to happen. At U.S. Starbucks stores, nearly one-third of the transactions are now handled with the company's pre-paid cards -- which act as tiny de facto savings accounts. How long before Starbucks takes this to the next level?
That's the message from Accenture. In a recent report, the business consultancy's researchers found that traditional banks could lose a third of their market share to non-banks by 2020. Banking is one of several industries that the firm describes as "digitally contestable markets." In other words: ripe for disruption.
>'The risk for banks is that new competitors will consign them to a limited role as back-office utilities.'
These days, non-banks offer everything from debit cards and checking and savings accounts to money transfers and small business lending. This includes such heavyweights as PayPal, Google, and Walmart, as well as countless smaller companies. PayPal, after all, is a way not only to send money but to store it -- and Google Wallet is too. You can even use Google Wallet to send money via Gmail. Meanwhile, Walmart offers Bluebird, a partnership with American Express that's like a prepaid debit card on growth hormones. It even comes with checking and ATM access.
This competition is weighing on the banking industry, which has yet to return to a pre-crash level of profitability, according to Wayne Busch and Juan Pedro Moreno, who head up Accenture's banking practice. "As banks recover from the downturn, non-banks are taking advantage by proceeding aggressively with digital innovations and capturing more and more of the banking value chain," they recently wrote in Harvard Business Review.
In the days before wide access to digital technology, the idea that banks would provide most of the services for moving your money around made sense, since they were the closest to it. But now, access to money is nearly instantaneous, no matter who is ultimately holding it. Banks will never go away entirely. Someone has to keep your money secure. But as long as that's taken care of, others can now work their way into the game, offering all sorts of other services that are faster, cheaper, more convenient, and more intuitive than those of banks. In the end, the best app wins, no matter who makes it. As Busch and Moreno put it: "The risk for banks is that new competitors will consign them to a limited role as back-office utilities, while non-banks become the new face of their customers’ financial lives."
Starbucks: Barista or Bank Teller?
Starbucks hasn't said it wants to replace your bank. And it's a lot further from doing so than the Googles and the Walmarts. But that doesn't mean the Seattle-based behemoth isn't a threat to traditional consumer banking. Busch and Moreno point to those Starbucks pre-paid cards. Far from mere gift cards, these "loyalty cards" act as coffee savings accounts -- and the amount of money involved would make the average bank branch envious.
Starbucks doesn't appear to break out its average sales per store. But a few back-of-the-envelope calculations -- based on its most recent annual report -- suggest that Starbucks card transactions accounted for about $2.5 billion in U.S. sales for the company last year. If customers are spending that much, we can assume that they have even more stored on those cards at any given time.
To be sure, those billions don't amount to that much in the broader context of traditional banking. Still, the cards represent two traditional banking functions now being handled by Starbucks -- payments and storing money. If you buy a friend a Starbucks card with your own Starbucks card, you've added a third function: money transfers. In a sense, you've taken money you've saved with Starbucks and used it to pay someone else while Starbucks brokers the transaction.
That sounds less like a coffee shop and more like a bank. Yes, ultimately that friend still can only use that card to buy coffee -- at least for now. But as Starbucks continues to build up the financial services infrastructure around its cards, perhaps it could start letting you use those cards to pay at other franchises it owns, like Tazo Tea or La Boulange. Maybe it starts letting people cash in their loyalty cards for a fee. Now you've made a withdrawal. Starbucks may never replace banks. But as one of the world's most admired brands, it's not hard to imagine Starbucks capitalizing on that cachet to offer an expanded range of financial services centered on its cards. Even for customers who still like to go into bank branches because they trust face-to-face interactions, Starbucks has more than 11,000 stores in the U.S. alone. Baristas become the new bank tellers.
A Simple Solution for Traditional Banking
To compete, traditional banks need to get more aggressive about building their own new-age services. The century-and-a-half-old Spanish bank BBVA recently made a strong move in that direction with its $117 million purchase of Simple, a Portland, Oregon, tech startup that acts as an online only "near-bank." Customers interact with Simple just as they would an actual bank. The only difference is Simple outsources the money itself to an actual FDIC-insured bank.
In app-centric terms, Simple is a way to "skin" your personal finances to increase your money's usability. The company's emphasis on user experience sets it apart from anything most traditional banks offer. Among its highlights are budgeting and savings tools that feed into your "safe-to-spend" number. Rather than putting your account balance front and center, Simple's design emphasizes how much money you have to play with at any given time after taking into account your bills and savings goals.
Simple's CEO, Josh Reich, says that design emphasis plus a mobile-centric philosophy puts people into the real-time ebb and flow of their money in a way that he believes can get them to rethink how they use it. "Behavioral change has to happen in the moment," he tells WIRED.
In the eyes of BBVA CEO Francisco González, that kind of "knowledge banking" is the future his industry needs to recognize in order to stay relevant -- and possibly solvent. Indeed, it's not competition from other banks that appears to be on his mind. It's Google, Facebook, and Amazon. "It is unlikely that these companies will stay away from a sector that offers such a huge wealth of information and opportunities for other lines of sale," González wrote in a recent blog post.
González says banks can take a lesson from the way Amazon's embraces third-party sellers, who piggyback on Amazon warehouses and web infrastructure in exchange for a cut of their sales. He says banks can take a similar approach by seeing themselves as platforms on which lots of small companies can build products and services. In this model, banks could still profit handsomely even if they mainly took on a backend role.
Or they could just stick to their longstanding approach of building mediocre apps and websites clearly designed by the bureaucracies they are. If that happens, a future where the same person makes your mocha and takes your deposit could be coming sooner than you -- or banks -- think.
