Do we want to ‘Uberize’ banking to improve it, in the same way as taxis and hotels?
Even for those working within the tech ecosystem, it’s hard to keep pace with the impact digitization and software continues to have on processes and competitive balance across industries.
Venture capital seems to love talk about disrupting fragmented markets. Personally, I like a healthy amount of fragmentation – good for diversity and authenticity and saves us from seeing the same brands and experience everywhere!
Some consolidation helps us consumers, if only to reduce confusion from too many difficult to differentiate choices. ‘On Demand’ or ‘Uber of x’ economy is probably most felt, and spreading everywhere. Well ahead of a swarm of ‘let’s build a marketplace app for everything’ services, the top 3 in category have grabbed huge share and influenced an ecosystem. None seem to have as much global name recognition as Uber and Airbnb.
Interestingly, media, analysts and pundits have transformed one of these brands into a verb: ‘Uberize’. As I write this, only four other verb brands immediately spring to mind: Hoover, Skype, WhatsApp and Google.
Uberize, uberization, disruption, democratization all seem to be used when capturing the web and mobile app-driven explosion in convenience.
Strangely, not many front-line bankers (or CFOs for that matter) I’ve met really worry about the ‘Uberization’ predicted by pundits and VCs. Innovation teams, and CEOs are talking disruption and blockchain but the middle seems to be in ‘business as usual’ mode.
Competitive threats, however, is something we all understand. And in many markets, there’s recognition of digital competition, however small relative to the market attacked. As in the bush, it’s hard to see whether the racket you hear from the thicket is a warthog or an elephant.
Reading through many accounts and predictions of the Uberization of finance, some have coined Uber to represent disruptive innovation with the basic ingredients:
- faster, simpler, better user experience (boiled down to less work for the user);
- mobile and web-based customer acquisition and marketplace-style matching to reduce search friction; and
- embedded, quick (less work, less time to think about) payments.
The unbundling onslaught has built up rapidly over the past few years, fuelled by huge amounts of patient, undercut-the incumbents-at-a-loss money.
These base ingredients have been applied differently across sectors outside financial services.
For instance food delivery services (Grub Hub, Just-eat, Hungry House, TinyOwl etc.) aggregate for many small takeaways and restaurants seeking customers outside of their traditional local communities (where their previous awareness model consisted of circulating menus to all residents in their delivery area). At its core, the order app reduces some search friction, but its value is based on how much time it saves in phone call time (which on busy nights could mean waiting to connect to a person), delivering from collection-only outlets (Deliveroo) and the immediacy of payment.
Here in the UK, the TV advert spend for both Just Eat and Hungry House seems substantive, so customer acquisition costs and supplier sign up expense for the top 2 aggregators seeking to dominate order and delivery remain high. Furthermore, franchise networks are already upping their digital game worldwide. In India, the new tech entrants have faced resistance from an older, highly effective delivery aggregator network, impacting their margins and viability.
Taxi services and accommodation had different challenges and different impacts.
At a basic level, Uber and AirBnB’s model started out removing search friction but also introduced additional supply (of transport, rooms) to undercut vertically investing or licenced suppliers such as hotels and taxi operators through mobile and web-matched self-employed (not sure how long that will last if driverless gains traction) drivers.
The first phase was mobile-enabled matching that circumvented incumbent supply via increased connection to ordinary people, drawn in by the prospect of additional income from rooms, cars and time. Connecting many to many, via a single brand.
Taxicabs oligopolies and monopolies exist in most major cities with varying hurdles and barriers to entry. And in many markets, taxi firms adhere generally to regulation. Uber’s self-employment policies have received plenty of coverage recently and that story isn’t over yet. Labour practices and shielding from regulatory costs aside, the large numbers of self employed now report to a different set of oligopolies. Uber and its alternatives have replaced many local monopolies and competitive minicab environments with a growing , global, mobile-app driven, regulation cost-light sub-contractor model.
Innovative disruption will naturally come at a cost. Airbnb’s growth has come at the expense of staff and ecosystem supporting some segments of the hotel industry’s high-employment sectors. A research paper found that while some hotel leisure segments were diluted, there was a visible impact on hotel market pricing power of all segments during peak periods. Business travel is clearly a priority, and the deal with expense management software vendor Concur in 2014 was only the beginning for Airbnb.
Recently, Airbnb announced it is expanding beyond rooms to other services that can be aggregated by their network of hosts. We can expect a whole host of local services will become part of the Airbnb franchise. Hopefully, not to the detriment to local businesses that define and diversify any neighbourhood. I saw a recent tweet quoting Airbnb’s approximate 2.2m homes on its platform within a possible market of 2.2b worldwide.
Individual participants in the hospitality industry will need to find ways to address the possibility of more of us wanting to become part-time innkeepers and hosts via an oligopolistic ‘platform of trust’.
In the second part of this post, I’ll take a look at what we’re really Uberizing in banking.