In today’s Money Morning…buy while you bank…behind the curve…only time will tell…and more…
If you’re a regular of Money Morning, you’ll know we’re not the biggest fan of traditional banks.
It’s nothing personal, they’re just businesses built upon archaic structures — the kind of operation that has simply survived due to its embedded nature in people’s lives.
But, as we’ve seen in recent years, the digital and mobile banking revolution is now threatening this status quo. The fintech innovators are aiming to kill off the big banks as we know it via a ‘death by a thousand cuts’ approach.
A slow but methodical teardown of all the aspects that banks provide.
Which is precisely why, in my view, the Big Four banks in Australia need to adapt or die. And funnily enough, that is exactly what the biggest bank of them all is doing…
The Commonwealth Bank of Australia [AX:CBA] has decided that it wants to be more than just a bank. Pursuing an ambitious plan to turn their mobile banking app into more of an e-commerce platform.
A plan that, as of yesterday, has a brand-new sales offering.
Buy while you bank
Now, let’s address the elephant in the room in regard to CBA’s plan first and foremost.
Because at face value, it seems pretty obvious that they’re trying to emulate a business model similar to that of Alipay. An app that has taken over much of Asia due to its simplicity and aggregation of services.
A business that epitomises what every fintech is aspiring to do.
Which is precisely why I am a little sceptical about whether CBA can pull it off…
See, as the bank surprisingly announced yesterday, it has taken a stake in two telco companies: More Telecom and Tangerine. Partners that the bank plans to use to market NBN broadband plans to its users via the CommBank app.
A fascinating pivot for CBA, and one that tells me they’re keenly aware that ‘traditional banking’ is a dying industry. A sector that is quickly being replaced by fintech providers, decentralised finance, and other exciting ideas.
But, like I said, I’m sceptical that CBA can make this pivot a success.
Well first of all, apparently the CommBank app currently has some of these capabilities. Something that I, as a CBA customer, only just discovered. Primarily because it isn’t particularly intuitive to find where these ‘promotional offers’ are located in the app. At least, in my opinion.
Granted, all the current offers are still rudimentary banking services. Which leads me to believe they’re still working on integrating more of these deals into the app. Because as it turns out, these telco partnerships aren’t the first businesses to feature in this new plan from CBA.
Earlier this year the bank announced that digital e-commerce company — Little Birdie — and electricity retail — Amber — will also feature in the app soon. A sign that CBA is clearly taking this app-first approach pretty seriously.
Which brings me to the second reason why I expect this pivot won’t be as successful as CBA hope.
They’re simply too late to the party…
Behind the curve
The reality is e-commerce apps and platforms are a dime a dozen now. Most of which can offer the same or at least similar kind of services that CBA is planning to.
The one advantage they do have, though, is a large customer base. Which is clearly what they’re counting on to make this pivot succeed.
But I think it may be too little too late.
These banking apps are really only good for one thing: banking…
Turning it into more of a holistic platform like Alipay, PayPal, or Apple Pay isn’t going to be easy. It would require CBA to adopt a different kind of business mentality. One that I’m not sure the traditional banks have in them.
After all, if they did, they would have started on this kind of project years ago.
Instead, it simply looks like they’re trying to play catchup in order to remain relevant. Something that I’m not confident they will be able to do, especially with the amount of competition already established in the arena of transactions.
This is why ‘buy now, pay later’ providers are such an interesting curiosity. Because much like Alipay and Ant Group, they have the potential to leverage all the data they’re collecting to become financial powerhouses in their own right.
As the Alipay case study from Harvard Business Review notes:
‘As Alipay grew, Ant Group was also able to use the data to build new partnerships and offer new services, which they monetized.
‘Based on the payment data that Ant Group receives, the company can offer a host of high-margin products to both consumers and merchants.’
This is the key to fintech success in my view. Something that I suspect CBA will struggle to emulate.
Because while they certainly are good at handling a lot of money, they have been far less successful at handling the data. Something that we’re seeing these new fintech providers exploit for their own success.
So only time will tell how this new venture pans out for CBA.
But for now, at least, it looks like a desperate attempt to remain relevant. Which is precisely why I’d sooner consider the swathe of exciting fintech small-caps before any of the Big Four banks…
Editor, Money Morning
PS: Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.