Would you give your money to the Wizard of Oz?

Liz,

I think it will get increasingly difficult as banking becomes detached from banks to enforce a view that a wrapper on banking or the deliver of a product or service is 'risky' because it's not attached at the front-end to a real bank. While I accept that there is some loyalty to banks, there is plenty of room for new players. Look at the mortgage brokerage business, eTrading, etc to see how the retail space has fragmented beyond just 'real' banks just in the last decade or so.

As mobile, social media, BANK 2.0 heats up - its going to be impossible for banks to differentiate purely on the basis that they are 'real'.

Brett King, Author - BANK 2.0

I completely agree with you Brett. But I worry that some of these new bank offerings aren't getting the message across to ordinary consumers that they are just as safe and offer the same (and often better) products than the tradtional banks.

Dear Elisabeth,

The challenge for all new players and especially for virtual financial services providers, is to build up a brand and load it with positive value. Established companies have done this over many years and by getting many pleased customers. Often the expansion has been limited in geography to start with and customers and their friends can share information about the company and its reliability. For a virtual world player with customers scattered over the globe, this "chicken and egg" like challenge means that they need to find the right social media that link their customers and potential new ones together like small towns or families do in the physical world. Also they obviously need formal good track record with good rating and supervisory approval. A formal pay-back guarantee from FDICI is not enough since such authorities are regarded as formal and difficult to deal with should one need it.  Most people I know are comfortable and prefer a one stop shop for financial services and avoid the possible hazzle to unbundle. This means that customers tend to stay with their traditional providers and the move to new players is very slow even if they offer better terms. Endurance is therefore a key factor for the new players and their share holders.  

Exactly. I think, sometimes, new entrants are betting on consumers losing trust in the old establishments instead of focusing more on how they can build and earn their own trust.

Just look at the institutional side with Mifid in Europe. Everyone predicted that the exchanges would fall apart as everyone ran to new MTFs. Today, the LSE is still in business with most of the trading volumes (although increased competition has influenced the LSE and other European exchanges a lot).

Those inside the financial services can see how innovative and hopefully firms like banksimple can be. But to an ordinary consumer it can be hard to be convinced them to hand over their money to what can look like 'a couple of guys in a basement in Brooklyn'.