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Ketharaman Swaminathan

Founder and CEO
GTM360 Marketing Solutions
Member since
17 Apr 2009
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Ketharaman's comments

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Payments Trends and the Innovator's Dilemma

Actually, I'd prefer a bank backend and a nonbank's frontend.

Once upon a time, I'd call a plumber 3 times for fixing an appointment for one visit, get used to his arriving 3 hours late and that too after several reminders, haggle over quality and price, and otherwise go through a torrid experience. Nowadays, I book a plumber on the slick frontend of one of the 50+ "Uber for Handymen" apps, select an appointment when it suits me, tweet to the app startup if I've a problem, pay by predefined rate card, generally get 10-25% off on the rate card because the app startup has enough VC funding to blow on customer acquisition. Ditto with cabs, grocery stores, restaurants, and so on.

As long as I'm assured that my money is safe in the backend of an insured bank account, I'd love to switch to the frontend of a neobank - many of them support 1-tap payment, improve CX and, instead of charging me a premium, actually give me a 10-15% cashback because they have VC backing for burning cash. 

It could be argued that such VC-funded largesse from neobanks is not sustainable. I'd totally agree. But how does that matter to me or to the banks? At worst, I'll have to switch to another neobank if some of them shut down, forfeit cashback if all neobanks stop giving it, forfeit the nonbank frontend if all neobanks shut down. When all is done and dusted, I can always go back to my good old bank's bad old frontend. Neither the bank nor I have lost anything in the bargain.

22 Jan 2016 12:42 Read comment

Payments Trends and the Innovator's Dilemma

Your question was "Who needs a bank?". That sounded like present. Had you asked, "Who will need a bank?", I'd have commented differently: 

  1. You're assuming that banks are not advertising directly to consumers. A majority of Top 10 costliest keywords on Google AdWords are related to financial services, which suggests otherwise.
  2. You're assuming that the current frothy environment for VC funding for neobanks / fintech will continue forever. Recent IPO of SQUARE, almost 50% drop in stock price of LC and OnDeck since IPO - they all suggest otherwise. 
  3. You're assuming that nonbanks will create viable payment backends. I've been hearing this for almost 10 years but payment backends have stayed with banks for the past 50 years. MNOs tried creating alternative rails with Carrier Billing around 5-6 years ago but that didn't go far (Banks Have Nothing To Fear From TELCOs). I'll believe your assumption if and when I see it happening in the real world.

I've seen more predictions about disruption in financial services turning out false than true (see my comments at https://www.finextra.com/news/fullstory.aspx?newsitemid=28259). So, I'd rather stay with the present. Besides, from what I'm observing, I've more reason to believe that neobanks are fearing disruption by traditional banks. To predict the opposite in future is idle speculation that I'll not indulge in.

22 Jan 2016 11:41 Read comment

Payments Trends and the Innovator's Dilemma

What you call "giving up the frontend" is what I call "increasing reach, reducing cost, and increasing profits by moving operational costs and risk to third parties".

Disintermediation happens when producer and distributor are two different entities and a new form of distribution can disintermediate the incumbent distributor (though not the producer). To take a simple example of DOVE soap:

Producer: P&G

Incumbent Distributor: WalMart

New Distributor: Amazon

If enough consumers prefer to buy DOVE online via Amazon, if WalMart does not respond to this, then Amazon will "Amazon" WalMart, but P&G's status doesn't change. For all we know, Amazon could actually increase P&G's revenues by finding new consumers for DOVE from places where there are no WalMart stores or DOVE was otherwise not available in brick-and-mortar stores. 

In the case of payments, which is the subject of your blog post, let's see the value chain:

Producer: Card issuing bank, Card acquiring bank

Incumbent & New Distributor: Card issuing bank, Card acquiring bank

New "Distributor": Apple Pay

Regardless of how many cardholders move to Apple Pay, banks continue to remain the producer and distributor. The frontend relationship has not moved to Apple Pay - it has extended to Apple Pay. Bank knew the cardholder before, bank continues to know the cardholder now. If bank wants to do targeted marketing to increase ticket size, boost loyalty and whatever, it can do so, Apple Pay's entry has not undermined that capability in any way. There is absolutely no question of bank getting disintermediated in Payments from any new alternative payment service provider as things stand. 

In the context of Payments, the relationship between Bank and Third Parties is akin to that between a Principal (say SAP) and its Resellers in my native IT industry. Principal can resell its own product to the end customer but it still chooses to develop a network of Resellers. In the process, the frontend relationship shifts to the Reseller; the Principal also gives away a certain share of its revenues to Resellers by way of commission. Why does a Principal still create a Reseller network? Is it because it's stupid and exhibits inertia and suicidal tendencies? NO. It's to increase reach, reduce cost of selling and, in the case of Bank-SQUARE, to shift its risk to Reseller (as highlighted in my blog post http://qwt.io/s_ketharaman/7lXM). There's no question of disintermediation of banks by Resellers, just as there's no question of disintermediation of SAP by Resellers.

Your post and my comment are specific to Payments. I won't digress to Robo Advisors, Wealth Management or Online P2P Lending.

22 Jan 2016 10:53 Read comment

Payments Trends and the Innovator's Dilemma

"Who needs a bank?" I can't believe I'm reading this. Pray tell me how will Apple Pay work without the issuer bank that issues the Apple Pay-enrolled card and the acquirer bank that allows the merchant to accept the Apple Pay payment? Do you have any figures on how many unbanked people have iPhone6 required to use Apple Pay? Sorry but the reality is quite opposite: Apple Puts Banks Squarely At The Center Of Mobile Payments

Would you've cited UBER as a disruptor in an article whose title includes the expression "innovators dilemma" had you known that the founder of this expression, Clayton Christensen, had recently declared that UBER is NOT a disruptor?

21 Jan 2016 14:48 Read comment

New Subscribe and Save Offer from Amazon could prove sticky

I echo your irritation with "Add 0.01 p to get free delivery", just that in India, the threshold for free delivery is INR 500. I've often wondered why Amazon simply doesn't ask the customer to "gift" away that 0.01p / INR 1 to reach the threshold instead of making them go around in circles to find a qualifying item.

Oh, well, wait, the marketer in me is now kicking in.

Maybe it is Amazon's intention to drive the consumer to buy some more stuff as they "go around in circles" - the ecommerce equivalent of stacking chewing gum, chocolate and other items at the store checkout line, easily within reach of consumers waiting in queue.

21 Jan 2016 14:21 Read comment

How to get your staff to do mundane tasks

Good list. From personal experience and anecdotal evidence, people avoid mundane tasks due to natural tendency of procrastination, which rises manifold if the process of completing them is fraught with friction. Therefore, I'd like to add one more item to your list: Make systems to fulfill mundane tasks frictionless. This goes beyond "right technology" already covered in your list and focuses on UX.

21 Jan 2016 12:38 Read comment

Why does it take so long?

Why am I not surprised? I commented here about why a single, common e-ID is unlikely to find acceptance for different services requiring different authentication strengths, especially in nations with federal government structures. I doubt if time alone will drive greater adoption.

21 Jan 2016 09:30 Read comment

MasterCard to let shoppers pay off card transactions in instalments

@PeterRobinson: Not sure how this thing will work via MC but, in India, issuer banks have been offering this feature for several years. Just that it happens ex-post facto rather than at the POS. Typically, a day or two after the cardholder receives their monthly statement containing a particularly large charge, the bank calls them and offers to convert this charge to equated monthly installments. (More recently, online statements have started featuring a "Convert to EMI" hyperlink, so cardholder can opt for it without any human intervention from the bank.) As far as I know, the switch to EMI happens without any APR. Sometimes, there's a small fee but that's also rare. Apparently, banks do this to ease the burden on the cardholder and thereby boost loyalty - rather than make money via APR. On the contrary, deferred payments attract hefty APR.

20 Jan 2016 15:07 Read comment

It's time to take a stand against all the blockchain crap out there

Great post. Apart from paperless transaction and real time settlement - two benefits that are already available in some existing systems - I haven't been able to figure out the true value proposition of Blockchain.

On a side note, can only Finextra "insiders" like @DirkKinvig post an image in the comment?:) I've never seen a picture icon in the comments toolbar. I still can't see one.

20 Jan 2016 14:38 Read comment

Appetite for cash remains strong as ATM usage soars

When many people run out of cash, they run to the nearest ATM:) Many merchants have told me to do the same when I refuse to pay by cash and they're (temporarily) unable to accept credit cards due to POS / network / server malfunction. Nevertheless, I do know several people who spend only whatever cash they have at that moment (despite merchants' efforts to point them to the nearest ATM). Therefore, I agree that cash can serve as a powerful control over spending for a lot of people.

20 Jan 2016 14:24 Read comment

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Ketharaman writes about

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  • cryptocurrency
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  • covid-19
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Ketharaman's opinion archive

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