Riding the anti-bank wave: web 2.0

I'm noticing that lately practically all financial services oriented Web 2.0 plays are positioning themselves in a most anti-bank type of way.

Take, for example, the pitch of most peer-to-peer lending sites on this subject. Almost without exception, a key value proposition is anti-bank. Here are some selected quotes:

Zopa About Page:

Banks have huge overheads, with thousands of employees to pay, hundreds of branches to feng shui, and countless fat cats to feed. And they take far more than their fair share of people's money – last year, the Big Five (HSBC, Barclays, HBOS, LloydsTSB and RBS) reported combined profits of over £30bn.

By cutting out the banks with their huge overheads and large margins, both lenders and borrowers get better rates.

Boober.nl home page:

Boober. No banks, better deals.

Duck 9,  the student lending site home page:

...borrow money from a person, not a bank. Shun the bureaucracy of banking- never borrow from a bank again

Ironically, the founders of Zopa are all ex-bankers from Egg.  The founder of Boober in the Netherlands is ex-ABN Amro.

Before I continue, I just want to point out that Prosper is extremely cautious in its treatment of banking: banks are barely mentioned. In fact that only remotely anti-bank sentiment I could find was Chris Larson (founder of Prosper) in a press release at launch:

"Until now, financial institutions have controlled who is able to obtain credit and the rates people pay," said Chris Larsen, Chief Executive Officer and co-founder of Prosper. "Over time, this one-sided control has bred inefficiencies and excessive margins – leading to higher rates for borrowers, and restricting people who have money to lend from entering and generating income from this vital and lucrative market."

Kudos to them.

Anyway, it doesn't just stop at peer-to-peer, for whom banks are natural competitors and therefore must expect at least some negative sentiment.Over at Wesabe, there is a definite anti-bank colouring to a lot of the content:

About Wesabe Founders:

"When Marc Hedlund caught his bank making sneaky changes to its account terms in order to squeeze more fees from him, he had enough."

An example from the Wesabe blog:

"Why do [banks] make it so difficult to track down these fees? The answer is breakage — the more steps they put in your path to request a fee reversal, the less likely you are to follow through. They don’t want to make it impossible, since that would be bad press; they just want to make it onerous, as onerous as needed to maximize fee revenue"

The basic premise seems to be: banks are bad, we are good, let us help you get the banks.

Without a doubt, supporting the consumer against big, faceless banking corporations has always been extremely popularist. If the number of comments are anything to go by, my recent post on Bank of America allowing "guest workers" access to credit shows how unpopular banks can be.

Cashing in on a consumer backlash is, however, a somewhat risky strategy.  It relies on underdog status  and an ability to be seen to always "do the right thing".

Google, with its "don't be evil" mantra has been burned repeatedly when it failed to live up to its own public calling cry. Consider the situation when it tried to influence legislators to its advantage behind a veil of secrecy in what has been labeled, amusingly, Googlegate. It is irrelevant whether it actually did anything wrong: perception is everything.

Web companies that are anti-bank can be so with impunity only when their customers can identify readily with their values. Those values are most consistent when these companies are small and the founders are able to spend the time talking with customers. The larger a web company gets, the less likely it is that underdog status can be maintained, the more visible its profits are, and the more in common it has with the banks that it criticised to help drive its initial growth spurt.

Paypal is such an excellent example of this. Not only has it lost its underdog status, there are rumours it is about to join the club of banks itself. In fact, there are PayPal hate sites now, just as there are for practically all major banks. An interesting "let them eat cake" reversal of fortunes.

Obviously, I'm not privy to the business plans of these new financial services web 2.0 companies. But if they plan to grow, as they surely must, their anti-bank slant is likely to be seen as hypocritical at best. Being seen as the underdog/consumer friend will be more difficult as equity dilutes away from the founders and the imperative of fiduciary responsibility to shareholders becomes more pronounced.

In fact, as far as I can tell, the difference between a web financial services company that is driven to get profits by shareholders and a bank that is driven to get profits by shareholders is practically nil.

Update: Ron Shevlin continues this disucssion on his blog, Marketing ROI

Comments

[Marc Hedlund]

Hey, James,

Thanks for including us -- interesting and worthwhile post.

I have two very specific axes to grind with banks (and credit card companies), but I don't think that I am anti-bank (nor anti-credit union). If you look at our blog, you'll also see lots of praise for USAA Federal Savings Bank, Navy Federal Credit Union, ING Direct, and others. These are institutions that are looking to provide excellent customer service, and are offering products that often are very beneficial to consumers.

My two complaints about banks are very specific. First, many banks make one-quarter or more of their revenue from fees -- in other words, they benefit when their customers are harmed. If a bank processes debits to my account before deposits that come in on the same day, as USA Today recently documented, then they are trying to charge me NSF fees as often as possible. I consider these to be "gotcha" profits, where the bank benefits by setting up their customers to fail. As a bank consumer, I hate that. I would much rather give my business to a bank that earns its money by investing my deposits, or by providing me services that benefit me and for which I'm willing to pay.

Second, I have a specific complaint with banks that charge customers for access to their own financial data -- either for automatic access or for archival access. I don't believe that any bank should charge me money in order to get the information I need to manage my finances. Why would a bank or credit card charge me money to access a full year's worth of data, even though tax preparation (which Americans are approaching next month) requires a full year's view? Financial information -- as any stock trader will tell you -- is extremely powerful for making better decisions. I see bank policies on this front as extremely punitive for their customers, and not at all in line with increasing their financial well-being.

Those are my complaints. Banks provide a lot of valuable services and enable people to do things like buying homes that otherwise they might not be able to do. That's great -- I like doing business with companies where I can exchange capital for benefits. I draw the line when I'm getting bilked for money when I'm having trouble, or for access to my own information.

You're absolutely right that Wesabe, like every other for-profit company, will make money from its customers. I hope we do it, though, and we have every intention of doing it, by providing them value, rather than by engaging in "gotcha" traps.

[James Gardner]

Firstly, Marc, can I congratulate you and Wesabe for being on top of the pulse as usual. I think only 30 minutes between my post and your response? Fantastic.

Now, to your excellent points.

I agree that some of the time the anti-bank sentiment that is around is the result of bank charging practices that, retroactively, should have been reconsidered in the light of the customer experience. Many of the banks I work with now are taking a long hard look at themselves to fix these sorts of things.

But I think that my point was not that you, or anyone else, is anti-bank, but that associating your brands with anti-bank sentiment could possibly backfire in the longer term.

That this is occurring is hard to argue, and in fact, in your comment above, you suggest that bank fee income "harms" customers and that banks habitually engage in "gotach" fee-raising.

Those are valid critisims in some cases. But do comments of this kind (from a founder, no less!) position Wesabe as friend to consumers and enemey of banks? I think they possibly do.

All I'm saying really, is that perhaps customer acquisition on the back of bank-hate isn't a long term strategy.

To be fair, it is obvious that Wesabe isn't acquiring customers on that basis, and your users that I've spoken to use the product not to get back at banks but because there is personal value to them.

Thanks again for taking the time to read and respond.

[Marc Hedlund]

Hi, James,

You make a completely valid point. If we had decided it was our strategy to be the enemy to banks, either as a way to gain customers or for any other reason, that would set up the risks you describe.

That isn't our choice, though. I am certainly opposed to the fees I describe above, and I'm more than happy to point out how our product helps consumers find the best deals -- and the lowest fees. What we've heard from banks and credit unions that fare well in that comparison is that they'd be very, very happy working with us.

We are advocates for our customers, and the nature of our product makes it obvious when any type of merchant -- banks or otherwise -- are taking advantage of their customers. That's the point of the product. When "Overdraft Fee" is one of our top 20 "merchants," I think that means banks are their own worst enemy.

As you say, what matters is that our product is valuable to the people using it. I point out great examples of ways we can provide value to people -- like avoiding bank fees, like using independent auto shops, and so on -- as a way of promoting our approach. But we don't consider banks, or anyone else, enemies, if they're interested in providing value to our users.

Hope this helps, and thanks again for the insightful and interesting post -- you're looking down the road at how the "Money 2.0" world will develop, and that's great to see.

[Ron Shevlin]

James --

Excellent post. Incredibly insightful. "Anti-bank" is a positioning statement, NOT a strategy. It isn't sustainable.

One other thought, this regarding your comment about the # of comments you received on your BofA post. Personally, I didn't see that as a sign of bank unpopularity as much as I saw it as you touching on a sensitive nerve: the illegal immigration issue. Granted, if tiny little First National Bank of San Pedro Texas (I'm making that up -- I hope) had been the firm to issue the cards, it wouldn't have garnered the press that BofA did, but the underlying question of whether the practice is right or wrong would have been the same.

[James Gardner]

Hi Ron - thanks for your kind remarks on the post. You are correct, of course regarding the BofA post. Clearly, the issue generating the heat was the guest worker one, and not anti-bank sentiment in general.

I like your characterisation of anti-bank as positioning statement rather than strategy. Positioning as anti-bank (especially when your revenue stream is fee-based, as in the case of P2P lending) works only as long as you aren't making too much money. Not sustainable, as you say.

[John]

Fascinating post-I'll be interested to see where Wesabe et al go in the future.

As a complete outsider to the banking industry, the Wesabe site doesn't seem even remotely inflammatory to me. My general take is that improved data systems have rather likely decreased the data cost of banks and that there has been no corresponding drop in fees charged by banks. Maybe that's not accurate, but I don't see any of the value attained by my bank's perceived reduced costs being passed on to me. As such, I have no loyalty to my bank and it's only the perceived switching cost that keeps me with them.

Friction is inevitable when industries are perceived as ripe for disruption or have a less then sterling reputation with the general public. You'll find the some of same anti-establishment take going on in the real estate 2.0 movement.

If anything, I think consumers likely appreciate seeing easily accessible fee information that was previously locked away in silos at the bank-especially when combined with perhaps painful memories of fees charged by their own banks. My more general question would be about whether customer acquisition costs are on average less for the startup firms then traditional banks, but I don't imagine that Marc wants to give that away just now.

[James Gardner]

Hi John,

No, Wesabe is not that inflamatory, at least when considered next to some of the others.

I fully appreciate your points about percieved banks costs and how the industry is ripe for disruption. Actually the disruption seems to be happening on every front at the moment.

While I agree that friction is inevitable as this disruption occurs, my thinking here is that sites that acquire customers based on emphasising the friction are building in expectations that they will never behave similarly. The discontinuity between the needs to shareholders and customers means that there will always be challenges here. And small web companies that get big almost always have shareholders to consider....

[llyons37]

In my perspective, a lot of anti-bank emotions have been caused by excessive fees and the ever-changing banking environment. One of my predecessor banks became a national embarrassment when they instituted the teller fee. Charging customers to see a teller was a misguided and poorly thought out strategy. Banks are Pavlov and customers are all dogs. Problems are springing up because banks keep changing the bell.

Above all of this, personal philosophies surrounding value are the central issue. For me, it's really simple: nothing is free. I can have anything I want, if I'm willing to pay for it. With my time, effort, money, etc... Immediate access to my financial records is not free. Writing a check for more money than is in my account, not free. How about riding in a taxi? Not free. BUT you're transporting ME from MY job to MY house. Still not free.
If banks are not providing value for their fees, then there is a problem. And before we really get out of hand here, think for a moment about the quality of our banking systems here in the USA or UK. Imagine for a moment living in Poland, Chad, Nigeria, Vietnam, or Brazil. How much do you trust your bank to safely handle your money? Our developed societies have an established rule of law that allows billions of daily transactions to safely occur between complete strangers. I'd have to say that service is invaluable, yet you never see a fee for that.

[James Gardner]

Hi Lucas,

The question of value is an excellent one. Pervceived value of the banking system by customers is completely the issue we should all be focussing on. I pay 20 pounds a month for my premium current account and think I get value for money. My partner, on the other hand, thinks we are being ripped off.

Making sure the benefits are visible is the key point.

[Adam]

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