If banks and telcos were in a race to modernize, who would win?

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Banks and telcos both have the same fundamental problems. In a race to modernize, which one would win?

They both have a swiftly shifting customer base, a world that is being turned upside down as everything becomes digital, costs to cut and shareholders to keep happy, now and in the future.

They both (in slightly different ways) manage our money – both do billing and payments.

Banks also have branches all over the place that customers don’t want, but unions, employees and governments are trying to stop them closing.

Telcos and banks have legacy systems that would make anyone born after 1990 run and hide cowering.

They both have common enemies. In North America and Europe they are called things like Amazon. In Asia Pacific they are called things like Alibaba. (Other common enemies are available.)

Telcos have a unique value proposition: connecting people to people, and people to stuff (let’s leave connecting stuff to stuff aside for now).

Banks have a unique value proposition: managing the money that allows people to get to the stuff so that they can buy the stuff.

With the legacy that these two sectors are burdened with, it is not surprising that they are looking at ‘digital/virtual’ as a way out (although how they get out and where they need to get to once they do, they have yet to figure out).

Recently the bolder telcos have decided that starting again from a greenfield site is the way to go – set up a new brand, with new technology, new billing, payments, and online customer service. Job done.

The same is true of banks. Citi has just announced that it is launching a digital-only bank, targeted (interestingly) at its credit card holders rather than its account holders with high deposits.

While the greenfield approach is intriguing, and beginning to show signs of working, you have to wonder what happens a bit further down the road.

In two years’ time you have a shiny new digital setup. You have attracted a significant number of the target audience you wanted. All seems good.

Yet you still have all those other customers, all with different products. Inertia is a powerful force, so getting everyone to move across is a pipe dream.

Whether you’re a bank or telco, the question is the same: what do you do with those customers? Have you actually just created another (albeit quite cool) silo?

Given that the prize will probably be won by the guy who is bolder and trusted more, then the money at the moment would have to be on the banks.


  1. I’m sure people wanted to hang onto horse and carts for while but eventually the lure of a much better experience and substantially less horse poo moved them off the legacy. Creative incentive and time combine to allow old platforms to be end-of-lifed.

    The challenges / opportunities for personalization are also interesting when comparing banks and telcos. Focus is often on the telco opportunity to personalize through customer knowledge (usage patterns, location, access speed etc) although this becomes more challenging with encryption. The bank has all that insight and knows exactly what I spend my money on, at least for online / card based transactions, but with no encryption. Huge opportunity for banks to use this insight to create much more compelling experiences – opt-in of course. Maybe banks will never be exciting but they could probably be a little less dull.

  2. In a nutshell, I would say that the banking industry has the chance to modernise itself more quickly than the Telecoms industry. This is mainly due to a number of factors not mentioned in the article: regulation, technology disruption and market structures.

    Whilst both industries are regulated, Telecoms companies carry bits. Whether these are routing bits or bits of traffic, they are relatively indistinguishable. Banks, however, store and process bits, some of which carry monetary value. When there is more value ascribed to a bit, there is more money to invest in new ideas and projects to modernise the applications, processes and systems that support them. As a result, we a have more vibrant and open Fintech industry compared to a TelTech industry.

    This brings me to my second point. Most Telecoms-related R&D has been done by a few leading network vendors. It is an industry of standards and scale. Sure, there are opportunities with SDN to innovate, but most telco operations directors want an easy, predictable life and will fight against too much innovation that might bring down their fragile networks. The banking industry is structured differently. The Networks and Applications run on the Internet (not under it). So there are more opportunities for cheaper innovations at the edge.

    Finally, ALL industries are restructuring around services and the so-called API Economy. Amazon’s transformation is now a well-documented example. I see more banks and FS start-ups becoming API aware than I do Telecoms companies. That said, there are MASSIVE opportunities for Telcos to catch up in this area, if only their leaders could see the advantages of an API-led Strategy.

    Ultimately, I don’t see this as a race between the two industries, but a race to make sense of the new structures that will support a sustainable API economy. Both the Banking and Telecoms industries have vital roles to play in its development and we will all win if both industries were to collaborate and learn from each other how best to do this.

What do you think?

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