The Future Of Movenbank

If you need a refresher course on what Movenbank is, allow me to steal this passage from TheNextWeb:

It’s an exclusively online, new model of bank that uses social, mobile and gamification technology. To create a bank focused on utility and customer engagement, Movenbank created an ecosystem called CRED, which uses a combination of mobile technology, social media and behavioral game theory to help consumers save, spend and live smarter when it comes to their finances with a built-in reward system.

Here’s how the Movenbank story is going to play out:

Act I: Start-up generates positive press and attention for promising to create new banking model. New firm takes precautions to not get overhyped (like a previous new banking startup) too far in advance of its launch. Fledgling firm signs up 100,000 potentially interested customers.

Act II: With much fanfare, Movenbank launches, but small percentage of interested prospects sign-on. Management team is undaunted as they know full well that too many customers on day one might be more detrimental than helpful. After all, on day one Federal Express flew one plane, not thousands. 

Act III: The dark and lonely times. Movenbank works diligently to acquire new customers. Slowly but steadily new customers come on board. People begin to question the firm’s business model. 

Act IV: Movenbank prospers. Customers find that they can earn their way to better rates and fees, and grow with their existing account instead of switching. More importantly, customers are profitable. While other (i.e., traditional) banks have varying degrees of success driving up account profitability, Movenbank is able to do so through a blend of interchange, merchant-funded incentives, and yes, account fees. As the new model is validated, kinks are worked out, and word of the success of a new banking model spreads, helping to drive new customer growth at a much more effective and efficient rate. 

Act V: A megabank acquires Movenbank.

Huh? What? Why would a big bank acquire Movenbank? 

It’s a classic innovator’s dilemma. Today’s banks would desperately like to reinvent their business model. But, as they say in Maine, “you can’t get there from here.”

But why will Movenbank succeed?

It’s not because it’s a mobile-dominant plastic-less approach (I predict that Movenbank will one day issue plastic cards).

Movenbank will succeed because the product offer is more appealing, simpler, more transparent, and more fair than the [checking account] product structures on the market today.

The OccupyWallStreet people might not like to believe this, but the real 99% of people in the U.S. are OK with paying fees for the products and services they receive. What this majority wants, however, is perceived value for the fees paid. THAT’S the problem with the banking model today — mismatch between between fees paid and value received– and the problem that Movenbank is trying to solve for.  

In addition, the timing helps. While it’s always the right time for some firm to introduce innovation into the market, now is a particularly good time. It’s the perfect storm of economic conditions (producing strong consumer dissatisfaction with banks in general), technology development and — most importantly — demographics. 

Ten years ago, even if the economic conditions and technology had been in place, the demographics wouldn’t have been there. Today’s Gen Yers were just too young ten years ago to make a Movenbank possible.

Which isn’t to say that Movenbank’s only customers will be Gen Yers (just ask PNC about the demographics of its Virtual Wallet customer base). But Gen Yers need more than mobile access to their accounts, or a pretty interface. They need a new product. A product that reflects the fact that their spending and credit needs are rapidly changing.

The organizational walls between debit and credit products in most established financial institutions prevent them from creating and developing new solutions like the one that Movenbank is promising to bring to market.

By Act IV, big banks will take notice of Movenbank and realize that Movenbank is:

  1. The “starter” account they should have created for entry-level customers, and
  2. A platform and business model upon which they can migrate their stale and tired business model.

This, by the way, is why I don’t think Bank Simple’s path is similar. Bank Simple may succeed at creating a new interface for banking customers, but the underlying structure and business model of banking products remains in place. Maybe I’ll be proven wrong here, but I see Bank Simple as simply (pun intended) putting lipstick on the pig.

With that said, I may be wrong about Movenbank, as well. There are a number of failure triggers:

1. Model failure. CRED might not work. From two angles, actually. One is that Movenbank may not be able to collect a sufficient amount of data to validate the CRED concept. The other potential failure angle is that Movenbank may not be able to recalibrate CRED over time. This is what happened with FICO. A 600 score was significantly more risky in 2009 than a 600 score was in 2002. 

2. Technology failure. Movenbank is putting a lot of faith in the mobile channel. Not that it’s misguided faith. But the mobile channel– most importantly mobile payments and mobile customer service — has yet to face its toughest performance, reliability, and risk/fraud management tests. 

3. Service failure. You know why ING Direct succeeded as a primarily online-only bank? Because savings accounts require little customer service on an ongoing basis. That’s not the path Movenbank is taking, however. Quite the contrary — it wants to be the provider of the primary spending account. And with a heavy-transaction product comes heavy-customer support needs. Will Movenbank have the customer service capabilities to support a sizable customer base? We’ll see.

There are three additional failure triggers that I can define, but won’t talk about here. If Movenbank wants to know what they are, it knows where to find me. 

Bottom line: I’m bullish on the Movenbank concept. Sadly (for the industry) there aren’t enough people thinking about how to (constructively) reinvent the banking model. Too much focus is on improving the “customer experience” without fixing the underlying cause of the experience problems. Or blowing it up completely.

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