GRAND RAPIDS, Mich.—The next decade could be the most transformational period the financial services industry has ever seen—and firms that want to survive it should take a few lessons from the video rental and typewriter industries.
That's according to Dan Schulman, group president of enterprise growth at American Express, who addressed a crowd during the Michigan CU League's annual meeting here Friday.
Shulman opened his remarks by offering several statistics on the fortunes of Fortune 500 and Fortune 100 companies from decades past, many of which are no longer the major forces they once were—if they exist at all today—such as Bethlehem Steel, Kodak and RCA.
Part of what sealed those companies' fates, according to Shulman, was situational bias
"Everyone suffers from situational bias," he said. "We think what was will continue to be going forward. That leads to a lot of very bad decisions. It's easy to go and do it that way; it's courageous to do it another way. And we all suffer from that."
He offered the examples of Blockbuster Video—which he said didn't take the opportunity to buy Netflix when it had the chance—and Smith Corona typewriters, which didn't foresee the revolution in personal computing and the way consumers might change their typing and editing habits.
Similarly, he said, banks have created a massive branch infrastructure that is unsustainable in the long-term, leading to a significant portion of unprofitable customers and the decline of services like free checking. Along with declines in personal lending at the banks, all of that has led to more than 70 million Americans living on the margins of the financial system, said Schulman.
The solution to that problem lies in technology, he continued. Financial exclusion "is a solvable problem rooted in technology. You can take everything you used to do in a branch and do it through software now."
It is incumbent upon financial institutions, he continued, to find ways to better serve the underserved.
The Nonbank Era
"We are entering the era of the nonbanks—a time when you'll have all the power of the bank branch in the palm of your hand," he said.
One of the crucial components of that will be digital wallets, which Schulman called "the most misunderstood term there can possibly be in this country right now."
The payments expert noted that there's "no real benefit to tapping my phone" at a point-of-sale kiosk. The real reason there's so much competition in the mobile payments space is data.
"Data is the holy grail of software companies in terms of their marketing weapon," said Schulman. "The marketing weapon that is going to be used against all of us going forward is the algorithm, and the most famous algorithm is Amazon's 'If you like this, you will like this.' "
Schulman compared an algorithm to a weapon, and the ammunition that feeds that weapon is data, he said. "The more data you have, the more powerful your algorithm is. People want as much data as they can possibly get, because they can serve consumers better."
One component of the payments market Schulman did not touch on in his remarks was AmEx's Bluebird product, a checking and debit card system that some industry analysts have said threatens traditional FIs such as banks and credit unions because it removes the financial institution from the transaction process and eliminates those banking relationships with consumers.
