I have had the fortune to experience one of the largest power shifts in investment banking during the DotCom-era and I see indications that I will experience a similar, if not even a stronger shift, in retail banking now. This blog post will compare the increased negotiation power that institutional customers experienced with the raise of independent distributors to the power of crowd sourcing in retail banking.
Some of you may remember the DotCom-hype in the Financial Services sector that was fuelled by companies like Charles Schwab and eTrade. Their aggressive pricing policy pushed all traditional brokers to leverage their competitive edge, their research, on extranet services for their most important institutional clients. With the research data available on-line from all the major investments banks it was only a matter of time until intermediaries like Multex, I/B/E/S and other distributors would emerge and start aggregating the data. And the fear of not getting exposed to the largest clients had all the brokers to contribute their research and underlying estimates to the distributors. The negotiation power was all with the clients when the distributors started ranking the brokers on how accurate their estimates where compared to the actuals. Now, it was possible for the institutional clients to rate their brokers and calculate how to distribute their business among the brokers. Then, the institutional clients were in full control. They knew their market value and had a clear understanding of the value of any share of their investment portfolio.
The movement that Avanza Bank started with #sägdinränta may very well start a similar shift in retail banking. But in this case we will not need any distributors to rank the vendors. That is already done by 1.800 consumers. They have ranked their respective banks on how eager they are to get a new mortgage client and they are sharing hints on twitter on how to squeeze the rate. And they fully understand the lesson learned by the institutional clients previously. Vendors crave wallet share and it can be used to get a better price. Beware retail bankers, it may very well be that your client is twittering during the meeting to get the latest market quotation on interest rates and the value of moving their wage account to your bank. Do YOU know the value of increased wallet share?