New Myths

24 August 2009

Developing the Next Big Banking Idea

I get a lot of people come up to me and pitch the next great idea in banking – something that fundamentally changes the way people will interact with their money.  Inevitably, these ideas can be categorized into four broad groups:

  • Original ideas that need more development
  • Ideas that have already been done
  • Ideas that don’t make sense in the current economic system (and don’t create an alternative)
  • Ideas that require the startup to be a bank

This isn’t intended to be discouraging – there are a ton of great opportunities waiting for someone to jump on them.  Services like Mint, Wesabe and Prosper are great examples of services that do something new or differently enough to make a real impact.  There are a few simple questions that you can use to save yourself some time and effort when developing an idea:

  • Does my idea dance around regulatory issues? You don’t want to mess with regulators.  Trust me on this.  If your idea has a chance of running afoul of one regulation or another, there’s a strong chance that there are several others that you’re not aware of.  If you’ve found one, you need to work with your legal team and start looking for the others.
  • Does my idea do something that the banks CAN’T do? The simple fact of the matter is, if your idea is something that a bank could do, they will.  And they’ll do it better than you in all likelihood – they’re the incumbent here and they’ve got all the data.  Look for opportunities where you can aggregate across multiple banks or combine services in a way that regulated corporations can’t.
  • Does my idea reinvent a business? Banks (like any established corporation) are notoriously bad at adjusting to large changes in the way business works.  A great example is the time it took most of the major banks to begin offering web-based banking services.  If you can get out there quickly and establish your brand, you’ll likely be sitting pretty for acquisition down the road.
  • Will my idea create a bridge between individual consumers/companies beyond the banking relationship? One of the most poorly understood facets of banking is the relationship between consumers, producers and banks.  If your idea can successfully link these three entities in a unique or novel way, its chances of being viable go up significantly.
  • Is my idea attacking an emerging or declining area of the business? I hear a lot of people nowadays pitching the next big idea in checking – when checking is a business on the decline with a foreseeable end of life.  Avoid these – go after areas that are emerging and just beginning to build momentum (in the current market, that would be card and mortgage).  Areas in between may be ripe for new ideas, but you’ll probably have a tougher time fighting against more established players (better defined markets tend to favor incumbents).
  • Do you work for a bank? This is a tough one – if you already work for a bank, there’s a strong chance your idea might already be in jeopardy.  Most banks have fairly strict policies around the ownership of intellectual property rights even when they don’t have outright non-compete clauses.  Check with your lawyer before you accidentally land yourself in an expensive lawsuit.

If you can answer these questions to your own satisfaction, you may be on to something.  Otherwise, take what you’ve learned and reinvest the intellectual capital into a new venture.

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