Digital Commoditization in the Era of Amazon

The battle for market share and organic growth in banking is a long and difficult road. According to the FDIC Statistics on Depository Institutions (SDI), real deposit growth at institutions with less than $20 billion in assets has only barely kept up with inflation. Many institutions are treading water. But why?

One possible reason: most younger consumers consider banks to all be the same. At least they are not aware of any differences. According to a study of millennials by Viacom, more than half (53%) of the respondents didn’t think their bank offered anything different than a competitor.

Banking in certain respects is heavily commoditized. In digital, new features like mobile RDC, debit card management, PFM, and most of what’s been new to the channel over the last few years is relatively easy to replicate. There’s less sustainable benefit to being a first mover. Table stakes becomes table stakes, and soon most institutions are offering similar capabilities, either homegrown or deployed through the vendor.

Commoditization of products also handcuffs banks in other ways. Low interest rates make it extremely difficult for institutions to compete on better offerings. Rates are so low that almost every deposit and savings account is practically indistinguishable. Banking has also become a part of the “commodity trap,” where products with a high degree of standardization compete on price or fees, ultimately lowering margins to unprofitability. Institutions need to be able to differentiate. But how?

Traditional business models of banking need to start moving away from heavily commoditized and low-margin products. Banks need to explore new models which generate additional revenue and offer a high degree of differentiation. Business models will need to adapt — the old model will no longer enable long-term success, and the answer could be in “platformification.”