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Design thinking – Will banks will become marketplaces like Amazon or Alibaba?

Ever since the collapse of “too big to fail” banks and institutions that were at one time thought of not possible to live without, have new ideas emerged. Will new business models as marketplace aggregators change the nature of the financial services industry and truly create value than just try and hedge spreads on interest rates?

 

http://www.bloomberg.com/news/articles/2016-06-10/banks-mine-troves-of-personal-spending-data-in-marketing-push

https://www.theguardian.com/business/2016/jun/12/walmart-canada-to-stop-accepting-visa-cards-high-fees

Why do banks have a challenge. As a self proclaimed supplychain & algorithm student ever since I was less than 8 years from my father, I look at the very simple 101 of how to evaluate a company. And what stands out is simple.

What is the inventory?

What is the Stock Turn of that inventory?

What is the Cash Conversion Cycle?

What is the GMROI (GM/ST)

With this one knows the heartbeat of any business without looking at the balance sheet and as a matter of fact one knows what the balance sheet looks like.

So if a bank A has 1m depositors, that had $10,000 each, that means the bank had $10B in inventory. If the interest rate is 3%, the bank has to turn the inventory of capital 103% to break even on capital to be at 100%. And if the bank had a CCC of 180 days it means that the bank turned $10B x 2x a year, meant that the bank was $20B a year and 3% x 2x = 6% or $600m/ year. This way the bank could return the inventory.

Then there is bank B. Has has 1m depositors, that had $1,000 each, that means the bank had $1B in inventory. If the interest rate is 3%, the bank has to turn the inventory of capital 103% to break even on capital to be at 100%. And if the bank had a CCC of 30 days it means that the bank turned $1B x 12x a year, meant that the bank was $12B a year and at 3% of inventory means $360m a year. This is the company I would invest in without battling an eyelid.

A post that highlights the power of 101 of CCC.

Screen Shot 2016-06-13 at 6.10.49 PM

https://gerardjrego.com/2014/06/05/designing-for-behavior/

You look at your bank statement as debit and credit. But what if banks look at themselves like a marketplace or marketplaces like banks?

 

shutterstock_289319174

So picture this.

A bank looks at all its depositors and says our customers see their money as expenses and savings, we see it as aggregation of demand and supply! So now the bank creates a marketplace and informs companies to bid in Reverse Auction across 1m customers;

  1. $250/week Groceries   –  $250million/week in A single contract
  2. $150/week Entertainment   –  $150million/week in A single contract
  3. $100/week Home Shopping   –  $100m/week in A single contract
  4. $100/week Eat out   –  $100m/week in  A single contract
  5. $75/week Maintenance   –  $75m/week in A single contract
  6. $100/week Auto mortgage – $100m/week in A single contract

Now this looks vastly different.

 

So now the bank just acted as a marketplace and leveraged aggregation to create a greater return on capital as inventory. So now the bank statement reads;

$250/week Groceries   –  $250million/week
$8.71 Saved/week
$1.00 Service fee or 0.40% Transaction Revenue
$7.71 total saving or 3.08% Interest Earned!

 

Screen Shot 2016-06-14 at 8.13.59 AM

Banks now say they are working overtime to put your earnings to work and generate real value from the uni economics and that is the interest earned or Stock Turn of Capital. Imagine the impact on the GDP! No need for “0” or negative interest rates as along as inventory turns with a zero or negative Cash Conversion Cycle.

Now this is the  next game changer. Either banks disrupted marketplaces or marketplaces disrupt banks. No wonder this headline is not just a headline.

 

Screen Shot 2016-06-13 at 8.15.39 PM

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