AUSTIN, Texas — "Disruption" may be quickly turning into a punch line, but another buzzword is striking fear into bankers' hearts these days: "unbundling."

This is the idea that nimble, fintech companies like marketplace lenders Lending Club and Prosper, wealth management app providers Betterment and Wealthfront, and personal finance management innovators Level Money (which was recently bought by Capital One) and Moven are extracting the profitable, customer-facing parts of the banking business. This relegates banks to the role of a utility, handling low-margin transactions.

"The unbundling of a bank should be a little scary because everybody's pulling the threads out of the blanket," Arkadi Kuhlmann, CEO of the startup "neobank" ZenBanx, said at American Banker's Digital Banking Summit in Austin last week.

"There isn't one aspect of what a bank does, whether it's a large or small bank, that someone isn't trying to take a piece of, and it's always the customers."

Banks are allowing themselves to become disconnected from customers, sacrificing the high-value part of the equation, he suggested.

"If you think about peer-to-peer lending, you have to ask yourself, 'why did we not do that?'" said Kuhlmann, who previously founded ING Direct, one of the first branchless retail banks. "Are we so committed to fee structure and profitability that we think it's cheaper for somebody else to get our customers than for us to get those customers?"

Cathy Bessant, global technology and operations executive at Bank of America, agreed that banks are subject to so-called "unbundling."

"I think it's a risk," she said in an interview. "When we provide transactional execution to companies that disintermediate us, that is a risk."

However, Bessant, Kuhlmann and others at the conference also said banks have to forfeit their position to the challengers. For one thing, customers may tire of having to use different apps and sites for their financial needs, whereas most banks can satisfy a variety of needs.

"For the most part, customers don't want to have to do business with a large number of players. They want an integrated, relationship-based solution," Bessant said.

Even if a consumer has relationships with seven different financial services providers, Bessant said, a bank could still be at the center of that person's financial life.

"We want to be that fulcrum. That's why we allow access to APIs, why we make investments in emerging technologies, why we partner with Apple Pay and Android Pay, because in the end, we want to be the place where those components come together in one place for clients," Bessant said.

Another competitive strength banks have is consumer confidence. In a recent Accenture survey, 86% of consumers said they trust banks more than any other type of financial institution — or fintech firm.

"It's ours to squander," Bessant said. "That reputation and loyalty to the sector as trustworthy is not something to be thought of lightly."


The fintech startups that seek to unbundle banks can be categorized, Bessant said, and banks need to make careful decisions about forming relationships with them.

"In every bank, large or small, there has to be a proactive and very forward-thinking perspective on 'friend, partner and foe,'" she said. "To stick one's head in the sand and say, 'we're bigger, we have more capital,'" is not wise, she suggested.

Bank of America has put some forward-thinking technologists to work sorting out fintech company relationships, she said.

Potentially, "they all can be friends and partners," she said. "There are some that want more economics than others. But just wanting more of the economics doesn't make a foe. The issue is: are we aligned?"

One element of the dividing line between friends and foes will be security, she suggested.

"One of the big untold stories of Apple Pay is the strength of its security methodology," she said. "Well-designed mobile banking and electronic commerce can be safer."

Banks need to start thinking of themselves as fintech companies, she said.

"I used to laugh, now I feel frustrated that every time you see a list of the top 50 fintech companies, there's not a bank on there," she said.


The key for banks to staying competitive and not becoming unbundled, Kuhlmann offered, is to offer great mobile banking services.

"It's the ultimate 'anywhere, anytime,'" he said. "People would like to lie in bed at night while they're watching TV and get banking done on their mobile device."

Banks can build relationships with customers through their mobile devices by "capturing the emotional contact that the consumer has with his money that you and I want to be in the middle of" and creating apps people love, he said.

"A mobile device is the ultimate tool to win that bond, that loyalty and that love from a consumer that decides whether they're going to do business with you or someone else," Kuhlmann said.

Some of this will involve redesigning products for mobile, he said.

"I've yet never found a banker who could explain the logic of a CD," he said. "Isn't it just a hold on an account? Why can't we solve that on a mobile? Redesign the product in a totally different way."

Another example of something banks should offer to retain customers is quick loans.

"Almost 28% of consumers have no idea where they would get money in an emergency situation," Kuhlmann said. "I find this really strange. If you have to do something in a hurry, who do you go to? The answer should be, they should come to a bank."

Account features could also be more consumer-friendly.

"Why can't we freeze an account online?" he asked. "You can freeze your newspaper delivery. Why can't you close an account with one click?"

Jeff Dennes, chief digital banking officer at BBVA Compass, echoed these sentiments.

"Our industry is sometimes counterintuitive in that we don't necessarily help people with their financial lives," he said. "Most people don't have money saved for air conditioning repair, and we don't help them prepare for that."

Banks need fresh thinking to create the services that wow customers, Kuhlmann said.

"If you start with a blank piece of paper and say 'this is the way a consumer would love to do mobile banking,' you have a chance at an architecture that's quite radically different and exciting," he said.

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