Banking's Long Tail

Chris Skinner has a great post on the long tail of banking.

There is no question that as the barriers to distribution disappear (the penetration of mobile devices/infrastructure in emerging markets a key driver here) money will begin to operate a lot more like software. The destabilizing effects of this on "business as usual" banking will be profound (just ask people in the music business).

Banks are fortunate that they can reference the lessons learned by other industries as they formulate their strategy for dealing with this seismic change. In order to capitalize on the opportunity presented by the "long tail" in banking, banks will need to think differently about the markets that they serve and the companies with which they compete.

The pressure being placed on interchange fees today will be compounded as technology companies look to disintermediate the banks. Had Google bought PayPal rather than eBay, the payments market would look quite different today. As it stands, Google is making inroads with Google Checkout, Amazon is looking to expand its patented 1-Click technology and Microsoft has made no secret of its intention to get involved with payments. Apple's development push will no doubt result in a bevvy of smartphone-based payments applications...and the list goes on.

These technology-driven solutions will have certain advantages, and yet, the banks themselves have a major head start. The key will be to build systems flexible enough to meet the demands of a fragmented market. What has passed for product innovation in the payments space will simply not be enough.