Banking sorely needs another Diners Club moment
Banking has grown to more than 8 percent of GDP—bigger than retail—but customer satisfaction at large national banks is lower than in almost every other major industry. Change is slow in an industry so large and steeped in tradition, so major innovations have historically come from outside the industry.
Take the credit card: it was originally a metal card introduced by hotels and oil companies in the 1920s. Then in 1949, Frank McNamara forgot his wallet while dining out at a New York restaurant. His wife had to pay the bill and Frank went on to found Diners Club, enabling New York's business elite to pay by card. This was the birth of modern charge and credit cards, and it all came from outside the banking industry. As an aside, U.S. consumers today are borrowing more than $800 billion on their credit cards (more than Greece's national debt), and it is a highly profitable business for the banks.
In contrast to the public's increasing willingness to adopt new technologies, big companies are often slow to move, so they get disrupted by more efficient new entrants. Borders is an example—by the time it opened its own e-book store, Amazon was firmly established and it was too little, too late. But it doesn't have to be this way. Savvy incumbents in many industries are getting ahead of the curve and working with disruptors to more efficiently serve customers and change their industries for the better.
Take eBay, for example. The platform started with hobbyists selling used goods, and retailers either ignored it or saw it as detrimental and tried to limit its growth. Today, companies from car manufacturers to fashion brands work directly with eBay to create tailored user experiences. In the music industry, after initially heavily resisting online distribution, record labels worked with Apple to sell music on iTunes. Now, Pandora and Spotify are disrupting that model as well. As the pace of change quickens, incumbents must keep innovating or risk becoming irrelevant.
Imagine you were born in the U.S. in 1877, the first year telephones were available. Unless you were wealthy, you would probably have needed to live beyond 60 to get one in your household. If you were born a century later in 1977, you have already seen cell phones and the Internet go from zero to global near-ubiquity, and in the last three years you've seen the iPad rocket to 100 million users and beyond. It's important to realize that it doesn't just seem like things are changing more quickly these days; technology really is evolving faster than ever, and today's consumers are adopting new technologies at record-breaking speed.
Technology and innovation are starting to turn the financial services industry on its head. For example, GoBank is launching a native mobile bank, and Check is revolutionizing the way we pay our bills. Meanwhile, Square is enabling millions of new merchants to take credit cards, and lending platforms like Lending Club have created the opportunity for anybody to invest in the consumer credit asset class, with a lower operating cost model that passes savings on to borrowers. All these companies are disruptive because they break out of traditional banking models: They're lower cost and they're better for customers. Even for those banks that can move beyond traditional ways of thinking, branch networks and legacy IT systems often mean they can't make the economics work and there are no savings to pass on to customers.
(Read more: Brokers are decades behind the times)
The truth is, banks do want to innovate and better serve their customers, and they certainly don't want to go the way of Blockbuster or Kodak. So what to do? Banks can work with disruptors, too. By combining their stable balance sheets, low cost of funds and deep roots in local communities with disruptors' efficient and innovative technologies, they can deliver world-class customer experiences. At Lending Club we just announced alliances with Titan Bank and Congressional Bank in which they will use our platform to lend their capital to new and existing customers. Partnerships like these are good for incumbents, innovators and customers alike.
We're also seeing other new waves of innovation, from the sharing economy to wearable computing to technologies we haven't imagined yet. How will these affect financial services? I don't know yet, but I'm looking forward to working with incumbents and other disruptors alike as we uncover new possibilities for banking in the 21st century.
—By Renaud Laplanche for CNBC.
Laplanche is CEO and founder of Lending Club, a 2013 CNBC Disruptor 50 company from the financial services sector. Previously, he was CEO and founder of TripleHop Technologies, an enterprise software company acquired by Oracle in June 2005. He holds a master of business administration from HEC and London Business School and a JD from Montpellier University.
(For more on the CNBC Disruptor 50 companies, click here)