What Video Rentals Teach about Banking Business Models

What Video Rentals Teach about Banking Business Models

The story of Netflix vs. Blockbuster is one for the ages. And it can teach us about how to react as the banking business model changes. When Netflix was just a new start up with a crazy idea about renting videos through the mail instead of stores, many thought they were crazy. Including Blockbuster. Back then Blockbuster was the undisputed champion of video rentals. Every one who was anyone had a Blockbuster membership card, and along the way, had paid the late fees that went with it. When Netflix announced they would send videos through the mail and that you could keep them as long as you wanted, it was a new idea. And Blockbuster decided it wasn’t a threat. Sounds like banking to me. First Big Mistake: Ignore a Growing Trend. Even a Small one. While Blockbuster decided to ignore Netflix, their stock prices started to slowly drop. At the same time, Netflix subscribers started to grow. The correlation between the two isn’t surprising, but still ominously strong. It’s tempting to look at a new banking business model and decide it’s not a threat. But even at the first signs of growth, we should start analyzing what about that model seems to be appealing. For example, people dropping out of the “traditional” banking market to use prepaid debit cards instead. It’s no longer just about not having access to the banking system. Some are choosing to do this on purpose. It’s a small number today, but take a look at the Netflix subscriber growth curve. It started small too. Second Big Mistake: Blame Your Legacy Systems Eventually, it...