I believe one key thing in free markets: a stagnation of incumbents creates opportunities for new entrants. That is happening in the U.S. where Amazon, JPMorgan, and Berkshire Hathaway are working together to establish a new independent company that would redesign how healthcare works for their employees, and possibly the broad U.S. population. They cited rising costs, poor service and other factors as motivations. In the OECD, a league of rich nations, U.S. spends more per person on healthcare, and still comes near-last on derivable value. Yet, for years, the healthcare industry has not bothered to fix that paralysis.
Amazon is diving into health care, teaming up with Warren Buffett’s Berkshire Hathaway and the New York bank JPMorgan Chase, to create a company that helps their U.S. employees find quality care “at a reasonable cost.”
“The ballooning costs of (health care) act as a hungry tapeworm on the American economy,” Buffett said in a prepared statement. “Our group does not come to this problem with answers. But we also do not accept it as inevitable.
The new company will be independent and “free from profit-making incentives and constraints.” The businesses said the new venture’s initial focus would be on technology that provides “simplified, high-quality and transparent” care.
I tell you that this is a huge deal. There is nothing that stops Bank of America, Google, Apple and others from joining this healthcare company if they see it working. Just like that, the traditional players would be out of business. This is potentially disruptive because it would set a new basis of competition in the broad healthcare sector.
The warning shot has been fired, and many healthcare companies are on panic situations. Most saw erosion of values in the stock market today.
The news sent the S&P 500 healthcare sector .SPXHC down 2 percent in Tuesday afternoon trading, putting the group on pace for its biggest single-day decline since October 2016 and blunting the sector’s strong momentum to start the year.
Through Monday, healthcare had risen 10.5 percent already in 2018, the best performance among all major sectors and well ahead of the 6.7 percent rise for the overall S&P 500 .SPX.
Lessons for Nigerian Banks
As Nigerian banks continue to escalate transaction fees, they are simply pushing the customers to explore new channels. The rise of fintech would be correlated to the level of dissatisfaction with the banking sector by customers.
The new generation banks in Nigeria must understand how they grew: they innovated and provided a new basis of competition. Nigerians responded and embraced them. What they did to old generation banks could happen to them if the fees continue unabated. I have been looking at the annual reports of our banks and the trajectory is not good: the transaction-fees are now increasing faster than interest-fees. Simply, it is a more lucrative business to extract fees from customers than to lend them money to do business. That is not how to grow income, and if they stifle the companies, banks would have none, in future, to make their banking missions worthwhile. The Bankers Committee must lead and find a way to tell its members to apply the brakes on fees.
Just as the attitude of the healthcare sector moved Amazon (and patners) to plot a roadmap to provide better healthcare service to their internal customers, if our banks do not listen, they could open themselves to something regrettable. This is 21st century, customers do have options and most times they exercise them in ways you never expected. Perhaps, the healthcare industry leaders would have expected Amazon, JP Morgan and and Berkshire Hathaway to come begging for better rates. Today, they are reading that Amazon and friends are coming after their very businesses.
----REGISTER for my Innovation for Growth Workshop, Lagos, Sept 2018.
---Visit our Store for my books, cases, frameworks and more. Now, enjoy our consolidated subscription for all contents (past, present and future).
-- We offer Advisory Services (tech, strategy & Africa).