The future of banking is interesting to consider in the light of the digital revolution. Retail banking as we have known it stands at a crossroads, with new competitors and new technology driving change at an enormous pace. It is worth looking into the history and present of banking to ponder some possible futures for banking.
My first job was at Westpac in their Wales House building at 66 Pitt Street in Sydney. In those more genteel times we had a tea lady who brought around morning and afternoon tea along with iced vovo biscuits. The banks were open between 10 am and 3 pm Monday to Friday and customers deferentially doffed their hats to the powerful branch managers. There was little competition and folks tended to stay with one bank from cradle to grave. In those days banking had a both a physical presence and a deep connection to a local place that is lost now.
But now, as Brett King, the banking guru says
“… banking is no longer somewhere you go, but something you do…”
Now technology is driving consumer behaviour and expectations for all businesses, and banking is no different to any other industry.
Some of the key technology trends that are having a big impact on banking include:
- Ubiquitous wifi
- App ecosystems
The other technology trend that is influencing consumer attitudes and behaviours is the broad ability to obtain digital access to media. Platforms like iTunes, Bit Torrent and on demand television are creating a culture that is unwilling to wait. We don’t wait long for music or books now with Amazon Kindle and iTunes.
We are seeing new behaviours from consumers. Applications like Facebook have trained ordinary people to collaborate and share online in realtime.
This shift in expectations means that consumers are ripe for disruption by new entrants that can adapt to these new expectations.
Due to these shifts in user expectations banks are being forced to move from “when we can” to “realtime” service and transactions.
Banks in Australia have dragged their feet on realtime interbank payments and settlements for years (killing off the Mambo project a few years ago).
Enormous growth in online retail commerce, mobile peer-to-peer payments and near-field chips that convert mobile phones into credit cards and digital wallets means that realtime processing is coming even if the industry doesn’t want it.
This means that we will see increased pressure on financial services organisations to deliver realtime services – this ups the ante on 24×7 operations for smaller players.
These trends towards realtime and mobile banking are made made possible by the vast penetration of smart phones and mobile devices in Australia, with penetration rates of almost 90% in 2013.
Reinforcing the technology trends is generations of people who have only been part of this highly inter-connected and realtime world. They do not recall a time before the device in your hand could access most human desires.
“We call them Generation C — connected, communicating, content-centric, computerized, community-oriented, always clicking. ”
New Entrants and Disruptors
The financial services world has not been subject to many new entrants and disruptors. This is mainly due to regulation and barriers to entry such as capital adequacy requirements. However, this is changing and technology enabled competitors are now entering the market. Some disruptors are not even financial services organisations. But their business models offer challenges to traditional ones.
- Non bank organisations
- Typically playing in NCP or peer-to-peer space
- Front end intermediaries
- Using technology to deliver customer service
- Differentiating on service
Non-traditional competitors are emerging and they are bypassing traditional banking systems
The emergence of new entrants over the past 5-10 years has seen non-financial services organisations moving into offering financial services. We have seen retailers like Tesco, Walmart, Coles and Woolworths leveraging their existing distribution networks and strong retail brands to diversity into financial services. Some are white-labeling products, using companies like GE as their backends, and others are building their own.
The other thing to note is that several new entrants are major technology organisations, like Apple, Google, and Facebook. They are focused on expanding monetisation opportunities into financial products.
A common way for these new entrants is to start with credit cards or other non-cash payment facilities and then extend into other products.
Distribution is key and new entrants either leverage existing relationship for distribution or use social platforms to grow distribution networks. Organisations with established relationships have an advantage over newcomers, yet we are seeing few of them leverage their advantage.
Key factors enabling disruptors
Nimble – no legacy systems to slow them down
Connecting users but using existing back-ends
Experimental – fail fast, then pivot
Adopt agile approaches – lean startup
Partner with organisations that have nimble technology
Ignore legacy technology – go around it
Develop digital partnerships
Don’t try to do it all
Focus on building foundations then expand