How digital disruption will uproot retail banking
Banks have traditionally focused on an approach where businesses view the world through a banking lens. While that has proven successful for many financial institutions in the past, it also explains why banks risk disruption. Big tech companies are encroaching on their turf; consider Apple and its claim that Apple Pay transactions have tripled since 2017 to more than one billion through July 2018.
Today’s digital marketplace demands that banks not only provide quality products and services, but also enable consumer convenience. I believe the banks of tomorrow will provide products for payments and lending alongside a chat service, search engine and ecommerce site—all via a single bank-owned application. In such a connected ecosystem, the app carries context from one task to another, e.g. from a search to a purchase. Over time, as the app begins to understand the digital identity of the customer, it will predict a need well in advance and deliver when the customer is ready to act.
It’s a new way of doing business: stringing together products and services from a range of adjacent industries to own and monetize all facets of a consumer’s life. Banking is an ideal industry for this horizontal growth. We’re seeing market leaders like Alibaba and Tencent succeed with this approach and other companies are following suit.
The global tech giants—which also include Amazon, Google and Facebook—will play important roles in banking over the next few years. Millennials for example value the convenience of a connected ecosystem of services (such as what Alibaba provides today) over the inconvenience of dealing with a bank that only provides one kind of service. And while Amazon gets most often equated with disruption today, other tech giants will soon follow when privacy laws make it tough to monetize data and thus maintain their astronomical growth.
Tech trends, three forecasts
Three key business implications of digital technology trends in retail banking include:
- Intelligent digital voice platforms will disintermediate many interactions between customers and banks. As digital natives get comfortable using Siri (Apple), Cortana (Microsoft), Alexa (Amazon), and Google Assistant, this increases the risk of losing customers. I believe the following conversation is not far off from our soon-to-be reality: “Alexa, who has the best checking account? … Okay, that’s great. Can you set up an account for me with Amazon and transfer my funds and all my bill pay accounts?”
- Disruptor banks and fintechs will start to sell simple banking products and journeys. Think of this in terms of “being a student instead of a student loan” or “settling down with a family instead of home loan.” Coming to the fore will be extreme automation through technologies such AI; robotic process automation; cloud native architectures; and alternate sources of data such as social, blockchain, probabilistic programming and the like. These will dramatically lower costs and offer personalized service with higher value.
- Creative banks will differentiate themselves via seamless integration of their digital and physical presences. Today, that combination is known as “phygital” (pronounced FIDGE-it-al), and an excellent illustrative example of the integration of data and services in the phygital approach is the notification, upon starting the car engine, of how much time you’ll need to reach your destination. For example, one could seek a retirement planning expert online, share his/her situation with the expert, have a virtual reality conversation and pick up the talk at a physical branch if need be.
Travels in unravelling
The retail banking industry as we know it will unravel. But banks still have time to rethink their strategies for long-term success. Broadly, banks can adopt three strategies:
- They can remain niche providers of payments and banking services through a connected ecosystem provider.
- They can partner with like-minded companies and create a connected ecosystem of partners that operate in similar fashion to airline alliances.
- They can lead the creation of a connected ecosystem and act as kingmaker by identifying potential partners to join it.
If banks decide to go the ecosystem route, they can take interim steps to create a niche based on journeys such as buying a car or house, or getting a student or personal loan. From this, they can stitch together connected journeys—worthwhile journeys for banks to take as well on the path to success.
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