As many other markets, banking and retail banking in particular is being challenged by disruptive newcomers developing competing services on mobile, for instance, or via the Internet in general. As many other markets, the trends in opinions and visions tend to be two-folded. The first is the voice of the legacy, who claims the customer loyalty to banks expertise, security, financial assets and scalable market impact, new services from their brand onto new platforms and devices. The second is the voice of change, claiming disruptive cost and time saving ideas, reaching to niche growing markets, creating new usage. While these two voices compete and cooperate to create a new ecosystem for banking services, players are being asked to take a stance. WAI has investigated who intends to do what in the banking2.0 area, right at the interlock of change and legacy.
The rise of mobile payments
From a statistical point of view, change is undeniable. As Rebecca Merrett from CIO explains, “Worldwide mobile payments are projected to grow by 60.8 per cent to 47 billion transactions through to 2015, up from 29.2 billion in 2013, according to Capgemini’s World Payments Report 2014”, with a clear call for banks to change their business model to adapt. Because the growth is rapid and uncertainties remain around business models despite actions taken even on regulatory side, the disruption is such that even Capgemini admits “analysts may over- or under-estimate transaction volumes”. Darel Rigby from HBR argues that retail banking remains a key asset for banks, “The conclusion? Physical banking is evolving rapidly but not disappearing. Branches may be fewer in number, but they will be more useful and efficient, and banks without branches are likely to find themselves at a competitive disadvantage.” In Australia, the situation seems to look different as Rebecca Merrett explains in another article for CIO: “During 2012-13, bank, credit union and building society branches dropped by 130, which means there is one branch for every 3,558 Australians. IBISWorld expects this decline to continue to one branch for every 3,847 Australians by 2019-20.” As Rohan Pierce from ComputerWorld reminds, in Australia “”Consumers are ‘going mobile’ and they are clearly showing their preference for the convenience and simplicity of transacting on mobile anywhere, anytime and on any device. We expect this trend will only continue,” yet the survey found out most mobile banking users would trust services from banks (44%), compared to 14% for technology providers and 10% for retailers.
Kings and Challengers
As Chris O’Brien from VentureBeat explains, “As mobile payments gain in popularity, Europe remains the leading region for adopting such transactions, according to a new study released today”. According to the report, released this month by Adyen, an Amsterdam based payment technology company, mobile devices account for 23.3% of all mobile payments on the last period before Apple Pay launch. Europe represents 24% of all mobile payments. On his side, Joe Curtis reminds that both in Europe and in the US “A total 35% of banks find it difficult to manage data requirements and aggregate data, found a SAS-sponsored study of more than 100 senior banking officials”. Further in the article, he explains how despite adding new resources, banks struggle to develop the right skills for stress testing framework. The gap also shows in the fact that 41% of European and US companies consider analytics as a compliance tool with 44% of them not involving top management in decisions. The impact on innovation is significant. The gap with challengers is looming even closer. And here they are. As David Bannister puts it in his article for Banking Technology, “China could become the largest market for non-cash transactions within just five years. Soaring growth rates in non-cash payments in key markets are putting pressure on global payment services providers to innovate to meet rapidly increasing consumer demand. Overall, WPR found that more than 50 per cent of global non-cash payment growth came from developing countries despite them making up only 25.5 per cent of the market size at 93 billion transactions.” As the writer explains further in the article, “This trend is adding to the pressure on providers to modernise their payments processing infrastructures to support the wide range of customer-facing innovations.” Jonathan Camhi from Bank Systems & Technology agrees, “P2P mobile payments in emerging markets and consumer-to-business payments in developed are the biggest factors driving that growth, the report said. “Individuals’ lives are being disrupted by technological innovation in mobile, social media, the cloud, etc. Payments need to be embedded into the lives of digital consumers conveniently, and mobile offers a way to do that. Everyone now has a mobile device in their hands“.
What to do? Of course, many players have already started change. And they are right. As Jim Marous from The Financial Brand mentions, “To assist the digital consumer along the purchase journey, most financial institutions need a much better 360-degree view of their customers and members”. He argues that many companies lack systems and infrastructure that enable them to focus on consumers in the new purchasing journey. They therefore lack the understanding of the value they can bring to their customers, hence a need to deploy CRM and analytics tools to turn data into business opportunities. As the author concludes, “The key is to harness as much data as is needed, conduct appropriate analysis on the data, and apply learnings in the marketplace as quickly as possible. As opposed to extensive data reports, the key to success will be quick applications of data in marketing initiatives across multiple channels during the consumer purchase journey.” Robert McGarvey from Credit Union Times explains for his part how “Mobile payments need three to agree to play: financial services companies, consumers and merchants. So far, merchants have dragged their feet because accepting mobile payments involves costly terminal upgrades, some experts have suggested. Since consumers have not been banging on cash registers demanding merchants accept mobile payments, many retailers have simply deferred decision making.” Further in his analysis, a credit union professional reminds ““Nobody is leading the mobile point of sale pack,” said Jean Maisonneuve, e-commerce vice president at the $2.2 billion Affinity Federal Credit Union in Basking Ridge, N.J., But, he added, “you cannot sit on the sidelines and wait for something to happen.” James Eyers points at the technological change that occurs in mobile payment market and states that “These seismic shifts being brought about by technology are forcing all banks to elevate payments issues to board level and transform information technology systems in order to maintain customers, who are increasingly expecting slicker experiences in the digital domain”. He explains how customer is now driving innovation and the “need for transformation at the back end”. JP Nichols argues “No one will cite “lack of innovation” or “lack of technology” as a reason for selling their bank, but as they fail to meet consumers’ (and businesses’) rising expectations, their stagnant growth will lead to more sales to more capable hands.” As much as he is convinced banks will adapt to the new payment era, he believes many have already taken the right direction, those seeking to “instigate change in financial services tend to know one another, and it’s a group I always enjoy being around”.
Banks: “a new definition”
It is indeed a good time to investigate change for financial services and retail banking. Kristin R Moyer from Gartner explains how “Digital firms that have become involved in banking are innovating at a rapid pace. This pressure provides banking CIOs to acquire talent from nonbanks and gain approval for more aggressive architecture, core banking, branch and other transformations.” Ariel Bogle analyses the impact of this disruption in the purchase habits of consumers, and quotes Eric Johnson, professor of business at Columbia University “The more you disconnect spending from physical spending, also known as ‘decoupling,’ the more you’re likely to spend”. With the propagating spending new habits, will also come strategic disruption replication on other markets, affecting actors in a similar fast changing competitive landscape. Sam Stewart from Blue Notes ANZ mentions the insurance market, and concludes “While the technology-led revolution insurance is just beginning, experience in other industries shows it can be difficult to predict the pace of change in the business landscape. Insurers also need to be mindful that there is a finite number of relevant potential partners for the new ecosystems that will shape the future of their industry.” A very nice advice banks have already started to follow.