It’s a common narrative in some circles: established banks are dinosaurs about to be disrupted. This story seems intuitive because it echoes the disruption we’ve seen in other industries, from the way that new players moved shopping online in the 1990s, to the way the music and video industries were disrupted by streaming.
The implication is often that incumbent banks are being caught by surprise by the changing environment and the foray of fintech startups, new virtual banks, or tech giants from the US or mainland China into financial services.
We have a more optimistic outlook.
True, the financial sector is evolving rapidly, being reshaped by the potential offered by emerging technologies. But the banks-as-dinosaurs argument rests on the assumption that firms in financial services have ignored technology’s potential to enhance the way customers are served with cheaper, faster and more convenient services – or the need to build agile, digital working cultures.
The data tells a different story: Retail banks around the world are expected to invest some US$13 billion in digital banking this year alone. Banks have been making significant investments in digital and technology for many years, and this will continue.
The organizations that succeed in the new world of digital banking will be those that pass three criteria: their ability to provide customers with the service they want on the channel where they want to be served; how trusted they are as partners and as custodians of customers’ assets and data; and their ability to negotiate the increasingly complex matrix of global regulatory requirements.
We welcome competition, and new digital players will help spur innovation across the industry as a whole – the industry and our customers benefit as a result. But new digital players will face challenges against these criteria just like established players. Managing highly complex regulation in a rapidly changing, multi-faceted environment, for example, is an area where established banks are at an advantage.
Similarly, the importance of customer trust cannot be overstated. Banks need to be trusted partners because of their role in looking after customers’ financial wellbeing. A survey by Boston Consulting Group and Capgemini underlines the challenge. The survey asked respondents what kind of company they trusted most to manage their data: more than 80 percent said banks; less than 5 percent said consumer tech. New players must work out how they connect with customers to build customer trust over the long term.
Banks are in the frontline in the fight against money laundering and terrorist financing. Banking regulation needs to be extremely rigorous to ensure that weakness is not introduced into the overall economy to protect consumers. Banks have deep responsibility for people’s financial wellbeing. As fintech companies join the industry, they will have to sign up to the same regulatory and compliance frameworks – and bear the same costs – this stewardship requires.
Banks are also showing themselves capable of using technology to enhance the way they serve customers, by integrating digital capabilities efficiencies into all channels: branches are becoming more efficient, relationship managers are equipped with digital tools, contacts centers are increasingly using AI and chatbots to quickly and effectively meet customers’ needs 24 hours a day, seven days a week. If there is a gap between what established banks and tech players can deliver, the established banks are rapidly closing it.
But in the long term, technology is only going to be part of what good banking service looks like to customers. While many day-to-day activities – such as payments, lending and account opening – will be efficiently managed through digital platforms, truly understanding individual customers’ needs, helping support them as they manage their wealth, take out a mortgage or buy protection for the future, remains a distant goal for technology.
Customers want to talk to someone they can trust, particularly when it comes to bigger life decisions or complex situations that need empathy. It is too easy to paint a vision of a future where people are completely and easily removed from the banking equation.
A recent report by Bain & Co on the future of banking paints a picture of “hyper-personalisation” of services delivered by a combination of advanced technology and branch networks staffed by re-skilled and highly motivated employees. A recent J.D. Power survey further supported this blended approach, as they found that communication is where relationships fall short with digital-only customers, and customers who use branch and digital have the highest level of overall satisfaction. We agree: The banking experience of the future will be multi-channel; part people, part digital.
The leading established banks are already digital, but this is not a reason for complacency. No one in the industry doubts that there is still substantial room to grow. This is one reason why we welcome new entrants into the market. Yes, there will be competition, but there will also be partnerships between banks and fintechs that will help the banking ecosystem evolve and us serve customers in new and as yet unimagined ways.
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