Technology is about to transform the banking sector. A September 2013 Aite Group survey of business users showed that many of them already use alternatives to banks, for everything from electronic payments to cash flow forecasting.
Can you blame them? Do any customers love their bank? Have any of us who struggled with the impact of the 2008 crash forgiven the senior bankers who collected eye-watering bonuses? Well, it might be payback time. New technologies are preparing to take a big slice of the traditional banking business.
Bankers have been slow to recognize the technology threat, but it's becoming visible to some of them. Speaking at June's Future of Financial Services conference in London, Barclays chief executive Antony Jenkins warned: "We are on the leading edge of a technology revolution. You can't see it, but it's coming, it's coming hard, and it's coming fast." Here's the problem, though: The banks aren't on the edge of a threat — the threat is already here.
What's got the banks spooked is your smartphone. The 2 billion smartphones we use every day have already changed the industry: People use mobile banking services 24 times a month on average, while making a branch visit twice.
These are changes in customer preference that directly threaten old banking models. As consumers become more inclined to use banking alternatives, they become more willing to replace traditional bank-based financial products with offerings from others. Those non-traditional offerings are covering every offering of the existing bank industry: PayPal or Square, international cash exchange services such as TransferWise, crowdfunding, peer-to-peer lending and the imminent arrival at scale of mobile payment services from the likes of Apple, Google and Facebook. There are even crowdsourced services offering property loans. Banks are facing some bitter competition.
Jamie Dimon of JPMorgan Chase is certain that since his bank operates "one of the largest payments systems in the world," it is "going to have competition from Google and Facebook and somebody else."
These new operators, "want to eat our lunch," he warns.
Ian Narev of Commonwealth Bank last year warned that these new contenders, "can pick particular slivers [of the banking industry] as a result of the application of technology into financial services and compete."
Banks simply aren't agile, and there is a real danger that their anachronistic, silo-based management structures will hobble their efforts to become multichannel financial services entities. You see, numerous reports suggest that delivering an integrated all-channel approach demands that the companies that embrace it break down barriers between departments — barriers that have characterized most business efforts until now; success demands change and flexibility. You may know you are running different channels, but customers don't. This transformation will be especially difficult for banks, which are inherently slow to change, but can no longer avoid the need to do so.
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