The future of retail banking challenge
A new survey of retail banking competition from Peru Consulting is well worth a read. It is thought provoking and shows that in some cases, banking leaders are not as in touch with their customers as they think they are.
Traditional banks that have been operating for years are already being challenged by new more-agile FinTech entrants and in the near future, they could be challenged by established brands who aren't currently in the banking space.
Are new entrants more agile?
The Peru report likens the agility of a traditional bank to the turning capability of a supertanker, unable to perform agile manoeuvres, but why is this?
The term "legacy system" is often used as an impedance to change but this is not always the case as these systems are usually stable and functionally rich. The issue is really that the traditional banks offer a very broad range of products and services and to support these, many interconnected systems are needed. To make a change is therefore complex, slow and costly because of the impact to many systems and their interfaces.
New entrants tend to offer a narrower product range, so they are more agile and able to bring changes to market faster because they don't have the complex operational and systems infrastructure to change.
Banking CIOs have a big challenge - innovating whilst keeping the business running. The work to keep a bank running safely and efficiently is immense, however innovation and moving forward at a faster pace are vital if the banks are to retain their place in a marketplace that is increasing in competitiveness.
The GAFA gang threat
The Peru research looks at the threat of GAFA (Google, Amazon, Facebook, Apple), if they entered the retail banking market.
One of the most interesting results is from the question to customers "why would you change your banking service to GAFA?". 44% said they would move if offered better technology. The response to the same question from retail banking senior technology leaders was that just 5% of their customers would leave for technology reasons. This shows a clear disconnect between the leaders and their clients.
If for one moment you are thinking that no one would trust one of the GAFA gang with their banking, then consider that 43% of 25-34 year olds are planning to change their main banking provider in the next year and 20% of 18-34 year olds said they would definitely move their banking to GAFA if they entered the retail banking sector. If you are still not convinced, then consider...
- Amazon is renown for its excellent customer service, something many banks are criticised for.
- Google's Android and Apple's iOS power 99.6% of new smartphones, so they have a "foot in the door" to peoples lives already.
- Even though Facebook is the least trusted with personal data, it is seen as a friend by many, because the site simply connects them with their friends and shares positive messages. It wouldn't take a large percentage of their two billion user-base to make them a significant player; in fact, if just 1.2% of their user-base became banking customers, Facebook would match Barclays 24 million retail customers.
Is openness friend or foe?
The Competition and Markets Authority wants to make it easier for customers to switch between banking providers and the introduction of open APIs will help enable this. However, is this a friend or foe for the banks? On the one hand, it will make it easier to take-on migrating clients, but on the other it will make it easier for customers to move to one of the new players.
It's a very interesting time for the retail banks, with competition from directions they haven't experienced before. The challenge is on!