Goldman Sachs recently forecasts that $4.7 trillion traditional financial services revenue could be at risk from disruption. As new entrants, supported by a $12 billion investment in Fintech, disrupt existing business models, using new technology fuelled strategies, I thought we could reflect on what counter strategies banks might adopt that could help and not hinder.
This blog builds on my previous one, “Global Bank Disruption and Potential Counter Strategies” where I share highlights from my interview with Penny Hembrow of CGI.
In what is arguably the greatest period of disruption in the history of money, I set out to understand possible counter-strategies being considered by global banks, through interviews with leading experts and study of recent bank roadmaps and publications from European institutions and bank associations.
Weighty customer and client expectations
In retail banking recent surveys indicate an overwhelming change in customer expectations, as they seek to maximise convenience and satisfaction in the rapidly changing digital economy. Similarly large corporate client expectations have also changed.
This is creating significant disruption in both consumer and corporate financial services, driving banks to seriously set out strategies for transformation, modernization and innovation, in order to avoid being commoditised as new entrants carve away valuable chunks of what would traditionally be bank business.
So what are the global banks doing about this?
Could there be a one-size-fits-all solution?
Transaction banking in particular has important relevance for global banks as it helps lower the cost of capital, leverage client base and improve return on equity. Now increased competition and a change in corporate expectations creates an imperative for innovation in services to make them faster, cheaper, more convenient and of course, ubiquitous.
As transaction banking gets further impacted, it seems to me that a "one size fits all" approach may not work. I understand from what experts tell me, and my own work in this area that transaction banking does not enjoy as high levels of standardization as other areas of banking do.
Now new trends in real-time payments and increased interest in new technologies such as blockchain are also adding to the roadmap of global banks such as RBS, BBVA and others, to simultaneously meet new needs from consumers and corporates.
A host of competitors, way beyond traditional
Global banks are no longer simply competing with each other.
In each part of their business, they face new entrants, relatively unencumbered and with much less to lose - freeing them to make choices that may not be open to the banks.
For instance in the foreign exchange business, new international payments providers are employing increasingly sophisticated strategies. Increased need for low-cost cross border payments is driving new types of solutions in each part of the world, but achieving ubiquity had so far proved elusive.
At the same time that consumers and small businesses are turning to P2P lenders and crowd funding marketplaces, corporates are looking at what could save costs to cope with additional pressure on their own business models.
Now as real-time payment systems gain adoption, this is for the first time solving first mile and last mile issues across emerging and developed markets in a way that gives serious pause for thought.
If disruption is the problem, can blockchain be the solution?
With respect to payments, bank roadmaps indicate that Ripple and blockchain are under investigation with a range of leading global financial services organisations who hope these could be significant game changers.
Just as consumer expectations have changed, corporate business is also vulnerable to various peer-to-peer solutions.
However if banks are to implement blockchain, they must find a way to do so that maintains transaction privacy and meets a host of transactional requirements, but more importantly manages onerous responsibilities to do with money-laundering.
Imperative for banks to validly reposition on trust
Recent publications from European banking associations suggest that banks carve out a niche for themselves by offering identity related services that percolate through all layers of the service architecture, while allowing new OTT entrants to play only on the surface layers.
Banks arguably have a good understanding of our true identities. Experts I discussed this issue with felt that banks have an opportunity to better reposition themselves by treating KYC as a strategic opportunity rather than a regulatory burden, and finding ways for consumers to protect themselves against cyber security and identity loss, or better manage their finances.
If banks are to better utilise customer data, they must first of all restructure their data to transcend current silos. As hard as it may seem for them to free the data from silo representations, what may be harder still is not angering clients and consumers in the way they use data they possess.
Outlook for 2015-2016
Too much seems to have already been said about bank disruption. The task at hand now is positive action, making lean budgets stretch across legacy maintenance and innovative projects.
My research indicates that banking disruption right now is distinctly different, regionally and based on the nature of banks as well as other criteria. So for instance, it could be dangerous to make presumptions about Asian banking based on what we see in Europe/US. Banks in Singapore seem to have embraced FinTech phenomenon, with banks and tech companies collaborating to find was to reduce cost and use technology as an enabler. Could FinTech be the platform that helps Asian banks find top spots in the banking scene?
According to a recent statement from CEO Piyush Gupta, DBS is spending billions of dollars digitising the bank, with less than 10% in frontend apps. In the same article Anju Patwardhan of Standard Chartered makes a good point on how banks can leverage regional trends, and developments across ASEAN and Asia.
In my view, using disruptive change as a lever for growth will need the very best management skills, within both banks and regulators in order to achieve balance under highly sensitive circumstances, and ensure actions taken continue to rebuild and safeguard client and consumer trust along the way.