The banking industry is frantically pursuing digital transformation amid warnings that new fintech offerings will cause their extinction. As the industry goes digital, we need to separate hype from reality. Despite disruption in the space, the banking industry will continue to exist, as it always has during periods of enormous change. Banks have and will continue to provide the necessary infrastructure that in many ways enables the change we’re seeing. The bigger question is: what will banking look like in the future and how will client interactions evolve as a result of the current digital evolution?
This is not the first time the banking industry has been declared an endangered species. With the rise of the Internet and, with it, internet banking, many claimed that the need for traditional banks was diminishing. Likewise, as mobile phones became the preferred method of payments and deposits, banks seemed to be an artifact from the past – but yet banks remain. Even with new players in the field and new products and services to compete against, banks are a necessity. Products like Facebook Payments, ApplePay or Venmo still rely on the infrastructure banks provide. Instead of fearing extinction, banks need to focus on how they can adapt to this new environment.
As a result of digital disruption, banking institutions are honing in on how they can transform payments, mobile banking and client interaction. By 2020, more than 80 percent of mobile devices sold will be smartphones. As customers handle more and more of their banking through their mobile devices, banks must react to the shifting climate. It is not a question of banks disappearing, but rather how they will stay relevant in this changing landscape.
The results of an A.T. Kearney survey of leading retail banks around the world showed that a focus of these institutions is on increasing value-added services and the simplification of core products.
The major challenge for banks is client interaction as channels such as social media and mobile proliferate. With mobile banking’s growing popularity, the relationship between banks and their customers has changed. Although physical interactions between customers and banks are still popular in certain aspects of banking, more and more people are moving to these digital channels. Instead of just a few per year, customers are now having many interactions per month with their banks. However, this is primarily the case for existing customers. Onboarding new customers still requires manual processes that have not yet been digitized. Issues like regulatory requirements and identity verification are still chiefly handled within branches. As these processes inevitably move to digital, there is an opportunity for banks to be industry leaders in the transition. Rather than being digital followers, banks can be digital leaders and set the standard.
In order to digitally transform, banks must create an organizational model that can support the new relationships between customers and banks. I am excited to partake in the conversations taking place at the Oxford Polaris Digital Academy to discuss implementation strategies. Industry peers and academic thought leaders will be able to use their varied insights to address how banks can align their priorities and find the approach that works best for them.
As banks have survived industry disruptions in the past, they will survive the current technology-fueled disruption. They need to understand what these disruptors in the market are doing and use those insights to evolve and find new opportunities in the marketplace. Banks must be able to foresee a new world and envision their role in it. The startups of today will not replace banks – they will motivate the banks to reach the next stage of evolution faster.
About the Author
Stefan Marcu is a principal in A.T. Kearney’s Financial Institutions practice and managing director of the Bucharest office. He has worked extensively in Europe consulting on post-merger integrations; corporate restructuring and re-engineering; organisational design and implementation; and cost-reduction programmes. He has contributed to publishing a series of studies on the topic of digital banking and has collaborated with Efma on various workshops and conferences. He is the author of “Banking in a Digital World” and “ Going Digital: The Banking Transformation Roadmap”. Stefan will be a featured speaker at the Oxford Polaris Digital Academy, being held in Oxford, UK.