The banking industry is very old and complex. An industry that was built for the world that we used to live in many years ago. Then, the bank was that safe place for people to keep their money and even to use it in order to do more money. I can still remember myself, somewhere back in the 80s, going with my mother to the branch waiting there for an hour just to check whether she got her salary on time.
Fast forward, now at 2017, things should be much different. Our world has changed dramatically and is still changing each day. The way that we do our day-to-day activity is much different. Think about the way we watch TV, how we order a cab, how we hear podcasts and more…
With drones, robots, chatbots, AI, machine learning, Autonomous cars and other new technologies and digital services, our behavior and expectations are not similar to anything we knew before.
So where does it put the banking industry?
Let’s face it, banks are not there yet. The banks are really trying to keep the pace but it is still not good enough. This blog post will try to explain what happened to the banks and to predict how the future of banking will look like.
The banks started too late
Banks are not technology companies. Their major human resources are in the domain of finance, accountant and sales. Technology employees in the bank are still the minority, although we can see a nice growth in those numbers in the past years.
However, when the banks realized the impact of the robust technology it was too late. They were not ready for that change from many perspectives:
HR, Organizational culture, Resources, Internal processes, Lack of knowledge and more.
And if that is not enough, the crowd opinion about the banks is not very popular, especially among millennials.
Banks and Fintech startups
Back at 2009 along with the subprime crisis, many financial startups arise out of nowhere. Those Fintech startups created for the first time an alternative for financial services that until that moment were given only by the banks. Services like loans, social lending platforms, new investments options, payments services, and so on.
The banks which recognized those young & small companies as a threat, tried to kill them, as you do with weak enemies. But soon they realized that there is an opportunity there and decided to cooperate with them.
Today we can see more and more banks integrating with Fintech startups or as the industry like to call it: “Fintegartion”.
However, to use those Fintech’s products, banks must make their data accessible for 3rd party players and to do so requires more development, which again takes time.
The biggest threat is coming from another direction
While the banks had tried to realize what their customers want and need, and what to do with those startups, a new threat has arisen and it was not a small one. The technology giants, usually called GAFA (Google, Apple, Facebook, Amazon), quietly, step by step build a financial platform providing banking services.
Amazon launched Amazon Cash which allows Amazon customers to deposit cash at retail stores and adding funds to their Amazon account.
Apple just presented last week its new Person to Person money transfer service as part of ApplePay, letting iOS users the option to transfer money by using Messages, the messaging app of iOS. And if it’s not enough they will issue digital debit cards for each Pay customer.
Google just declared on international payments option in its wallet -Android pay.
And Facebook allows payments to business and merchants using Messenger and WhatsApp. But also P2P group payments.
Those four are the biggest threat because they are huge, tech savvy companies and people just love and adore them.
A few years ago Bill Gates said that “Banking is necessary. Banks are not”. Today that sentence sounds very reasonable.
Nevertheless, it is not less important, those companies don’t have restrictions coming from the regulation as banks have, so for now they can basically do whatever they want in the financial arena.
But those four giants are not the only tech companies that threaten the banking industry. Let’s take the example of WeChat — the Chinese messaging app that offers the option to do money transfers within its app with WeChatPay. And its Chinese competitor AliBaba, those two together hold a share of $2.9 Trillion per year.
So how the banks can gain their place again?
First, the banks’ managements must understand the new financial ecosystem. And understand who are the new players and what their plans are.
This includes also to learn their customers and become really customer obsessed in every thing that they do and every decision they make.
Second, they have to find their competitive advantage and to use it properly. I’m talking about Data. The data that the banks collected for years on their customers, their preferences, their behavior, trends and more is the new crude oil. Banks must take this data and be proactive with its customers. It must help the customer to be financially smarter without dealing with it too much.
In addition, banks must understand that innovation is a full ecosystem that includes the organizational culture, HR issues, business processes and more.
So, they have to build this ecosystem to support the change that they are trying to achieve.
To summarize, there is no doubt that the banking industry is changing dramatically and in the near future we will see a new form of banking.
But banks can still take an important part at this game if they will choose the right nest steps and sooner the better.