The banking sector has always been competitive, but recent advances in technology makes today’s market more competitive than ever. Not only do banks need to ensure they keep pace with rival banks, but they must now face up to the threat of new disruptive entrants to the sector that compete through agile and innovative digital services. This new category of market entrant includes fintech startups, high-tech giants and even telecoms providers. These businesses offer customers completely new services based on digital business models that are changing the game for retail banks.
A great example of this new type of business is Kabbage. This startup can approve small business loans to customers some 5,000 times faster than a traditional bank, and all over an intuitive online service. Similarly, small business owners might now be tempted to get their companies off the ground through crowd-funding, a method which has the added attraction of helping them build their own customer bases. It’s easy to see why these alternatives might be more appealing than traditional bank loans.
We’re witnessing the banking industry’s “Uber moment,” and incumbents must look to adapt if they’re to survive. This involves modernising the core banking system and dialing up innovation to win the hearts and minds of customers.
To my mind there are four main ways in which digital can help banks close the gap on the disruptors:
- Extend the value chain to encompass non-financial services. By going beyond banking, banks can establish themselves as ‘life companions’ to their customers and an integral part of their daily lives;
- Create their own e-commerce marketplaces; connecting commercial and retail customers with special offers, handling payments, and offering value-add services such as financing and insurance;
- Reach new customer segments (for example, offering basic digital banking services to the world’s unbanked and underbanked populations);
- Leverage economies of scale to deliver ‘Banking as a Service’ to banks and companies in various verticals and sectors.
The key to success in all these categories is the ability of banks to reimagine their business models and business processes. Whether the business goal is to refocus on core markets, build market share for given products, or simply to deliver innovative services, banks need to think differently.
Take mortgages as a case in point. Rather than simply offering a mortgage as a discreet product, banks could and should think bigger—instead offering a complete end-to-end service for home ownership. Such a service would take the customer from researching properties through the loan application process, including exchange and completion, and right on through to moving-in day.
This is what I mean by digital allowing banks to become “life companions:” through these services the bank can be present in every step of the customer journey, offering assistance and generating value for their ecosystem of customers and suppliers at the same time.
The technology exists today to support this new business model – from Big Data analytics that predict customer needs and cloud technologies that can connect customers with the entire supply chain (including lawyers, estate agents, removal companies, etc.) to automation tools that streamline the whole processes. Brought together these technologies create an end-to-end digital architecture than enable banks to drive growth, corner new markets, and innovate.
Digital disruption is happening and banks must ensure they have the right business processes and core banking systems in place to help them adapt to this new normal. Those that do will find they can not only survive but thrive, with innovative and compelling customer services based on agile innovation.