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Tony Virdi

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Embracing Disruption in the Banking World

Posted: 19/02/2013 14:14

Advances in technology improve lives, but can invariably also be disruptive. In the last decade alone, the means of communication has dramatically evolved with interaction increasingly taking place in social media networks, with ever-growing reliance on internet connectivity and mobile devices for access on the go - anywhere, anytime, in our always-available culture. While some embrace these changes, others class them as 'disruptive' to existing systems, our ways of working and habits. Nowhere else has this been more prominent until recently than in the communications industry; however, this disruption is increasingly encroaching upon the sector of banking and financial services.

While the banking and financial services sector - arguably affected more than any other by the global economic downturn - has seen some setbacks as amended regulations are enforced to avoid further fallout, technological advances have been made that are disrupting the status quo. And these advances are increasingly merging communications with payments, providing increased transparency and enhancing customer experience. From being able to pay bills online or on your mobile, communicating with your bank virtually instead of in the branch, transferring cash electronically via NFC (near field communications) technology with a mobile device or Square technology, more and more options are springing up by the day, shaking up the banking industry and requiring everyone in it to keep a close eye on how these will change their business model. Banks & financial institutions faced similar disruptions at the start of the millennium when the dotcom/Internet channel opened up and they had to rethink and reinvent their "bricks and mortar" operating models. The continuing technology advancements (and hence disruptions) thus present an opportunity for banks to continue to reinvent and rethink their business, where the customer continues to be the focal point of innovations.

Ultimately, banks need to ensure they retain the customer relationship - they will do so by providing trustworthy services with an optimal customer experience. Google is renowned for wanting to own customer data, which means there is already much debate over the role Google Wallet will play in the banking world. Banks should be wary of this if they want to keep their customers close to them, otherwise they risk losing their customers to new players. It isn't just Google they need to watch, however. There is talk of an 'Apple Bank' for instance, and even Vodafone considered setting up a retail bank at one point.

Change can be good and Cognizant considers itself among the companies which embrace disruption to transform businesses for the future. To be innovative and stay ahead of what the customer wants, a healthy dose of competition can be very useful in all industries. However, there is a risk that banks could become a 'commodity or utility' in the mobile payments industry as the communications and technology industry evolves and lures customers away from the traditional bank to embrace new payments methods, leaving the bank stagnant in its role as a repository for retail savings. And this is where banks can learn from the mobile operators who have been in this situation themselves.

In the same manner that mobile operators seek to guard their customer data and details from third parties who could potentially lure the customer away, banks do the same. This means they are often suspicious of new emerging players, such as Square or Google Wallet, and fail to work collaboratively towards a brave new world. The more banks guard their data (client confidentiality and legal requirements aside) and do not integrate their services with emerging players, as well as existing members of the chain, whether retailers, card merchants and even mobile operators, the more they risk becoming purely a facilitator for mobile payments - a delivery mechanism.

Banks are well-placed to assist with financial transactions, but what is really at stake is the customer mind share. What additional value will they bring to the table is an important question? Clearly, in the past, security and confidentiality have been important and have become even more critical. As the mobile device becomes ubiquitous in consumers' daily lives, it will reshape the payments landscape. Banks can remain relevant to the customer by creating end to end services that add value and help keep them ahead of the competition. They should also, for example, embrace social channels to meet the needs of the millennial customer, whether promoting new products on the social networks or utilising these channels to improve brand awareness, track product feedback and leverage new technology, such as analytics, to improve the prediction rates at contact centres. New technology can also be adopted to improve customer experience and streamline process lifecycle effectiveness as a result. One example of this is that car owners can use their mobile app to capture images of motoring incidents and then manage their claims process via workflow instead of the traditional paper and telephone-based channels.

There are many considerations banks need to have front of mind but there are three key ones in my opinion. These are: whether to invest in building capabilities to support a strong mobile strategy, creating an interface between their legacy banking systems and mobile operations, and which partnerships to form. The retail world has shown what the consequences of not adapting to disruptive influences can be, with its retail outlets likely to become obsolete without an internet or mobile channel strategy. And the latter may, over time, overtake the importance of the retail outlet. The final point is particularly valid, as these could determine whether they survive the onslaught from emerging non-traditional players or not.

Disruption can be beneficial, but only if traditional players in the value chain are willing to adapt and change the way they do things. Where banks have an advantage over other industry sectors is that customers want to trust them with their money. Anecdotal evidence shows that many customers used to stay with their bank for life but that, in line with the changing world, it has never been easier to switch. The account switching regulation in the UK, which comes into force this year, will play a big role here in potential disintermediation. If banks want to retain their customers, they need to remain relevant and offer services that foster loyalty, and this is where embracing disruption can come into its own.

 
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