Retail banking – ripe for disruption, but by whom?
As you can imagine, in an event taking place just days after the Brexit vote and in a room full of financial services professionals and technology leaders, the result was weighing heavily on people’s minds. And Jack’s views on the likely impact of the result provided much food for thought.
However, for me, the most interesting observations were around how the banking industry faces the threat of disruption from new entrants, particularly technology companies, and how established players might choose to respond.
Here are some of the key points that I noted.
New generation – new names?
The financial services sector is an established industry, filled with brands that have been around for decades and which are well known and trusted.
But while those firms are still very much the go-to brands for traditional banking and insurance consumers, it is not a given that the younger generation will feel the same.
“I’ve got two teen girls,” Simon said, “and I can tell you the names on those buildings at Canary Wharf mean absolutely nothing to them.
“If they could open a bank account with Snapchat, they would.”
So what if one or more of those tech giants – Snapchat, Google, Amazon et al – decide to up their presence in financial services, over the coming years?
It is an opportunity for such companies, but also a challenge. Yes, young people may be more tuned in than their parents to Silicon Valley tech brands, but those companies’ knowledge and experience doesn’t compare with established players when it comes to the complex financial services market.
For me, Simon’s observation highlighted the important of retaining and managing the customer relationship, in a world where many of us are customers of different – often competing – companies at the same time.
If competition does intensify, where will this happen? Simon thought it likely that new entrants will cherry-pick those sectors of the financial services industry where they can be successful while managing their exposure to risk. Payments is the obvious example – a sector where the banks can be bypassed by using technology, where transaction volumes are high and returns are good.
Payments also provide the opportunity to source, and process, large quantities of data. Simon highlighted how people – particularly the younger generations – are more open than ever when it comes to sharing data, provided they’re getting something of value in return. He argued that younger people put everything on social media and they’re nowhere near as protective of their personal data as their parents.
By harnessing their existing customer relationships and the customer data that these provide, banks have, in the coming years, a great opportunity to expand their offering and create new revenue streams.
For example, in Australia, banks already process anonymised customer payment data, to help their retail business clients address issues such as store location strategy, opening hours and staff rostering. Closer to home, payment products such as Square are using payment data to help businesses manage their inventory management.
Don’t be left with ‘the boring bits’
Simon highlighted that many of the new opportunities in financial services are firmly rooted in technology. This allows traditional barriers to entry, such as branch networks, to be overcome.
He thought that established banks should be worried that “All the good stuff will be skimmed off the top and all they’ll be left with are the boring bits…”, before going on to ponder whether they could end up like utilities companies – something people use because they have to, just a place to store your savings or through which to pay your bills?
I don’t think that large, successful businesses, like the banks, will stand by and let this happen. These are organisations that are run by smart, financially-literate and commercial people. More likely, banks will take their time to work out who are the true disrupters in the market, where these newcomers want to compete and where established players are vulnerable.
They’ll respond appropriately. In these sectors, expect competition to be fierce. But don’t expect the newcomers to have things all their own way.
It’s an exciting time for the sector, and no doubt we’ll see some significant disruption in the coming years.
The question is: who will come out on top?
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In addition to advising numerous UK and continental European financial services organizations, Anthony has also held senior line management positions, including as Director of Strategy for a FTSE-100 bank; Deputy Managing Director of a UK commercial bank; and Managing Director of a UK asset finance company. He has also worked in central government, advising Cabinet ministers of the development and passage of company legislation.
Anthony joined Fujitsu in February 2012.