Why Banking Needs Even More Disruption

Question MarksThere’s no question that in our business we’ve seen more than a few ‘disruptive’ technologies. You could even argue that the entire industry has become conditioned to the notion of disruption—every day, it seems, there’s a new startup, a new device, a new paradigm, and of course a flood of new apps, all designed to make life easier for professionals and consumers alike. All of these inventions have done their part to move the industry forward.

But what if the changes don’t go far enough?

What if many of the innovations don’t reinvent the industry as much as they refine existing capabilities? What if the new technologies we marvel at are time-savers (which is surely a good thing) more than game-changers?  What if basic functionality has gotten much easier but is still too hard?

There have surely been ground-breaking advances along the way. A number of online-only banks have sprung up to offer services that are both more varied and less costly than some of their traditional counterparts, ramping up competition in the process. A full roster of mobile applications from startups and multinationals alike has changed consumers’ core perceptions of day-to-day money management. Mint.com helped shift the landscape with technology that identifies and organizes transactions made in virtually any account, boosted by search algorithm that finds personalized savings opportunities.

Simple logo

BBVA recently announced a deal to acquire startup Simple. Image source: Gizmodo.com

The innovation isn’t letting up anytime soon, and the money is there to support it. Just last week, BBVA, a Spain-based multinational whose U.S. subsidiary Compass operates close to 700 branches, announced a deal to acquire Simple, a fledgling venture that has taken numerous apps to market. By itself, the deal is not exactly gigantic—the $117 million price tag is puny compared to, say, the $19 billion that Facebook is willing to shell out for What’sApp.  (Now there’s a deal that’s got many marketers scratching their heads.)  But the Simple acquisition is interesting for a number of reasons.

First, Simple is not a bank in any sense, in fact, it doesn’t even hold customer accounts. (That function is currently managed by Bancorp, though BBVA will eventually take it over.) More interestingly, perhaps, Simple is essentially built on the notion that traditional banks do things wrong. Its founders have been loudly critical of existing practices, which is why they don’t charge fees but instead create services around data-driven behavioral patterns.

The key belief here is that while banks are content to show consumers what they have left in their checking accounts, those same consumers must also do mental gymnastics to incorporate factors such as rent and groceries before deciding what they can actually spend. Simple’s services helps with that thinking, and will in turn propel changes in end-user behavior. Moving forward, these are the kinds of innovations that the market will demand.

Some industry professionals are making the case to go even further. Aman Narain, global head of digital banking at Standard Chartered, stresses that insight into current finances does not by itself enable action. So what actually might help?

Imagine a personal finance application that estimates a user is spending too much on cabs when it rains, automatically checks the weather, and makes a recommendation via the mobile device to carry an umbrella or raincoat. There are endless possibilities: It could match financial information with health concerns to guide decisions at a grocery store or a restaurant.

Yes, the Big Brother aspect to all this is obvious. It’s a little intimidating to think that the smartphone, in its own way the most personalized computer ever, could be so personal as to make the best decisions about what we spend money on, entirely based on our own best interests. Yet that’s exactly how the best technology works—it doesn’t make decisions for us, but it changes the way we make decisions. And those products have a much, much bigger and better memory than we do.

In our business, the core product is money—it’s personal, visceral and vital, and it helps enable the acquisition of every other product. That makes comparisons to advances in other industries seem like a stretch. Our industry has good reason to be proud of the innovations we’ve taken to market. We’ve come a long way. But we can, and must, go much further.

Digital disruption: Are banks ready for the upcoming challenges?

In all spheres of the banking industry, that one thing that is inherent in them all is the risk and coming challenges for banks – digital disruption. No matter on what topic of banking one discusses such as revamped branch banking or incorporating the voice of consumer and employee, in more ways than one he or she will actually refer to the digital disruption trend that is giving birth to many of those opportunities and challenges.

In all these years, it has already been witnessed, how digitally-driven industries can succumb to disruptions like television, newspapers and publishing. More, those same disruptions in some tangible ways have affected the financial industry as well – much earlier than anticipated. This has laid bare the fact that a lot of financial institutions are yet to prepare themselves for the scope and intensity of the impending disruptions.

As far as technology is concerned, organizations across the world have taken huge and applaudable steps. For instance, fast moving consumer goods (FMCG) companies have created Facebook pages, media houses have replaced their source of revenue from print to that of digital one. There is lot to learn for the banks and other financial institutions from these business practices.

Still, these accommodations to capture newer digital realities account for only a fraction of the shifting value. Its pretty difficult to coerce big business organizations to incorporate greater amount of digitization in the way they participate in their respective markets. This is all the more challenging since nobody can confirm from exactly where and when would the next disruption come.  

However, not acting in the living present and lying inert would do more harm than good. This is due to the fact that digital disruptions don’t just devastate evolving technologies, but also how people use various technological devices and platforms. Actually, technological advancements have not only revolutionized the content that are shared, but they’ve also actively started to shape up the manner in which people interact with one another across the continents.

Every little bit of data – like search queries, telephonic conversations, mails, etc – that are exchanged get stored by the help of various technology tools. These tools are such that they can produce as well as utilize information to enhance the different platforms/devices of data exchange. However, the risk of operational setback remains. This would particularly happen because of the large-scale proliferation of data, channels and tools that are active participants in building relationships.

A lot of commenter have notified about the exponential rate of adoption in terms of mobile connectivity. Still, they fall back in talking about the possible implications of such uncontrolled growth of mobile connectivity usage. Even though a part of the global population has been able to take advantage of seamless connections at time and places of their choice, and that many of them think that they’ve experienced disruptions caused by the proliferation of technology, yet in reality they haven’t, not even a bit of it.

Hence, enterprises will have to battle out two-pronged pressure – one from the consumers and the other from the technologists that would direct them to transform themselves. Due to this fact, enterprises will have to understand how they would innovate newer services, control complexity of their systems and risks, connect with their consumer and so on. All these business requirements will depend on how well an enterprise understands the new relationship created by digital disruptions.

Yet, the giant leap will center around general acknowledgement which the banks must respond to. Major changes are about to come, driven by the consumers who feel elated and consider themselves as empowered through new technologies. So, what do these changes imply – a transformative opportunity or an inherent threat? The answer to this question would depend on how efficiently an enterprise can come to terms with digital disruptions.

 

Stuart Parker is an contributory writer .He is also a financial advisor and guest author for acclaimed blogs. Stuart has been writing for more than five years and helping people to get wise with their money. His interests include attending financial seminars, writing columns related to debt settlement, Debt relief, Debt help and visiting personal finance blogs.

What We’re Reading: Retail Banking, Tech Disruptions and Vine

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

 

  • ‘Consumer Reports’ Offers Tips For Doing Taxes Online

All Things Considered

If you expect to have an adjusted gross income of $57,000 or less, the easiest thing to do is use the IRS website — it has a section called Free File. You can prepare and file your federal income taxes for free with one of 15 companies that have signed up with Free File. If you think you’re going to have an adjusted gross income that’s greater than that, you can use the search engine, type in “tax preparation,” and a number of names should come up. One that everybody might know is TurboTax.

Read more

  • Big Bank Breakups and Tech Disruptions: Predicting the Future of Reform

American Banker

Almost everyone in Washington finds some fault with Dodd-Frank. But rather than making smaller, incremental corrections in the short term, Congress could attempt a more comprehensive fix further down the road. To many, Dodd-Frank, which is meant to apply more regulatory pressure on the largest financial companies, tried correcting problems with Gramm-Leach-Bliley, which made it easier for multiline financial conglomerates to operate. Alternatively, the rush of technological change in financial services could serve as motivation to lawmakers to devise regulatory reforms that keep pace.

Read more

  • Social Media Newbie Regions Bank Aces Facebook, Considers Vine

Bank Investment Consultant

Looking further ahead, Liliana Grip, vice president of social media at Regions Bank has her eye on Vine, a Twitter-owned mobile service that lets users capture and share short looping videos. “We’re trying to figure out how to leverage Vine[…]One concern, and Twitter is addressing this, is there’s a lot of [content] that isn’t consistent with our brand. We need to get through some legal and compliance hurdles.”

Read more

  • Consumer Appetite for Comprehensive, Mobile PFM Grows

Bank Systems & Technology

Javelin estimates only 21 percent of U.S. consumers — or more than 49 million adults — mix and match current PFM features from software like Quicken, online banking, and various websites. However, many of those polled indicated that they wold like a way to view all their account balances in one place, with nearly half prioritizing this feature over all the other PFM services.

Read more

  • What Will Retail Banking Look Like in 2020?

Bank Systems & Technology

Opening a new bank branch used to be a matter of simply choosing a location and building out the structure according to a template design. But today, the definition of “bank branch” is being transformed by technology, competitive dynamics and economic pressures. As reported in Jones Lang LaSalle’s recently published Global Retail Banking 2020 study, up to 50 percent of branches in today’s U.S. bank networks may be declared obsolete — although not necessarily defunct — by 2020. Given that branches constitute 75 percent of a bank’s total retail distribution costs, according to research from Capgemini, implementing smart, technologically savvy retail strategies will be critical to driving shareholder value.

Read more

  • Threat of the Week: DDoS Becoming an Expensive Fact of Life

Credit Union Times

The ceasefire is over. Last week, on Feb. 25, the Cyber Fighters of Izz ad-Din al-Qassam renewed their Distributed Denial of Service attacks against U.S. financial institutions. That included again taking down the websites of two credit unions: the $1.5 billion University FCU in Austin, Texas, and Patelco, the $3.8 billion Pleasanton, Calif., institution. They issued the same demand – removal of an anti-Islam video from YouTube – and said their campaign against financial institutions would continue. What is new is that the conversation about how to respond to the industrial-grade DDoS unleashed by the Cyber Fighters is beginning to shift.

Read more

  • Consumers Want More Practical Online Tools, Portable Bank Account Numbers

Financial Brand

According to a study conducted by BT and YouGov, 61% of banking customers in the U.S. favor portable banking account numbers. When asked which three tools they would most like their bank to provide, customers indicated that they would like to see more sophisticated, more practical online tools — all hosted on the financial institution’s main website. The features most desired by consumers include peer review sections (32%), live chat functionality (23%) and compare-my-bank style services (29%). When asked about which three factors would be the most appealing when considering moving banks, the results were fairly consistent across all countries. Good online banking facilities (39%), the presence of a local branch (45%) and the ability to access banking services 24/7 (29%) were ranked highest.

Read more

  • Consumers remain resistant to digital banking aspirations

Finextra

A YouGov poll of consumer attitudes to the introduction of portable bank account numbers has unearthed an underlying distrust of social and mobile technologies and a clear preference for human-to-human interaction via the branch, the call centre and the Web. The BT-commissioned poll of 6500 adults from six countries worldwide, found that the majority of consumers in Spain (76%), Hong Kong (70%), France (64%), Germany (61%) and the UK (62%) all agree that a portable identity number – allowing them to switch banks without changing account details – would be useful.

Read more

  • Five High-Tech Trends Driving the Future of Banking

FOX Business

Here are some of the trends driving the future of banking. Customers will soon be gaining more mobile-banking payment and account options. “We’re going to see a lot more and different products, and a richer (banking) experience,” says Brett King, author of “Bank 3.0″ and “Branch Today, Gone Tomorrow. Banks already are rolling out banking software for iPads and tablets and thinking of new ways to structure bank accounts “that are more purpose-built,” with more options for tracking money and ways to make payments, King says.

Read more