Zaf Kazmi is the head of group mobile channel strategies at Erste Group Bank and co-chair (together with HSBC) of the Banking Disruption work group at Mobey Forum.
The last decade has seen most of us decisively change both our online behaviour and our consumption of digital services. When, for example, did you last open a laptop to find a restaurant menu or, even worse, boot up your desktop to check the weather forecast?
Thanks to the mobility revolution, we now expect more or less everything to be available, instantly and at the tips of our fingers, 24/7. We also expect ultra-convenience from our digital services. Regardless of whether they concern retail, media, social, educational or financial offerings, we expect these digital services to be tailored to us personally (one-size-fits-all offers are usually ignored) and, naturally, to be delivered at the lowest possible cost – ideally, for free.
This sea change in consumer behaviour has driven the growth in today’s chronically disruptive fintech market and has whipped tech-investors into a new frenzy of excitement. More than USD 25bn has been pumped into the global fintech sector in just the past two years. The financial services sector is awash with new players hailing from all manner of different industries and locked in fierce competition to answer the consumer’s call for ultra-convenience. There has rarely been such an exciting time to work in this sector.
We all know that at the moment it’s tough being a traditional bank. Fintechs are offering more choice and more flexibility in many financial services — all of which means that they are offering consumers more possibilities. Crucially, fintechs are also offering lower costs. It may not be going too far to say that many of them are also offering better services too; the ability of many fintech service providers to move money instantly (and internationally), for example, makes them more agile partners for the daily spender and more in tune with the immediacy of the digitized age than many of the traditional banks.
Perhaps banks are looking at this all wrong. Is all the disruption and innovation that fintechs are causing really such a bad thing? This is a question that Mobey Forum’s Banking Disruption work group has been asking itself a lot recently.
Sure, banks are used to enjoying the uncontested attention of their customers and have, historically, luxuriated in high levels of customer loyalty. Thankfully, most banks now recognise that this age is at an end and are busy reassessing their market positions accordingly.
But turning reassessment into response can be a difficult business. Cultural resistance aside (and there remains plenty of that!), the structure of many large banks prevents them from quickly turning new ideas, procedures and technologies into marketable services, not least because their operational agility is hampered both by their size and the inflexibility of their age-old legacy systems.
With all this in mind, we see three options for the banks in facing the disruption challenge. These can be summed up fairly simply: Copy, cooperate, or buy.
In many ways, banks should welcome the wave of innovation that fintech disruptors have brought. Most of these organisations are not banks themselves; indeed, many will be looking to establish sales into banks or have VC-driven exit strategies in which banks feature front and centre.
Traditional banks also still hold the trust of their customers, which is something that shouldn’t be underestimated. Some customer segments will be seduced away by the allure of the latest mobile services, but a huge number of customers simply won’t budge. Banks will also continue to play a vital back-end role in regulated transaction processing, regardless of whether fintechs are able to steal their front-end customer-driven business.
With all this in mind, why shouldn’t a bank reconceive the fintech market as one big R&D and innovation lab? One that has massive resources, is driven by market forces to develop competitive and marketable products, is technically unrestrained, and is aligned with today’s age of consumer mobility.
Thinking of the disruption challenge in this way, the next logical questions for a bank are: “how best can we engage ourselves? Which model suits us best?”
There is no simple answer to these questions: each bank must take a view based on a wide variety of factors, including its operational agility, its capacity for innovation, its cultural willingness to change, the competitiveness of its existing digital and mobile portfolio, and its customers’ appetites for new services.
Conditions also differ from market to market. Spanish consumers are more liberal and open to experimentation, Austrian and Swiss consumers tend to be more conservative and risk averse.
What is clear is that change is upon us. Banks that accept the new ‘way of the world’ and adjust their market perceptions will surely capitalise on its potential. Being disrupted is never a comfortable experience, but those banks that can see the potential of positive engagement with their disruptors and have the drive make it work in their favour stand to establish huge competitive advantages.
In the end, it’s all a matter of perspective.