Digital Disruption in Banking

Customer service experience is highly prone to disruption today. Disruptive technologies today have taught banks to be on the lookout for new entrants that offer better substitutes to their products, capture new, low-end customers, and then gradually move upmarket to pick higher-end customers. It is time for banks to now act swiftly by embracing these new technologies, in order to retain customers.

The disruption does not necessarily come from competitors in the banking industry or even from companies with a remotely similar business model; nor through an established mature market and then follow a prudently planned march through larger customer segments. It is rather from third party partner applications that leverage information from banks to deliver innovative products and services such as Simple and the Open Bank project to name a few. Consumers in every segment deflected simultaneously—and in droves.

Several banks today have been able to retain their customers through traditional channels and digital service offerings, however the recent and rapid shifts in the industry and technology have been threatening the historically stable customer base.

Being merely transactional in nature will not help in arresting attrition as customers are expecting banks to be more proactive in recommending products and services that assist customers in meeting their financial needs.

Initiatives like Spend Analysis on a customer’s bank balance in real time is a very useful service, which customers would be even willing to pay a fee for budgetary advice. Today, third party APIs are creating stimulating features for the customers including setting of budgetary goals based on the spend patterns, creating a consolidated 360 degree view of the customers bank accounts in one place, timely alerts for payments, locating the nearest ATMs through GPS integration and even instant payments across social platforms.

Due to the growing vulnerability of traditional banking practices, there is a high possibility of new market entrants to steal the market share over time; as non-banks (third party APIs) replicate the universal banking model by innovating around their data and challenging the traditional integrated banking business models.

It is just a matter of time before we have a plethora of options such as “Digital only bank” or a “Branchless Digital Bank”, such as First Direct, Smile Bank in the UK, are branchless only banks. Other examples include: Tyme Capital (South Africa), Atom Bank (UK), mBanx Direct (Canada).

Some Fintech Startups that are changing the shape of the Banking industry (Source: Business Insider):

1)     CityFalcon: uses Twitter to give traders investment signals.

2)     LootBank-Student focused mobile money management with prepaid cards

3)     Coinjar- Australia's largest bitcoin wallet provider and exchange

4)     Bitreserve, uses the infrastructure of bitcoin to transfer money for free.

5)     Digital Shadows- cyber security threat intelligence startup that works with major banks.

6)     WorldRemit, international money transfer to mobiles.

Phy-gital- (the new buzzword today) as a paradigm is challenging the cascaded approach of traditional banking models in favor of building seamless multichannel experiences that help bridge the physical and digital realms. Phy-gital is all about amalgamating the physical and digital worlds in order to create an environment between the brand and consumer across the two worlds. Customers want a bank that is nimble and proactive and also one that can be part of their lives.

As customers continue exploring more and more of such disrupter apps and services, their expectations of banking will change rapidly. Customers demand powerful services today, delivered at the swipe of a smartphone screen, wherever and whenever they happen to be. As more of their financial services are delivered in this way, it will become easier for them to step away from the inertia of their traditional banking.

(Also see this blog on Linkedin)