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Sorry Ketharaman I am not defending Bank Branches and I am very much an advocate of digital channels!

I was pointing out that digital innovation is not necessarily cheap and may not immediately have an impact on profits.

But the danger for banks that do not move to digital channels is that their competitors will have dramatically lower costs per transaction which will potentially lead to mass extintion of banks that do not move over.

Hence the comparisons with UBER and the taxi industry where slow moving incumbents are under pressure from a fast moving digital innovator that is bypassing the friction from regulators. 

Santander spend just over 2.5 billion EUR on their IT infrastucture and they have just made a profit of 5.8 billion EUR, how does that compare with other large multinational banks such as HSBC?

I don't think transitioning from bricks and mortar to digital is cheap, quite the contrary as investing in getting the right people and the right ideas is expensive, look at BBVA talking about investing in artificial intelligence and spending billions of euros on digital transformation alone, and saying:

The effort has yet to reap any visible swing in revenues, but Gonzalez is banking on a collapse in costs as BBVA moves more customers to online and smartphone banking, noting a 104% growth rate in mobile banking customers over the past year.

On that basis the question is whether Santander is spending enough on technology?

While Metro are opening more branches (sorry, stores) in the UK, they also claim to be a digital disruptor themselves with no legacy core banking systems weighing them down and they are open 7 days a week until 8pm every weekday evening (and their former chairman is now at digital-only competitor Atom).

I like the comparison with Uber who have been successful in challenging the incumbents and the regulators who in many cases have a cosy relationship and no particular interest in reducing costs.

More confirmation if any were needed of the challenges and disruptions that are facing the worlds banks, and also interesting following on from Ana Botin's comments regarding Santander's strategy regarding competition from the likes of Apple and Google.

No one can know what will happen in the future but the evidence of coming changes is stacking up and I wonder which one of BBVA or Santander will best weather the coming storm?

Yes totally agree with what Gilles is saying above, the potential of the Blockchain as a transaction and payments engine is huge. Unfortunately this has been clouded by the volatility and problems with Bitcoin exchanges such as Mt Gox.

The post on Ripple made here on Finextra by Andrew Owens is an example of the potential (see Did we solve a payments problem that no longer exists?) that the Blockchain or similar mechanism have for revolutionising payments and as Gilles says it is something both Fintech vendors and banks need to get to grips with sooner rather than later.

Thanks for an interesting post and as always a good read. Andrew Owens posted an article on the Ripple protocol which aims to disrupt payments that is making a similar point, that reducing the friction and costs involved in payments could produce a vastly better customer experience.

If Bitcoin slides into oblivion and Ripple follows them down the plughole it won't make much difference because the next startup one or the one after will eventually succeed...

As you say Barry the financial industry may be slow/reluctant to adopt this for security and profitability reasons. But what happens if leaner faster moving startups do take this up and provide services that the general public find attractive, would they bypass the banks and even the regulators but at a larger scale?

It is tempting, what with bitcoin not exactly taking the world by storm, to think the current status quo will last for a while. But past experience tells us this is how internet disruptions happen, some false starts and maybe the odd failure before suddenly the true online alternative emerges and becomes the established player while others are left scratching their heads and wondering what hit them.

@s.ketharaman -

I don't think it is the credit rating that is the issue for non-customers as banks will use credit reference agencies to check the rating before they make an offer. But that is true in India as well, pretty sure CIBIL provides an online web service for banks to run credit checks.

A lot of banks will only lend to existing customers, Barclays and HSBC will only lend if you have an existing account with them, i.e. credit card, mortgage, savings.  Lloyds Bank will only lend to customers who have held a current account for over three months. They will disburse the funds straight away if the application is approved.

I think the issue is more about identity and fraud prevention, banks will give an instant online decision to non-customers but will only disburse the funds to an account with another bank once signed paperwork has been received.

For non-customers they have managed to address realtime credit checks, the KYC issue requires a signature on the printed out loan forms that are sent by post. No visit to a branch is required.

There are banks here in the UK where the Loan Origination process is completely online, at least for existing customers (no KYC required) who have a good credit rating.

Apply online and they will disburse the loan amount to your account within a few minutes. This does vary country to country and region to region but it shows what can be achieved within a given regulatory and technical mix.

Thanks for an interesting post Shital. I wonder how long customer acquisition and sales will be continue through branches, you can open accounts online, and most banks will open loan and deposit accounts online, even mortgage/home loan accounts. But even online there has to be the human touch as you say to reply to queries and provide expert help.