Forget the hype: Bank customers unimpressed by 'disruptive tech'

Not surprising! 

Banks Have Nothing To Fear From Neobanks

Will Millennials Bankrupt Neobanks?

I read another story that polled customers about moving and switching banks. The conclusion was the up to 20+% could or might switch. There was much headline shouting about his, but they also concluded that only 10% might really switch. But, even that number was worth billions in deposits and loand and lost millions in profits.

Another study shows that Millenials are not THAT different from the rest of us, except for the use of technology to get and share information.  The "word of mouth" factor is still there but different. We used to say, do something good for a customer and they will tell a couple of people, but service them poorly and they will tell 8 to 10 people. NOW, it is told to hundreds of Facebook connects all at once. That is what is different.

Millenials have iPads and iPhones, those in their 50's have money, shares, a wealth of experience in life and work. How many of these so called millenials will work for the same comapny for more than two years? They leave and join the next merry-go-round before they get found out. Some people in banking joined up for life and worked hard in the 70's 80's and even 90's to make a difference long before it was trending to use the term FinTech.

Will someone please explain what having a beard and being based in an incubator has to do with making money and delighting customers? This is a trend phase. Once the hackathons and free pizzas have gone, what are you left with? A load of post-its with lots of 'new' ideas which were called strategyand must do's 20 years ago.

And truly disruptive still really comes from a 20 mile radius of UC Berkeley. not some two bit colleage, sorry poly, sorry university in Southampton or Ireland.

Get real folks - when the chips are down it's the experienced folks who will drive change not those who have yet to live through anything than a blip in the global economy.

Remember the customer surveys about take-up of mobile phones? Or if shoppers want to buy clothes online?

Innovation is always overestimated in speed and underestimated in impact.

If nothing else threatens the banks it's their own complacency.

Would the ACI worldwide who sponsored this research by any chance be related to the company that @serves 500 large financial institutions"? Talk about self-serving cack. This is like the cigarettes companies sponsoring research that found out that fags were healthy or oil companies finding that global warming was not caused by fossil fuels. Just because you associate with YouGov does not mean for one minute you can't slant the questionnaire/sampling and selectively report the results. Shame on Finextra for giving this tosh credence.

'A staggering £2.5bn was spent on contactless cards in the first half of 2015'. That is a staggering figure. Staggeringly low when you consider we spent £574bn on cards in 2014 and over £11bn online using cards in September 2015 alone. We shouldn't be surprised at the slow growth of new forms of payment - our payment landscape is one of the most advanced in the world. We have so many options for paying already that the real changes are incremental - such as the drip drip of payments going via PayPal and in-app payment such as Amazon Payments. Yes, a lot of these payments are still facilitated by a card but the issuing bank is fast becoming the dumb pipe with the slick interface the real payment brand - witness the amusing way in which most banks have reinforced this with their Apple Pay advertising...

Between my family and company, I have over 10 mobile phone connections across 3 TELCOs, say A, B and C. Lately, I rarely visit their stores to pay bills - HDFC Bank's PayZapp Ends My Bill Payment Woes - but when I do visit them, I see customers of TELCO B and C wanting to switch to TELCO A, customers of TELCO A and C wanting to switch to TELCO B, and so on (Under Mobile Number Portability procedure, physical visit to the destination TELCO is mandatory). 

The point of this story is this: If bank account portability were implemented, I predict the same consumer behavior.

Ergo, even if the worst case predictions of bank switching figures come true, (1) How will it affect revenues and profits of banks? (2) Why will banks shed complacency? It won't and they won't - as a customer, whether I like it or not, that's the sad reality.

'Will someone please explain what having a beard and being based in an incubator has to do with making money and delighting customers? This is a trend phase. Once the hackathons and free pizzas have gone, what are you left with? A load of post-its with lots of 'new' ideas which were called strategyand must do's 20 years ago.'

'And truly disruptive still really comes from a 20 mile radius of UC Berkeley. not some two bit colleage, sorry poly, sorry university in Southampton or Ireland.'

'Get real folks - when the chips are down it's the experienced folks who will drive change not those who have yet to live through anything than a blip in the global economy.' (A Finextra Member)

Well, well, well, well, well! Oposing someone else's view doesn't come as easy as this example every day.

Steve Jobs of Apple, Mark Zuckerberg of Facebook, and Bill Gates of Microsoft. Both Gates and Zuckerberg dropped out of Harvard Univeristy and Jobs dropped out of Reed College and never made it to any university.

Can anyone tell me to my face that these three men have had zero impact on our world and zero impact on the future of our world? And there are many more people that I have not mentioned who dropped out of higher education that have gone on to be iconic leaders in business and technology. 

Larry Ellison dropped out of the University of Illinois & the University of Chicago. Ellison was the founder of 'Software Development Laboratories', which eventually evolved into 'Oracle Corporation' today.

Richard Branson had dyslexia throughout his school years and dropped out of school at the age of 16 to start a magazine called 'Student'. He then founded a mail-order record company to help fund his magazine, which he named 'Virgin'. The rest, as they say is history.

It is no wonder that 'A Finextra Member' wants to remain anonymous with such poorly thought-out views such as this.

I feel the fear of the banks in this article to be honest.  Other market researches show different results. It would be interesting to know more about the survey. How many people have been surveyed? did they apply spicific criteria to stratify the sample? It seems an article to discourage the innovation.

According to TSYS, in the UK people that used m-payment were 27% in August. Who used was extremely satisfied. Word of mouth will improve the m-payment adoption in the next future.

Google or Apple will not provide banking service but a simple digital wallet. Moreover, I don not understand the correlation between banking service and Facebook.

Overall, the truth is in the middle. The promises are that  innovation will suprise the market, especially with the introduction of PSD2.  

Media companies love "research".  And PR's understand that "research findings" guarantee column inches where company announcements areoften ignored as biased and self-serving.  We have all done it.

The shouting match here is good fun too.

My real criticism is of Finextra for taking the bait so easily as it does a disservice to what should be balanced reporting.  I would have preferred to see this research published, analysed and questioned, rather than being slavishly copied from the press release.

Finally: whilst bending research is childs play, I am sure that some of the content here is valid. (For a start lots of the wonderful fintech innovation is actually still on the drawing board and not yet launched so no wonder the responses to it might be negative as the consumer has not seen it yet!). And some of the crtitique will be genuine too, as it is not a black and white argument for or against banks.  But the report is in truth simply discredited by the numpty reporting and careless editing of the media owner.  Which is a shame.

Alex, just a point of correction, Finextra didn't 'swallow the bait', but instead spat it out and produced a news item that inverted the initial spin (which didn't go down to well with ACI Worldwide)

I can send you the contents of my heaving inbox if you want the proof.

@Paul - please don't ;-)

To all the commenters, a great debate. Get in touch through LinkedIn if you would like the data, and we can have a chat

I personally think its in the middle somewhere. There is a lot of hype (some of it unwarranted) around FinTech and the nature of startups means circa 80% will not be around in a few years. However the ones that do remain will certainly 'disrupt'. I gotta agree with some of the others as well though, survey will have some bias if a private company is involved.....

Unbelievable. I am not too sure about the age group of respondents. However, if one ignores the disruption in the finacial industry, it is rather naive. It will be the Kodak way.

Interesting views Hamza, not far from mine to be honest (other than the bias comment, which of course I won't agree with :-). Check out my blog to see a bit more on the back of this story

https://www.finextra.com/blogs/fullblog.aspx?blogid=12011

Regulatory costs force loss-making Tungsten out of banking

Let this be a warning to all wannabe-disruptor finsurgents. It wasn't too long ago when Tungsten used to threaten to disrupt banks in the cash management and trade finance business.

Read some Chris Skinner. Read some Bret King. Read some of the many studies from the major consulting companies and reach your own conclusions. My conclusion is that distruption is already happening. Have we already forgotten PayPal? It is doing well. Or, Starbucks? ApplePay? Apple does not take away all the profit from the bank, it shares. But, that also means that the bank gets less revenue and profit from payments than it used to get.  Even a 5% distruption will cost the banks billions of dollars of lost revenue.  It is all about digital, omni-channel and the customer experience. It is about providing what customers want.

Who is Bret King? Is he the same Brett King who predicted several years ago that cash, plastic and branch will all be dead by now? The last time I checked, which was about one minute ago, they are all alive and kicking. Despite that, if you want to still read such stuff, suit yourself but I'll stay with my own reading list, thank you.

PayPal, Starbucks, ApplePay - and Square, which you've missed out but is often quoted in the same breadth as the others - none of them has disrupted banks. On the contrary, all of them have helped boost revenues of banks. They helped merchants otherwise accepting only cash to start accepting card payments. Banks gained a new source of interchange revenues. In other words, they act as agents / resellers of banks. And, as is common in all industries, they earn a certain commission for that. Nobody thinks of that as undermining the principle's revenues and profits. Take IBM for example. It has a large network of channel partners who sell its hardware and software. When a partner wins a deal and earns a commission for that, certainly IBM's own revenues come down. But does that mean channel partners are disrupting IBM? 

And, let's not forget, all these PSPs use banking rails and banks can shut them down at a moment's notice. 

While you're free to have your own reading list, I've written about these points in my following blog posts:

1. Hiding Your Secret Sauce
2. Apple Puts Banks Squarely At The Center Of Mobile Payments
3. Mobile Wallet Has Few Takers - Even At Starbucks

There are two types of people in the world - those who do the disrupting, and those who don't realize they are disrupted till its too late

Katharaman,

Given that you called me out as having failed in my predictions, I've done you the honor of responding with my prediction scorecard in a blog:

https://www.finextra.com/blogs/fullblog.aspx?blogid=12019

I'm sure you'll find a few more that I missed if you look hard enough...

BK 

@BrettKing: "There are two types...too late"

Yeah right. That only leaves only investment banks who go laughing all the way to the bank by placing bets on both sides. Anyway, the point is moot: Both categories will soon be "Disrupted to Death" when all companies will be mandatorily disrupted in 18 years, with investment banks once again making big fees to shut down existing companies and form new companies. I've been reading Stanley Bing's While You Were Out column in FORTUNE for nearly 20 years. While they're always funny, his predictions are right more often than wrong, so I wouldn't write this off. 

@BrettKing: "Katharaman, Given that...hard enough...BK"

TY for the honor but I didn't say anything about head of technology etc. I called out your predictions about disruption of cash, plastic and branch. That too, after the previous commenter called out your (misspelled) name. Cash, plastic and branch are still around. Ergo, no disruption. In fact, cash in circulation is growing at 7% per year (Source: BBC).  

Anything can happen in future:

Many ecommerce companies have opened brick-and-mortar stores e.g. Warby Parker (USA), Flipkart (India). Even Amazon just opened a physical store in USA. Brick-and-mortar retailers like TJX and Ross Stores (USA) have announced massive expansion of their physical store networks. Who knows what banks will do about their branch networks when they study the rationale for the actions of retailers, the harbingers of digital commerce?   

There's a sharp drop in the use of Apple Pay on Black Friday this year compared to last year. Who knows if it will be around a few years from now or join the long list of other mobile wallets that have really been disrupted aka died in the last 2-3 years e.g. ISIS, Yapital, etc.? (Source: Bloomberg)

As for Chris Skinner, who was the other person called out by Chris Yaldezian above, just the title of his FSClub blog post - "Fintech is not disruptive, as banks adapt and thrive" - says it all but the leader to the article is very enlightening:

"In fact, the more I think about things the more I realise that most fintech is supplementing the bank industry rather than disintermediating, disrupting or displacing it. P2P is just acting as the credit risk department of financial institutions; Square is just an SME acquirer on behalf of card companies;..."

The whole article is worth a read - it contains interesting passages from an FT article viz. "Bank disrupters fail to live up to hype"; "We are so far into the hype that, even before we have seen much realisation of the potential, there are bubble warnings.”

Cut through the hype, think about things, it'll become obvious that (a) many purported disrupters have actually helped boost revenues of banks rather than disrupt them (b) not too many purported disrupters will be around if and when the bubble bursts.

Ketharaman,

Your figures on cash usage are long out of date. FT reports a 4% decline in just the last 12 months. 

ECommerce is growing at 18x the rate of retail space usage, so don't obfuscate the success of digital.

You made a claim about my predictions - I backed up my track record with an exhaustive list of very specific predictions and the outcomes 5-6 years later. The record speaks for itself, versus a very general attack on "Death of [everything]" claim you made.

I see you did not respond to my blog post. If you are going to attack, next time do so on facts and not on emotion...

BK 

Ketharaman, disruption does not mean complete disintermediation. Paypal, Prosper (of recent ill gotten fame) Starbuck and ApplePay are all taking away revenue and profits from the regualr banking system. Banks have responded by now investing in FinTech is very large amounts. 

I do not belive that ALL  banks will go down in flames. But, some will not make it. I do believe we will see more investment inFinTech, more investment in Omni-channel and analytics and more investment in mobile. Although branches will not disappear we will see consolidatation of branches and investment to make them more inviting.

Many banks will thrive. They will be the ones that truly understand their customers thru the use of analytics. They will take that understanding and personalize offers to their customers. They will invest in Omni-channel solutions so that the conversations with customer can occur seamlessly in any channel, especially the mobile and other digital channels.

Katharaman - I'd be happy to share with you my new book Augmented. I looked at 250 years of technology disruption from the steam engine through to FinTech and concluded that in all that time, there was not one example of an industry that survived intact without having to change their business model as a result of new technology being introduced.

Western Union, the world's largest telecommunications company in 1880 survived. You could not say they weren't disrupted as a telecoms player.  

@BrettKing:

You should know from the sequence of comments that your name wasn’t called out by me but by the commenter above me, who virtually ordered me to "Read some Bret (sic) King." In reply, I referred to your claims about death of cash, plastic and branch. I didn’t make generic attacks. You’ve made those specific predictions in your own blog posts Why Ebola might kill cash, Why the iPhone 5 means the end of the swipe and cards and If you're investing in branches - look out. Maybe it's only me but words like "kill", "end" and “absolutely no chance of survival” usually mean death.

In response, what do I see? "6% decline in branch transactions" (Source: Your blog post titled Predicting the future is hard, but online surveys are useless trending indicators); "Cash on the wane" (Source: FT article titled Cash on the wane in UK as plastic powers ahead). ‘6% decline’? ‘Wane’? They don't mean death. To cite a more recent source than the FT article, this Financial Brand article says "cash is still king today". ‘Plastic powers ahead’. That actually means growth – not death - of plastic. Let’s agree to disagree but I continue to believe that there's no disruption / death of cash, plastic or branch as of now.

Your response Predicting the future is hard, but online surveys are useless trending indicators seems to be baselined to your predictions made by you somewhere else. I never called out those predictions. So, I didn’t think it warranted my comment. That said, I did reply to your comment on this post right below it. I’ll continue to make my future comments, if any, on this post below this post.

@ChrisYaldezian:

This is becoming like a broken record. Which part of my above comment is not clear?

• “PayPal, Starbucks, ApplePay - and Square, which you've missed out but is often quoted in the same breadth as the others - none of them has disrupted banks. On the contrary, all of them have helped boost revenues of banks.”
• (Chris Skinner): "In fact, the more I think about things the more I realise that most fintech is supplementing the bank industry rather than disintermediating, disrupting or displacing it.”
• When a partner wins a deal and earns a commission for that, certainly IBM's own revenues come down. But does that mean channel partners are disrupting IBM?

I already know many banks who use analytics and omnichannel:

• Analytics or Hair Splitting?
• Are Banks Losing Customers Or Shedding Customers?
• From Multichannel To Omnichannel And Beyond

While there’s scope for improvement, that’s an eternally valid platitude - applicable not only for banks but for all other industries, not just for these two technologies but for all other technologies.

OK, call me ignorant, but explain to me HOW (“PayPal, Starbucks, - and Square, which you've missed out but is often quoted in the same breadth as the others - none of them has disrupted banks. On the contrary, all of them have helped boost revenues of banks.”) they added revenue to Banks?

I took out ApplePay, because one could argue that they help banks, although I think it is a disruptor because it takes the relationship away from the bank and gives it to Apple. But, one could agrue that these customers would not have used a wallet, and so some shared revenue is better than no revenue.

Katharaman,

Are you suggesting that the largest ever single year decline in branch activity means it is business as normal for banks? I have said hundreds of times, and I said again in my last post, that branches are no longer the most important channel in banking and will simply become support channels for bank brands, but they aren't required for neo or challenger banks. I have never said every branch will disappear - never. I have said that the role of branches will no longer be central to banking, and that is what I classify as the death of branch banking as we know it. I believe that we see ample evidence of that thesis now. If you can't see that, then you are ignoring the signs just as blockbuster, borders, and others did before them.

My guess is nuance is a word you are unfamiliar with.  

Already answered: PayPal, SQUARE, Starbucks and Apple Pay "...helped merchants otherwise accepting only cash to start accepting card payments. Banks gained a new source of interchange revenues." Note also that PayPal and SQUARE are both merchant aggregators and get their fees from the higher MSC / MDF borne by their merchants - e.g. 2.75% in the case of SQUARE - and not from banks. In other words, banks don't suffer any reduction in their realization when the transaction happens via PayPal / SQUARE. 

Brett You could not be more wrong by saying branches are less important to new banks. We have 60k customers and I am absolutely inundated with requests to open branches. As in, just one request in 2 years. :) (By chance it was today!). So people can either believe on line surveys or take it from an online bank-lite with real customers. Be Ffrees and happy Christmas!

Alex - I'm not wrong. I've covered off in detail exactly the issue you are talking about, which is when you ask customers they say they want branches, but they never use them! Thus, the economics of branch banking are doomed to fail. You can't support the cost of branches if no one is entering them - and THAT is unequivocally what the data has been telling us is the trend since 2008. 

At a certain point the industry will simply be unable to sustain branches in anything but very high density population areas, unless they are essentially 1-2 person pop-up branches.

The outcome is the same. Massive reduction in branch numbers, square footage, activity and a strong reliance on digital for the vast majority of revenue and relationship with customers.  

Sorry I was being British and ironic. We have had only one request in 2 years and 60k customers for a branch!

Ketharaman, so why is it that some banks are coming out with their own SQUARE answrer? Could it be that I (Mr. bank) don't want SQUARE to have the merchant services relationship, where the majority of the fees accure?

Also, my belief is NOT that banks are going to disappear. My definition of disruption is not DEMISE of the banking system, but lost revenue. I used to get a dollar, but now I get 75 cents.

Alex - sorry dude. I'm juggling too many comments today ;)

@BrettKing:

In your post I cited above (If you're investing in branches - look out), you wrote: "The current network of branches for most retail behemoths has absolutely no chance of survival in the near future. I'm not talking 10 years out here... I'm talking in the next 2-3 years." That was in 2011. To me that sounds like you predicted the death of branches by 2014. It's 2015 now. Branches are still around. In some countries like India, they're increasing in count. The title of this latest Bankrate article says it all about USA: Branch banking still popular with Americans. To me, death means ceasing to exist. That simply hasn't happened. Now talking about centricity of branch banking, reduction in centricity sounds like decline, not death, even to a person like me who you say is unfamiliar with nuance.   

I'd also look carefully at the reason given in the Bankrate article for people visiting branches: Not because they're old; not because they're tech unsavvy; but because people are "anxious about money and feel like seeing where their money is" aka branch. As we know, anxiety about money is a cyclical thing, so branch visits will also be cyclical. This totally resonates with my oft-expressed view that transitions from physical to online can also work in the reverse direction.

For all the BORDERS moment, don't forget the OYSTER moment when the eBook store shut down recently. According to this NYT article, "EBook Sales Slip, and Print Is Far From Dead". Don't also forget public announcements from TJX and Ross about increasing their physical store presence in USA. So physical and online companies can both shut down, that's a reflection of individual companies' performance, not necessarily the innate strengths of one channel over the other.

There is absolutely no data to suggest that branches are economically sustainable, let alone expect growth over the next decade based on actual customer demand - none, nada. That doesn't mean that branches will disappear (or be completely and utterly dead).

It does mean that if you want to grow your bank, investing in branches is a fools errand compared with the potential cost-benefit returns on non-branch acquisiton and customer management. 

Branches are ultimately, as a class of channel, dead from a business perspective because they are economically unsustainable and will never provide growth again. If you want growth in revenue, you have to go non-branch. 

Some token branches will remain because of what you have said - anxiety, etc. But branches overall will not be sustainable 

@ChrisYaldezian:

I don't know of any SQUARE-clones from banks but taking your word that there are, here's my take: It's NOT at all because they want to have the merchant acquirer relationship - because they already have it with SQUARE et al. Nor is to become a merchant aggregator like SQUARE - most banks I know won't touch a typical SQUARE merchant with a 40 feet bargepole because of their higher risk profile. It's because some merchants they already have a merchant acquirer relationship with do a lot of cash business today e.g. COD business of ecommerce giants like Flipkart, Amazon India. By empowering such merchants to take cards via wireless POS / mPOS at the point of delivery, they hope to convert the cash transaction to credit / debit card, thus earning a new source of interchange. The interchange % is the same as the normal interchange rate but it's applicable on a bigger pie.

My definition of disruption is death / ceasing to exist. IMO, one dollar dropping to 75 cents is "decline", not disruption / death. But you're free to have your own definition. 

"Disruption", noun. Business. a radical change in an industry, business strategy, etc., especially involving the introduction of a new product or service that creates a new market: Globalization and the rapid advance of technology are major causes of business disruption. http://dictionary.reference.com/browse/disruption

Disruption. Noun. Disturbance or problems which interrupt an event, activity, or process. http://www.oxforddictionaries.com/definition/english/disruption

Disrupt. Verb. To cause (something) to be unable to continue in the normal way. http://www.merriam-webster.com/dictionary/disrupt

I hate to prolong this, especially in this direction, but I can't help it if there are several dictionaries!

Merry Christmas everybody :-)

When it comes to revenues, banks sell better at branch. When it comes to costs, branch may be the costliest place for doing business so but progressive businesses are more obsessed about increasing revenues than cutting costs. I said it here: Secret Of Survival Of Bank Branches.

But I’m not the only one:

#1. The Tale Of The Digital Banks

http://www.gonzobanker.com/2015/07/thetaleofthedigitalbanks/

QUOTE

• Yet while the demos and screen shots at events like Finovate have provided fascinating fodder regarding the future of digital banking, the FACTS show that these buzzworthy players (such as Simple, Moven, GoBank and BankMobile.) have had INFINITESIMAL IMPACT ON MARKET SHARE.
• But here’s the real clincher: in the same period that the TOP 10 INTERNET ONLY BANKS GREW DEPOSITS BY $175 BILLION, THE THREE MAJOR LEGACY RETAIL POWERHOUSES – CHASE, WELLS AND BANK OF AMERICA – GREW DEPOSITS BY $1.27 TRILLION. Holy cow!

ENDQUOTE

#2. Mobile Banking Grows, But BRANCHES STILL DRIVE BUSINESS

http://thefinancialbrand.com/55758/mobile-banking-branch-delivery-channels/

QUOTE

• The mobile channel continues to gain ground with banking consumers, BUT PHYSICAL BRANCHES REMAIN CENTRAL TO THE RETAIL DELIVERY STRATEGY for most institutions.

ENDQUOTE

Why have traditional banks outperformed digital-only banks? Is it

• By virtue of their branch networks? OR
• Because, God forbid, they have superior digital technology compared to digital-only banks? OR
• Owing to factors that have nothing to do with branch-versus-nonbranch channel mix?

IMO:

Traditional banks with branches have not only sustained themselves but flourished despite dire predictions to the contrary. Branch still remains central to retail banking. Going by one after another announcement by fintech companies announcing partnership with traditional banks after having threatened to disrupt them in the past – e.g. TransferWise (https://www.finextra.com/news/fullstory.aspx?newsitemid=28281) – I’m wondering if digital-only banks are now fearing disruption by traditional banks.

But, Finextra readers, please review the facts and decide for yourselves.

Season’s Greetings!