Digital transformation in Banking
Its easy to summarise the ‘Classical’ theory of successful banking– Get a license, Build a large branch network, Cross-sell third-party products, ensure documentation with ‘Fine Print’ and make high Net Interest Income. It has worked for decades. This view puts bank’s size, scale and ability to manipulate the smaller entities called customers, as a key determinant of success. While some of it may still be useful, the real truth is shifting elsewhere. Size may still matter but with reducing relevance in the new age.
For the scientific minded readers, the changes in the banking industry may find similarity with theoretical physics where Newtonian idea of gravity was upended by Einstein’s General Relativity.
The theoretical construct of ‘a small apple (or customer) will always fall towards a large earth (large bank)’, may be too simplistic a model to follow. Evaluating the key drivers of business is becoming a challenge for banks. The confluence of technology, customer aspiration and connectivity is creating new paradigms in banking. And just like the spacetime continuum, the impact is all-encompassing,
A Juniper Research reports ‘Banks are becoming increasingly concerned that their market position is being undermined by tech-companies and pure-play vendors enabled by technology and regulations to enter the marketplace’ In UK digital banks like Starling, Tandem, Atom, N26, and Monzo, have started operations and a dozen more are seeking license.
On the mainland Europe, PSD2 mandates banks to Open APIs. This will bring in new age fintech start-ups and non-financial players to the arena, giving customers better choice at lower costs.
In India, while the excitement around Wallets tapers down, the advent of Payments Banks starts a new chapter. The mix of biometric authentication based on Aadhar and UPI enabled transfers is leading to one-of-a-kind transformation of this scale in the world. NPCI’sinitiatives are making the payments market in India largely homogeneous, levelling the playing field for non-banking companies to take on large banks.
The form-factor has metamorphosed too. While movement from cheques to online transfers was slow, the transition to mobile has been rather quick. Wearables are the next big change, led by payment-enabled smart watches and other experiments, like the NFC enabled Contactless Payment Ring unveiled by Visa during the 2016 Rio Olympics. Even fitness and finance never seemed so compatible!
- Alipay tied up with Xiaomi to enable payments on the Mi fitness bands
- Jawbone’s has a fitness tracker, powered by American Express that supports NFC enabled contactless payments.
- Fitbit, another fitness band manufacturer, acquired wearable payment technology from Coin Inc in 2016.
- Barclays forayed into wearable bands with bPay Band and App, allowing customers to view balances and manage payments right from the wearable.
- Visa has tied up with watch manufacturer Swatch to develop payment enabled smart watches.
But before you go for that $300+ Apple Watch or the latest fitness tracker, do note that by the time manufacturers overcome the challenge of low battery life of smart watches, world would have possibly moved to wearable patches, with real time diagnostics for both physical and financial health!
With IOT, the difference between phones, wearables, durables and all electronics may be immaterial. No matter what gadget you use, banking would still be possible. Even your washing machines may soon automatically order and pay for the weekly quota of detergent!
Predictions are coming from everywhere. A Business Insider report forecasts 24 billion connected devices by 2020, up from nearly 7 billion today. Of these 70% would be payment-enabled consumer devices. While Techcrunch and Gartner report predict 500 Mn wearable devices by 2020 and Statista reports connected wearable devices are likely to double from 450 mn to 929 mn.
Future gazing has its risks, but there seems to be enough ‘dark matter ‘(or ingredient for new formations) that’s creating newer models in the banking space. The size of the bank may soon be irrelevant. Possibly, the ‘bank’ as a place of transaction may itself be irrelevant. Banking would happen where the customer is and as and when needed.
For more articles visit frankbanker.com
