Digital
technology and disruption are fundamentally transforming how
businesses interact with banks. Although the threat of disruption for
incumbents is only intensified by the ‘fear of the unknown’,
disrupters are equally perplexed at specifically where the most
lucrative opportunities exist.
Annual technology investment by the major Australian banks is
estimated at over A$1 billion - each - however “flipping” standardised
approaches to core transaction banking and credit processes on their
head is an exceptionally uncomfortable procedure fraught with
difficulty.
Board members from thirteen of the largest US enterprises surveyed by
MIT's Centre for Information Systems in April 2015 estimate the threat
of digital disruption at 32 percent of revenue over the next five
years, with fully 60 percent of surveyed board members attesting that
their boards should spend significantly more time on the strategic
challenge in 2016.
Following the noteworthy data sharing collaboration of the Big Four on
retail branch costs to identify areas for improvement and cost
reduction conducted recently by Turner & Townsend, it is clear that
reducing operating costs without removing the key element of what
essentially makes a bank a ‘bank’ is central to decision making.
Strategic decision makers in banking and finance, the industry which
is repeatedly nominated as the most susceptible to disruption given
enviably high margins and the prevalence of manual processes and
legacy systems, are seriously challenged by this prospect.
Trade finance, asset finance and business FX products are all firmly
falling into the cross hairs of new entrants and non-bank competitors.
At the periphery of the process is the requirement to align with
stricter regulatory guidelines and bulked up risk capital frameworks.
The proportion of IT investment budgets allocated to keeping pace with
compliance and risk management requirements was recently estimated
between 50 to 90 percent in a recent UK retail banking study conducted
by Adaptive Lab.
Yet at the core of the transition, a recurring theme continues to
emerge – relationship banking is not suffering the slow and painful
death many analysts predicted in a post-GFC world. |
Quite the
opposite is playing out. The more innovation that takes place, the
greater the urge to deal with a ‘real person’ or ‘human face’. CFOs
and treasurers across Australia express a clear desire to further
develop an underlying sense of trust and personability in their
dealings with their bank despite mounting pressure on the time they
have available to devote to treasury processes around day-to-day
requirements of running a business, available resources and bandwidth
to consider new alternatives.
In the techno-race to deliver the latest and greatest digital
products, East & Partners Business Banking Index clearly demonstrates
that a side-effect has emerged, with customer loyalty and advocacy in
a tailspin.
Significantly, among 983 CFOs and treasurers surveyed for
the program, 33.8 percent of respondents nominated the service level
they experienced as the most important drivers encouraging advocating
their primary bank.
Steven De La Castro, head of digital banking and financial services at
US consultancy Cognizant, believes that digital banking encompasses
more than just web and application experiences as it includes the way
banks seamlessly blend the physical and virtual touchpoints needed to
create a consistent omni-channel experience. He states “although
branches will continue their decline over the next few years, they
will maintain a prevalent role in acquiring, retaining and serving
customers across digital and physical channels."
What is quickly becoming apparent is that the proliferation of fintech
with corporates, not only for institutional sized enterprises but
vitally small businesses, is a long term transformative trend that has
been ongoing for many years and will continue to take place well into
the foreseeable future.
Ultimately, incumbents and established financial services providers
have access to the insight, man-power and funding required to lead
digital innovation. They also have the regulatory knowledge and
framework to assist in seamless implementation and integration with
existing products.
However, interrogating end users, corporate treasurers and CFOs has
never been more important given expectations are rarely in line with
reality when it comes to discovering or competing with the next ‘Uber’
or ‘Airbnb’ of the banking world. |
