July 2014

Breaching the Digital Disruption Frontier
Douglas Adams, author of the ‘Hitchhiker’s Guide to the Galaxy’, accurately sums up how well Australian businesses are incorporating new technology with his eternal quote:

“I've come up with a set of rules that describe our reactions to technologies:
  1. Anything that is in the world when you’re born is normal and ordinary and is just a natural part of the way the world works.

  2. Anything that's invented between when you’re fifteen and thirty-five is new and exciting and revolutionary and you can probably get a career in it.

  3. Anything invented after you're thirty-five is against the natural order of things.”

Developing and evolving in tandem with a rapidly changing financial landscape is front of mind for most strategic decision makers. Yet rarely will you find an individual or an organisation that can withstand too much change at once.

It takes a significant pre-commitment of time and resources to ‘transition’ successfully. ‘Change’ is a relative concept and requires a great degree of focus given the requirement for it to be implemented in tandem with current processes and operations, effectively ‘doubling up’ the normal day-to-day running of a business.

The productivity and cost savings offered by ‘P2P’ (peer-to-peer lending) and contactless payments solutions are undeniably clear, however the conversion to these types of doing business will vary by bank and provider.

Across the US and EU it is estimated close to US$6.5 billion in loans are attributed to P2P lending sources and growing fast. The role of the bank in providing and servicing loan arrangements is being questioned by businesses and customers, posing as a sizeable threat to continued growth and stability.

Australian banks’ sustained cost cutting and technology investment focus is deemed to be barely adequate in the face of rising competition from both home and abroad as new players enter the fray at an increasing pace.

Banks are faced with the challenge of quickly adapting to changes in the digital space with the threat of more than just ROE at stake.

The CIO of the Reserve Bank of Australia, Sarv Girn, recently warned that digital disruption has transformed the corporate world and firms would need to adjust to survive.

“Bookstores, the music industry and newspapers – all of which were the giants of their time – now find themselves trying to avoid extinction.”

“Building digital disruption plans into the corporate conversation and embedding it into the goals and cultural DNA of your firm is fundamental.”

The Big Four are acutely aware of their susceptibility to ‘technology disruptors’ however the appetite for new technology appears to vary significantly by business size.

When 447 of Australia’s top 500 enterprises by revenue were surveyed as part of East & Partners Institutional Transaction Banking program on what their main reason for engagement with their primary bank was, 62.4 percent singled out technology innovation as their primary motivating factor.

Australia’s largest businesses by turnover ranked technology innovation ahead of improving their working capital position (53.7 percent) and existing technology problems (30.4 percent).

Payments clearly offer the most opportunity for new entrants. Digital payments presents as an area where the Big Four are seemingly not consolidating market share with enough clout, missing an opportunity to stave off threats from disruptors such as PayPal and Ezidebt to name a few..

This particularly rings true with the abandonment of the MAMBO collaboration for example, signifying a move away from collaborative initiatives to find viable online payment alternatives to credit cards.

Banks and ‘disrupters’ are grappling with the fine balance between keeping pace with rapid improvements in technology and avoiding change for ‘change’s sake’.

In terms of the successful proliferation of new business banking technology – how much change can business owners and CFO’s absorb before they throw up their hands in dismay and declare “it’s all too hard?”

Computer scientist Bran Ferren aptly defines technology as ‘stuff that doesn’t work yet’. This reflects a widely felt frustration held by business owners altering current process and adapting to new interfaces.
What are the main reasons for engagement with your primary bank?
  % of Institutional Customers
(N: 500)
Technology Innovation 62.4
Improve Working Capital Position 53.7
Technology Problems 30.4
Price Negotiation 30.4

Note: sums to over 100 percent due to multiple responding
Source: East & Partners Transaction Banking Markets Program with Courtesy from CBA Proprietary Questions


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