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In line with the unfolding saga of innovative technologies pushing boundaries to disrupt traditional business models, ever so powerful forces are transforming the banking industry as well. Consistent growth remains relatively elusive, costs are proving difficult to contain while Return on Investments remain stubbornly low. Regulators are struggling to keep pace with the ever changing technologies and emerging business models. Technology is rapidly morphing from a traditionally expensive challenge into a potent enabler of both customer experience and efficient operations. Non-traditional players are challenging the traditional establishments more than ever before, leading with customer focused innovation. New service models are emerging constantly to challenge the traditional banking establishments. Customers are demanding ever higher levels of service and value. At the same time trust is at an all-time low.
With the emergence of disruptive new entrants to the market who are threatening to takeaway share by offering an enhanced customer experience via superior technology, many have predicted that the traditional banking industry would collapse very soon. Surprisingly, this has not taken place yet even though many old bastions’ are beginning to feel the pinch. Hence, despite the emergence of new competitors and models, it seems more than likely that the traditional bank still has a bright future. The fundamental concepts of a trusted institution providing value, a source of finance and a facilitator of secure transactions are almost impossible to change overnight. However, much of the landscape will continue to undergo rapid change in response to the growing demands of customer expectations, regulatory requirements, newer technologies, demographics, new competitors and shifting economics.
In this context, banks need to take off their traditional hats and rethink their strategy against these significant changes; whether to be a shaper of the future, a fast follower, or to manage defensively by putting off change. Staying with the same status quo is no more an option. I believe that the superstars in the new millennium will not only execute relentlessly against today’s dramatic changes, but also innovate and transform themselves to be better prepared for the future. This future will require institutions to be agile and nimble footed, ready to explore different territories in a much more uncertain business environment.
So, is this change a revolution, or an evolution? In reality, it is a combination of both. All the signboards for change are here. Many players are innovating and experimenting with new products and delivery channels based on decisions made via analytics. The industry has historically changed slowly, in other words, it had been an evolutionary change. And the changes we envision are less about imagining some unknown future, but more about implementing and integrating all the things we know today. Yet the pace at which the change is happening is increasing rapidly, hence, banks that fail to shift to a faster gear risk being left behind. And if any institution could truly master all the priorities, it would be revolutionary indeed.
In addition of having to face with their own traditional business models being challenged, the banks now have to also face the new 
reality of ever changing customer dynamics. With the emergence of new business models where a plethora of organisations are beginning to emerge to offer business as a service, without even owning a single product or a service they offer. Some of the examples are Uber and PickMe – private driver, Postmates – favourite delivery channel, UpWork – favourite workforce and Airbnb – private lodging. However, all of them have something in common. They don’t own a single asset of the service they are selling. For example, Uber and PickMe don’t have their own vehicles, Postmates has no delivery trucks, Upwork hasn’t hired any workforce and AirBnb doesn’t own a single property.
The underlying enabler for all these businesses is the fact that a large segment of the world’s population (>1 billion) is now connected to each other via Smart phones 24X7. What is the end result? This disruption is leading to elimination of traditional business models. For example, “Yellow Cab” was the largest, dominant and most stable taxi company in San Francisco and at the time was thought as impossible to be displaced. Prior to 2015, the size of the taxi market in San Francisco was $ 140 million. However, after their launch, Uber generated 500 million by themselves alone in 2015, which was more than triple the previous total market size. Uber changed the business dynamics by creating a much bigger market that never even existed before. The end result was in 2016 “Yellow Cab” filed for bankruptcy. Uber not only disrupted the transport industry, but also more than tripled the market size. Yet, unresolved question is could PickMe replicate this phenomenon in Sri Lanka?
The important question faced by the banking industry is whether they are geared to cater to the ever changing requirements of their customers. Gone are the days where people are looking for just banking only apps. Let’s face the reality. How many banking transactions would an individual perform during a week as opposed to the other transactions that he engages in? Such as ordering dinner, getting a taxi or buying groceries. The answer is a no brainer. The winner, obviously, is the latter against banking only transactions and that too by many folds. The success or the failure of mobile applications just lie right here. Banks are spending millions in order to develop mobile banking applications and yet they complain that the adoption is low. Obviously, they are not seeing the bigger picture. PickMe is a transport app, but not a banking app, which was designed to help a person to get from location A to B. Making the payment to the transport provider is a subsequent requirement of the user. Would I use a banking app just to make the payment to PickMe? Highly unlikely. Every individual is more likely to use an app that helps them in their daily chores or addresses an actual need. How would the usage of this when compared to a banking only app that would be used very infrequently. Banks must stop thinking payment as the customers requirement, where are the problem solved by PickMe is how to get from A to B conveniently. Making the payment to PickMe becomes secondary, but if supported, it must be facilitated via the same app.
This is where FinTechs are getting it right and the banks are lagging behind. FinTechs are coming up with apps that addresses people’s needs, not only people’s banking needs. They are trying to fix real life problems and not payment related issues. Ironically, banks are thinking payment first and put a lot of effort to fix that problem. They forget to look at where the majority of the future payment transactions would take place. Obviously, a person would make more transactions via an app that caters to his daily needs than his banking only app. The above logic is supported by the unprecedented growth experienced by some of the market leading apps. For examples, to acquire 50 million customers, which is more than double the population of Sri Lanka, the time taken by the following apps were;
Facebook took 30 months, which is fast paced in a traditional sense
WhatsApp took 15 months, which has halved the time taken by Facebook
Angry Birds took 15 days, now what do you call this?
All the above are not banking or payment apps. These apps are trying to address specific needs of people, thus, have become tremendously successful in the process. More often than not they could emerge as direct competitors to banks in terms of carrying out financial transactions. A person who is hooked onto WhatsApp is more likely to make a payment via the same app than switching to a banking app. In fact, both Facebook and WhatsApp are now facilitating payment transactions. So, what it really shows is that the rules of the game are rapidly changing. Are the banks who decide to manage defensively by putting off change ready for such challenges?
There is also the significant impact created by the highly tech savvy generation, who grew up with the Internet and mobile devices. The so called millennials are rapidly coming into decision making roles. In 2015, Chase bank in a Digital Adoption Survey found out that a high percentage of millennials (25-34 year olds) are using mobiles apps and also make payments via the Internet than GenXers (35-49 years) or Baby boomers (50 years and above). Another Survey done by the US bureau of Labour Statistics suggests that by 2030, 75% of the workforce will be made up of millennials. They are reshaping the way transactions are done as individuals, thus, impacting the businesses as well. If the banks continue to ignore these hard facts, they would certainly be left behind.
The success or the failure of adoption of any payment related technology would be determined primarily by two factors, which are usability of Technology and the establishment of Trust. In addition to the Smart phone based apps, technologies such as Apple’s iBeacon could create potential customer pull impact by its ability to broadcast promotions to nearby devices. For example, a retail store might be able to broadcast an attractive discount to nearby potential customers and entice them to visit the store. They could also deploy smart mobile apps to devices that have the presence aware capability and enable easy-to-use 1-click payments that is bound to drive adoption.
The other aspect is the establishment of trust among the users of mobile payment applications. The fast emerging innovations in biometric based technologies have certainly improved security, thus, enhanced the trust and provided better user experience. Authentication technologies such as facial and finger print recognition via smart devices have vastly improved customer perception of trust and are becoming widely available. So, the trust factor is also being taken care of to a greater extent by innovative technologies.
Hence, as we speak, all the ingredients that make these Smart mobile apps to be successful, especially by increasing user adoption, are falling into place. However, the big question still remains to be answered is “Do the banks get it?” Are they still focused on developing their own mobile “banking” only apps or are they not afraid to take the plunge by partnering with mobile app developers who think out-of-the-box to address the needs of real people. Their success will be determined by the willingness and the ability to move into win-win partnerships with the mobile app industry rather than stubbornly trying to build their own banking app. It is time they realise that most of the innovations are happening outside their four walls. They would be wise to look outside the box and get into revenue sharing business models with innovative mobile app developers to overcome ROI issues. Thus, banks could rapidly acquire FinTech capabilities via such partnerships without attracting too much risk. If they don’t, they will be left far behind by others and will only be left with the option of having to ponder what hit them.
The writer is the GM/CEO of LankaClear.
