When Bob Dylan wrote his famous song “The Times They Are a-Changin’,” he was not referring to the financial services industry – but the line certainly fits. Over the past decade, financial insitutions (FIs) have undergone tremendous change in how their customers manage their financial lives and interact with the FI. And while fundamental shifts among FIs and their technologies has typically been a slow process, the introduction of major new players in the digital space has signaled a new era of digital transformation.
Earlier this year, for example, Apple announced its partnership with Goldman Sachs to launch the company’s much anticipated Apple Card. Amazon is also reportedly in talks with several major banks, including JP Morgan Chase, about building a new checking-account-like product to appeal to younger and more digitally-focused consumers. Likewise, T-Mobile has joined the fray with its own online checking account service, T-Mobile Money. The financial industry has traditionally been dominated by a few of the oldest and most established banks, but the introduction of these powerful, digital brands will no doubt impact financial institutions around the world.
Not all consumers are ready to switch, but financial institutions need to pay attention
In a recent survey by the management consulting firm cg42, the majority of consumers reported they would not switch to either Apple or Amazon if banking services were offered. In fact, of all the respondents, only 14% said they would switch to Amazon to handle their banking business, and Apple did not fare any better with only 11% of respondents willing to switch to the Cupertino company. However, these numbers are large enough to be worrying to FIs – particularly when the millennial segment favored moving to these non-traditional brands by a much higher percentage than the overall numbers might initially indicate.
Millennials have embraced the shift to digital banking, as evidenced by their demonstrated enthusiasm to pay via mobile devices or to split bills via a mobile app. 80% report their willingness to change to a new financial institution offering better or more diverse digital services. In a digital world, switching providers is less daunting to consumers, meaning the threat of customer churn is greater than ever.
The new digitally designed bank
The next generation of digital-first banks – let’s call them “digitally designed banks” – will most likely be made up of the major financial institutions we know today, but will also include an entirely new set of financial organizations that don’t yet exist. We can expect these newcomers to range from well-known tech platforms to nimble, “digital only” banks that are started from scratch. To compete with these financial alternatives, traditional banks will likely turn to new partnerships with fintech businesses that can offer more consolidated, specialized services such as small business lending or industry financing to drive new growth in those areas.
While these changes will mean significant transformation for the financial industry, it’s also an opportunity for banks, specifically. Traditional retail banks have somewhat of a stodgy reputation when it comes to innovation, but many of the leading banking groups today already offer new digital services. Chief among these is the convenience offered to consumers of depositing checks – one of the leading branch transactions – by taking a photo of it with their mobile device. This transaction drives cost advantage for the FI and makes for a happier, more loyal customer Many financial services apps also offer person-to-person payments, personal financial management tools and virtual assistants. The process of opening a new account from a mobile device has been made both faster and more secure with the introduction of remote-enabled identity verification.
What the future holds
From my time speaking with today’s leading financial institutions, they have shown a remarkable ability to adapt and innovate. And it is important to remember that many of the digital technologies that are used today in other industries were first introduced to the market by banks. Kiosks now used by airlines for passengers to check in to their flight might look new and impressive until you remember that ATMs have been dispensing money using the same format for more than five decades.
It’s true: technology is evolving faster than people’s ability to recognize it, and financial institutions around the world will need to adapt. The institutions that invest today in understanding these changes and develop digital services as a key component of their business, however, will be well prepared for the future.
