Banking and technology don’t go (yet)

March 1, 2016

Failure to acknowledge the importance of technology in today’s financial services sector will leave some large incumbent banks fighting for survival, a top banker has said.

Speaking to an audience at Chatham House late last year, former Barclays head Anthony Jenkins said the financial services sector was reaching its ‘Uber’ moment. He said this would lead to a reduction in high street banking branches, a culling of large swathes of retail banking staff and the opportunity for niche technology players to take on the mighty high street banks.

The introduction of technology is an “unstoppable force” which will improve customer service, risk management and efficiency and see new banks become household names, said Jenkins. He believes that over the next decade, there will be a number of very significant disruptions in the financial services market driven by Fintech companies, which will prompt a 50 per cent decline in the number of people employed in the sector.

“We will see massive pressure on the incumbent banks who will struggle to implement changes at the same pace as new Fintech companies,” he said.

US online taxi despatch company Uber has taken the traditional taxi market by storm, with its mobile app which allows consumers with smartphones to submit a trip request which is then routed to Uber drivers who use their own cars. In June 2014, traditional taxi drivers in London, Berlin, Paris and Madrid staged a large-scale protest against Uber, blaming it for a slowdown in business.

Brickendon Managing Director Chris Burke and Senior Manager Richard Warren agree. In our last Brickendon Journal published in October, Burke wrote about the rise of technology companies such as Amazon taking the traditional retailing market by storm. During the third quarter of 2015, Walmart lost its world’s largest retailer crown to Amazon, a technology company.

At the time Burke said: “All companies now face a very simple and stark choice: think, adapt, and evolve to be like a technology company, or face the real proposition that another company who does, will come in and dominate your market.

“For these companies, software is not just something they have in a back room somewhere, it is their lifeblood, in their veins and their competitive advantage.”

Warren points out that the financial landscape is littered with inefficiencies that need to be rectified and that if technology is implemented correctly, the convenience, accuracy and speed far outweighs anything a human can do. However, he is quick to add that whilst increasing the use of technology is a high priority for cost and staff efficiencies, it may not be so appropriate for client-facing businesses such as wealth management, where tailored products and human interaction play an important role.

According to Jenkins, financial institutions should not have a technology strategy, but rather a strategy with technology at its core. Chris Skinner, chairman of the Financial Services Club and author of a book entitled Digital Bank, also agrees, saying that in order for a bank to successfully embrace technology, it needs to be built with the vision to reach out to customers through digital augmentation. It has to be designed and created upon a digital core infrastructure with an organisation geared to digital. The key, he believes, is to develop an innate knowledge of the customer and use that knowledge to improve your offering to the customer.

Now that is all well and good for a technology or digital company, but for a traditional bank, whose core processing systems were installed decades before the internet, the transformation is not easy.

“The existing key players in banking will struggle initially as they try to pair their existing dated architecture with new platforms and processes,” said Warren, adding that the introduction of new technology and the corresponding increased transparency through streamlining, could work in their favour by reducing the risk of regulation breaches.

Hence the need for partnerships and alliances. Established banks are able to offer innovative tech start-ups a way into the financial services market, and the traditional banks are able to benefit from new innovative technology. Warren believes that this needs to happen to ensure incumbent banks don’t miss out on opportunities. He warns that the start-ups could even find themselves shunning partnerships with banks in favour of technology giants such as Amazon, Google and Apple, who are all starting to grow a presence in the financial services sector, and who all have access to large amounts of venture capital and an inherent understanding of start-ups.

After all, embracing the need for technology should not simply be a defensive strategy against non-bank competitors, but rather a way of increasing revenue through improved consumer insights, combining algorithm-based banking with the human touch.

The key to the successful adoption of technology is, according to Jenkins, to ensure it is ‘truly transformational’. So far, much of the technology introduced into the financial services sector, such as cash machines and automated telephone banking, has simply substituted labour. While call centres do make some tasks easier, they are only used on average twice a month, casting doubt on the transformational credentials. By contrast, customers are using smart phone applications about 30 times each month.

“There needs to be significant and compelling benefits over the status quo,” said Jenkins.

The boom in basic online banking is already forcing banks to do things differently, and there is definitely a feeling that if they don’t continue to embrace the change and use this as an opportunity to innovate, simplify delivery and find new ways to monetise digital offerings, they are going to get left behind.

The key, whatever your business, is to become an integral part of your customer’s daily life. Many consumers now bank online rather than by visiting a branch, others transfer money to a friend with one swipe of a smartphone app or tap their bank cards on machines to pay for lunch. Their financial management is no longer restricted by nine-to-five opening hours or paper statements.

The digital consumer wants a bank that is available on demand, wants to use sophisticated banking apps that have a clean design and are simple to use. They want real-time insight into their financial portfolio and demand text and email alerts that demonstrate that their financial institution is looking out for them 24/7. The key to success, is that if you’re going to make a transformation, then ensure it is a transformation that they can’t be without.

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