Is the Financial Services Industry Poised for Market Disruption?

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At one point in time, when you opened a new account at your local bank, and the expectation was that you’d stay awhile.  As time went on, your relationship with your bank grew:  when you needed to add a checking account… when you needed a student loan… when you were buying your first house.

Back then, being a bank customer often meant you would be a customer for life.  Leaving a bank was difficult. After all, having to start over at another banking institution would not only be an administrative nightmare, from the customer standpoint, you wouldn’t have all the perks (preferential fees, rates) that you built up over the course of your banking relationship.

That was then. This is now…

If the financial services industry is to keep up, it needs to:

  • embrace and acquiesce to the new customer mindset
  • evolve the existing systems and processes that aren’t in sync with the market expectation
  • drive mobile banking more than ever


The New Customer Mindset

Loyalty is fleeting these days. Technology is enabling a greater awareness of  how companies are servicing customer demands. Consumer expectations continue to rise, as they place more time scrutinizing the products and the services that surround them. As a result,  consumers have become more selective. A bank can no longer expect to have a life-long relationship with a customer.

Digital is Turning the Industry on its Head

BI recently posted this article: 

Millennials…have a lot of faith in the disruption of the financial system, so much so that 33% think they won’t need a bank in the near future.

geny banks

Somewhere I read:

People will always need banking but they don’t need banks

This echoes the expectation that start-ups will be the banks’ competitors of tomorrow.

The Financial Crisis of 2008 made banking customers more aware of financial products, and much more wary that the bank may not work in their best interest.  This requires the banking industry to heed these market triggers and begin to determine how to implement a more customer-focused strategy.  The drive should be towards more transparent products that accompany a stronger customer service and sales channel.

In addition, there are other factors that are impacting this change in consumer behaviour. This always-on economy empowers the always-on customer. Consumers are using their smart phones to review sites, do price comparisons, take pictures of products and send them to people who influence their purchase.  More than ever there is an expectation that a unified experience exists across all the customer touch points: website, retail, and customer service. I, as a customer, will “expect” the company to know how frequently I purchase, on which channels, which products, and when my return will be credited – regardless of which channel I choose to interface.

Hyperlocalization and Geo-fencing technologies are being tested to create more relevant offers for people at the time they are most predisposed to purchase. iBeacon technology goes one step further and uses Bluetooth low energy signals (LES) to drive this relevance within customer’s proximity to product within the retail environment.

These days it’s about rising above the noise and creating increasing relevance at the individual customer level.

Critical Changes Need to Happen

Legacy Systems need some serious revamping: Sanjay Doshla of Marketo noted,

The buyer is control of their own journey –  60-80% of the buying journey is self-directed… we all have our own path and the capabilities need to be able to react and flow to that path.

If the customer engagement cycle becomes standard, then banks need to figure out what to do with the many databases that don’t talk to each other. I come from the financial industry. Credit card services have their own databases, and processes for segmentation. The same is true for other product divisions. Inevitably, the view on the individual customer level needs to happen.

“I want my bank to know me… not as a credit card customer… not as a mortgage customer… but as a customer who has 3 credit cards, a mortgage and a line of credit.”


Silos need to be dismantled. This is the reason there is duplication of process and duplication of customer. It’s rare that product groups ever speak to each other. It’s also the reason the use of data is inefficient.

Silos separate people within a company. Silos also ensure that there is no unified goal or objective across the organization. The right hand rarely knows what the right hand is doing. There are countless examples of this in banking.

Agility needs to happen.  This is, by far, the most onerous hurdle for one of the oldest regulated industries. Compliance continues to be the obstacle.

The ability to develop effective conflict/resolution solutions based on the expectation of the market will be difficult. Aging back-office systems continue to stall this process. The hierarchical structure still exists. This needs to be modified to allow individuals within organizations to have much more accountability and respond to customer demands.

Agility also means the reliance on data is even more important. Big data allows banks to better understand their customers. Privacy and Compliance will be barriers that will hinder the move forward. However, the merits of integrating Big Data are significant. The segmentation opportunities outside of transaction can be broadened to include interests, motivations, and purchase influence, travel preferences, creating a more holistic view of the customer and enabling greater opportunities for predictability.

Mobile is the Disruption. This Needs to be the Focus

The future of banking will change radically. According to this article, the future will be about community-level banking. Tellers will cease to exist and the experience will be much more cost efficient and much less personal.

According to SNL Financial, in the last year, “Banks in the US shut some 1,407 branches, a near record and a trend that is likely to continue.”

Globally, alternative payment systems are disrupting with no real need for banking institutional backing. According to the 2014 World Payments report by Capgemini and RBS:

Alternative payments like those through mobile apps already increased globally by 9.4% in the past year… indicating the need for banks to keep up with a growing, competitive industry.

Here are some examples:

M-Pesa is a mobile-phone based money transfer and microfinancing service. It was launched by Voddaphone in 2007 for Safaricom and Vodacom, who are the largest mobile networks within Kenya and Tanzania.

What’s amazing about M-Pesa is that it allows users with a national ID card or passport to deposit, withdraw and transfer money easily with a mobile device. There is no need for a bank. Money can be deposited into an account stored directly within the cell phone and send balances through PIN-secured SMS text messages between people and between buyers and sellers.

If you stop to consider the global income disparity, where according to Global Issues:

More than 80 percent of the world’s population lives in countries where income differentials are widening.

The poorest 40 percent of the world’s population accounts for 5 percent of global income. The richest 20 percent accounts for three-quarters of world income.

… M-Pesa is offering a necessary service that hasn’t been available to developing countries until now.  Note, WorldRemit, which is the service behind M-Pesa has now expanded its service to  Afghanistan, South Africa, India and in 2014, to Eastern Europe.

By 2012, a stock of about 17 million M-Pesa accounts had been registered in Kenya. The service has been lauded for giving millions of people access to the formal financial system and for reducing crime in an otherwise largely cash-based society.

Yellow-Pepper, a similar service based out of Miami, FLA offers the same service to countries like Brasil. And unlike the US and Canada where there is a greater fragmentation of payment services, banks, and merchant solutions, central governments that have more control of these systems have the ability to drive adoption faster.

So after all this, can the Financial Services industry disrupt? Perhaps. This industry understands data. They understand customer value. However, legacy systems, silos, archaic practices and a necessary move towards the focus on customer will require some major upheaval in operations, in process and in culture that will some time to fix. 

Image source: SAP

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