Over recent years we have done a few strategic foresight projects for large banking and financial groups in several different countries. We are not banking and finance experts and don’t profess to be. We look from the outside in. The 2008 global economic crisis highlighted a number of concerns about the global banking and finance sector and the way some people in some of the world’s largest institutions in that sector contributed towards the crisis. The fact that a number of major financial institutions had to be bailed out by governments and that few of the individuals who contributed towards the crisis through ‘reckless actions’ have been prosecuted, for what is essentially a ‘breach of fiduciary duties’, seems to be leading, at least in part, to concerns that maybe a follow up global economic crisis is on its way in the next year or so. Because many of the ‘99%’ were hit hard by the crisis, the level of trust customers have in large traditional banking and financial institutions remains at low levels.
What might this lead to?
Our strategic foresight research has identified fourteen drivers of change that are beginning to (and will continue to) threaten to disrupt the sector. In brief they are as follows:
- The rapid growth of e- and m-commerce. All that is needed to effectively manage such commerce is a smart electronic transaction management service. These do not need to be owned by a bank and, as IBM can see, there is an associated opportunity area that may well be customer-centric and completely bypass the traditional banking and finance sector players.
- Strategic moves by non-traditional stakeholders. One of the first was Safari.com with mPesa in Kenya. But now there are many others operating internationally offering financial and banking services that are non-traditional players.
- The Consumer is now ‘King’/’Queen’. The Internet and mobile platforms have given consumers far greater power that they have ever had. That power is increasingly being used to highlight businesses that are unethical, unfair or treat customers badly. Social networks spread far and wide and can share messages rapidly – both good and bad.
- Advances in biometrics and security. More sophisticated ways of digitally proving who you are evolving quite rapidly now and can be used for an increasing range of purposes. RealMe in New Zealand is a great example.
- Digital currencies. Whilst Bitcoin has been controversial there are already many other digital currencies available to customers. Airpoints and loyalty schemes are well-established examples. IBM’s interest in developing BitCoins BlockChain technological platform suggests that we may see some interesting developments in this area in future which may change the playing field quite radically.
- Growth in P2P and social banking. These are a bit like online credit unions with many having sprung up over recent years. These include crowdfunding platforms that enable entrepreneurs, who traditional banking and financial institutions have largely ignored in many countries, to access capital from individuals to fund their new ventures.
- Sustainability. Short-term gains at the expense of long-term stability, credibility and reliability have characterised the strategic approaches of many large financial institutions. And this has led to the demise of a number of big players e.g. Lehman Brothers. Relying on government bailouts to stay in business is not a strategy that endears large financial sector players to the ‘99%’.
- Banking the ‘unbankable’. Traditional banks have generally discouraged those on small incomes doing business with them. That’s because they generally have been following a ‘bricks and mortar’ approach to business which is higher cost. Many have been slow to digitalise. This has opened up opportunities for smart transaction management systems such as mPesa and Kiva to actually bank the ‘unbankable’ and open up a whole new market area. The Grameem Bank in Bangladesh is another great example of an outside the box operation. It combines both social and commercial objectives – a focus on an increasing number of alternative banking and finance sector players.
- New views of a bank branch. One of the most stunning examples we have seen is how the Bank of New Zealand branch in Onehunga, New Zealand has undergone a metamorphosis over the past decade. Originally it was located in a large traditional building typical of banks in the 1900s. Today it is located in very small former retail premises and has just a few staff plus a bank of computer terminals where customers who don’t have Internet access can do all their banking online. In some cases, banks have been set and operate totally virtually e.g. Deutsche Kreditbank.
- The end of the credit and smart card. Many transactions we do online don’t require us to swipe a card in a terminal. All we do is type in an account number and security details. To a quite significant extent physical cards are already becoming redundant. Mobile phone and biometric technologies are likely to accelerate their demise. We are already seeing significant developments in this area with near field communications (NFC) capable mobile phones. Even traditional banks such as JP Morgan Chase are venturing into this area.
- Innovation from Worlds 2 and 3. Prime examples are mPesa and Grameem Bank. Innovative, different and disruptive.
- Changing Consumer Value Propositions. Firstly, the world is becoming more consumer-centric and so there is a power shift that is empowering consumers and reducing the power of large corporations. The explosive growth of non-traditional banking and finance sector options and channels illustrates this shift in power, especially online. Growing ethical, trust and moral concerns are working against those big traditional players who are viewed as acting only in their own interests and not all those they serve.
- Haptic and holographic technologies. Early days yet, but 3D immersion technologies are an interesting development that may impact upon the virtual banking environment in future.
- Advanced mobile technologies. The capabilities and functionalities built into smart phones are becoming more sophisticated year by year. Who knows what we will be able to do in a year or two’s time!
A recipe for disruption
Empires, such as Greek and Roman, have crashed in the past because they became too greedy, geographically extended and difficult to control. Huge banking and finance corporations are a bit like empires. Their biggest challenge at the end of the day is ‘popular support’. If that support is directed towards an emerging cadre of new, innovative, entrepreneurial and more customer-centric players who offer a range of products and services that are more aligned with individual customer needs, the ‘big guy’s may see an erosion of at least one of the pillars that supports their business models. Maybe you can survive by merely servicing the 1%. But whether that is sustainable only time will tell. One thing is for sure, we are certain to see an increase in the disruptive forces acting against the traditional banking and finance sector over the coming decade – especially if a new global economic crisis eventuates in 2017 driven again, at least in part, by what many individual customers perceive to be greedy, customer-unfriendly, unethical and immoral practices and actions.