Disruption is defined as the prevention of something—especially a system, process, or event—from continuing as expected.
When Barnes & Noble executives first heard about Amazon Kindle, could they have predicted the extent to which it would disrupt—and ultimately redefine—their entire industry? The banking industry is standing at the precipice of similar disruption. And while the industry has weathered many storms in the past 600 years, the threat of non-traditional organizations rendering traditional banks irrelevant is very real.
“The future doesn’t belong to the big, it belongs to the fast.” – Scott Galloway, CEO & Founder, Gartner
According to a study by Accenture, consumers—especially those in their 20s and early 30s —are becoming increasingly receptive to having their banking services provided by a non-traditional financial services company. While the world’s banks are part of the fabric of society and may seem too big to disrupt, Gartner’s Scott Galloway put it best when he said, “The future doesn’t belong to the big, it belongs to the fast.”
The GAFA effect
Google, Apple, Facebook, and Amazon (GAFA) have disrupted their fair share of industries. Many believe banking is the next industry to be turned on its head by GAFA. It makes sense—each of the four tech giants have already invested significantly in finance. Facebook implemented P2P payments into their messenger app, Apple recently launched the ability for users to send money to each other using iMessage, Google Pay is quietly catching up with Apple Pay, and Amazon has delved into the SME lending space.
With the advent of Open Banking and PSD2 in Europe, GAFA and other agile fintech players have a lower barrier to entry into finance than ever before. The financial stakes are high for traditional banks.
“Over the next five years, new digital platforms and channels will attract 30% of traditional corporate banking revenue.” – BCG
It’s predicted that over the next five years, new digital platforms and channels will attract 30% of traditional corporate banking revenue. In order to compete, not just for new business, but for customer retention, banks must move fast. They will only survive this new era if they disrupt their own processes, reimagine service delivery, and reinvent their technological backbone.
What can banks learn from GAFA?
GAFA haven’t launched a full-scale offensive on the banking industry…yet. There’s still time for banks to learn from GAFA’s past disruptions and prepare for what’s to come.
Lesson #1: Own the supply chain
GAFA have positioned themselves in their customers’ lives, acting as the hub in which other service providers access their clients and deliver complementary value. According to Accenture, banks need to adopt a similar model whereby the bank is the core financial services utility that owns the customer relationship. It then leverages partners to provide additional solutions and services.
Fidor is a European bank that is pioneering open API banking. It provides regular banking services and also participates in the digital banking ecosystem, allowing other financial institutions and startup banks to launch digital banking services using its proprietary bank-in-a-box solutions.
Lesson #2: Put customer experience at the center
Customer expectations are defined by GAFA (and raised even higher by more innovations in fintech). With that in mind, banks must rethink their processes from the customer perspective to deliver outstanding service across the entire customer journey.
Digital plays a big role in that journey. Consumers young and old prefer using websites and mobile applications for their routine banking transactions. The next evolution of this digital customer journey is conversational AI and virtual financial assistants.
Lesson #3: Create value and efficiencies with conversational AI
GAFA lead the way in conversational AI, using their privileged access to masses of data to create value for customers and drive efficiencies in service delivery.
Banks also have access to amazing data that could help them expand the abilities of conversational AI to serve the needs of banking customers—particularly newer generations who are reported to be underwhelmed by existing mobile banking experiences that banks offer.
There’s no need for banks to build these conversational interfaces from scratch. By partnering with AI experts, banks can deliver a conversational interface as part of their digital services, allowing customers to access, interact, and transact with their bank accounts in a more personalized way. Users can authenticate securely to view account balance and recent transactions on their mobile device. They can query transaction history by spend category, set and receive payment alerts, pay bills, and transfer money. What’s different from regular banking is that virtual assistants such as Finn AI can act like helpful financial advisors or bank tellers, making banking more human and delivering a better customer experience.
By observing these lessons and leveraging new technologies to redefine the customer journey, banks can control their own destiny amid the increasing competition from non-traditional financial services organizations.