The traditional bank model is disappearing. Banks are being assailed from all sides by non-bank entities offering financial services. From payment apps to crowd-sourced loans, these non-banks are finding new ways to connect with banks’ existing and potential customers.
Bankers have been talking about disintermediation for some time, but the industry is at a critical point. Technology, social and business digital communities are taking customers and potential customers out of banks’ networks. They are also upending customer expectation about personalization and convenience.
Consider this scenario: Your customer has been targeted by non-bank businesses. Using a location tracker on the customer’s mobile phone, Groupon sends a 50 percent offer for a nearby bike store. The offer isn’t arbitrary. Groupon has a trove of data about your customer and knows he’s a cycling enthusiast. In response to the Groupon deal, your customer visits the store and buys a helmet and bike shorts. He pays with an app on his phone, such as PayPal, Square or Google Wallet.
Most tellingly, this scenario doesn’t involve a bank at any point and it differs from many customers’ typical bank experience. The offer is tailored and occurs in real time and there are multiple payment options.
Retail bank customers aren’t the only ones with changing expectations. Commercial customers are also taking a fresh look at their operations and costs. Technology, combined with evolving business-to-business, business-to-consumer and consumer-to-consumer models, are dramatically changing the business banking landscape.
Cloud technology has made it easy, cheap and scalable for sellers, buyers, advertisers and marketers to connect digitally. Mobile, cloud’s front end, is literally putting a world of banking and commerce options into billions of hands around the world.
For banks, the challenge is to anticipate potential and existing customer needs before someone else does, and to provide value - perhaps through superior knowledge or customer service - and convenience. Competing with the fast-growing array of non-bank entities can feel daunting. For one, banks face many more regulatory and legal constraints.
But it can be done. Banks need to find a way to harness the same tools non-bank entities are using – integrating into digital communities of individuals with similar interests or demographic traits; using powerful computing to access real-time data and make customized offers; mastering mobile and maximizing cloud use.
While it appears that many banks don’t yet have these capabilities, they need to fast track their development. Proactive, customer-centric banking is necessary not only to grow but to survive. Following are three tactics banks might consider.
-- In-memory computing provides personal touch: In-memory computing is the backbone of customer centricity. It provides real-time, comprehensive and integrated data and predictive analytics. In-memory computing gives banks new ways to tailor products and services and market them directly to targeted audiences both online and in the physical world. Banks can be flexible and fast with product and service offerings, better meeting the needs of each customer and cementing customer relationships.
-- Get on board with mobile explosion: Mobile is the present and the future. Improving the mobile banking experience and expanding its capabilities are essential to retain and attract customers. At this point, most banks don’t need convincing. They know a great mobile experience is fast becoming table stakes for retail and commercial customers.
-- Go where the customers are: As discussed earlier, online communities, from groups of friends to those with similar interests, to business networks, are ubiquitous and becoming increasingly influential. Banks must find these entry points and inject themselves into ongoing discussions in a content-based – not salesy – way. They also need to provide clear value and convenience.
Here’s one way a bank might connect with people who need car loans through digital communities. A prospective car buyer has joined several online communities that are awaiting the release of a 2014 model. Many are planning to buy the car when it becomes available.
By joining the conversation, a bank that offers car loans could establish itself as a resource for rates and other information. Prior to the car’s release, the bank could develop an enticing offer and market it to these car buyers. The loan could be executed on a borrower’s mobile phone using a bank app designed specifically for that purpose.
The threat of disintermediation is real and competitors offering various types of financial services arise every day. Many banks still have the “hometown” advantage in that their customers know them. They have spent decades, sometimes centuries, building their names and reputations. That’s a great foundation but the future is digital and that’s where banks need to be – online, on the go and on top of customer expectations.
Ross Wainwright is head of financial services at SAP