Disruption is already here. It just isn’t widely distributed yet, as William Gibson famously said about the future.
Most of the disruption we’ve seen in financial services so far has been on the surface, at the Experience Level. Customer touchpoints are often just digital wrappers around the same-old, same-old; especially most of those created by incumbent financial institutions. Think of a simple financial app with limited functionality, such as balances and transfers.
A little deeper down at the Tactical Level, digital connective tissue such as APIs, cloud services, straight-through processing and the like require more work to reengineer the underlying processes, but also enable more meaningful differentiation and operating efficiencies. Think of the best-of-breed financial apps such as those from the digital-only challenger banks and the most innovative financial institutions.
At the core, or Strategic Level, the business is fundamentally changed, and new sources of value and new business models begin to emerge. Think of how blockchain and distributed ledger technologies can bypass the traditional financial gatekeepers and cut out the middlemen, or how artificial intelligence can replace teams of employees performing securities trading, portfolio management, and scores of other largely manual tasks today.
Technological progress sometimes comes in dramatic leaps and bounds, but most of it trickles on relentlessly, but often unnoticed until it’s too late. Organisations who lag in the Experience Level can see it if they’re paying attention. It creates an experience gap – the gap between the experience that customers receive versus what they have come to expect from other providers. This gap is getting wider as experiences from outside of financial services are becoming mainstream, driven by broad customer adoption of smartphones, tablets and apps.
For instance, having a mobile banking app is not an experience differentiator at this point – it’s bare-minimum table stakes if you hope to see any type of customer retention and growth in the future. Bank of America reported in its fourth quarter 2016 earnings report that weekly mobile interactions are exceeding weekly branch interactions by 12x, and the percentage of total deposit transactions taking place on mobile is increasing every single quarter.
If your institution is still playing catch-up at the Experience Level, you probably aren’t even noticing the work already being done to move to create development and communication standards for so-called “open banking”. The open banking movement may eventually turn banks into app stores, where customers can consume products and services from a wide range of providers, all connected to a central banking utility.
This ‘platformification’ of banking, as Ron Shevlin calls it, is still very much a work in progress, but leading banks such as BBVA, Capital One, Silicon Valley Bank and others are actively developing APIs and working with fintech partners to connect and build new applications for customers. The result will be a massive reduction in operating expenses, and the ability to mass-customise products, features and benefits to personalise the experience for banking customers. It’s exactly what most banks need, but you have to play to be able to win.
While innovation snobs may decry the lack of “real” disruptive innovation in financial services, the industry continues to consolidate, and the need to differentiate has never been greater. Just wait until tomorrow.
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