Steve Percy
President, Diolkos Commerce Solutions
January 2021
There are many things that keep banking leadership up at night. Covid-19 has had a huge impact on the economy which has placed a huge amount of pressure on not only internal operations but also revenue streams from loans, both business and personal. The avalanche effect of loan losses pushes downhill with implications to Capital and their balance sheet, infrastructure projects, and cost management at every level. The Public’s eyes are wide open to the banks responses to this challenge and let’s face it, the banks have been fighting an image recovery battle for a decade now and both Regulators and the Public have long memories.
Compounding these very real business and PR challenges plus the ongoing regulatory efforts to remove systemic risk from the banking system, the maturing of the Internet has brought forth significant technical and business challenges to Bankers. Experts have compiled lists over the last decade and most prioritize these top 4 including:
1. Disintermediation (real revenue impact as banking services move outward)
2. Payment Fraud and Theft (Hackers from anywhere in the world - Modern day Bonny and Clyde)
3. New methods in the area of Risk Management (in their DNA), and
4. Challenges to Sustainable Profit Growth – a..k.a. Systems Expenses (keeping those Institutional Investors happy is a grind)
Each of these areas has numerous challenges but Disintermediation by way of Fintech has certainly risen to the highest level of importance.
Two to three years ago Deloitte published reports discussing Fintech inroads from a financial perspective and how the banks were fighting back with their size and customer stickiness. The strategy appears sound but the market loves to move. It is proving out that banking behaviour is generational, and those in their 20’s bank differently than those in the 50’s and 60’s. Add to that in the year 2020/21 is that Covid-19 has forced many in all generational groups to jump over some behavioural barriers and has shifted the transactional market in both purchase decisions and payment methods used.
Chris Skinner in his January 2021 BLOG shares some insight into one global banks executive’s latest concerns on Fintech disintermediation. Consumers are demonstrating that they don’t want to wait for the banks and their massive industry partners to build capabilities that they are interested in using as Fintechs with advanced payment capabilities are moving into the deposit acceptance space as their customer deposits now represent a competitive force.
11FS
Chris Skinner
Jan 2021
Jamie Dimon is scared sh*tless of FinTech
“It’s a big moment when one of the most respected bankers in the world Jamie Dimon, Chairman and Chief Executive of JPMorgan Chase which is one of the most highly valued banks in the world, says that he is “scared shitless” of FinTech.
This is a $3.4 trillion banking goliath but, when asked his views on Big Tech and FinTech, his answer was:
“Absolutely, we should be scared shitless about that. We have plenty of resources, a lot of very smart people. We’ve just got to get quicker, better, faster. … As you look at what we’ve done, you’d say we’ve done a good job, but the other people have done a good job, too.”
Dimon said he sent his deputies a list of global competitors, and that PayPal, Square, Stripe, Ant Financial as well as U.S. tech giants including Amazon, Apple and Google were names the bank needs to keep an eye on. The rivals are also clients of JPMorgan’s commercial and investment banking in many cases. Competition will be particularly tight in the world of payments, he said.
No surprise there.
He then had a pop at Plaid, saying that they mis-used customer data and privacy, and said that he’s briefed all of his management to be frightened.”
https://thefinanser.com/2021/01/jamie-dimon-is-scared-shtless-of-fintech.html/
What is clear is that the largest of banks are working on new payment capabilities that are far from ideal from a cost perspective. To compete on a level playing field they need a solution that can aid them in removing existing infrastructure yet provide the same services to their customers and retain the same transactional revenue streams.
Accenture's Dec 2020 Consumer Banking study identified that in just one year of Covid that banks have seen an impact in consumer trust and in turn loyalty. This is a huge issue. Banks need to deliver an everyday solution to retain their customers attention and build back that trust. They need to simplify their digital transactional interface and build back a working relationship with their customers rather than the current sell-sell-sell model.
Accenture
Dec 7, 2020
Accenture’s 2020 Global Banking Consumer Study, based on a survey of more than 47,000 consumers globally, builds on two similar reports from 2019 and 2017. The latest report reveals that without a strong emotional connection with their bank, customers are more likely to view banking services as a commodity, with price being the ultimate competitive differentiator. Specifically, nearly four in 10 consumers (37%) ranked value for money as a top three factor, making it the most important factor when dealing with a bank, an increase of 10 percentage points from two years ago.
The report notes that while banks have long been encouraging consumers to use digital channels for transactional banking activity, there was no way to predict how aggressively that trend would accelerate as a result of COVID-19. While banks often view broader digital adoption as a way to lower costs and provide services 24/7, the rapid pivot to existing and hastily launched digital services has all but removed the vital human element from banking, further eroding consumer trust. For instance, less than one-third (29%) of surveyed consumers trust banks “a lot” to look after their long-term financial well-being, compared with 43% two years ago.
RESEARCH REPORT
In brief
Our Banking Consumer Study examines how consumers’ behavior and preferences have shifted due to the pandemic.
The rush to digital is depriving banking of its traditional human touch.
This poses the risk that it will become commoditized, price-driven and incapable of shoring up declining customer trust.
Banks that infuse humanity and personalization into their digital interactions can forge strong customer connections, build trust and drive growth.
https://newsroom.accenture.com/news/rapid-shift-to-digital-banking-during-covid-19-accelerating-erosion-in-consumer-trust-accenture-report-finds.htm?_ga=2.140915954.1776295671.1612801912-808201256.1612801912
To bring both retail and business customers back into the branch and re-connect with them on a relationship basis, they need to provide something entirely new. Something that is transformational. Something that demonstrates that they are competing globally on all services and can remove all questions of concern from their loyal customers.
On a daily basis, Payments are known to be the highest used banking service for consumers and businesses. If banks want to re-connect with their retail and business clients then they should look for a solution that will bring a new value proposition with new features unattainable in today's platforms. And if they can reduce infrastructure costs, significantly reduce risks, retain and grow revenue streams for sustainable profit growth, then all their other stakeholders will be served at the same time. The new WEF world of Stakeholder Capitalism takes a step forward before criteria are even defined.
Hmmmm.....Maybe they should look into Diolkos.
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