Have the Banks already been disrupted?

“Banks were once the corner stone of the community but today their industry is being disrupted and disintermediated. Despite spending over £200 Billion on business transformation last year alone their industry is facing a Cultural Shift which will be more damaging than anything else they’re facing.”

Over the past two weeks I’ve talked to a number of senior C level executives from some of the UK’s largest retail banks to understand more about their views of the world and their perception of the market and while outwardly little looks like its changing at the Big Five banks their executives are not sitting comfortably. There were two quotes that stood out for me and they were “My children don’t see Banks as a brand any longer” and “ We’re at risk of being turned into dumb pipes”. I’ll hasten to add that both of these quotes were from executives from two different banks but they both conveniently capture two paradigm shifts that could accelerate the decline of the industry as we know it.

Apathetic? No, I just can’t be bothered

On the one hand you have a growing apathy and disenchantment towards the banks which of course hasn’t been helped by the recent LIBOR, PPI, Forex or Bank Charge scandals. Many people I speak to feel the banks have forgotten their role in our lives – to help us grow our savings pots, not take more from us in charges than we make in interest in ten years and to help us make our money go further, not just hail new mobile banking apps as the next great innovation when they should simply form part of an overall consumer service improvement strategy. 

This cultural malaise and general discontent with the existing industry status quo is ‘The Why’ people will look for alternatives but if all banks have similar reputations then consumers are simply trading ‘Bad’ for ‘Not as bad’. Consequently, just as we’ve seen in the Energy and Utility sectors people are more often than not predisposed to stick with the devil they know.

The rise of Alternative Finance

On the other hand you have a ground swell of tens of thousands of increasingly well funded Fintech Entrepreneurs whose VC funding last year increased 127% to $12.5 Billion. Their founders are busy scouring the markets, listening to consumers and using agile, low cost 21st Century technologies to design new, easy to adopt financial products and services like Peer to Peer lending, Bitcoin and blockchain virtual currencies, AI driven Wealth Management solutions without the Wealth Management advisors and elegant API driven Personal Financial Management solutions that give consumers new investment choices and more control over their family fortunes. Not only does this give us ‘The How’ people switch but more importantly it gives us the ‘Where to’.

When people are disgruntled but have no where to switch to they’ll more often than not stick and suffer with what they know but when there is a significantly better alternative, whether you measure that in terms of ethical conduct, trust or return and when switching is easy then they’ll begin moving and if enough people move then you end up with an irreversible Cultural Shift and that is by far the single biggest threat any unprepared industry can face.

Conclusion

Every industry is undergoing some level of disruption and for some its more extreme and happening faster than others. Organisations need to review and adapt their technology, culture and business practises and become ‘Future Fit’. Today no organisation has the right to exist, they have to earn the right to exist by serving their customers needs better.