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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Outlook for Global Bank Strategies in the face of historic disruption

04 August 2015  |  3459 views  |  1

Goldman Sachs recently forecasts that $4.7 trillion traditional financial services revenue could be at risk from disruption. As new entrants, supported by a $12 billion investment in Fintech, disrupt existing business models, using new technology fuelled strategies, I thought we could reflect on what counter strategies banks might adopt that could help and not hinder

In what is arguably the greatest period of disruption in the history of money, I set out to understand possible counter-strategies being considered by global banks, through  interviews with leading experts and study of recent bank roadmaps and publications from European institutions and bank associations.

Weighty customer and client expectations

In retail banking recent surveys indicate an overwhelming change in customer expectations, as they seek to maximise convenience and satisfaction in the rapidly changing digital economy. Similarly large corporate client expectations have also changed.

This is creating significant disruption in both consumer and corporate financial services, driving banks to seriously set out strategies for transformation, modernization and innovation, in order to avoid being commoditised as new entrants carve away valuable chunks of what would traditionally be bank business.

So what are the global banks doing about this?

Could there be a one-size-fits-all solution?

Transaction banking in particular has important relevance for global banks as it helps lower the cost of capital, leverage client base and improve return on equity. Now increased competition and a change in corporate expectations creates an imperative for innovation in services to make them faster, cheaper, more convenient and of course, ubiquitous.

As transaction banking gets further impacted, it seems to me that a "one size fits all" approach may not work. I understand from what experts tell me, and my own work in this area that transaction banking does not enjoy as high levels of standardization as other areas of banking do.

Now new trends in real-time payments and increased interest in new technologies such as blockchain are also adding to the roadmap of global banks such as RBS, BBVA and others, to simultaneously meet new needs from consumers and corporates.

A host of competitors, way beyond traditional

Global banks are no longer simply competing with each other.

In each part of their business, they face new entrants, relatively unencumbered and with much less to lose - freeing them to make choices that may not be open to the banks.

For instance in the foreign exchange business, new international payments providers are employing increasingly sophisticated strategies. Increased need for low-cost cross border payments is driving new types of solutions in each part of the world, but achieving ubiquity had so far proved elusive.

At the same time that consumers and small businesses are turning to P2P lenders and crowd funding marketplaces, corporates are looking at what could save costs to cope with additional pressure on their own business models.

Now as real-time payment systems gain adoption, this is for the first time solving first mile and last mile issues across emerging and developed markets in a way that gives serious pause for thought.

If disruption is the problem, can blockchain be the solution?

With respect to payments, bank roadmaps indicate that Ripple and blockchain are under investigation with a range of leading global financial services organisations who hope these could be significant game changers.

Just as consumer expectations have changed, corporate business is also vulnerable to various peer-to-peer solutions. 

However if banks are to implement blockchain, they must find a way to do so that maintains transaction privacy and meets a host of transactional requirements, but more importantly manages onerous responsibilities to do with money-laundering.

Imperative for banks to validly reposition on trust

Recent publications from European banking associations suggest that banks carve out a niche for themselves by offering identity related services that percolate through all layers of the service architecture, while allowing new OTT entrants to play only on the surface layers.

Banks arguably have a good understanding of our true identities. Experts I discussed this issue with felt that banks have an opportunity to better reposition themselves by treating KYC as a strategic opportunity rather than a regulatory burden, and finding ways for consumers to protect themselves against cyber security and identity loss, or better manage their finances.

If banks are to better utilise customer data, they must first of all restructure their data to transcend current silos.  As hard as it may seem for them to free the data from silo representations, what may be harder still is not angering clients and consumers in the way they use data they possess.

Outlook for 2015-2016

Too much seems to have already been said about bank disruption. The task at hand now is positive action, making lean budgets stretch across legacy maintenance and innovative projects.

In my view this is a call for the very best management skills in order to achieve balance under highly sensitive circumstances, and ensure actions taken continue to rebuild and safeguard client and consumer trust along the way.

What's your view on disruption to global banks? Do you see potential counter-strategies at work and how successful are they, in your part of the world?


Disruption TagsRetail bankingTransaction banking

Comments: (5)

Balasubramaniam Gd
Balasubramaniam Gd - DBS - singapore | 05 August, 2015, 03:44

My two cents this global disruption is going to see emergence of non banking players like Amazon / Google / etc in the respective strong holds. Will this segment move away from their current banking needs which are not available ot will take time to be available will be a key question. With the increased regulatory muddle they have been rather silent in this space both from the Fintech,Blockchain and paymetns.  Again Alibaba today has announced a senior hire from Goldman Sacs this is going to be another space to watch.  Larger global banks and Regional Banks i guess will need to decide the key white space they can leverage on to first maintain their respective dominance , time , people, technology, multifunctional teams, innovation labs, accquistion of fintech start ups its as you rightly say happing too fast.  The risk side is still far from early days to see the orgnaised crime syndicates to innovate and R&D.

We also see many countries adopting Bitcoin and Blockchain and cryptocurrency , Austrtalia being the latest to recognise this as a official currency value.  Its not a great situvation to be but the early movers and niche players i guess will still be banks as they understand have more data on the customers.

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A Finextra member
A Finextra member | 05 August, 2015, 05:52

Balasubraniam GD, you make some great points there. What I should have added and do now, is that it is very dangerous to make presumptions about Asian banking based on what we see in Europe/US.

Actually banks in Singapore seem to have embraced the FinTech phenomenon, with banks and tech companies collaborating to find was to reduce cost and use technology as an enabler. Could FinTech be the platform that helps Asian banks to find top spots in the banking scene?

According to a recent statement from DBS CEO Piyush Gupta, DBS is spending billions of dollars digitising the bank, with less than 10% in frontend apps. Anju Patwardhan of Standard Chartered makes a good point about how banks can leverage regional trends, and developments across ASEAN and Asia. 

So for me, banking disruption right now is distinctly different as you correctly point out, regionally and based on the nature of banks as well as other criteria.

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A Finextra member
A Finextra member | 06 August, 2015, 13:24

The future is less of banks and more of banking services. One can not wish away the disruptors (Startups (Example: Uber), Ecommerce companies, P2P lenders etc.,). The new order will evolve and the new ecosystem will be the coexistence of niche players and banks. Banks will have to shed 'mass' portfolios and move into 'class' business portfolios. As it will not be viable from cost benefit perspective. Rather start or acquire a niche company without legacy capital investment for operations.  So the new strategy is to analyse the business portfolios, retain the profitable and sell out the less profitable. It will not make business sense to compete with say Alibaba for electronic wallets. The business models of banks is not designed for such competition.

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A Finextra member
A Finextra member | 06 August, 2015, 13:43

Thanks Vishwanath, great points. As Brett King puts it in "Bank 3.0", Banking is no longer somewhere you go, but something you do.

Regarding banks shedding mass portfolios, I can see how this could be a problem in emerging markets where they are unlikely to be allowed to pick and choose, as new entrants can. The whole business of regulating "shadow banking", especially where it impacts poorer consumers also comes into question.

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A Finextra member
A Finextra member | 06 August, 2015, 14:01

Agree with your point. However, if one were to focus on a government that is keen to expand banking services through financial inclusion to weed out the unorganised players the perspective shifts. Example is India where close to 50% do not have access to banking services. The government has now created a disruption with a proposal for 'Payment banks' (and Small Finance Banks as well).

Yes 'shadow banking' does cast a shadow and illumination is necessary.

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