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Are Banks only in 'Banking' business?

According to US law, any institution offering deposits, subject's withdrawal on demand and marketing loans of a commercial or business nature is Bank. The Oxford dictionary defines a bank as – "a bank is an establishment for the custody of money received from its customers .It's essential duty is to pay their draft on it, its profit arises from its use of money left unemployed by them."

I think, over last few decades, banking has taken a giant leap and banks are no more "only" in the business of accepting deposits and lending them to make profit. There are ample examples in the corporate history where firms failed to understand their core business and were forced out of business. Let's take a look at a couple of examples.

The Kodak moment!

Kodak was the undisputed leader in the photo film business. In early 1980's Sony introduced a digital camera. Kodak had invented the same in 1975, but due to executives' fear that investing in digital film would cannibalize their business; they did not implement any disruptive change in business model for very long. In 1996, Kodak launched Advantix Preview film and camera system. Key feature of this system was that users could preview their shots and decide how many prints they wanted. But, the system still used film and emphasized print because Kodak always believed that they were in the photo film, chemical and paper business. Kodak failed to realize that in fact they were in the business of storing memories for people, which could be done more effectively and conveniently by using a digital camera.

How Blackberry smartphones got outsmarted!

Till 2009, BlackBerry was named by Fortune magazine as the fastest growing company in the world, with earnings exploding by 84% a year. In less than a decade, the company is almost out of business. The primary reason for this is that Blackberry did not evolve with changing times. BlackBerry failed to anticipate that consumers will drive the smartphone revolution and not business customers as corporates were shifting to Bring Your Own Device (BYOD) kind of policies. Blackberry always believed that they were in the business of communication. They did not realize that the business had moved much beyond and included many other businesses like video streaming, social media access, content sharing, e-commerce and so on. BlackBerry insisted on producing phones with QWERTY keyboards, while users preferred touchscreens that had much easier navigation.

What business are the Banks in?

I believe, today the businesses are driven by customer experience. Banks' customers' expectations are influenced by Fintechs operating in financial services space and even by companies like Amazon, Facebook, Uber and Google. It's high time for Banks to transform themselves into an agile and smart enterprise that can shift gears readily with changing times. Many Banks across the globe are still stuck with age old legacy systems and complexities they have built with various M&A in the past. Banks must realize that banking business is now all about speed, convenience and personalization. You can no longer have standard products for masses. The products and services will have to be made more and more personalized and Banks need to get much more intelligent about their customers. Customers expect instant transactions. If one can book a cab instantly just by a couple of taps on smartphone, why can't Banks do the same when one asks for a personal loan?

It's now or never for the Banks. Banks must embrace technology and analytics to add speed, convenience and personalization to the business. Else, it's not too long before competition will make such Banks irrelevant. And, before the Banks have realized, the invasion has already started by Amazon (Click 1 and 2 for more details)! 

1- https://thefinancialbrand.com/71037/amazon-checking-banking-alexa-chase/ 

2- https://www.finextra.com/newsarticle/31789/bank-of-amazon-could-woo-70-million-us-customers-within-five-years 

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Vaibhav Grover

Vaibhav Grover

Assistant Vice President

Genpact

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26 Sep 2017

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Gurgaon

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This post is from a series of posts in the group:

Disruption in Retail Banking

Growth in internet and mobile technologies has transformed many industries and economies. The market forces and competitive landscape has completely changed in many sectors. iTunes has fundamentally changed music industry, Amazon has driven most big brick and mortar book sellers out of business, Expedia is one of the worlds' biggest travel company….. the list goes on. Internet and mobile technologies are big disrupters for most industries. What started (and tapered a bit!) with the dot com boom of 2000 has become a lethal threat to most business models today. Powered by mass adoption in mobiles phones, proliferation of smart phones and cheaper band-width, internet and mobile technology have changed many industries. The banking industry in has been dominated by a handful of big global or regional banks for 100s of years. While the credit crisis has shaken this industry, the core market forces for the industry have not changed. Will Innovation in Internet and Mobile technologies disrupt retail banking? Will there be 5 new names in global top 10 retail banks in 2020?


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