Time to read: 5 minutes to gain a different prespective
A decade after the financial crisis the banking landscape has altered dramatically. There are now signs of real recovery following a period of intense competition, significant digital disruption and an unprecedented wave of regulation and conduct risk sanctions.
Institutions are returning profits and shareholder returns, risk weighted asset exposures have decreased, investment growth is supported by low interest rates and high stock valuations sustained by modest fiscal easing.
The banking landscape remains the bastion of giants, and these giants have awoken from their forced slumber. Yes, disruptive ecosystem options that are powered by new entrants have secured a strong and burgeoning foothold; in some cases, these new entrants
have returned a profit. Encouraged by a favourable regulatory regime (e.g.Regulatory Sandbox, Open Banking, PSD2, etc.), the options available to consumers continue to expand.
With positive stress tests behind them and increased investment levels, incumbent institutions are, with relative ease, replicating and—in some cases—partnering with ecosystem providers to afford similar offerings to the disruptive new entrants. These incumbents’
institutions are actively standing up digital-only propositions as a means to ‘test, learn and compete’. This is an encouraging development, and from experience the credible capability options available have increased in nature.
Your right to prosper
In some circles, there is the mindset that, now that conditions have improved – a BAU strategic view of the world will suffice; using an approach that is oriented around a focused view of existing customers, and responding to digital disruption through the
creation of a mobile application - ‘voilà!’ strategy complete.
However, this is not quite the case, and raises some interesting questions:
- How strategic is your strategy?
- Is your stated ‘Keeping Ahead’ strategy actually a ‘Keeping Up’ strategy in disguise?
- How robust is your strategy against a sustained and aggressive threat?
- How secure is your strategic right to prosper?
Unfortunately, and all too often, strategies fail to truly leverage insight, foresight and the vision to accomplish either a ‘Keeping Up’ or ‘Keeping Ahead’ position; add to this sub-optimal strategy translation and execution, and business outcomes will
not be favourable.
The Giants’ Causeway: GAFAM
Size begets size—welcome Google, Amazon, Facebook, Alibaba and Microsoft (GAFAM); these giants are not actually organisations, they are marketplaces that wield significant power and influence and these giants are actively advancing into the realm of financial
services (e.g. Amazon Loans, Google Wallet, payments via Facebook Pay by Messenger, etc.). GAFAM have one thing in common and it is pretty simple:
'they make and/or provide things that people want to buy, easy'.
Having worked with these organisations, banks and building societies, GAFAM’s ability to innovative, underpinned by their agility, capability, technology and disruptive mind-set, is unprecedented. At the last count, Amazon had 300m+ users worldwide, with
Amazon Prime customers spending an average of $1,000 per year. Furthermore, Facebook has access to the largest pool of personal data (watch out for the GDPR!). To date, GAFAM growth has been enabled by a lack of meaningful regulation, of course they may change
over the coming years.
I am of the view that banking business and technological strategies should be formed using this reality-informed lens. Roll forward 5-7 years and it is probable that incumbent and new entrant banks will retract and become nothing more than data custodians
and utility providers with disproportionate cost-income ratios.
This is the time to revisit and refresh one’s banking strategy, its’ translation and execution vehicles, and to test the robustness and predictability of its successful delivery.
"Keeping Up or Keeping Ahead has just become a whole lot harder".