Back in Dec 2011 an
article authored by Rita McGrath from Columbia Business School and published by Forbes outlines five big trends in innovation that would alter the business landscape in 2012. The fifth of these, that ‘oblique competition will become ubiquitous’, is a rather
elegant way of saying that industries will face competition from non-industry competitors. In the context of retail banking this threat is as real as in any other industry. A whole array of non-banking entities are circling and hoping to exploit the much talked
about disparity between the offerings of banks and the needs of customers. Suddenly banks face competition from a number of quarters including the telcos, supermarkets, tech firms and innovative start-ups. Customers who have grown used to limited choice in
banking could soon have a whole plethora of options to choose from.
As Professor McGrath astutely points out in her article:
“Customers judge across their entire set of experiences rather than just comparing your organization to others like it. We want our technology to be as intuitive and user-friendly as Apple products, the service we receive to be as thoughtful as we might
get from Nordstrom, and personalization and ease of payment as good as Amazon’s”
So from a bank’s point of view the competitive frame of reference has expanded considerably and at a frightening pace. The supermarkets, for example, excel at customer analytics so they are probably better positioned to deliver more personalised and relevant
services to customers. The telcos have significant influence over what will become the main banking channel, the mobile phone. But what about the smaller, less established but innovative companies like Nutmeg, Movenbank, Dwolla and SmartyPig? Some banks may
be forgiven for dismissing these assuming that, because they operate at the fringes, they will ultimately have little impact. But this assumption lies at the heart of the Innovator’s Dilemma: incumbents tend to ignore the aspects of the industry most susceptible
to disruptive innovation. More recently Chris Skinner evocatively outlined why traditional banks need to fear these ‘upstarts’ arguing that they should be less focused on looking for profits and more concerned with seeking to “avoid the losses”. The cautionary
point is that, while they’ll start at the periphery and create new revenue streams, eventually they will wreak havoc on banks’ margins.
What’s to be done? The most important first step is to acknowledge the threats and analyse why they may be successful in wresting control of the customer relationship. The second is reimagining banking from the customer’s perspective by crafting a customer
experience that meets the needs of the constantly connected and canny customer. Third is confronting the organisational rigidities that have become banks’ Achilles heel by transforming the customer processes and touchpoints. It’s not going to be easy but there’s
a very real danger that only the banks that embrace this type of innovation will remain relevant in the future.