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An article relating to this blog post on Finextra:

Forget the hype: Bank customers unimpressed by 'disruptive tech'

The much hyped ‘digital disruption’ in the UK banking sector appears to be a non-event for the majority of consumers, who remain steadfastly unimpressed by noisy new entrants and new-fangled tech.


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Predicting the future is hard, but online surveys are useless trending indicators

A recent study by YouGov and ACI Worldwide seemed to suggest that the whole digital disruption of banking thing all adds up to a hill of beans. The study which says that mobile banking and payments are basically a bust, seems to indicate that consumers aren’t using the tech that banks and FinTech’s are rushing to implement. The data to support this came from an online survey conducted in the UK back in June (I guess it takes a long time to compile data from online surveys).

As can often be the case, the online survey is in conflict with actual usage data from the UK. The British Bankers Association (with auditing of the report provided by Ernest and Young) reported the following statistics during the same period, based on actual traffic and transacting data from British Banks:

  • Banking app logins per day up 45% from 7.2m in 2014, to 10.5m in 2015
  • 6% decline in branch transactions
  • £2.9 Billion transferred each week via mobile payments (up 70% from 2014)
  • 65% - the proportion of all online banking by Halifax customers now taking place on mobile phones
  • 2% the number of HSBC bank payments and transfers still done in a branch

 

There was this amusing tidbit from Finextra regular Ketharaman Swaminathan in the comments section for the article:

“Who is Bret King(sic)? Is he the same Brett King who predicted several years ago that cash, plastic and branch will all be dead by now? The last time I checked, which was about one minute ago, they are all alive and kicking. Despite that, if you want to still read such stuff, suit yourself but I'll stay with my own reading list, thank you.”

Finextra Reader Comments – 18 December, 2015

 

I hope you don’t mind the indulgence, but given that Katharaman called me out, I thought I would clear the air here by bring out some of those predictions Katharaman referred to, and checking my track record with actual adoption data and trends that we see. After all, being a futurist means never being wrong today!

 

BANK 2.0 predictions Circa 2009

In 2005 I wrote a report from HSBC called HSBC 2.0. After hitting my head against a brick wall with HSBC for 4 years trying to get some traction for these radical digital ideas, I took a year off and turned that report into my first book BANK 2.0. I submitted BANK 2.0 to the publisher in December of 2009, and it was on the shelves by late March 2010.

In there I made a number of predictions regarding the future of banking. Given the YouGov report is focused on UK, I’ll talk primarily about UK market in my comparisons here:

Cash and Cheques to decline vs Electronic (Non-Cash) Payments (Page 35)

I included various predictions on the decline of cash and cheque payments. What has happened since 2009 when I wrote Bank 2.0 is that cash and cheque payments have consistently declined, and we’ve not had a single year of increased utilization of these payments methods. Debit and Credit Card usage has increased significantly.

2015 was actually a big year for UK payments as it was the first time cash was displaced by non-cash, but the UK is still behind some other geographies on this front. 5% of adults no longer use cash regularly in the UK (in any one month), and more than 80% of transactions are under £10 in value (Source: UK Payments Council). 2015 saw the fastest decline in cash usage in the last 3 decades. Cash use as share of all payments has halved since 1990.

Countries like Denmark, Netherlands, Finland, Sweden and others are actively in the process of removing the requirement for cash in the economy.

Online and mobile loan applications would become mainstream (Page 39)

I predicted that consumers wanting reduced loan approval times would be a major mechanism in the acceptance of online lenders. Today 35% of Barclays loan applications are done electronically, but at the same time lenders like Zopa, FundingCircle, RateSetter and others are all exclusively digital in respect to lending. As of today Zopa’s loan book now exceeds £1.22 billion in peer-to-peer loans, Funding Circle has lent £993,858,620 and RateSetter £946,433,632.

Lending Club, which the Economist predicted will be the first $10 Billion Unicorn in Financial Services next year, lent $2.24 Billion last quarter up from $1.9 Billion the previous quarter. All online.

Mobile would top retail banking channel interactions; branch would be the least active channel (Page 49)

The predicted average channel activity would be (by 2016); Mobile 20-30x per month, Web/Tablet 7-10x per month, ATM 3-5x per month, Call Centre 5-10x per year,  1-2x per year.

We hit these numbers in 2015 earlier than anticipated.

Head of Technology would surpass Head of Branches in the OrgChart (Page 51, 273)

This one is pretty straightforward. At the time you would have found the head of “Internet Banking” 3 or 4 levels below the Head of Distribution in the Org Chart. This has changed dramatically in the last few years with the emergence of Chief Digital Officers and Innovation leads.

Customers would be involved regularly in the design process (Page 62)

Various banks now use this in advertising as a differentiator. In October of 2014 Capital One acquired the agency Adaptive Path, to reinforce this in their product and channel design competency.

Branch transactional activity, branch numbers and visits per customer per year would decline (Chapter 3).

As per my blog last week, branch activity in the developed world continues to accelerate.  For the UK you’d have to go back 60 years to find lower numbers of bank branches than we have today, and 2014 saw the use of bank branches fall 6% in a single year — the biggest reduction ever. In the US banks like BofA, Chase and Wells have cut more than 15% of their branches in just the last 4 years, bring their branch levels back to that of the early 1980s. While the US has only seen declines of 1–2% per year in branch numbers, branch footprint may be a much better indicator of the waning support for branches. Wells Fargo has reduced their branch square-footage by 22% in just 6 years, and for BofA one-fifth of their branches have already disappeared in just the last 5 years. Here’s another prediction for you - within 5 years there will not be one developed nation on the planet where branch use is not in rapid decline.

Banks would struggle with online revenue due to process and channel silos, but FinTechs would not (Chapter 5)

I’ll just leave this quote from the CEO of WellsFargo here:

“We don’t know how to grow without [branches]… But, we have taken the total square footage of the bank from 117 million square feet at the time of the merger with Wachovia in January of ’09, to about 92 million square feet today, and we’re continuing to go down from there.”
John Stumpf, Wells Fargo CEO
ClearingHouse.org interview

I identified the need for designing online and mobile acquisition processes from scratch and not re-tasking paper forms for online. This is a significant trend we’ve observed since.

I did call out start-up FinTechs as possible disruptors repeatedly in the book, and this was well ahead of the emergence of the FinTech space generally. 

Prototyping would become mainstream (Page 162)

I’m pretty sure this is a thing…

Cross-sell and up-sell ratios would remain flat unless banks could sell through internet banking (Page 174)

Yep, that happened too.

Apple would launch ApplePay with NFC (Page 340)

Back in 2009 this wasn’t by any means guaranteed, in fact, people were still debating NFC’s future and QR Code and App-based payments were seen as viable alternatives. Keep in mind that most banks didn't even have apps at this stage. 

Digital Media budgets would exceed Traditional Media Buy (Chapter 12)

This happened back in 2013.

Banks would allow use of Social Media by employees while at work (Page 361)

It’s not like banks were going to take employees phones off them at the door so they couldn’t use Facebook. In fact, Yammer, Slack and other internal social media tools are now being employed by banks frequently.

P2P, Check Deposits, Bill Pay and Transfers would be required features in Mobile Apps (Chapter 5)

Keep in mind at the time of writing only 1.5% of banks in the US, and less than 3% of banks in the UK even had a mobile app for their customers.

Mobile and Digital investments would exceed branch transformation (Chapter 14)

Not sure about where this one stands. I’d say it’s probably 50/50

Value of Mobile Payments (P2P and NFC) would exceed plastic cards and/or ATM withdrawals by 2016/17

Ok, unless you live in a developing economy like Kenya or Bangledesh, or you live in China, I’m probably going to miss this one...

 

Conclusions

I don’t know Katharaman – I think I did ok with my projections. If you go back through my articles on Finextra you'll find plenty of people who were skeptical about most of these things, especially Apple launching NFC. 

"There are two types of people in the world - those who do the disrupting, and those who don't realize they are disrupted till it’s too late"
- Brett King 

 

 

 

Circa 2009
7427

Comments: (7)

A Finextra member
A Finextra member 19 December, 2015, 22:311 like 1 like

One of the first things I learnt in my startup was not to bother with asking customers what they want. Instead, prototype, present it as an actual product and measure customer appetite that way, typically the Lean Startup

"If I had asked people what they wanted, they would have said fasterhorses." [Henry Ford]

“A lot of times, people don’t know what they want until you show it to them.” [Steve Jobs]

A Finextra member
A Finextra member 20 December, 2015, 07:451 like 1 like

That is it! I am buying 'Bank 2.0', 'Bank 3.0' & Brett King's latest title, 'Breaking Banks'.

A Finextra member
A Finextra member 20 December, 2015, 08:221 like 1 like

There's a mindset difference between the technology-centred and the behaviour-centred question.

The technologist tends to ask 'how can I leverage the new technology to grow my business and help my customers', hence questions like 'when will mobile payments take off?' 'and 'how can the blockchain be used for payments?'. Evidence to date suggests that 'Nobody wakes up in the morning and wants to buy a payment' is unlikely to change because of the advent of the smartphone.

An alternative perspective is to start with 'how does mass market adoption of the new technology create new value for consumers and what business opportunities therefore arise?'

Perhaps that's the difference between Sustaining innovation and Disruptive innovation, as defined in ‘the Innovator’s Dilemma’ . Well worth reading, at least the section on vendors of hard disks, most if not all of whom are now extinct.

'Their customers were pulling them along a trajectory ....that would ultimately prove fatal'. (from 'Mobile payments' is meaningless')

Disruptive innovation is invisible when sought out through the norms and standards of today – though it is starkly obvious through hindsight (from 'Will block supersede stack?)

 

Alex Letts
Alex Letts - U - Sheffield 20 December, 2015, 12:051 like 1 like

If Brett were asked I think he would admit not to incredible foresight, but to banking subject-matter expertise combined with good intelligence. The surprise to me is that another clearly intelligent and articulate man such as Ketharaman Swaminathan is in denial over the erosion of the traditional bank and what this means.  

1.  No Ketharaman, of course the banks won't collapse, but they do face systemic change, and major organsational and technology challenges along with all the other stuff that is hurting them right now.

 

2.  Those banks that do actually change, will operate a leaner, more customer-centric service and will out-compete those banks that do not change

3.  This change will be enabled by much of the good stuff that is coming out of fintech

4. There may also be one or two great new fintech companies that evolve from this dynamic and disruptive soup to add their name to the great (un)banks of the future

Actually I suspect that both Brett and Ketharaman would probably agree on most of this stuff, just that they are starting from opposite sides of the room!

Happy Christmas.

 

 

Dean Wallace
Dean Wallace - ACI - Global 21 December, 2015, 10:471 like 1 like

Brilliant blog Brett. Following the representation by Finextra of the ACI/YouvGov data (the first half was presented mid year, we saved the follow up a Christmas treat :-) I felt obliged to post a blog to provide a fuller picture of the messages we had wanted to present publicly. Not as inspirational as some of your messages, but touches on a fair bit of what the comments above state. 

@ Hamza, loving the quote "If I had asked people what they wanted, they would have said fasterhorses." [Henry Ford]  

 

Brett King
Brett King - Moven - New York 21 December, 2015, 11:59Be the first to give this comment the thumbs up 0 likes

Dean - I did see that, and I thank you for that clarification

BK

A Finextra member
A Finextra member 21 December, 2015, 12:49Be the first to give this comment the thumbs up 0 likes

Thanks Dean. But looks like you opened a bit of a Pandoras Box ..... in a good way ;-)

Brett King

Brett King

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

Innovation in Financial Services

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


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