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 organizational rigidities that have become banks’ Achilles heel by transforming the customer processes and touch points. 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.