Digital Disruption in Retail Banking

Retail banking has been disrupted like never before, digital technologies have affected the very way the banking used to be. Banks used to compete with other retail banks and other lending services providers. But today, retail banks are required to compete with internet businesses and deliver a customer experience that resonates with millennial and delivered by companies like Amazon and Uber - always on, understanding their needs, predicting their needs and engage through their preferred channel - web, mobile, social, branch/on-site, email, contact center or kiosks including ATM. 

Retail banks are facing fierce competition from new payment banks and wallets sprouting across the world and internet giants like Amazon, Google, Apple and Facebook. Alibaba already has a hugely successful payment service business in Alipay in China, Facebook has started using trials for sending money using messenger and recently WhatsApp and Google Tez has already started payment services in India.

Digital technologies and disruptions impacting retail banking

Here's a brief list of technologies disrupting retail banking:

• Mobile
• Social media
• Big Data and Analytics
• Artificial Intelligence & Machine Learning
• Robotics
• Payment wallets, services & P2P transfer
• Blockchain
• Cloud Computing
• Voice
• Cryptocurrencies

Below is an example of some of the disruptions and their impact on retail banking:

Traditional Retail Bank Value Chain

Let's take a look at typical value chain of a retail bank and high-level activities. I've highlighted customer facing sales and marketing activities and engagement channels in this diagram. It's not meant to be perfect but a representation of what it might be for a retail bank to help us contextualise in a better way.

Today, most of the retail banks allow customers to engage through various channels when it comes to opening an account. However, same number of channels starts going down when it comes to terminating an account. In past, by design retail banks have made it mandatory for customers to visit a branch to terminate their accounts. The process can be so painful at times that sometimes customers don't bother about closing the account at all while keep cursing the bank. However, today in the age of customer and internet, customers want opening and closing an account should be as easy as opening an account or closing an account with Amazon or AirBnB or Uber or Grab; i.e.; without asking any questions and done online or on mobile devices or by a phone call.

Changing Customer Value Chain for a Retail Bank

Wider availability of engagement channels and technologies have changed customers expectations and at the same time availability of data across all touch-points have grown significantly. This is causing retail banks to rethink their customer value chain. Below is an example of changing customer value chain.

Threats to Banks Organisational Sustainability

Digital disruption has put retail banks organisational sustainability at risk. Here we analyse some aspects of organisational sustainability:

• Customer Journey: Most consumer banks do not follow customer journey. The journey is divided across several departments and often these departments don’t talk to each other or share very minimum data. This creates a chasm in customer’s expectations and what experience they are getting from the bank.
• Reduction in Barriers of Entry: Digitalisation has eroded entry barrier into banking sector by miles. Once considered only possible for Governments or very wealthy organisations, today new tech riches have created so many wealthy organisations that they can enter at a very short notice and also regulations have been eased for these tech companies to operate banking services.
• Barriers to Imitation: There aren’t really any barriers to imitation. Imitation could be caught up very quickly by competitors. The different lies in however small time bank has to gain momentum and more adoption. Main barrier to imitation would be customer experience a bank delivers as it requires a cultural change across people, process and technologies.
• New Payment Channels: Evolution of new payment channels such as GrabPay, Google Tez, paytm, ApplePay, Amazon; Facebook/WhatsApp; etc. Emergence of cryptocurrencies like BitCoin, Ethereum

Recommendations to Retail Banks

Here are few recommendations to banks and I am sure most of them are already working on these aspects:

• To stay relevant & compete, banks need to deliver consistent customer experience, need to develop a multichannel engagement model, leverage data platform for deriving actionable insights for targeting customer across their customer(s) journey and preferred channels though mobile engagement is critical
• Coopetition with platforms like Amazon, Google, Apple, Facebook is required to engage with new generations and deliver better customer experience and also learn from them
• Be mindful of cyber-security threat - the more digital the banks become, the higher the threat. In addition, aging & unskilled human resources are also a threat for driving this change. They should be retrained to adopt the change.

To sum it all, I would echo the words "Disruption is here to stay – Disrupt or Die! ". Banks typically work in silos, it's time to break the silos. Creating strategies for digital transformation are important but "Execution is Critical for Success".

So, what do you think our bank of future would look like? Would it be in our pocket, i.e.; in our mobile devices & wearables or would it still be brick & mortar like it is today? Would you be engaging by visiting a branch or sending a text message or interacting via voice with a chatbot? Would you still like to interact with humans or would you rather interact with bots? Would you like to keep multiple, multi-currency accounts, 10 (or as many as you like) credit cards in your pocket and few digital wallets or would you rather have a platform that brings it all together. As for me, I see a combination of all these things and would still like occasional voice of humans and may be a visit to a branch. I think now it's time for me to schedule a visit to my bank :-) #RetailBankofFuture

Happy reading! And please do leave your comments and thoughts and share the article if you like it...after all we are in a sharing economy ;-)

Note: Research done as part of project for completing "Strategy in the Age of Digital Disruption" program from INSEAD by author. There's no direct relations with any particular bank or financial institution but a generalised view on threat of digital on retail banking and where it's future lies.

Additional Readings:

1. Evolving the Customer Experience in Banking: 'Alexa, Move My Bank Accounts to ...': Bain Insights

2. Transforming Retail Banks for Digital Age: Boston Consulting Group

3. Reinventing Retail Banking: AT Kearney

4. Retail Banking 2020: the future of the retail banking industry - PwC

5. The future of customer-led retail-banking distribution: Mckinsey & Co

6. Central Banking in the Digital Age: Bank of Japan

Tags: #Bank, #RetailBank #Digital, #DigitalTransformation, #Analytics, #AI, #Strategy, #StrategyintheageofDigitalDisruption, #SDD, #CustomerExperience, #Platforms, #FinTech, #CustomerEngagement, #BankValueChain, #SocialMedia, #Mobile