The GAFA approach to Banking. Part I.

It is important to comprehend that due to digital technologies and digitization as such, the banking industry is ultimately becoming a consumer-to-business (C2B) industry, driven by exceptional customer experience (CX) standards being set and (most importantly!) delivered by Google, Apple, Facebook, and Amazon (GAFA).

I have briefly explored this topic in my earlier article – “Would you like to set Facebook as your default Bank Account?” Yes, please.” -, however, given the importance of the matter, there is so much more to add.

Ultimately, the goal for banks should be to be and stay relevant at all times, for all financial and non-financial services, with reliable and enjoyable customer experiences in both the digital and physical spaces. To accomplish this, banks need to become technology companies. They have to think, act, and operate like GAFA does.

The shift to C2B era

Powerful trends have been restructuring the banking industry, forever shifting the competitive landscape. One of the most significant trends is the rise of the importance of the consumer and his experience (I’m not saying that consumers weren’t important earlier, they most definitely were, but now they’re more important than ever) – consumers are increasingly in control, engaging with businesses when and where they want to, often creating value in multiple ways.

Information is everything.

This new type of value is encoded in enormous amounts of data that tech giants are able to capture. Think of Facebook likes or Amazon product reviews here. Having such information (and information is everything!), the tech juggernauts are then able to exploit it to further grow their business, increase market domination, and disrupt various industries (see the graph below).

The dominance of GAFA

As the world evolves more towards the C2B relationships, the major players in this area – GAFA – have been increasingly encroaching on the territory of traditional banks as well. As noted earlier, Google, among other things, has Google Pay & Android Pay; Apple has Apple Pay; Facebook enables you to send peer-to-peer payments via Facebook Messenger; while Amazon, among other things, offers business loans and takes the loan payments out of the sales proceeds of the merchants.

GAFA wants to become relevant in every aspect of your life.

These GAFA moves are part of their broader strategy. They want to become even more relevant in the lives of their consumers, hence, they have been naturally developing the full range of their offerings to include not just shopping, entertainment, or marketing, but also products and services that address people’s health, their homes, and most importantly – their money.

Such an approach has generated even more data that can be analyzed in real-time to obtain customer insights that can be later used to create opportunities for both cross-selling and up-selling additional and/or complementary products.

The threat is real

Having the above stated in mind, banks nowadays are more vulnerable than ever. If they will not re-invent themselves, they are risking to become a mere back-office utility, or alternatively – component suppliers, while all valuable customer interactions will be controlled by GAFA.

By 2020, 80% of existing banking revenues might extinct.

In fact, according to Accenture, by 2020, it is estimated that different business models could impact up to 80% of existing banking revenues. Revenue streams with a high degree of impact could include current accounts, consumer finance, cash management, and small-and-medium-enterprise (SME) payments.

The good thing though is that banks as well have vast amounts of data, established trust (see the graph below; source: Accenture), and necessary capital to play a leading role in the digital transformation of financial services.

On the other hand, despite trust, consumers – especially those in their 20s and early 30s – are becoming increasingly receptive to having their banking services provided by a non-traditional financial service company. Not surprisingly, here we again see Amazon, Google, and Apple.

Therefore, given such a competitive pressure, banks need to move fast and make the right decisions in several crucial areas. These are further explored in Part II.