The news that Anshu Jain, the former co-chief executive of Deutsche Bank, Germany’s biggest bank, is to join the online lender SoFi is further evidence of the inroads “fintech” start-ups are starting to make in traditional financial institutions. Jain’s move to the San Francisco-based business is just the latest in this direction by former executives of big banks. For example, former Citigroup head Vikram Pandit and ex-Morgan Stanley chief John Mack have each developed investments in small business taking on the traditional bricks-and-mortar banking giants.
Mike Cagney, chief executive of SoFi and a former banker himself, has been reported as saying that the traditional players have become “commoditized utilities of questionable value and little trust” and that smaller, nimbler groups such as SoFi are better equipped to meet customer needs.
This certainly explains how businesses such as the international money transfer service TransferWise and the peer-to-peer lending company Zopa are doing so well. But a white paper recently published by Beyond, an agency focused on improving customers’ experience of digital businesses, argues that – irritating as such upstarts might be to established institutions – large technology companies such as Amazon, Apple and Google are likely to have a much bigger impact. Commenting on the research that led to the white paper, Beyond chief executive Nick Rappolt writes that – unlike the often resource-stretched start-ups that have been seen by many policymakers as the likely competitors to big banks, the large technology companies have both the ability to deal with regulatory hurdles and a wealth of consumer data to exploit. Pointing out that more than half of US consumers have an interest in financial offerings from the likes of Paypal and Amazon, he says that big banks will struggle to retain customers. “Customers are demanding more from their banking experience as their digital-savvy increases, but banks are failing to meet these expectations. In order to keep up with the pace of digital disruption and better meet customer needs, banks need to urgently address their design weaknesses, or risk being overtaken by the tech giants,” adds Rappolt.
There are, however, conflicting messages. On the one hand, the various data breaches by banks in both the U.K. and the U.S. have heightened concern about security to the extent that customers actually value time-consuming security questions. On the other, more than half express an interest in going digital-only for their banking needs – even though a significant majority also regard their bank branches as their first port of call for financial offerings.
The appeal of going digital has been widely acknowledged. For example, Nitin Rakesh, chief executive and president of global IT solutions provider Syntel, has said: “Customers are not as loyal as they once were; they are brand-agnostic and more attracted to ease of access and convenience. Consumers will spare little thought for banks that struggle to technologically renew their businesses. They are simply moving to banks that can provide customers with ‘anytime, anywhere’ access to their services. Those banks falling behind in the digital age will struggle to offer the omni-channel experience and approach that their customers are looking for,” he says. “Outdated systems lead to inefficient operations and ultimately, banks waste money attempting to patch things up rather than properly modernizing their systems. In order for banks to thrive, they need to adapt to the realities of the two-speed world – reduce the cost of running the bank and use the savings to change the bank. In other words, modernize and migrate mission-critical systems in order to engage the digital-native consumer.”
As Rakesh points out, innovations in banking are still hindered by lingering portfolios of legacy systems. Years of constantly updating and integrating new technology has left most banks with a patchwork of technical legacy systems stretching back decades. These rickety systems are causing the IT failures that serve to undermine the traditional banks already struggling to fend off new entrants while all the while fighting to come out from under the effects of the financial crisis of eight years ago.
But it need not all be doom and gloom. Rappolt sees the finding that many customers value the branches as an opportunity for banks to gain an advantage over the online-only technology giants. Much like traditional retailers, they need to present a digital aspect that customers find seamless and easy to use without giving them security concerns while maintaining a physical presence that is complementary.
It is quite a challenge. But it is one that leaders of established banks need to rise to or they might find that all that work on restoring their balance sheets in the wake of the financial crisis will have been for nought.
This article was written by Roger Trapp from Forbes and was legally licensed through the NewsCred publisher network.