Technology revolution brings lots of challenges to almost every area, including banking system. How to deal with the new challenges?
Banks are a resilient lot, they’ve survived the financial crisis and the subsequent regulatory crackdown. But the question now is can they survive their biggest challenge yet. The digital revolution has upended many other service industries, from retail to media, music and taxi-hailing.
Chairman and founder of IDT 911, Adam Levin, said, "A lot of the banks in an effort to sort of come to terms with the new reality of online banking in the digital world are laying off a lot of people. They’re cutting a lot of jobs, they’re reorganizing their divisions, and online banking is kind of the new it."
The digital revolution has undoubtedly already taken a toll on American’s financial giants. Over the last year Bank of America, Citgroup and JPMorgan have shut more than 380 branches. In a third quarter earnings call transcript the CFO of Bank of America, Paul Donofrio, put the closures down to this “shift to self-served digital channels, mobile, online and ATM."
The third quarter earnings report also laid bare the cold hard stats- 18 per cent of BoA’s deposit transactions are completed through mobile devices.
"It’s all about the customer experience. I think the banks were concerned for a period of time that customers would be resistant. They would be concerned based on all of the things that occurred online to actually move more and more people online. But millennials are proving that’s not right. That in fact they want to operate online. They want to operate through mobile devices. So banks are facing the reality of this is the way of the world, they must adapt," said Levin.
The report pointed out that investment in financial technology has grown exponentially in the past decade- rising from $1.8 billion in 2010 to $19 billion last year.
The majority of this investment has been concentrated in the payments area- and this is where banks are seeing the most competition.
"There are lot of lessons to be learned there. It’s also a relatively inexpensive model and from what we’ve seen it’s growing relatively fast, however it’s extremely risky because it’s an untested model. But this doesn’t necessarily spell the end of banks- maybe just the end of banks as we know them," CFRA's banking industry analyst, Erik Oja said.
According to the Citi report only about 1% North American consumer banking revenue has migrated to new digital models. The report also pointed out that financial institutions still have the upper hand in terms of scope.
Levin said, "I don’t think the banks are going to face extinction. A lot of them are too big to be extinct. But they’re going to face challenges, they’re going to face competition. This competition could definitely eat into the bottom line."
"Banking it’s evolved very slowly. In other words what we see in banks today is very similar to what we saw 20 years ago. We still have branches, we still have deposits. I think it will evolve very slowly and I think 10, 20 years from now it will certainly have evolved. Maybe there will be less branches, maybe everything will be done online, but I don’t think the evolution will be as great as with other industries like retail," said Erik Oja.
"But while change may come slowly, as customers shift their behavior and move towards digital solutions there’s no question banks will need to rethink their strategy if they want they want to stay in the fast-lane and not have an Uber moment," said Jade Barker.