{"id":4963,"date":"2019-03-21T16:15:26","date_gmt":"2019-03-21T14:15:26","guid":{"rendered":"https:\/\/staging.alainveuve.ch\/disruption-is-the-banking-sector-next\/"},"modified":"2019-03-21T16:15:26","modified_gmt":"2019-03-21T14:15:26","slug":"disruption-is-the-banking-sector-next","status":"publish","type":"post","link":"https:\/\/www.alainveuve.ch\/en\/disruption-is-the-banking-sector-next\/","title":{"rendered":"Disruption: Is the banking sector next?"},"content":{"rendered":"

Two years ago, I wrote an article with the lurid title “Dear Banks, it’s so over”<\/a>. In it, I predicted that it would be very difficult for traditional retail banks in the future. This has come true so far, but what I secretly expected was that there would be a landslide change. This has not yet happened. However, there are increasing signs that the financial sector will be seriously disrupted in the near future. <\/p>\n

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(Reading time 5 minutes)<\/em><\/p>\n

Well-known signals<\/h3>\n

I was startled this week by an interview with the CEO of a small bank in Switzerland<\/a>. When I first skimmed through the text, I wasn’t quite sure whether I was really reading an interview with a banker today or with a fashion retail CEO from 5 years ago. The statements were too similar: growth goes hand in hand with proximity to the customer, which means that retail locations need to be expanded. He failed to mention that he wanted to create very special emotional moments in the stores. The digital onboarding route would only be used by very few customers, they would digitize all processes as much as possible. <\/p>\n

“Proximity to the customer is no longer defined by the physical presence of the provider<\/p><\/blockquote>\n

”
\nI am convinced that the bank has carefully evaluated what its customers would like and I don’t doubt for a moment that the result is that customers really like having branches. Of course, I have nothing against beautiful branches. But I think it’s wrong to focus on customers who are important today. That’s why; <\/p>\n

Building a bank for the next generation<\/h3>\n

You may think what you like about Kai Hudetz from IFH Cologne. I once saw him speak at PayPal around eight years ago about demographic trends and internet usage habits and what he showed me was a lesson: the age groups of the current customer base at the time used the internet selectively and watched a lot of TV, for example, while the younger generation was already doing almost everything on their smartphones and with the internet. His rhetorical question at the time was: And where and how do you think these young people will shop when they reach adulthood? We all know what has happened to fashion retail in the meantime. If we are building business models for tomorrow, it is worth looking at the generation of people who are not yet relevant today. <\/p>\n

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It’s very similar in the banking sector today. A new generation of people is growing up that no longer has any connection to the bank at all. Whereas I used to have a little bank book and a “K\u00e4sseli” (Swiss German for piggy bank), so I had a connection to the local bank straight after weaning, so to speak, my children no longer have that. On the contrary. They were visibly surprised last week when I paid for the hot chocolate on my skiing vacation with cash and not with my cell phone. What will my children do about banks when they are older? <\/p>\n

Banking along the use cases<\/h3>\n

Of course, banking services will still be needed in the future. The key question, however, is which ones exactly and how should they be bundled among the providers? <\/p>\n

I think what makes sense is bundling along typical use cases. The payment transactions of a small company have nothing in common with the financing business of a large production company. Or with the mortgage business or consumer credit. So why doesn’t the accounting provider, for example, also become a bank account and offer a perfect customer experience for precisely this segment? <\/p>\n

The offerings and activities of today’s retail banks can be dissected for each area and assigned to a different, non-bank-related use case. The result is something like “ubiquitous banking”. Banking that is integrated into the respective induced business case – and is ubiquitous and therefore incidental. <\/p>\n

Difficult environment<\/h3>\n

Many bankers are now saying that they are having to hold their own in a difficult environment, alluding in particular to the low interest rates or negative interest rates. The situation is exacerbated by the fact that standard retail banking services are becoming less and less affordable. The more of these young adults reach bankable age, the worse the situation will become. Even today, many consumers think a bank account should cost nothing. It is only a matter of time before more and more providers give in to this trend and see the cost of standard banking services as an acquisition cost for high-margin qualified services. The pressure will only increase gradually. <\/p>\n

A player for the post-banking era<\/h3>\n

So the question is, what could a banking provider look like that is positioned for a post-banking era? I believe that the traditional banking business will basically be divided into three segments. <\/p>\n

One segment is the investment and asset management business. I believe that small private banks are already well positioned here, as the long-standing personal relationship with wealthy clients will remain relevant for business. The challenge for these companies is to support this relationship digitally and to make dealing with customers as easy as possible. <\/p>\n

The second segment is the software providers of use cases in the vertical. ERP providers, POS providers and, above all, the corporations that already have a high level of interaction with customers. It would be fatal to believe that Amazon, Apple and Facebook will not set foot in payment transactions and financing. The somewhat anxious assumption as to why they have not yet done so with vehemence is possibly that they do not yet see the time as ripe to bring about a rapid, comprehensive upheaval in the industry. <\/p>\n

There are great opportunities for retail banks (as well as insurance companies) to enter precisely these verticals through their own services or acquisitions and to offer new types of financial services that can be sold with good margins. The most difficult thing is probably to break away from the traditional idea of what a bank should do. Once this has been done to some extent, it still seems very easy to get in at the moment. <\/p>\n

And the third segment is technology-oriented marketplaces for financial services and transactions that bring the other segments together. With the merger of Finleap and figo, such a player is slowly emerging in Germany. Tink<\/a> and Plaid<\/a> are moving in the same direction. This brings us ever closer to customers’ idea that standard banking services should cost nothing. <\/p>\n

Designing instead of managing<\/strong><\/h3>\n

Combining all three segments will be extremely difficult and risky. Surprisingly, however, the big retail banks seem to be taking exactly this approach at the moment. I wouldn’t want to be in the bank managers’ shoes at the moment. Because the time of administration is definitely over. The cards will be completely reshuffled over the next few years, just like in the automotive industry. And managing will be replaced by shaping – with all its risks and opportunities. <\/p>\n

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