There is no shortage of conversation on how banks are being disrupted. Their credibility is still bruised from the financial crisis of 2008, and the rise of mobile technology and internet access is giving new entrants the possibility to chip away at the behemoth of the bank’s own business. From startups to telcos, everyone wants a piece of the pie that many believe banks having been taking for granted for too long.
So what is an incumbent bank to do? We believe this will play out a few ways. Some will be content to ceed some territory, prioritising instead on meeting regulatory demands and maintaining their existing books and client base. Yet, as McKinsey says in a recent report, “Once a credible digital-banking proposition exists, customer adoption will be breathtakingly fast and digital laggards will be left exposed.”
The economics of a digital bank will give it a vast competitive edge over a traditional incumbent. It’s fair to say that getting digital banking right is a do-or-die challenge.
It can begin with a few innocuous products and customers but no real impact to the bottom line. But the technology world moves fast, and traditional banks move slowly. As banking becomes increasingly digital, banks may be left out in the cold or forced into competition in lower-margin, smaller markets with expensive infrastructures they’ll be dragging behind them.
Digital transformation will put upward of 30 percent of the revenues of a typical European bank in play, particularly in high-turnover products such as personal loans and payments.
Some financial institutions will take the Innovator’s Dilemma solution to heart and launch their own new brands, allowing them to disrupt their own business models and set up greenfield operations with new technology, processes and people without carrying the weight of the parent bank on their shoulders.
Digitization will change the traditional retail-banking business model, in some cases radically…that change is coming whether or not banks are ready.
Lastly, we believe we’ll see many institutions transforming themselves to be digital-driven. This will be a difficult, but necessary transformation which needs to address both the underlying technology as well as the people dynamics and processes. This can be done smoothly, with a center-of-excellence model to develop and demonstrate proofs of concept for the rest of the business to adopt and gradually transform to.
Or it can be more drastic, like our customer Jamaica National’s Small Business Loans which looked to fully re-digitize their business from the core-out. Such a transformation is the most drastic but it addresses many issues at the core, allowing the institution to come out with a fresh-found agility and ability to act in a rapidly changing digital-first world.
With Mambu’s cloud banking platform, we will significantly improve our existing operations and gain the business agility we need to provide new digital services that will increase customer service and help reduce the cost of funds to our customers”
Doing this ahead of the market, allows organizations like JNSBL to not only protect their customer base, but to build out new products and customer experiences ahead of the market; grabbing customer and mind-share and revitalized a brand. They see knowning their customers and being innovative as critical not for the sake of it, but for “offering the customers want they want“. Such a move keeps would-be competitors at bay, as few would want to take on an agile powerhouse, and puts pressure on the rest of the market to keep up or risk losing customers.
In essence, it’s about securing the future and not being lulled into a false sense of security