Bill Gates once said: “the world needs banking but it does not need banks”. Back in 1994, his words may have struck people as a revolutionary, even outlandish notion.
Banks have long played an essential role in our lives, giving us access to cash, loans and mortgages, as well as a way to pay household bills and receive our salaries. When Gates spoke about this in 1994, consumers would have been forgiven for wondering: if we didn’t have banks, what other organisations would provide such services? How could we ever separate banks and banking?
The answer has become more apparent as organisations, from airlines to large retailers, have moved into financial services.
Advances in technology have increased the rate of change and emboldened consumers to look elsewhere for their banking services. In the past decade, we have seen a rush of fintech companies launching disruptive services into the market accompanied by significant investment.
For banks, clawing back dominance requires them to look at how we have reached this point.
Deal with disruption
Digital-first brands have been challenging the dominance of banks by threatening to starve them of a supply of future generations of customers.
These individuals have always shopped, communicated and managed their lives online. The idea of walking into a bank to fill in forms to open a current account will seem alien to them.
This generation needs banking, but they do not feel they need banks.
Banks need to look at what it is about the fintechs that seems so relevant and respond. An obvious issue is innovation.
New fintech companies are more agile and have innovated faster than traditional financial services companies. In part, this is because fintechs have had to innovate in order to be noticed. Without the banks’ scale, heritage and large installed customer base, fintechs are aware innovation is their greatest point of differentiation against the old guard.
Without legacy systems, complex organisational structures and decades of paper-based processes, fintechs have had freedom to innovate. They have also had the means, with investment flooding into fintechs in recent years
To respond, banks must show they are investing in the digital services and experiences consumers crave.
Many are already doing so. Banks such as BBVA and Barclays, for example, are enabling greater cross-channel experiences and more intuitive, more flexible digital services, with a mobile-first approach that is more relevant to the ways in which consumers want to manage their money.
Some banks are also increasingly partnering with – or even acquiring – the very companies who threatened to disrupt their industry. But getting those acquisitions and partnerships right also hints at another change which needs to take place in many banks – cultural change.
Develop social trust – and relevance
Having innovative digital services is no use unless people are signing up to use them. Banks also need to address issues of culture and relevance, especially when it comes to engaging younger demographics.
Just buying or investing in digital services won’t make banks digital champions, or guarantee their success. Banks need to adjust their culture, customer interactions, products and their planning and processes. The change must be more meaningful than just acquiring a fintech, and the commitment must be more holistic.
People who live their lives online and get their news, views and opinions via social media will have been party to a very set narrative around traditional banks: they’re big, they’re bad, and they’re a relic of the way business used to be done.
Since at least the credit crunch, over a decade ago, banks have been cast as part of the problem, not the solution, for many younger consumers (and some older ones for that matter).
Banks are also seen as less relevant by consumers whose lives no longer conform to the life stages traditional banking products were mapped against. Their chances of buying their own home or needing a savings account have never seemed slimmer. The need for a car loan has been replaced by car leasing and sharing schemes.
This question of relevance need to be addressed by banks head on. It is not just a case of acquiring or creating digital services, it is also about how they market those services to get in front of the right people, with messages that will resonate, about products that are relevant. Banks need to develop social trust and reset the narrative around their relevance.
Banks have the scale, heritage, expertise and funding to underpin successful reinvention for the digital economy. But the shake-up in other industries has taught us that it won’t just happen for them. They need to invest in technological and cultural change that reshapes the narrative around their business, excites customers, and keeps them engaged and loyal through the delivery of great experiences.