We are witnessing a profound transformation of the banking system, first impacted by the crisis then by the rise of new technologies. The banking system has now raised a number of challenges for the coming years. Banks operate in a demanding environment where regulatory pressures, new uses of consumption, new players and new technologies converge.
This new technological era changes banks that should not miss this digital shift and risk to be overtaken by new players. Digitalization offers new opportunities for banks to place the customer at the center of the development process. Banks have new levers on which they must act quickly.
This article aims at definiting digital in banking industry, its meaning and its characteristics but also its impact on new customer uses and especially on the evolution of traditional banking business models.
Banks have to face a new competitive landscape with the arrival of new entrants in the market (e.g. Fintech). These actors offer new financial services but the novelty is that these players can come from people who have nothing to do with finance (e.g. Google, Orange). Bank customers are increasingly digitalised and are seeking services centered on them and accessible online or mobile. The new generations have changed their consumption habits and banks have to adapt quickly in order not to be overtaken by new entrants in the finance market. These changes are made both externally and internally for banks that have many opportunities to seize but this challenge requires not to miss the digital turn. 88% of employees in banking-insurance believe that digital enhances the competitiveness of companies. Source: Elia consulting and Ifop.
Digital transformation is not really a technological revolution. Indeed, it is the driving force of the 3rd industrial revolution which concerns the development of new information and communication technologies. Digital tools emerged in the 80s. Today, they are used by all of us. First used for military purposes, these technologies arrived in the private sector via the personal computer then we saw the rise of mobile, followed by tablets. These tools have become simple to use andaffordable. Internet access has been a revolution for people who have seen their daily lives change drastically. Today, there are about 50 million Internet users in France, according to “Le Journal du Net”. We can therefore consider that digital transformation is a technological evolution.
It is more of a cultural revolution allowed by the digital transformation as a means of this revolution. Indeed, the Internet being accessible by all makes it a platform of global communication. Businesses often find it hard to keep up with this cultural shift. We see a cultural change of digital transformation with the “uberization” of society and enterprises. For example, the hotel industry is in difficulty with the rise of Aribnb. We find ourselves in an industry where capital no longer has any value and where heritage puts it in difficulty, Airbnb does not possess any patrimony. Traditional firms often lose touch with their customers who prefer these new entrants. All sectors are concerned; we have Uber for taxis or even education with the MOOC (online universities).
Companies need to adapt quickly to customer uses such as collaborative economy. Customers today are more focused on use than possession. Management is also challenged by the new generations.
We hear a lot about Fintech in the financial world as new entrants upsetting the business models in place and which will eventually make the traditional financial players disappear.
But who are these Fintech companies?
In Fintech, there are the “crowdfunding” platforms that allow individuals to finance their projects. That of “P2P lending” which concerns loans between individuals. The Fintech are often start-ups who offer the management of their offers remotely via the Internet or mobile client spaces. They often draw inspiration from social networks and change the way services are offered.
Direct banks, often attached to parent companies, offer services and products as well as similar pricing and are based on a remote relationship with an advisor available on all channels.
Pure-players are independent virtual banks in their own right. They often offer free on the card or on management fees for example.
Other unexpected entrants will also arrive as telephone operators like Orange whose arrival is expected in 2017. Orange wants to play on two advantages: its customer base and its mobile know how. We are also starting to see companies like Facebook (banking service in Ireland), Google (credit line and e-wallet) and Apple (mobile payment solution) that arrive in the finance world and threaten traditional banks.
Banks must take measure of the threats they face and they must not miss the digital shift in order to remain a leader in the financial markets.
Today, more than one customer out of two is a user of on-line banking services. It is therefore essential for banks to have a digital strategy in place. It is not just a matter of the developments of the digital channels used by bank customers but responding to the behaviours and expectations of customers. To do this, the bank must rethink the customer experience, but also its operational processes, its organization, its business lines and all its mode of operation.
Several choices are possible in terms of digital strategy and organization for banks. Customers mainly use digital to contact their bank and banks must be present to answer them. A genuine introspection by the banks must be made in order to define what the bank of the future will be and in order not to be overtaken by new entrants.