Technology changes the world so rapidly, transforming all industry sectors one after another. Tech giants are the ones who deliver an innovative user experience, ensuring both business and customer with brand new capabilities and challenges. The good example of “changing the game” is smartphones. They re-created communication process of companies and their clients, and there is no way back now. Smartphones have disrupted so many business models, which led to “sink or swim” kind of challenge for many companies. Those who were able to deal with pressure of digital disruption have turned technology to their advantage. Those who weren’t… Well, in modern world you must be ready to change on a daily basis.
Retail, media, music industries were the first ones to face the issue. It’s hard to imagine how to deal with a loss of almost 50% of revenue, but I do believe that major record companies know how it feels. And what about paper media? Newspapers are obviously losing the game to digital media, watching how advertisers turn their backs on them.
But what about banking sector? It’s hardly comes to mind first when you think about digital era transformation. It seems like IT might work out well for banks, but in fact there are many problems that industry is dealing with now, like bitcoins or blockchain. So how quickly should banks prepare for a change?
Well, there are quite different opinions. Some experts are forecasting a major shift of finance operations to digital tools within next 5 years, others are more positive regarding amount of time.
Report by Citigroup (May 2016, “Digital Disruption”)says that digital models gathered no more than one percent of US-based customers. So it’s kind of far away from the point-of-no-return for “regular” banking sector. At the same time, banks have invested near one percent into digital banking services. Thus, financial tech giants may have an advantage of innovation, but they do not overcome standard banking approach yet. Same with Europe, by the way — only 2 percents of EU-based customers tried the “digital advantage” of financial tech companies. Citigroup report states that this will not last long and will quickly disappear. Which is doubtful, to say the least.
Banking industry must realize that it’s only a matter of time. Five or ten years, but there will be a change. “But it will increase to about 10% by 2020 and 17% by 2023.”, reports Greg Baxter, Citi’s Global Head of Digital Strategy.”
“Silicon Valley is coming,” wrote JPMC CEO Jamie Dimon in his 2015 Shareholder Letter. “There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking.” Competitors are coming in the payment area as well as in the lending business. “[T]hey can make loans in minutes, which might take banks weeks… there is much for us to learn in terms of real-time systems, better encryption techniques, and reduction of costs and pain points for customers.”