Changing from within – the supply side
The inherent nature of retail banking makes it extremely difficult to transform over time. In short, products are generally similar, highly regulated and customer decisions are typically driven by price. The situation is aggravated by decreasing margins for legacy services. Hence, measures are being taken to expand their business. Certain employees in banking are starting to come to the other side of the counter – directly interacting with customers in a future workspace environment to emulate an Apple store experience. Some banks are even holding Yoga classes on-site, re-selling merchandise of its local business accounts through its outlets, placing community artwork on display; making the environment more conducive.
Standard Chartered Korea for example, has established their branches inside department stores to better serve and reach out to their customers, especially beyond nominal banking hours. These additional measures will help to enhance customer engagement and loyalty.
Disintermediation and substitution
The burgeoning growth of non-traditional banks – in the form of mobile payments, e-wallet and many more are disrupting the banking landscape. Customers can effortlessly perform financial transactions without the need to reach out to traditional banks. Non-traditional players are leveraging technologies to offer speed and convenience, as a way to disrupt mainstream retail banking players. For instance, a financial startup that uses online systems and data analytics can process numerous loan applications at any one time and complete each application within 10 minutes. This represents a vast improvement as compared to the traditional avenue to gain access to loans from a bank branch.
Customers have more choices
Another daunting concern for retail banks is that customers are more aware of the options they have. They now dictate when and how they engage with banks. Further to this, they are massively influenced by their peers and social media platforms – thus circumventing the direct-selling approach that was effective years ago. Moreover, customers are now exploring more options than before, across different banks and channels; and they have very low loyalty towards their banks.
Competition is changing
The emergence of a growing number of digital banks is creating new competition in the industry. Typically, digital banks do not own legacy infrastructure such as core banking platforms. Their applications are built natively to the cloud environment which offer significant speed, agility and the ability to support new services. Just imagine, what would take a bank six months to develop; digital banks could develop and offer them within several days. Services offered via digital channels such as mobile apps, social platforms or the Internet are making life much easier for the tech savvy customers. Digital banks are also able to provide access to a global network of services without owning a single office branch. This cost advantage can help digital banks to become more competitive with their offerings. The survival of retail banking will critically rely on how they react positively to all these new and fast changing dynamics.