The volume of digital payments worldwide is soaring and will reach $5 trillion by 2020. This growth is fuelled by new payment systems that are designed to work seamlessly with mobiles, in-app methods or via browsers. There has been huge innovation in this area by the banks, software giants like Apple, and fintechs. This growth creates new opportunities and risks for the retail banks. Continue reading “Digital Payments – Opportunity or Threat”
In the increasingly digital world, the pace of change, of both technology and business, is accelerating. The speed at which businesses need to respond is also increasing. Most IT functions are stuck in the first gear. They are just not able to keep up. Many businesses are side-lining IT during digital projects. Continue reading “Get a Second Gear for your IT!”
Mobile technologies have become the most rapidly adopted technology in the history. Mobile technologies are changing lives everywhere. Globally, the mobile technologies have become a main engine of economic growth. High R&D, declining costs and explosion in available applications is driving this growth.
“Mobile penetration is increasing, the costs of access and devices are coming down, and more and more people in both developed and developing economies are using the mobile Internet as their first—and often their only—means of going online.”
Internet access, mobile phones, and social media have fundamentally changed the way people interact with businesses. Banking is no exception. How people conduct banking has changed fundamentally in the last decade.
Unprecedented connectivity and access to information has put the consumer in the control and not the bank. Consumers are able to seek a better deal and service providers have to work hard to get their business. If a bank does not offer ‘right’ mortgage, with a mouse click consumers can go to another bank. Consumers routinely expect control, efficiency, and choice.
Brett King, bestselling author and banking futurist of Bank 2.0, has recently published Bank 3.0. Here are some themes explored in Bank 3.0.
Four waves of digital disruption
In June 2011, the UN declared Internet access to be a basic human right. Today there are more people with mobile phones than bank accounts. It is expected that by 2016 more than half the planet will own a Smartphone with Internet access. More people are accessing Internet via mobile phones than on PCs. Pervasive Internet access (via mobiles) is becoming an everyday experience for millions of people.
Major waves of digital disruption are hitting the banking business since the arrival of the Internet. Each wave is potentially a game-changer:
The advent of the Internet has fundamentally changed many businesses. Stockbroking, music, and book selling are obvious examples. Similarly, the Internet has changed banking. Consumers have now begun to choose where, when, and how they access their money. The need to visit a branch has diminished. Within 10 years, we have gone from over 50% transactions being performed at the branch to over 95% of the transactions being performed online.
Smartphones (and tablets)
Smartphones are driving a revolution in portable banking. Many countries like the US and Australia have near 100% penetration of mobile phones. China has more than 950 million mobile phones and this number has been growing by 20% annually. An increasingly large proportion of these mobile phones are smart devices with Internet access. Consumers are regularly using mobile phones for day to day transactions such as balance checking, transfers, and bill payments. Consumers can do almost everything (except cash withdrawals) on a mobile that they could do at an ATM.
Mobile wallets and NFC (Near Field Communication) capabilities are already here. Many banks have recently launched mobile (person-to-person) payments. This sets the stage for the third wave of disruption.
Convergence of credit/debit cards and phones
In the UK, two thirds of payments are done on credit / debit cards. With wider acceptance of NFC and mobile wallets, it is conceivable that within a few years these payments would be done by a mobile with a built in card. With this wave the phone will become the everyday bank account.
Prepaid debit cards were the fastest growing form of payments in the US in 2012. The prepaid debit card business has grown from $2.7bn in 2005 to $202bn in 2012. This includes general purpose reloadable cards, payroll cards, and Internet based payday lending cards. In 2011, the prepaid card business was worth $250bn in China.
With pre-paid and stored value cards, many non-banking institutions (e.g. telecom or transport providers) are providing accounts. Technology is making it possible to de-link everyday transaction accounts from the banks.
Story of M-Pesa
Kenya has millions of people without access to banking services. M-Pesa is a low-cost mobile payments system launched by a local mobile phone company. It started off to support repayment of microfinance loans using air-time credit as a payment. With its popularity it was relaunched as a way to send remittances across Kenya, and to make payments. Today, millions of Kenyans use M-Pesa, including many without bank accounts. It is simple, low cost and has a vast distribution network. Mobile money transfers exceeded $1 trillion shillings in 2011. For many Kenyans, the mobile has become their everyday bank account.
In the near future, any major provider will be able to provide everyday banking with mobile phone/ wallet and mobile payments. This has a potential to create a major disruption to the financial services industry.
Banking as a utility
Soon banking will become something we do, rather than somewhere we go.
Banking products will be available whenever and wherever a consumer needs the utility of a bank. Banking will become embedded into financial products. For example, home buying would include a mortgage, and car purchases would have a car lease bundled in, eliminating the need to see a banker or make a separate application. This wave threatens to split banking distribution apart from product manufacturing in a fundamental way.
“Banking is necessary but banks are not”. Bill Gates, 1994.
While we all need the services provided by the banks (e.g. payment systems, access to money/ credit) increasing number of people are obtaining these services from non-bank service providers such as PayPal or mobile telephony companies.
Challenges for the banks
In order to survive these waves of disruption, banks will need to change their technology strategies. There are several challenges they would need to address. These are:
- Customer service via technology;
- Usability and ease of on-boarding;
- Mobile Presence; and
- Power of Crowds
Customer Service depends on Technology
Increasingly, most of our interactions with a bank take place via the Internet, mobiles, or the ATM. A customer may do several hundred online interactions, but visit a branch or use a call-centre only a handful of times. Hence, customer experience is defined by Internet banking support, ease of use, the ease of signing up for new products and services, and day-to-day problem resolution. The branch is no longer central to this experience, but technology investment is.
Customers interact with the bank in multiple ways (online, mobile, ATM, and Twitter). However, the information regarding these interactions is often stored in multiple places and departments. As a result, customer service suffers. Providing a seamless customer experience across channels remains a challenge.
Usability and Ease of On-boarding
Poor usability remains a primary reason why customers leave a website and go to a competitor’s website. Very few banks have a dedicated usability or customer experience team to design critical customer interactions and online processes. Brett King believes that the overall utilisation of the web-channel in retail banks is appalling. The problem is further compounded by cumbersome customer identification and on-boarding processes. Consumers research, make transactions and buy non-banking goods and services on the web, but they generally don’t purchase new banking products on the internet. This remains a huge opportunity and challenge for the banks.
The potential for the mobile network in the sphere of banking is huge. It provides convenient access to money anytime and anywhere. With smartphone adoption rates exceeding 50%, mobile banking has become a must for the banks. As seen from the M-Pesa case, non-bank mobile payments are quickly gaining traction in many developing countries.
Power of Crowds
With the advent of social media, consumers are expecting to be engaged in a dialogue with other consumers and brands. Consumers are increasingly relying on the voice of crowds for advice and recommendations. This means that the power of the brands to influence customers via traditional advertising is diminishing. For strong brand advocacy, the whole organisation needs to be in tune with what consumers are saying, and engage in a dialogue. Most banks don’t even have a social media executive and appear to be underprepared for this challenge. Talking to their customers and solving their problems in an open and transparent way without making the customers jump through the hoops, will remain a challenge for the banks.
The growth in technology and the digital economy will disrupt the way banking will be done from now on. The banks will need to leverage technology more effectively to improve service, the usability and product purchase experience, and accessibility via mobile devices.
CSC has recently published their top technology trends for enterprise IT in 2012. CSC predicts that consumer technology innovations will continue to drive the agenda of enterprise IT. While the economic uncertainties in the world continue, the momentum behind business growth and technology innovation remains strong.
“As the service economy matures, enterprise is changing its view of IT from a choice between lower costs and more value to a new norm of better and cheaper.” In this new world, CSC suggests that IT needs to reduce its focus on the back-office and keep up with the technology explosion at the front of the company.
Cloud Bandwagon Rolls on
The cloud offerings are continuing to mature. The five key elements of cloud (scalability, on-demand, pay-per-use, shared infrastructure, and web access) are now becoming norms of IT service. Both IT and business desire the increased agility and reduced costs promised by the cloud services. According to Gartner, cloud represents the industrialisation of IT capabilities and a new disruptive business model. Just as improvements to supply chain revolutionised manufacturing to become interconnected and global leading to just-in-time manufacturing; cloud services have the potential to do the same to IT.
While the promise of cloud computing remains great, there are a number of issues that are still worrying large enterprises. Issues around transparency and governance, data sovereignty and trust are gradually being addressed by voluntary industry codes of conduct. Enterprises are currently leaning towards ‘private’ clouds that are provided by reputable suppliers.
The digital age has stretched legacy systems to their limits. These legacy systems are holding businesses back from fully utilising innovations, such as clouds, mobility, and consumer technology. More and more businesses are starting to consider legacy replacement / transformation strategies. The benefits of modern legacy systems are beginning to exceed the costs and risks of replacing legacy assets.
Greater Data Visibility
Due to the demands of the digital economy, more and more business data is becoming available online. In the era of the internet, business processes need to be agile. Customers, partners, and suppliers at the other end of these processes also demand that companies’ data have greater visibility. Enterprises can no longer lock their data in internal silos. Instead, enterprises need to consider whether confidential data and information can and should be made available online.
Consumerisation of IT
As more people are using smart-phones, tablets, context aware devices, and applications, interacting with a PC/Laptop are increasingly considered old fashioned and limiting. Almost 90% of new phones sold in Australia are smart-phones. Mobile devices are becoming pervasive; there are already more smart-phones than PCs in Australia. Companies will increasingly need to reach people using these mobile devices. Build-in location awareness, augmented reality, and sensors are redefining how we interact with technology.
Enterprises can differentiate themselves, by leveraging these new consumer technologies, and designing enterprise applications and lightweight ‘App’ libraries that improve productivity and customer experience. Leveraging these new technologies will also enable developers of applications to acquire new skills.
Many businesses are gradually beginning to understand the value of gaining useful insights from vast amounts of unstructured data. With 1.2 billion consumers participating in social media via blogs, Facebook, Twitter, there is a lot of information about customers and businesses on the internet. There is also a lot of data from other sources on the internet, such as YouTube, videos, and podcasts. This large amount of unstructured data presents a challenge and an opportunity. Large amount of data from a variety of sources, company data, social media, video and audio is a challenge to manage and analyse. But those businesses which can extract meaningful intelligence from this data about customer needs, behaviours and trends have the potential to reap large rewards.
An impressive range of new technologies that enable rapid analysis of big data are available in the market. While there is still a gap between the promise and delivery of these new technologies, architects and planners should be considering the opportunities and implications of ‘big data’.
With increasing mobility, users are able to work from anywhere. Many new offices are designed with no designated desks, allowing users to work from any desk, conference room, or shared space. Travelling staff wish to access company systems using not only laptops and desktops, but also smart-phones, tables, and other devices from a variety of locations, such as hotels, the airport, and on the road. Universal access raises concerns about perimeter security. Data theft from mobile devises is also a concern. Enterprises will need strategies to make security robust, while the enterprise perimeter continues to expand.
Rising energy costs and the new carbon tax will force enterprises to think seriously about the costs of computing. As Australia produces most of its electricity from coal, electricity costs are expected to rise rapidly. Within the IT industry, the use of electricity is expected to grow four-fold by 2020. As a result, energy sustainability will need to have a place on the IT agenda.
Tools will be needed for better visibility and reporting of energy use by business units across IT. Efficient energy water use and ethical waste removal will become important. CIOs should begin developing strategies for reducing energy use and improving sustainability.
With thousands of baby boomers retiring every year, business knowledge is walking out the door every day. Some critical knowledge, gained by years of experience, may be irreplaceable. In many cases, there may not be a sufficient amount of new staff to learn from the retiring generation.
Businesses need to make targeted investments in rapid knowledge capture, storage, and transfer. CSC thinks that new human computer interfaces like Kinect and Augmented Reality may allow some retirees to continue to work on the job remotely. Leveraging principles from the gaming industry can improve education and knowledge retention. Such new techniques may be necessary in light of the ‘mass exodus’ of experience.
Globalisation of Talent
Enterprises will search for resources globally in order to find talent at a competitive price. Companies will get work done from places that have good resource pools and which are cost-effective. There will be an increased emphasis on the off-shoring of knowledge work and business processes in 2012. Crowd sourcing and social media may also begin to play a role for skills, content creation, reviews, and feedback.
Enterprises should consider investing in tools that facilitate collaboration and virtual workplace technologies and improve teamwork in distributed teams across countries and time zones.
While many of these trends have been apparent for some time, pace of many changes has accelerated. For example, growth in mobile devices has become a mainstream trend and is hard to ignore. IT and business leaders need to be aware of these trends. They need to understand how these would affect their business and then plan their strategic responses to these trends.