The Impact of Digital Transformation and Mobile Apps on Banking

The banks of today will not be the banks of tomorrow unless you're caught in the script of Ground Hog's Day ~ Kevin Benedict

Mobile apps are rapidly replacing branches as the customer preferred point of interaction with banks. Today, customers are choosing their banks based upon the quality of their mobile apps and the services that are enabled.   In recent customer satisfaction surveys, mobile apps were shown to play a significant role in keeping customers satisfied.

In addition, users today are seeking ways to consolidate their personal financial management tools and banking tools all in one application.  They would like a complete view of their personal finances.  The challenge today is these services are often providing by different providers with different apps.

In the following news excerpts from 2014, we can clearly see the impact mobile and online banking is having on banks.

RBS recently announced there has been a 30% fall in the number of transactions carried out at its branches since 2010.  As a result, they are shutting 44 branches across the UK. The number of online and mobile transactions has now surpassed those taking place in branches and ATMs.

Citibank Korea Inc., the South Korean unit of Citigroup Inc. announced it will close nearly a third of its branches, reflecting falling profits in the country and a shift to online banking.  The bank said it would cut the number of its branches to 134 from 190 over the next several months and enhance online services for mobile and tablet platforms.  Source: April 8, 2014 edition of the WSJ
Challenges - Digital Transformation and Banking

Senior bank executives view technology as the biggest cause of transformation to the industry (Source PwC, Retail Banking 2020: Evolution or Revolution). The problem is that executives are not confident about their preparedness for a technology-driven transformation.  Only 20% believe their organizations are prepared for this transformation.

The accelerating demands for mobile apps from business units and customers are triggering a tidal wave of disruption.  This disruption is a huge challenge for CIOs who must transition their banks’ strategies to align with the technology adoption rate of their customers.   

• 50 percent of respondents say their company does not have a mobile strategy. 
• Of those companies with a mobile strategy, 45 percent say it is not aligned with IT objectives
• 36 percent say it is not aligned with business objectives. 
• Tactics are overshadowing the development of long-term strategy.

Source: Ponemon Institute report titled The Changing Mobile Landscape in Financial Services

In addition to the technology related transformations, non-banks are entering into services once
reserved for banks.  For example, Wal-Mart has launched a service called Walmart-2-Walmart that allows customers to send money to other customers using the store’s network of more than 4,000 retail locations.  Source: http://www.bankinnovation.net/2014/04/walmart-enters-p2p-space/

Did you know that most traditional banks draw the majority of their income from loans?  Wal-Mart-housed banks, however, tend to draw more income from fees. Among the 6,766 banks the Journal looked into, just 15 had fee income higher than loan income.  Among those 15 were the top 5 banks operating through Walmart.  Yikes!  Those with low-incomes never get a break!

The world of banking is changing.  Today traditional banks must be innovating at the same rate as their customers are adopting technologies and changing their shopping and buying behaviors.  That is a huge task for those sitting on top of 40 year old mainframe systems not designed for a day of real-time and mobile interactions.


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Kevin Benedict

Writer, Speaker, Editor

Senior Analyst, Digital Transformation, EBA, Center for the Future of Work Cognizant

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***Full Disclosure: These are my personal opinions. No company is silly enough to claim them. I am a mobility and digital transformation analyst, consultant and writer. I work with and have worked with many of the companies mentioned in my articles.

Banks, Mobile Technologies and SMAC, Part 2

This article is Part 2 in a three part series (read Part 1 and Part 3)

For those that missed Part 1, Peter Abatan, my colleague at Cognizant and a banking industry and mobility expert, has been sharing his thoughts on trends in the banking industry.  The following points come mostly from his email messages to me and his blog articles.  He believes Internet and mobile banks will create increasing competition for traditional banks for the following reasons:

• Checks are quickly becoming obsolete.  In fact, the UK plans to phase out checks by 2018.
• Internet and mobile only banks will not issue or process checks; instead they will offer alternatives by which you can make payments. This reduces their operation costs.
• People are carrying less cash than they did 5 ago.  That makes ATMs less important. According to the Financial Times (FT), UK consumers did nearly 10% less shopping with cash in terms of monetary value, in 2012 than in the previous year. FT goes on to say that the use of debit cards and newer methods such as PayPal are making gains compared to the use of cash. If ATMs are needed, Internet and mobile only banks can always join existing ATM networks so that members can withdraw cash.
• Internet and mobile only banks will be able to pay more attractive interest rates because they have few or no branches and fewer employees to support.  This is a significant competitive advantage.
• P2P banking (peer-to-peer), NFC (near field communications) and contactless payment adoptions are on the rise: The number of retail outlets that receive small payments through contactless technology is on the rise, at the same time P2P payments, using mobile apps like Barclays Pingit, are increasing in popularity and enabling users to transfer a limited amount of money to another person or business without going through a traditional bank.
• P2P lending may become the killer app in the banking industry. This is where Internet and mobile only banks can excel. These technology-focused banks can provide P2P lending services, by matching lenders, borrowers and satisfactory interest rates, then charging a fee that will enable them to provide higher ROIs for their customers.  

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Kevin Benedict, Head Analyst for Social, Mobile, Analytics and Cloud (SMAC) Cognizant

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***Full Disclosure: These are my personal opinions. No company is silly enough to claim them. I am a mobility and SMAC analyst, consultant and writer. I work with and have worked with many of the companies mentioned in my articles.