Financial Services

Digital disruption in banking and its impact on competition

“Play Bold”. If you are a cricket fan like me, and a diehard fan of the Royal Challengers Bangalore (RCB) at that, you would definitely know what I am talking about. The never-say-die spirit is a must for winning, and the banking sector is now forced to play bold where digitisation is concerned. The rise and rise of technological innovation has led to digital transformation of nearly every industry and business. While the digital transformation of banking services was slow on the uptake, it has now become the need of the hour due to growing competition from new-age fintechs, rising consumer expectations and the sheer availability of technology that makes things better, faster. The COVID-19 pandemic has accelerated the digital transformation of all industries, and the banking sector has been forced to up the game along with other businesses.

Incumbent banks can view this digital disruption as  a huge opportunity for launching new products and services. Digital offerings such as mobile banking services, Unified Payments Interface (UPI), and digital wallets have disrupted the banking services industry. Banks can take advantage of their vast resources and data, capital, intellectual property and implicit customer trust with a range of services that will offer stiff competition to other players in the arena. A McKinsey survey found that financial services firms that gave priority to building new business have witnessed a higher revenue growth rate as compared to their competitors.

The disruptors of banking

There are several factors that have contributed to the digital transformation of banking*. The availability of cutting edge technology such as Artificial Intelligence (AI) and Machine Learning (ML) has enabled intelligent services as well as advanced analytics. For example, banks can employ chatbots to answer basic customer queries, and vastly improve customer experience with 24x7 services. The exponential growth of cloud computing, cloud-based services and Application Programming Interfaces (APIs) allows banking systems to communicate seamlessly with both internal and external systems that store customer data. This allows for an unlimited amount of storage as well as hyper personalisation services. Several banks are actively pursuing research around digital currencies, and its impact on banking transactions as we go forward.

New-age fintechs have stepped into the fairly large shoes of incumbent banks, and are doing a fair job of not tripping up. Fintechs are fairly lean as compared to the incumbents, and it is easier for them to build partnerships with other institutions. Additionally, fintechs are not governed by the stringent regulatory requirements for banks. They offer peer-to-peer lending services, digital payment services, and cryptocurrencies, giving stiff competition to banks.

Banks have responded by offering online and branchless banking, e-wallets, mobile banking and upped the anté on asset and wealth management services. Most banks have realised digital transformation is the way forward to providing customer-centric services to stay ahead of the curve.

New avenues to growth

Digitisation has allowed banks to offer a seamless transition between physical and online services. For instance, regular banking transactions and requests such as credit card payments, requests for statements and several other mundane tasks are now fully automated and allow customers to access these services via mobile or internet banking on multiple devices. Mobile payments are increasingly popular, with customers paying their utility bills, credit card bills and conducting other transactions on their mobile phones. Digital wallets are omnipresent allowing customers to access their bank accounts right from their mobile, and make payments.  Loyalty programs and personalised financial solutions let banks be customer-centric.

While fintechs have created small dents in the banking industry, they still have a significant way to go. Unlike banks, fintechs have a limited customer base. Being nouveau companies, fintechs have lower brand recognition as compared to banks, lower levels of customer trust and loyalty, and lesser experience with financial regulatory authorities. A digital world and a mobile-first consumer is pushing banks towards offering digital banking services that are high-speed, convenient and flexible. With this arsenal, incumbent banking can well give fintechs a run for their money.

*For organizations on the digital transformation journey, agility is key in responding to a rapidly changing technology and business landscape. Now more than ever, it is crucial to deliver and exceed on organizational expectations with a robust digital mindset backed by innovation. Enabling businesses to sense, learn, respond, and evolve like a living organism, will be imperative for business excellence going forward. A comprehensive, yet modular suite of services is doing exactly that. Equipping organizations with intuitive decision-making automatically at scale, actionable insights based on real-time solutions, anytime/anywhere experience, and in-depth data visibility across functions leading to hyper-productivity, Live Enterprise is building connected organizations that are innovating collaboratively for the future.

Recent Posts