Will Banks get “Amazoned”?

Unloved, undifferentiated, and incapable of innovation — that’s what today’s digitally savvy users, primarily including high-school students, entry-level workers, and thirty-something professionals, believe about the banking industry says a recent survey of Millennials. And this segment is going to be huge in India. India’s Millennials, 400 million and growing, are increasingly going to do their banking very differently.

Nonbank solutions for financial services are not just imminent — they’re already here. Today’s digitally savvy retail banking customers are rapidly turning to alternate payment mechanisms including Digital wallets. And they’re looking forward to other technology giants entering the market such as PayPal, Apple, Amazon, Facebook, and Google.

Smartphone penetration, connectivity, development of the India stack and the Internet of Things are a few trends that will shape the way consumers transact in the future. 
 Mobile based payment solutions will 
drive merchant acquisition by developing lower cost solutions. Research shows that this can drive merchant acceptance by 10X by year 2020, resulting in over 10 million merchant establishments that will accept digital / mobile payments.
Banks may be sheltering under the assumption that banking cannot be “Amazoned”. Amazon Payments has seen middling success so far in its attempt towards transforming the payments ecosystem. Amazon’s $6 billion processed in 2016 compared to PayPal’s $336 billion, according to Goldman reports.
The music CD is being unbundled as customers buy individual tracks online Power has shifted to customers: it’s no longer about the products that marketers want to sell but about the content components that users want to consume & mash up together.

The new battlefield lies in the control of the user interface and the customer intelligence system that supports it. Companies that build highly equipped Customer intelligence units will win in the coming days.

And yet, Banks often think of Customer centricity as a “fluffy” topic. But Banking tops the list of industries at risk of disintermediation by digitally savvy customers including millennials. And banks seem secure in the belief that this business is very hard to disrupt & too regulated to disrupt. Key findings from the Millennial Disruption Index (MDI), a three-year study of industry disruption at the hands of teens to thirty-somethings (Millennials) found that 71% of Millenials would welcome a new bank from Amazon, Google, Square, Apple or Paypal. And yet there are contradictions: banks are probably amongst the few businesses that have an “extreme level of data” about customers. Banking also was amongst the early adopters of analytics & so has the institutional capacity to understand customers better. And Banks has invested in a huge amount of technology that can enable customer centricity. And yet Technology is transforming the way digitally savvy customers think about and manage their finances.

In India, there seems to be a mad race by private sector banks to show Digital superiority. A lot of Apps are being launched. But at its core, the issue of being Customer centric still eludes many banks. Banks need to be committed to having an innate knowledge of their customer and using that knowledge for the customer’s benefit. Today most analytics teams in banks spend most of their effort in doing analytics that will benefit the bank: reduce risk, increase cross-sell & reduce cost. Maybe analytics focus should change to look harder at spotting customer behavior changes that can help customize products & services.

Chris Skinner, Chairman of the Financial Services Club and author of the book, Digital Bank, said, “A digital bank is a bank built with a vision to reach out to customers through digital augmentation. It is built specifically to offer the customer the service of their choice through the access of their choice.”

Product complexity is one of the main reasons why consumers don’t use Digital instead of cash.

Bank marketing has typically been staid. No bank has tried to disrupt the way it is positioned & in fact risk re-positioning the category or industry. Some years ago, a group in the U.K. asked consumers what brands they’d like to sit next to at dinner. Facebook, Apple, Nike, and a few other brands were mentioned. No bank brands were at the table. Let’s face it bank brands don’t really stir up any emotion in consumers.

With more than a Billion Mobile users & almost 450 million Internet users, there is a dramatic change in consumer expectations. Consumers want banks to be as easy to use as Uber or Ola is for them! Increasingly, banks will need to win the battle against other banks and non-banks to convert those better-informed online shoppers into customers. Paytm has recently launched a bank & recently Axis bank has bought Freecharge, to give wings to its Digital bank plans. Would these banks risk being disrupters or would it be business as usual? Axis bank in one swoop gets over 50 million FreeCharge registered wallet users and over 2,00,000 merchants. Will Axis bank treat this base of “mobile first” customers very differently & create a whole new Digital bank?

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