Written by: John Humphrey, EVP & CRO, Cyber Group Inc.
Value chains are collapsing everywhere! Retailers are using their warehouses as distribution centers. Wholesalers are trying to go direct to consumers without alienating their retail customers. Corporate walls and traditions are collapsing as work from home and virtualization abound. Think about banking and financial services with the advent of non-banks and software companies disrupting the status quo. Banks are under attack from new upstarts like SoFi, and payment solutions like Pay Pal and mortgage originators like Quicken Loans, which in 2017 became the largest mortgage underwriter by volume with their Rocket Mortgage offering. What’s a bank to do?
This phenomenon is not new; it’s just picking up speed. I started my career in banking at Texas American Bank. After getting a master’s degree in 1990, I went to work for a software company that was changing the way marketing and loan origination was done in the top 100 banks. We were purchased by Andersen Consulting in 1993. Because Andersen bought that company, I found myself in the financial services industry practice for Andersen. In that role, I was regularly in New York, Chicago, and San Francisco, as many of the top banks in the United States were in these cities.
At the time, we were in the infancy of the Internet and the foothills of disruption of the financial services industry, particularly banking. I remember a meeting that we had with Bank of America with a team of our strategy guys in the financial services group. The team consisted of 2 senior partners and several very bright consultants. We pitched our point of view on the future of branch banking, which included a strong migration to an online experience. It was 1995, and we were dismissed by the bank’s executives. My how things have changed in twenty years. In an article published in TheStreet.com on June 3rd, 2015, it was written that:
“Bank of America (BAC) plans to operate smaller branches, and fewer of them, while focusing instead on expanding less costly digital options for its customers. Between 2012 and 2014, Bank of America reduced the number of branches 11% to 4,855 and trimmed its full-time workforce 17% to 68,537. While the Charlotte, N.C.-based bank does plan to expand its presence in some key markets, Dean Athanasia, the president of preferred and small business banking and co-head of consumer banking, said the company wants to double the number of digital transactions per day — including deposits made via mobile devices, which already total $3 billion.”
Sometimes you can be right but have the wrong timing. A year or so after the meeting that the Andersen team had with the Bank of America, BOA started to execute their online strategy. For years, they downplayed the cannibalization of their branch network by the online business because the technology was taking jobs away from the economy and that made BOA a target for negative press.
In this value chain, the retail consumer is demanding a world-class experience online from their financial institutions. The disruption is happening to this value chain in real-time, and one can conclude from the above quote that the bank is in a phase of disruption because of changing consumer preferences. Consumer preferences are being changed by other industries as well. One can argue that Amazon changed our user experience expectations forever. On the investment side, applications like Robin Hood are capturing more and more young people. I went to deposit a check the other day (yea, I know) and found a live person on a video screen. I pressed the button and up they popped. I inserted my check and they validated my identity and bam, the money was in my account and I got to ask questions. (for all of you smart guys out there, the amount exceeded the online mobile deposit limits). I’m not sure where that person was but I promise they were not in the bank at that hour. It was a good experience.
So, where does this all end up? Bankers need to invest where the customer experience resides. Those who are investing in technology and shedding traditions will succeed. The real winners will leverage the cloud and create intimate customer experiences, with virtual and leading-edge technologies.
Tomorrow, June 24th, 2020, Cyber Group is hosting a panel event with technologists, bankers and solution providers. The title is “Making Cents of Digital Transformation.” The panel will explore the idea of whether to stop, slow or accelerate digital transformation. My vote will be to accelerate the right projects, but these folks are the experts. You can register here and join the discussion tomorrow. Good luck! The future is upon us!