The way that mobile is transforming the retail banking world, with traditional functions being stripped from the established players and scrapped over by ambitious start-ups, could make sobering reading for other industries undergoing the same transformation.
A report set for release by App Annie on 15 September will reveal some figures that traditional banks should be deeply concerned about, with the figures pointing to the use of fintech apps becoming increasingly mainstream as the role of the banks declines.
In fact, according to Paul Barnes, Territory Director for Northern Europe and Middle East for App Annie, what is at stake is nothing short of these banks’ very survival.
“The most profitable aspects of retail banking have been stripped off by the fintech start-ups leaving the gamut of the administrative aspects with the established banks,” he says.
He explains that banking is effectively being relegated to simply being the “plumbing”.
To understand this trend, it is worth looking at the basic functions a bank traditionally fulfils.
At the heart there are the core financial services that require banking licenses: for example, a monopoly on the creation of credit in the form of mortgages or small business loans.
It would be going too far to say that these functions are completely safe from disruption: the first digital-only bank in the UK, Atom, got its banking license from the Bank of England in 2015. However, these sorts of services can not simply be cannibalised by a start-up with a good idea and a flashy app.
Where banks are really losing their edge, according to Barnes, is in the customer service functions. This includes services such as foreign exchange of currency, which are now being better offered through fintech apps such as TransferWise. Services such as the online investment management service Nutmeg are stripping away other banking functions.
A crucial development, according to Barnes, is the recent package of measures imposed by the Competition and Markets Authority (CMA).
Announced on 9 August, the CMA announced the new measures to ensure that customers benefit from technological advances and so that new entrants can compete better.
Most importantly, banks will be required to implement Open Banking by early 2018, which will enable personal customers and small businesses to share data securely with other banks and third parties.
This means that the fintech start-ups will be able to create apps that allow users to manage all of their financial information.
Barnes says that this is a response to banks “not being very forthcoming in allowing people to come in and use services.”
He says that unless banks learn how to cash in on the app economy, customers loyalty will be “to the features and functions within the app rather than to the bank.”
He says that some banks have done well at adapting to mobile and digital, but many haven’t.
The report, when released, and the legislation should be a wake-up call for banks. But are there lessons for other industries as well?
Barnes says that all industries need to understand the parameters of the new technology and learn how to put the customer at the centre of interactions.
For example, cheques are still used by some customers. The camera on a mobile phone offers the potential to transform the arduous, branch-based task of paying in a cheque into one that takes ten seconds and requires a simple point-and-click.
Taking this to another industry, in shopping this could involve using the location-based services on a smartphone to serve up tailored offers.
“In order to nail mobile you have to really understand the customer,” says Barnes.
Another lesson is avoiding the pitfalls around data sharing that the CMA ruling exposed.
Barnes highlights the transport industry as one where these issues have been circumvented to the benefit of all.
“If you look at the success of CityMapper, there are these disparate sources of information that historically you would have to have three or four different apps to go to.”
For CityMapper to succeed, Transport for London has had to share data with developers. Over 8500 developers have registered for the open data, consisting of a unified API that powers nearly 500 UK travel apps. Over 42 percent of Londoners use apps powered by this data.
While the dilemmas may vary from industry to industry, all companies should take the lessons from banking about how to adapt to digital and mobile.