There's a great deal of discussion and debate around what will ultimately happen to banking as a result of the massive changes in connectivity, utility, mobility and customer experience taking place right now. One thing is for sure, the world is changing, and fast.
We see PayPal owning online payments, with others like Stripe hot on their tails.
Square is attempting to disrupt the POS and circumvent the existing payments rails by going cardless.
Simple and Movenbank are vying for the new definition of the 'bank account.'
Telcos, like Rogers, are applying for banking licenses, and ISYS is pitching head-to-head with banks for mobile wallet dominance in North America.
Facebook and Twitter are becoming increasingly dominant channels for customer dialog.
Then, the mysterious iPhone 5 threatens to disrupt our payments experience in ways we can only imagine!
New Disruptors Abound!
Intermediate or Disintermediation?
So are banks getting disintermediated in all this? Well, yes and no. In classic economics, disintermediation is generally defined as the removal of intermediaries in a supply chain: "cutting out the middleman." So there's not too many middlemen in the typical retail banking distribution chain. To some extent in financial services this is already happening with the decline in stock brokers, insurance agents, etc in favor of direct. However, conversely, a bunch of newer aggregators and intermediaries are popping up as the interface to the bank or payments providers.
New intermediary plays in the last couple of years include Square, iTunes, Simple, Mint, and others. Probably the most interesting new intermediary to emerge in the last year or so is Google Wallet (or Google, or THE Google wallet - not like THE Facebook though...).
So we're likely to see more variations on a theme in banking and payments, where new players are coming into the ecosystem and offering value beyond the traditional methods of distribution. In its purest form, this will be simply a challenge to the branch-led distribution model. How so? Ultimately, with mobile banking and payments, the branch and resultant paperwork processes becomes a convenience "penalty" for transactional and basic onboarding. This friction is a target for disruptors. A great example is Square -- after just 18 months of operation, Square supports one-eighth of all U.S. merchants. They didn't exist two years ago. How did they do it?
Square targeted the friction in onboarding new merchants for credit card operations in the retail environment. They made it far simpler than setting up a merchant account through a bank.
Disruption and Disenfranchising
The disruption that is occurring in the customer experience space is all about removing friction in outmoded or outdated processes for customers. Whenever you tell a customer he needs to fill out manual forms or paperwork, or you need him to visit a physical location today, you're going to increasingly get kickback from a segment of the market. While many will argue passionately for the role of a face-to-face interaction and the "richness" of the branch experience, the reality is that there are two reasons why most customers will increasingly avoid that.
Firstly, customers don't have the time or they perceive it is faster to go an alternative route -- convenience was always a key driver for disruptors like Amazon and iTunes and was a key component of their replacing bookstores and video rental stores.
Secondly, we're being trained that you can open pretty much any non-bank relationship completely digitally today -- so KYC (Know-Your-Customer) issues aside, the push is for rapid digital onboarding of customers. In usability terms we call the later a design pattern and it ends up driving consumer's expectations because it is an entrenched behavioral expectation.
Digital natives won't be able to figure out why you can sign up for Facebook, iTunes, PayPal and other relationships completely electronically, but your bank still requires a signature. It defies logic for the modern consumer, and no amount of arguing regulation will overcome that basic expectation.
The end result of this is that banks being the slow, calculated and risk adverse organizations that they are, will likely allow disruptors the opportunity to come into the space between the bank and the consumer as a 'friction' eliminator.
Secondly, geo-location and context of banking products and services, will mean a marketing and engagement layer that is built on either event or location triggers to recognize the need for a financial services product and the capability to stimulate an engagement or journey in real-time.
The mobile, wallet and tablet are all key components in this shift, as is social media and the cloud to some extent.
The outcome?
In the end banks will, for basic products, no longer exclusively own the end consumer. They'll simply be the underpinning bank manufacturer that supplies the product to a new distribution channel or channel partner.
So will banks be disintermediated? Not really, but they will be disenfranchised, losing direct relationships with customers as banks adapt to becoming pervasive providers of bank products and services, when and where you need them. A split between the distribution and manufacturing of retail FI products will be the core outcome.
Banks can not possibly own the telcos, mobile operating systems, marketing companies, retailers, locations and other elements that will drive the delivery of banking products and services in the near future. This is where the customer will live -- this is where they'll engage. I won't come to your branch, download your "App" or even visit your website to directly engage the bank if someone else can deliver me that product as I need it.
Follow Brett King on Twitter: www.twitter.com/brettking
The first issue is easily fixed and I just can't understand how Square, whose COO is after all a former PayPal executive, doesn't deem it important to provide a number for their customers to call when they have a question. The second issue is much more complicated, as it has to do with risk management, but Square should at the very least do a better job at communicating its policy.
Still, overall the Square guys are doing a great job and I'm confident that they'll improve over time. http://blog.unibulmerchantservices.com/square-mobile-payments-customer-service-phone-numbers-and-money-holds
Prime Performance (www.primeperformance.net), recently surveyed over 12,000 bank customers. The findings from this survey show that the branch continues to play a vital role in the customer experience.
1. Even though branch transactions are declining, branches continue to be highly visited. In 2011, 59 percent of customers performed a teller transaction at a branch within the last two weeks including 56 percent of Gen Y customers.
2. Most customers still choose to open their bank accounts in a branch. Almost 3 out of 4 bank customers said they opened their most recent account in a branch.
3. Customers claim convenient branch locations is the primary factor in selecting a bank (even customers who opened their account online).
4. While self service channels can play an important role in the customer experience, interactions with bank representatives are, by far, the primary drivers of customer satisfaction. Still in its infancy, mobile banking is showing virtually no impact on customers’ overall satisfaction. Customers value self-service channels, but don’t see them as significant differentiators between banks. Ultimately, their interaction with humans has the greatest affect on how they feel about their bank, for good or ill.
As long as customers continue to place significant value on branches and the interactions they have with representatives, banks needs to continue to make the branch the cornerstone of their retail strategy.
Firstly, don't ask customers what they want, but observe their behavior. In 1990 the average banked US consumer visited their 'branch' 2-3 times per month, today that is 2-3 times per year. Last year 18% of US consumers didn't visit a branch at all.
Novantas reported last year that there's also been a significant drop off in branch activity around transactions. Namely that between 2006-2015 over-the-counter transactions in-branch will have declined 56% in the United States. This is based on convenience as the core driver - it's simply easier to do that stuff ex-Branch.
Now put in their hands a device that further accelerates the shift away from transactional, in-branch banking, and branches purely become deposit points for cash businesses and sales points for the rest of us. Put all that together, and regardless of what customers might think they like, the fact is behavior doesn't lie. People aren't visiting branches as much, and that is only going to get worse. A reduction in branches is the only viable option as the economics of branch banking breaks down.
Bankers place significant value on branches. To customers, branches are just one channel we might use - not the overwhelmingly best channel.
Look at interactions with any major or regional retail bank in the US today and look at average number of interactions with the branch. You'll see an undeniable decline in branch in the mix, and there's nothing to stem that tide.
BK