Digital revolution provides pitfalls and opportunities for traditional lenders, writes David Parker
DO YOU enjoy the banking experience? For around half of customers, the answer is probably not.
It is something that has to be done and if we delve a little deeper, few of us are likely to expect to get any fun out of our banking activity. And yet, attitudes are changing.
In today’s age of digital banking, we all expect our experience to be “easy” and “effective”, with services both seamless and frictionless. Therefore, it is not such a big leap to see a generation of banking customers over the very near horizon who expect their bank to be more like an Amazon, Google or Ebay – and enjoyable.
With the rise in online purchasing and the proliferation of digital services, banks have to create the warmth and engagement of a face-to-face exchange through a remote channel, moving their understanding and use of digital beyond a simple driver of transactional behaviour. If they don’t, there is certainly an abundance of competition from technology disrupters to new entrants with the potential to seize market share. To illustrate the point, Accenture’s UK current account customer Survey 2014 found one in five people would consider banking with PayPal if it offered a current account.
When selecting a current account provider, customers increasingly rate the availability of personalised services as a key deciding factor. There is also a greater demand for transparency and clarity - particularly around the provision of personal finance matters to help customers make better decisions. This growing appetite for the benefits that digital services can bring is driving a fresh injection of competition, which will in turn, carry new ideas to the market.
Last year, 29 firms applied for banking licences from the Prudential Regulatory Authority, with many venturing into payments services. Digital wallets are quickly gaining traction and pose a significant threat to the existing order. PayPal similarly demonstrates the attraction of easy payment, needing only a user name and password instead of long card details for purchases. If traditional card payments diminish in preference to non-bank alternatives such as the digital wallet and PayPal-style players, banks lose the relationship with the customer and their transactional data, and that would be perilous for them.
The other game-changing trend is in lending. Digital is changing the way that customers access credit, fuelling the growth of short-term, unsecured “payday lenders”.
Convenience, transparency, flexibility and personalisation are well within the capabilities of traditional banks if they use digital effectively, even when a careful balance is needed to lend responsibly.
When Accenture, with the British Bankers’ Association, looked into the trends in both payments and lending in its UK banking report, Digital Disruption, it found was that there is a risk that technology giants and innovative new start-ups will “cherry pick” key products and services from banks. Indeed, we think that the traditional banking model is under threat from new competitors and is subject to increasing amounts of regulation.
But, paradoxically, the digital revolution is also opening up new opportunities for the banking industry. Digital channels are enabling banks to provide much better, more personalised services and cut costs dramatically.
Traditional banks are clearly embracing technology and digital services for easy, effective banking and for that reason, we should readily accept that the era of the “enjoyable” bank is only a matter of time.
• David Parker is the managing director for Accenture’s banking industry practice in the UK and Ireland.