Digital disrupters will shorten lifespan of banks

A comprehensive new survey of chief executives, senior executives, directors and managers from the UK’s retail banking and wealth management sectors warned that the banking industry has a number of significant challenges to overcome if it is to survive digital disruption.

Respondents said that a lack of top-level managers with an in-depth understanding of the digital world and its impact, as well as new competitors, was the main obstacle, in addition to not having necessary skills within the organisation.

Insight from the research for the consultancy Adaptive Lab also revealed that senior banking professionals believe banks are struggling to deliver cutting-edge digital services to meet customer expectations set by the new entrants because compliance takes up focus and resources between 50-90 per cent of banks’ IT budgets.

Meanwhile, consumer research, also commissioned by Adaptive Lab, found that more than one in four people don’t use their bank’s mobile app because it has limited functionality and one in ten customers say it is too complicated.

Both the consumer and senior executive research also suggests the majority of customers do not trust banks, but favour tech brands instead.

James Haycock, managing director of Adaptive Lab, said: “It’s plain to see that a perfect storm of competition, technology, shifts in customer behaviour and regulation looks set to wreak havoc on the businesses we trust with our money.

“It’s a matter of when, not if, banking is reinvented. A new generation of companies and leaders are tearing the rulebook to pieces, adopting new technology, new working practices, and serving customers whose lives are increasingly orientated around their mobile phones better than traditional banks can currently.”

The body of new research coincides with the publication of a book called Bye Bye Banks?, written by Mr Haycock with Shane Richmond, former technology editor of The Telegraph, examining the potential unbundling of current banking business models and the prospect of new digital market entrants capturing significant market share.

Mr Haycock said: “There is an increasing amount of conversation about tech startups competing with the retail banking business model which will clearly have the same impact of shortening corporate lifespan as we have seen in other sectors like telco, media and travel.”

He said there is a three-stage scenario that looks likely to play out.

“Firstly the incumbents will get displaced by new entrants offering a better customer experience and price, second that their revenues will be diminished in a market of higher switching frequency as they’re relegated to undifferentiated utilities, before finally their core competency of storing and transferring value is challenged by the arrival of a new technology - blockchain will disintermediate the banks completely,” added Mr Haycock. Blockchain is a fraud-proof system of transacting money.

One of the key conclusions Adaptive Lab makes is that the obstacles banks face - legacy technology, rapidly changing consumer behaviour and lack of digital expertise and knowledge - are too great for them to overcome from within.

The company claims that banks cannot rely on incumbency to save themselves and instead will have to radically rethink their operating models.

Adaptive Lab clients include Associated Press, Barclays, Experian, Tesco, Three Mobile, Vodafone and Johnston Press, publisher of The Yorkshire Post.