The future of banking is built on digital platforms, and customer trust will be gained through digital experiences. Brett King, author of Bank 4.0, shared his insights into how banks and finservs can win customer trust without a building, branch or ATM in sight.
If you look at the most disruptive innovations historically, they have all tended to use a similar design principle. It’s known as ‘first principles design thinking’, and it basically means tearing things all the way down and looking at the problem afresh, based on new technology. It means an entire rethink of an industry.
A couple of good examples include the automobile, which replaced horse and cart, and which caused a rethink of how transportation should work. The iPhone was another completely new platform and, as a result, every phone now looks like an iPhone. It changed the way people thought about mobile technology.
If you look at banking, what we’re seeing right now is strong evidence of first principles design thinking. We have the ability to deliver banking when and where it is needed in real time. What we don’t need is product structures and the distribution mechanism those products require, particularly the bank branch.
You don’t need a plastic card to buy your groceries, you don’t need a 16-digit number and you don’t need the application process. If your bank knows you well enough and uses AI, then when you walk into a grocery store it knows if you’ve got enough cash to buy your groceries. If you don’t, it can send you a message: ‘We can solve this problem for you’. And it can do that in real time. You no longer need any of the structures or constructs around how people have conventionally solved such a problem.
A new definition of banks
We’re seeing a reimagining of the way banking is embedded into our world via technology. There’s a quote attributed to Bill Gates: ‘Banking is necessary, banks are not’. Passbooks and ATMs and debit cards – once the core of interactions with banks – are going to become digital artefacts. There will be something in the cloud that stores your money and that can, via AI, give you advice on the best way to use your money.
By 2025, most people will have an e-wallet or a value store on their phone that they use day-to-day for banking. It will not have been issued from a bank, it will instead be from a technology company, or a mobile provider. These already exist – look at WeChat and AliPay in China, or M-Pesa in Kenya. Many of the potential billions of people using these services have never visited a bank.
Ten years ago, we considered the Australian banking sector to be quite advanced; they were early with mobile and so forth. But today, when we want to look at the most advanced application of technology in financial services we look to China, where 98 per cent of mobile payments are completed across TenCent (WeChat) and Ant Financial (AliPay).
Those platforms will do US$22 trillion dollars in mobile payments this year, more than all of the card transactions globally – Visa, MasterCard, AMEX, etc – which add up to US$21 trillion.
What’s driving the change in banking?
There are three major drivers of the changes to banking.
- The network effect, or the way people connect: Social media and similar platforms have produced new ways for us to interact, including sending money to each other.
- The overall shift to expectation of low latency engagement through technology layers: You can order your pizza via an app, rather than having to make a phone call. You can order an Uber and see the car approaching on your smartphone screen. Everything is now looked at through this lens that says there must be a more efficient, lower-friction way of doing things.
- Investment in new technologies: Massive investment is being made by tech companies including Amazon, Ant Financial and TenCent. The investment in fintech this year is going to exceed US$40 billion, and probably closer to US$50 billion. Fintechs and the big tech companies are about five to seven years ahead of banks. Just as Blockbuster and Kodak were attached to their business models, it’s more difficult for banks to completely change the way they think about banking.
A question of trust?
I’m often asked about trust, about whether issues around Facebook and privacy, or the Australian reaction to My Health Record, make people less likely to trust an online finance system or reflect an expected lack of trust.
The answer is that the mechanism of trust is changing. Trust used to be about the fact that you can see a bank on the street corner, so you can trust them because they’ve got a building. But because banking is moving to the digital sphere, we now access our mobile apps hundreds of times more than we go into bank branches.
So we now have an expectation of banks being able to meet our needs in the digital sphere. The way we measure trust has changed. If the technology works, you trust that bank, or that non-bank financial brand.
Conversely, if your bank’s online and ATM systems went down for two weeks, and the only way you could get money out was to go to a branch, how much trust do you think you would have in the bank? That branch model doesn’t work anymore in building trust.
The good thing is that there are no downsides to new competition in the Australian market. We’re moving away from markets that are geared towards commodities such as resources, to economies where the biggest performers are technology companies. There needs to be big investment in technology for the Australian economy to remain relevant.
Find out more about how tech is shaping customers’ expectations of financial services, and how finservs can restore customer trust – download the Deloitte digital ebook ‘Restoring trust in financial services in the digital era’.
