Re-designing banking: From the bench to the branch to binary

It’s hard to imagine what the Florentine market traders thought would be their impact on the world when they started the western world’s first formal system of lending. One thing seems certain however, it’s unlikely they would have been able to fathom the conversion of their fledgling banking industry from one that revolved around real numbers and paper money, to one that is increasingly based on just 2 numbers – 1 and 0 – and virtual.

At first glance, or perhaps to the average banking customer, Grupo BBVA CEO Francisco

BBVA andmobile payments

Gonzalez’ statement in Barcelona this month that his bank will become a software company sounds almost heretical. Are consumers prepared to trust the likes of Google, in the wake of several high profile data scares, in the same way they rely on and trust their banks? Writes Simon Hardie, Director, MagnaCarta PR.

For anyone connected with the industry however his statement is possibly only guilty of modest prematurity. The payments industry is already dominated by virtual (in the sense that physical cash is not involved in the payment) electronic transactions. Non-cash payments already account for around 90% (or higher) of all consumer payments in Belgium, France, Canada and the UK, among others.

And as contactless payment technology takes off in markets around the world, the convergence between the card and the mobile as a means of payment is becoming reality. A prospect that will unleash a second wave of innovation in the form of enhanced loyalty and promotions to location-centred advertising and the realisation, finally, of the blending of off- and on-line commerce.

What Mr Gonzalez’ statement is really a reflection of however is the extreme pressures faced by banks everywhere, but particularly among those of the industrialised world. Still recovering from the bruising of the 2008 financial crisis, the regulatory regime that the crisis introduced squeezed margins already under pressure from the global recession. At the same time the era of continued low interest rates has slowed the prospect to an easy return to interest-reliant income, in spite of a gradual recovery in lending.

This perfect storm is completed by the smartphone revolution and massive adoption by consumers (Mr Gonzalez made his announcement at the Mobile World Congress in Barcelona, a key mobile industry gathering). Processing speeds that put the power of what would once have been deemed a super-computer in our pockets, combined with advances in connectivity that allow us to be online all the time have inspired a wave of innovation that is re-making the way consumers transact.

While the world’s two primary platforms to access these innovations – the iOS App Store and the Android Marketplace – have in the process ‘democratised’ access to the consumer, making the advanced world’s retail banks, with their cumbersome legacy systems and vast retail branch networks seem suddenly out of date. A report by Accenture in 2014, suggested that over a third of North American banks’ market share could be lost to new digital players by 2020.

A little competition (or in this case perhaps a lot) is a good thing however and all is certainly not lost for the world’s large retail bank brands. The ultra-low interest rate era will not last indefinitely and the worst of the global recession has now passed. And while trust in the integrity of bankers might still be in question, consumer trust in their banks ability to protect their money is improving. A valuable asset in the wake of the high profile data and fraud scares in the US and Europe of the last two years.

To win in this bright new era of digital banking, however is going to take a lot more than a reliance on the old revenue models of the last century. Instead, success will come to those who fully understand consumer expectations for ease of access across devices and platforms and actively experiment with the new revenue opportunities that digital channels enable. BBVA, and its Turkish subsidiary Garanti, may have a head start in the race to re-position themselves as tech companies but there’s still a long way to go before binary truly replaces the branch as the symbol of the modern retail bank.

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