31 August 2017

Traditional banking has its days numbered

This article was originally published on Bizzine.jp, in Japanese, as part of our Design As Strategy article series. Find the original version here.


Banking is necessary, but banks are not.

Bill Gates, 1994

This lapidary sentence attributed to Bill Gates predicted what we are witnessing these days with the Fintech revolution. Gates, a descendent of bankers himself, realized that banks are of course important trusted entities but they are ultimately about information exchange entities. And we all know that information solutions get naturally faster, better and cheaper over time.


Death by a thousand cuts

Financial advice, money transfers, cards, loans, mobile payments, online banking, trading services, etc. For each of these customer-facing services there’s a plethora of alternative replacements. And we are not talking just about same scale competitors, but about new startups developed by young teams of engineers and designers.

As it happens with any industries what we find today is that new services are appearing like onion layers on top of other financial services. The API revolution, B2B wholesale services, standardization and the commoditization of the basic infrastructures enables small players to compete with stablished ones.

Banks keep thinking that they are too big to fail. But what they don’t realize yet is that being big today in the digital age means nothing tomorrow. They are slowly getting involved in a guerrilla war with hundreds of small competitors that move quickly and speak the same language as the young consumers they are targeting.

Transferwise exists because of the lack of transparency, banks lie to us.

Taavet Hinrikus, Transferwise founder and CEO

Part of the success of the new players relies on the perception that this is a “David vs. Goliath” situation. The general discontent is playing in favor of all the new disruptors that strongly focus on creating crafted headache-free solutions for this new generation. And a significant portion of the discontent comes from the evolution of consumer habits.


Consumers’ behaviours are changing

Behaviours are globally changing commanded by the driving force of people’s addiction to smartphones.

52% of payments volume in China is done by fintech solutions.

Neal Cross, CIO of DBS Bank

It’s convenient, always available and easy to use. And in places like China it’s not anymore a desirable option, but a reliable and expected payment method for the millions who already leave home with just their home keys and iPhones. From renting a bike to cab rides and grocery shopping, all is paid with Wechat.

People today are getting used to find and access things instantly. That means not just accessing the information but being able to become a client and start using the service right away.

It’s not a secret that convenience is the top reason for these new companies to thrive. Some Fintech’s value proposition is declared as being an economically savvy option. But for the most, they just focus on solving one single pain point of the traditional players.

Their competitive advantage relies very frequently in the sharp focus and simplicity of the solution. Commonly mixed with some fast sign up process and an attractive brand image on top as the dressing. They heavily rely on delivering great experiences which is the most obvious drawbacks of today’s banking.


Banks are becoming software companies

None of this would be happening without the technological changes that started with the wide spread adoption of the internet. And the impact of new technologies on banking have being coming in the shape of high waves in recent years: cloud systems, big data and the blockchain to name the top ones.

Banks are losing their monopoly on banking

Neal Cross, CIO of DBS Bank

González who started his career as a software engineer has been introducing deep structural changes in how BBVA works. He was one of the first finance executives to publicly declare the war to the big internet giants, explaining that they must become a radically different company in order to compete with Apple, Google or Amazon.

The bank with 70 million customers is truly going through a successful digital transformation. With a strong interest in understanding customers’ real needs, it’s business units and an army of 600 engineers are constantly releasing new solutions and improving them through quick iterations.

By mid 2017  it was announced that they have the best mobile banking according to Forrester’s “2017 Global Mobile Banking Benchmark”. And during the course of the the last MoneyConf event González admitted that 24% of BBVA’s sales are already coming from digital channels. And that’s just the beginning.

A common defensive argument that helped banks to feel that they have the situation under control is that people trust them. They have recognized brands, big safes and people naturally will trust them forever to take care of their assets.

But this lasted up to now. Blockchain is hitting hard the keystone of the arch. With its big promise of acting as a de-centralized trusted network banks fear the possibility of becoming irrelevant.

As the blockchain solutions raise and become more user friendly and mature banks are starting to move their pieces on the board faster.

Global venture investment in FinTech grew by 11% to USD $17.4 billion in 2016. Financial corporations are heavily investing in startups and building up their own solutions in a desperate effort to keep being relevant in the near future.

Most nations remain observant to the general situation. But Japan is raising as one of the most blockchain friendly countries. It made great echoes recently the removal of taxes for payments made with cryptocurrencies (as bitcoins) and it’s known that a solution for procurement based on blockchain is currently under evaluation.

On the private side, a consortium of 61 Japanese banks (80% of the national financial assets) joined efforts to support Ripple, a blockchain solution that enables instant payments. The first international remittance just took place a few days ago between Japan’s SBI and the Siam Commercial Bank of Thailand. The funds arrived, without intermediaries, in just 2 seconds.

On top of everything the global migration of traditional financial assets to cryptocurrencies have begun. Although its total $100 billion market capitalization might still look small in comparison, every analyst agrees that we are just scratching the surface.

Retailers of all sizes and governments of all colors are considering the normalization of cryptocurrencies. There’s already all sorts of solutions to store, move and exchange cryptocurrencies and most of them not backed by banks. What will be the role of these giants when people become used to freely store and exchange valuable assets between themselves?


Light speed innovation

Japanese firms are currently at the crossroad of an incredibly opportunity. This is a period of deep and light speed changes. As we’ve seen it’s a transformation that happens simultaneously at every front and that require an extraordinary effort. But the good news is that the possibilities to take advantage of it are endless and you are not alone to make them happen.

Taking advantage of all the changes that are happening this fast is what make great innovating companies lead and at Designit we have plenty os experience helping our clients to gain speed and provoke thoughtful changes while navigating complex environments.

We’ve recently helped our clients to keep up to pace in different ways. From identifying new consumer needs to create internal transformation programs or kickstarting new banking companies from scratch as we did with Pepper in Israel.


Hello Pepper!

Our client Bank Leumi, the second largest bank in Israel, knew that developing a radically different kind of banking was key to their future success.

Keen to get started right away, they teamed up with Designit to help launch a completely new digital bank that would shake up the local and global market and set the standard for the next generation of banking services.

Understanding the unique challenge that Bank Leumi was up against, together we set out to define, design, and implement everything from the ground up. The result of our collaboration is Pepper—the banking service for the future.

Pepper is the first mobile-native product with no fees for basic banking. Everything can be done from the mobile, including opening an account, managing money, taking out loans, and managing savings and credit cards.

Leumi’s goal was to launch a new service in just 18 months!  To meet the challenge, Designit worked closely with the product and development teams to research, ideate, design and roll out the new product. An important aspect of this included an “implementation over documentation” mindset that allowed us to make decisions fast and on the spot, without going through multiple governance rounds. This enabled us to design the first MVP prototype within two months of work.

Our concepts were validated with user testing, and immediately prototyped to allow for ongoing evaluation. Product and service blueprints remained in play to allow for ongoing product improvements and implementation.

Together with Designit, we developed a startup culture and working model that is open, fast-paced, user-centered, and inspiring. Not very bank-like…

Lilach Bar-David, CEO


You move next

As we’ve seen the main transformation levers that banks have today for their B2C services heavily rely at the cross of great technology and an excellent user experience.

Banking is no longer somewhere you go, but something you do

Brett King, futurist and bestselling author (2012)

Big companies are full of fires to fight and it’s frequently hard to prioritize, so how to start? A good way would be to identify what are the main customer facing pain points in your organization and address them in time. A common pain point by baking customers in Japan is the service quality over the digital channels. Well it’s probably the time to fix them all.

Remember that your employees and their tools play a key role on how the experience is perceived. Commonly the internal processes are having a huge impact on client’s side. Re-evaluating “the ways things are done here” and setting up the right KPIs and internal incentives is a good practice that shouldn’t be overlooked. Cross-team collaboration dynamics plays a key role too in all this.

Embrace the agile credo and define a small team inside the company that will inspire the rest to change the rules of the game. Make the internal initiatives enough challenging to be fun and set up a vision that clearly states things are becoming better for everyone, making them feel proud of the changes. That will naturally emerge with the time to the surface and will have a positive impact on the customer experience.

And don’t forget to ask frequently your customers and create an environment where they feel they made the right choice with you. Your competitor is just one APP away.

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