Digital banking forcing change for the better

Thu, 11/04/2019 - 09:28

It doesn’t happen often that three new banks open their doors in the space of a year. 

Amidst the hype it’s worthwhile to reflect on just how significant the establishment of Discovery Bank, TymeBank and Bank Zero is. With Standard Bank recently announcing the closure of 91 of its branches, how is it possible for three new banks then to pop up?

A worldwide shift

There’s a fundamental shift in banking that sees the power of the incumbents slowly eroding due to significant change in banking regulations and of course the growth of the web. It paved the way for FinTech start-ups hunting for ways to disrupt the system, often focusing on the importance of the customer in the equation.

Traditional banks have a lot stacked against them, including legacy IT systems, a risk averse culture and an inability to disrupt their own ways of doing business. It’s a far cry from nimble FinTech start-ups schooled in the art of Design Thinking. But there is a deeper truth to this disruption pertaining to the way consumers have started to think about banking.

The banks who can offer their clients the greatest value, provide the best user experience and allow them to use their money with the least friction, will be the ones the client will associate with.

Banking has changed

In the context of this, banking could be anything from a traditional retail bank that offers online transactions, to a Stokvel app that encourages saving and offers bulk buying power to its members. In the case of the app, it would probably partner with an institution that has a banking license but the Stokvel member would have a relationship with the Stokvel and not the end bank. This is much like the Discovery credit card was a joint venture with FNB and the customer had a relationship with Discovery, and not FNB.

The adage that people are more likely to divorce than switch banks is changing as tech makes it easier to do so. We're seeing this with TymeBank's roll out of kiosks and the way in which Discovery, which has so much data on its bank prospect base, will facilitate switching. Discovery’s use of ‘behavioural banking’ adds another layer of appeal. It promises improved rates on credit or savings if certain financially beneficial behaviour is met, much like exercising increases benefits to the Discovery Health offering. 

The fightback has started

However, this is not the end of the road for traditional banks, far from it. They are adapting, and quickly. Many banks are collaborating with tech start-ups in order to see what can be done with outside assistance. Often this is because sustaining innovation within a corporate environment is incredibly difficult, since failure is not an option when careers are on the line. 

Spanish multinational bank, Santander has gone all out in investigating FinTech disruption with their InnoVentures programme. Launched in 2014, the bank provided $100 million in venture capital to nurture fintech start-ups. As it stands now there are 19 companies in their portfolio, including payment solution provider iZettle; Ripple, responsible for the cryptocurrency XRP; and distributed ledger platform provider Digital Asset.  

Standard Bank’s collaboration with FinTech start-up Firepay on the SnapScan mobile payment app is a good example locally. The bank partnered with Firepay to officially launch the app in 2014. Once the concept had been proven, Standard Bank acquired a majority stake in the business in 2016.

Finally, progression in the fields of artificial intelligence (AI) and machine learning is impacting the banking industry too. And why wouldn’t it? Being able to use AI for anything from better investment strategies, more advanced client personalisation, the implementation of chatbot services, through to better fraud prevention and security, make this a no-brainer to invest in. Moreover, AI is set to be a big factor in driving down costs - a must-do for traditional banks to remain competitive against their digital competition.

It’s all about the client

At the end of the day, all the innovation in the banking space points mainly towards one thing: Make it as easy as possible for the client. Customer experience and personalisation will help the new wave of digital banks build relationships with their customers that are far deeper and more ingrained than traditional offerings have ever been able to do. Indeed, South Africans should soon experience this for themselves as the roll-out of the three new banks forces the incumbents to do better. 

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