News & Views

Disruption? You better bank on it

by Patrick Jeffrey

Hands up if you hate your bank.

The chances are, if you’re under the age of 30, you’ll have one arm in the air right now. A recent survey from Scratch, an in-house unit of broadcaster Viacom, found that Millennials really don’t like banks. A whopping 73% of the 10,000 people interviewed in the Millennial Disruption Index said that they’d be more excited about a new financial offering from a tech company than from their existing bank. More worryingly – for banks, at least – is that nearly half of all respondents are counting on companies like Google, Amazon and Square to overhaul the way that banks work, with 33% believing they won’t need a bank at all in the near future.

People want an alternative to the stuffy, archaic way that many financial institutions operate. And they’re starting to get what they want. At Contagious, we’ve long been tracking companies from other sectors looking to play havoc with traditional banking business models. It’s been well documented that tech companies like Square, PayPal and Google (and even Walmart with Bluebird) have been barging in on the payments scene for quite a few years now. But, just in the past month, we’ve seen telcos, retailers and messaging services getting in on the action.

A few quick examples: Starbucks recently announced that almost one-third of all its transactions are processed through its loyalty cards. This caused Wired to speculate that the coffee chain could advance the transactional capabilities of the scheme in the near future, perhaps one day even eradicating the need for bank cards in-store.

In January, T-Mobile created a Mobile Money service that enabled people to transfer funds from their bank and then use either their smartphone or a Visa Prepaid Card to make transactions. This marked the first foray into branded banking from a major US carrier (even though Safaricom has been doing this for a while in Kenya).

Also in January, Chinese messaging app WeChat followed in the footsteps of online marketplace Alibaba and web services company Baidu by launching an investment service. The Tencent-owned firm partnered with four mutual fund companies to create Licaitong, which will launch later this year. The app’s 255 million users will be able to deposit up to $165,400 and can then buy and sell funds, earning as much as 6.4% returns annually, according to TechInAsia.

These disruptions are gaining such momentum that a recent report from Accenture estimates non-banks could erode one-third of traditional bank revenues by 2020.

Fighting back /

‘Banks cannot respond to these threats simply by "being more digital”,’ said Wayne Busch and Juan Pedro Moreno of Accenture in a recent blog post on Harvard Business Review. ‘They must learn to play a greater role not just at the moment of financial transactions but before and afterwards as well.’ In other words, banks need to ensure that they thrust themselves into our lives more – hardly an attractive thought, is it?

There are credible solutions though. A couple of months ago, I interviewed the Turkish bank Garanti for a Contagious magazine case study (for mag subscribers, see the full article here). I was blown away by the future-facing nature of this bank: customers could do all of their banking on their smartphone, branches were modelled on leading retail stores like Niketown and Harvey Nichols, and an internal team of 1,000 technology experts were dedicating themselves to improving customer experience.

At the heart of this service was iGaranti, a new app designed by service design agency Fjord that gets to know you and your wider interests. An algorithm crunches personal spending habits and uses this data to predict future spending – if you’re doing better than usual this month, it may suggest that you siphon some money off into a (higher-interest) savings account. And it also uses context – time, location etc – to offer up personalised communications. If you walk into a shopping centre, for example, the app may send you an enticing deal for your favourite shoe shop (which the bank knows you like to go every so often).

I think Garanti is interesting because it blends the established infrastructure of a bank – large customer bases, huge amounts of transaction data, advanced payment capabilities, high levels of security and financing – with the thinking and user-centricity of a technology company. ‘Mobile has ushered in an era of renewed innovation around the products and services banks can offer,’ Fjord’s chief client officer Mark Curtis told me late last year. ‘And the biggest risk when transformative technology appears is that someone in Palo Alto will suddenly sideline your business.’

So perhaps those Millennials need to change their tune. Rather than urging tech companies to overhaul banks, perhaps they just need to see banks thinking like tech companies, and starting to overhaul themselves. If banks are to survive in the long run, the disrupted must become the disruptors.

Contextual Integration – which looks at how brands are using location, time and personal preference data to move from planning in media silos to creating contextually relevant communications – will be one of our key themes at Now / Next / Why. For more information on this annual Contagious trends conference, and for tickets, click here for London and here for New York.