In the wake of the recent global economic storm, banks have come under withering criticism as being too greedy, too out of control, and too out of touch with middle and working-class consumers. But the concept of the "bank" as we know it is about to undergo a huge disruption.
Two reports issued this month describe how a confluence of new technology developments -- including mobile computing, cloud, social networking, and big data -- is radically transforming the financial services industry. In particular, new technologies are enabling consumers to connect with financial institutions and with each other in new ways -- with profound implications for lower-income consumers across the globe with limited access to services.
CSC just issued a study that points to four forces reshaping how banking and financial services are delivered -- the rapid uptake of mobile devices, the growth of microfinance, the widespread adoption of new media, and the opportunities from mining both structured and unstructured data. The study, led by CSC's Patrick Molineux, concludes that these four factors "are connecting people to each other on a massive scale, breaking down barriers, bringing financial services to people regardless of income level or location, and providing rich insights about consumer behavior and sentiment."
In the meantime, a separate report out of Accenture, authored by Emmanuel Sardet of Accenture Financial Services, and Emmanuel Viale of Accenture Technology Labs, observes that the converging trends of cloud computing and social networking are reshaping banks across the world. Banks in mature markets “can use cloud computing to enter and scale up in emerging markets more quickly and at lower cost and risk," they write. "And banks in emerging markets will use cloud computing to reach their unbanked populations by leapfrogging physical branch networks and moving straight to electronic and mobile banking.”
As CSC's Molineux put it, technology is becoming a great leveling force:
“Even consumers who would have once been considered high-risk are now finding a range of new financial options. Technology has fueled the evolution of the financial services sector at such a rapid rate, from mobile visa-payments to insurance for rural farmers, we’re seeing possibilities for lower income consumers that would have been unimaginable just 20 years ago.”
The Accenture report echoes this sentiment, observing that clouds are disrupting the banking model as we've known it, offering new opportunities for new players in underserved and unserved markets:
“Already, a new generation of cloud-based online personal financial management applications—mint.com, Geezeo and BankSimple to name a few —are gaining traction among customers,” Accenture's Sardet and Viale write. “At the same time, cloud-based applications such as peer-to-peer lending and crowd sourcing of loans (often microloans) are gaining momentum, especially in emerging markets. And banks’ role in payments—including in the emerging area of m-commerce and mobile wallets—is being challenged by online heavyweights PayPal, Google and Facebook.”
Banks that don’t catch this new technology wave, Sardet and Viale add, run the risk of being relegated “to a back-office utility running bank accounts behind these third-party cloud-based front-ends, to serve merely as regulatory gatekeepers for activities such as anti-money laundering.”
And consider the impact of social media as well. As CSC's Molineux points out: "A consumer who screamed at the top of his or her voice 'Don’t bank with them' and reached family and friends can now with minimal effort whisper 'don’t bank with them' and reach whoever wishes to hear. Firms need to listen, respond and proactively serve the connected consumer."
The new connected bank that is emerging, he continues, is an organization that "truly supplies consumers with the power to take control of financial services using mobile tools, addressing micro needs and leveraging all the power of new media." In addition, the connected bank that is emerging gains competitive advantage by using "the petabytes of data being generated and the tools available but not yet leveraged to unlock intimate knowledge of the consumer;" and uses that digital intimacy not to target the consumer but to become a “consumer advocate,” they will be the provider of choice.
The infographic below, from CSC, illustrates how technology forces are converging to disrupt the banking model.
(Thumbnail photo: Virginia Department of Historic Resources.)