5 Defining Banking Trends to Watch Out for in 2016 and Beyond


It’s rather an irony that I chose a title that I always thought of avoiding to start with.  But the power of the thoughts and message was so overwhelming that I ended up choosing it any way.

I do observe the future gazers and thought leaders like Warren Buffet, Bill Gates who predict the future through their own crystal balls with awe and a ton of reverence.  At times, I bookmarked their posts to revisit them at the end of the year to see how much did it really turn out to be true.  Mostly they were spot on except for few rare occasions which were beyond their control.

Today, its my turn and would wish to keep my fingers crossed and revisit this page again some time later to study its relevance.

Banking and Financial Services industry is undergoing a massive change.  A change that is far reaching in many aspects.  A change that has the potential to shake the very foundations on which they had been built and operating so far.  Its mostly due to the emergence of changed consumer expectations driven by tech and a lot because of their nonchalant attitude of these institutions towards customers at large.  While I spoke to a variety of folks including my customers, peers and practitioners, this message was coming out resoundingly.

Below are the five defining trends (in no particular order) which might have a resounding impact on Banking & Financial Services in the year 2016 and beyond:

Tech Innovation Would Move Beyond Retail Customers

During the past couple of years and even now the focus of the Banks were on retail customers .  Digital Banking is still being attributed pretty much to the end customer and his experience.  Banks had spent a ton of money and resources on innovation focussed on this area.  However, in the coming years the focus would be more on the commercial / wholesale customers.  There is a sense of discomfort with the corporate customers that they are being pushed to the bottom of the pyramid on innovation despite being up on the volume of business they conduct.  Banks such as the US Bankcorp have already fired their first shot.  US Bank launched a mobile payment app last month for its general aviation customers, which allows private and business pilots to pay for fueling and services directly from their phone.  Efforts are on to make the commercial product line similar to the consumer apps / products.  Citigroup for one is having its commercial innovation team work with their consumer counterparts to improve the UI / UX for the commercial apps.

Neo-Banks Would Turn into Full Fledged Digital Challenger Banks

Last year, Venture Capitalists had poured around $250 Million on the Neo-Banks with a focus on improving the consumer banking experience and providing digital services.  Neo-Banks such as Moven, Number26 etc. have been the beneficiaries.  Now these Neo-Banks are turning up to be the Digital Challenger Banks by converting themselves into full fledged Banks.  The impact is high in Uk and could possibly impact the rest of the world.  In UK, the regulators have already approved licenses for several startup Banks like Fidor, Tandem, Mondo.  Agile processes combined with cutting edge tech would make these Banks a premier choice for millennials to bank with.

Internet of Things Comes to Banking

Internet of Things is being talked about the most in 2015.  Advent of wearables, connected devices, smart meters etc. has already begun the data deluge.  However, Banking was not an area which was high on the impact list.  But that state would be changed soon.  Neo-digital Bank Moven had recently showcased its integration with Amazon Echo.

Check out this cool video demonstration below from non other than Brett King, CEO of Moven.

Welcome to the world of Augmented Banking !!

Get Ready for the Blockchain Tsunami

Blockchain tech has been the toast of the Banking and Financial Services of late.  While they were weary of the Bitcoin tech but to everyone’s surprise they were willing to embrace the underlying ledger framework aka Blockchain with open arms.  At the recent, SIBOS Singapore, several Banking executives had confirmed that they are working or have been keenly looking at Blockchain.

Applicability and the utilization of the Blockchain tech is beyond the Banking and FS areas which has led to formation of several consortiums like R3 and the latestOpen Ledger initiative led by the Linux Foundation.

Source : Lets Talk Payments

Magister Advisors recent study observes that Banks would be spending on top of $1 Billion in 2017 on Blockchain tech.   Right now the focus is mostly on conducting Proof of Concept (PoC).  However, the year 2016 would be Blockchain’s ‘race to production’ and move beyond the prototype stage.  Few early adaptors like Goldman Sachs, Overstock have already production instances of Blockchain for specific use cases.

If you haven’t looked at Blockchain yet, I’d recommend to take a look at the below links which would well serve as a primer on Blockchain:

Rise of the Algorithms – AI & Cognitive Computing

In order to cut cost and increase the operational efficiencies Banks have been resorting to massive adoption of simplification and AI / Cognitive technologies.  The regulatory pressures has increased the cost of operations and has taken a toll on the operating margins of the Banks.  The threat from Neo-Banks, FinTech hasn’t done any favor either.

Most of the Back Office Processing (KYC, Client On-boarding / Screening), Investment Advisory Services (Robo Advisors), Tech / First Line Customer Support is expected to be automated to a greater extent to ensure that significant cost reduction is achieved.  Sensing this trend major IT System Integrators have either started to develop such offerings or have resorted to acquisitions and mergers to acquire the required skills to service their Banking customers.

The impact is so high that the ex-CEO of Barclays Anthony Jenkins commented that the Uber Moment for the Banks has arrived.  In a recent study conducted by Financial Times, it was found that 100,000 Bankers have lost their jobs this year which is equivalent to the 10% of combined strength of 11 large European and US Banks put together.  The trend is expected to continue and its being predicted that the half of the Banking jobs would be taken over by the APIs, apps and algorithms in next ten years.

Other Trends Worth a Look

  • Big Data based Advanced Analytics and Data Science continues to grow
  • Disruption by FinTechs would prevail
  • Everything P2P will continue to challenge the traditional Banking model
  • Inward looking initiatives by Banks through Hackathons and incubators for FinTech Startups
  • Bank of the Future
  • Wearables and Virtual Reality based Banking
How many such trends you have already observed and are already experiencing?
Have I left out something interesting?

Please post your thoughts and views as comments below.

Wishing you and your loved ones a Merry Christmas & a Prosperous New Year !!

Happy Holidays !!!

How to Eat a Bank – One Business at a Time

How to Eat a Bank - One Business at a Time

Over the past few weeks something interesting was happening in the Banking world – several executives came out speaking on the impact of FinTechs on the traditional Banking business.  In his recent letter to the shareholders, Jamie Dimon, CEO of JP Morgan warns “Silicon Valley is coming.”  He talks in detail about the growing competition for Wall Street from the FinTech companies and startups focussed on varied technologies such as bitcoins, mobile payments, peer to peer lending etc.

What’s going on & Why are the Banks scared?

Banks are under attack” wrote RRE Ventures Tom Loverro recently.  Banks like Citi and Wells Fargo are getting unbundled by the FinTech startups.  The traditional business models of Banks have been threatened.  Their monopoly on the way customers conduct business is being questioned.

FinTech startups are giving a tough time to the Banks.  Money is pouring into the FinTech startups through the aggressive Silicon Valley investors, Venture Capitalists and the Angel Investors.  Relaxation of the investment norms for the crowd funding startups through redefinition of an accredited investor has opened up the flood gates.  SEC’s recent ruling on the Title IV of the JOBS Act has given a fillip to the investment climate by enabling common citizens to invest in private companies.  Crowd funding startups like the Funders Club, Angel List etc. has been investing heavily through their thematic funds focussed on Bitcoin, FinTech areas.

Global remittance business is around USD 500+ Billion.  P2P payments tech companies are one up on the game.  Easy access to tech has made this possible. Banks are unable to cut their transaction fee which these startups are able to do. Companies like WePay, Venmo, BrainTree, LevelUp & Dwolla have been doing well through their near real time payment options and innovative business models.

P2P Lending is yet another area of concern for the traditional lenders.  In 2014, the total US outstanding consumer credit stood at $3311.8 billion. Meanwhile, the total US business lending portfolio stood at $628.3 billion in the same year.  Out of the USD 6.6 Billion lending portfolio, online platform’s share stood at USD 2.3 Billion. Few leading players worth mentioning are OnDeck, Lending Deck, SoFi, Kabbage & Lending Tree.  Non-traditional players like Google have started to venture into this lucrative area considering the business potential.  Google has come out with its Mortgage Calculator and also now the funds available in Google Wallet is insured with a bank like FDIC insurance.  FinTech startups are able to navigate the legal land mines through their innovative approach and have went on build mega billion dollar businesses.

Wall Street Bankers are joining Tech companies.  The attraction of these FinTech startups has been so high that the bankers are willing to join these companies even without a salary !! Folks like David Pinski of ING Direct and later at Capital One joined Zumigo since he felt the technology is pretty cool.  Jay Sidhu of erstwhile Sovereign Bank went on to start a digital only Bank Mobile with his daughter in tow as the Chief Strategy Officer.  Even in India, CFOs of the system integration companies like Wipro and Infosys have applied for the Bank licenses. Two former CFOs and board members of Infosys— V Balakrishnan and T V Mohandas Pai — and the recently retired CFO of Wipro, Suresh Senapaty, have come together to try and establish a virtual bank in India.

What are the Banks doing now?

Not to be left behind, as Jamie Dimond articulated to his shareholders, Banks are keeping a close watch on these disruptive competitors.  Their responses to the situation has been very varied and diverse based on the appetite of their Boards.

  • Invest in FinTech Startups – Banks like JP Morgan has been leading this initiative.  Notable JPM investments are Square, Motif Investing and Can Capital.  Apart from the above, JPM has been noticeably absent or refrained from investing in the crypto currency or digital currency area.

  • If you can’t build one then buy one.  To scale and disrupt quickly, Banks are looking to acquire startups both for the product IPs and also the founding team’s talent.  Later is found to be a key reason since the acquired team helps the Bank to integrate and transform the existing operations rapidly.  It’s a win-win for both.  BBVA’s acquisition of Simple, Capital One’s acquisition of Adaptive Path are few of the recent examples.  There is also a different but ingenious move from a small but niche Kansas based payments player who bought a Bank !! Citizens Bank of Weir (CBW) was bought by a husband and wife entrepreneur Suresh Kumar & Suchitra to launch their money transfer business. Now the one branch bank has become a laboratory for banking innovation. CBW is now a prime partner of Ripple and is tapping the domestic market real time settlement which has never been tried before.  CBW is coming up with a new product called ONE Card which uses the Ripple protocol for real time settlements.
  • Partner and Progress.  Citi has been trying to innovate through its Citi Mobile Challenge initiative.  BBVA partnered with Dwolla to integrate its realtime payment capabilities into its services.  Banks have also been running and sponsoring both internal and external hackathalons to identify and incubate early stage startups.  Innovation labs and skunkworks groups are other means for identifying internal and partner talent for the Banks. Wells Fargo, Capital One and Bank of America seem to be pioneers in this approach.  Wells Fargo recently adopted three participants from its accelerator program for startups : Context360, MotionSavvy and Bracket Computing.  They were selected from a batch of 360 applicants.  Analysts groups like Gartner has been advising the Banks to procure customer engagement design talent through external channels.

Looking into the future – What Banks should be doing?

  • Customer is the king – Customers are looking for choices.  What they wish to have is Banking and NOT Banks.  Hence focus on Banking. Banks have been found failing to meet the customer expectations. The recently published World Retail Banking Report 2015 finds that the customer experience levels are stagnating as compared with the non-bank players who with their agile and innovative value propositions make it difficult for banks to keep up with rising expectations around personalized, engaging and seamless customer experiences.

Source : World Retail Banking Report 2015

  • Stay in continuous Beta – As every agile tech company would suggest, the key to success and staying relevant to the changing trends and evolving customer behavior is be in Beta – always.  Banks should try and stay agile as much as possible on customer facing technologies.  Although the legacy Banking systems are a big hassle to change, the focus should be on staying relevant and close to the customer as possible.  Digital Banking is only a means to the end but not an end in itself.  Focus should be on providing a comprehensive and seamless connected experience to the customer across all the digital channels rather than using it primarily for cross sell and up sell.
  • Look out for geeks in garages – Innovation has been a big challenge for the large Banks mainly because of their size of operations and the overbearing regulatory and compliance related requirements. However, disruption comes in all sizes and forms and hold the key to new markets and opportunities.  FinTech startups does not have neither the overhead of such challenges nor need to comply to such a brutal regulatory requirements.  Staying close to the geeks helps.  If Bitcoins does not interest the Banks but Blockchain technology should definitely be of an area of interest.  Just think different.
  • Disruptive technologies will not kill Banks – There is a lively debate going on right now on how Banks are pretty much like the Pharma and Aviation companies and how too big they are to disrupt.  Experts like Chris Skinner believe that the closest Banks got to feel something like Uber is Bitcoin.  But folks like JP Nicols beg do differ and equate it to the rail road industry where the entry cost is prohibitively high for any big time disruption. As he rightly points out, failure to innovate is never listed as the cause of death for banks. It’s just an underlying condition that observers discover in the post-mortem.  Banks are not being disrupted they are just being re-architected.
  • Build Human Centric APIs and Microservices – Humanize data. Banks are drowning in data which is growing at a rate which they are unable to control. Proliferation of the channels and a wave of new ways to Bank has increased the difficulty level by several manifolds.  The waves are yet to hit the shore since IoT and wearables are yet to become mainstream.  Data is the new oil and its the core to how they can differentiate themselves in the market place.  The need of the hour is to give more context and meaning to the data by building API based Banking apps and microservices which are easy to scale and flexible to build and deliver rapidly.

Source : Awesome Banking APIs

You would certainly see many more instances of tech startups trying to eat the lunch of these big Banks.  Monopolized and established norms of fixing the fee and charges for transactions which is key source of revenue would also be challenged. And many more challenges and surprises are in store for the Banks if only they understand that what people want is Banking and NOT Banks.

We shouldn’t be surprised if we soon see companies like Facebook, Google and Amazon starting Banks.  They have the required infrastructure, technical ability and digital acumen to establish and run the Bank of the Future.  In fact, Tencent and Alibaba have announced that they would soon be launching a Retail Bank.

Think more like a Tech company and less like Bank seems to be the mantra for Banks of tomorrow because every company now is a software company

What do you think?  What are the other disruptive trends you have noticed and are bound to evolve in the near future?  How much can the Banks withstand and beat the upsurge?

Do share your thoughts below as your comments.