Can banks step up to the digital challenge?
By Bob Elliott, managing director, SAP Canada
The digital journey we’re on today means that even traditional institutions need to become “full service” to connect with customers through every channel. But for many banks, how feasible is this? Can a traditional bricks and mortar bank compete with PayPal, Facebook or Amazon? This is the new reality for banks today. Just last week Facebook announced that the company received Irish regulatory approval to become a “payment and remittance processor,” i.e., a bank, and PayPal is already a bank in many jurisdictions.
When some of the most famous and frequently used brands in the world start competing for your business, what can you do to win? Is it too little too late? Banks are trying hard to go digital – they’re hiring smart people and they’re making big investments – but can you think of one “physical” business that has successfully evolved into a digital leader? Companies like Amazon or Facebook are purely digital. They were invented for the internet. They have been using customer and behavior data for years to create a relevant and meaningful digital experience. And they are engaged with your customers today.
Very few brick and mortar retail businesses have evolved into an internet age powerhouse. Bookstores, record shops, photography stores, video rental firms, etc. have been decimated by new digital competitors. Banks have offered online services for several years but are just getting started in the mobile/multi-channel space, and most are struggling to make their cross-channel experience meaningful and seamless for their customers. When you think about the internal structures of a large bank versus a start up like Facebook, you can begin to understand why banks cannot behave like a start-up. The challenges include: brick and mortar investments and mentality; complex, inflexible and aged legacy IT systems; and leadership by the same executives that built up the legacy business.
However, can a digital upstart seriously take on the banking industry and win? For me, the answer is no. This has been demonstrated by startup banks such as Simple, Moven, Fidor and more. They are fledglings, and what happens to fledglings is they fall out of the nest, can’t fly or get eaten by a predator. We saw this when US based Simple was acquired by multinational Spanish banking group BBVA. BBVA hopes to use Simple as a stand-alone entity to help them become a next generation bank. Many banks are adopting this strategy – acquire a fledgling and hope it can help them transform.
This may be a good plan but it’s traditional thinking. Let’s flip this thinking upside-down and consider an even bigger risk for banks: what would happen if an online player like Google were to acquire Citibank in a hostile takeover tomorrow? What would you do if you were acquired? How would you react? This is the scenario that banks should be considering in their digital strategy. Of course, there could be regulatory barriers but these are also changing rapidly. As is often the case, the best defense is a strong offense, and investing in a modern, open and flexible IT platform that is designed to work in a multi-channel / omni-channel world is key to survival, growth and profitability. This is not optional, it’s required, and we’re seeing examples around the world – Commonwealth Bank of Australia, Standard Bank of South Africa and Deutschebank are great examples.
Canadian bank ATB, the largest Alberta-based financial institution, has leapfrogged the traditional competition by completely transforming the platform on which it runs its business. The transformation meant ATB could bring mobile banking to its customers for the first time, and they rolled this out in months, not years, giving their customers more options for interacting with the bank. Now running their business on an SAP cloud network, ATB is a more nimble organization. They have the flexibility to introduce new offerings to the market quicker than the competition, while improving customer service, productivity and profitability. A perfect example of what other Canadian banks need to do to compete with oncoming trends.
