Fintechs or dinosaurs, a matter of survival for retail banks…

For years, we have been hearing of the coming revolution in the world of retail banking due to changes in customer behaviour. Customers are far less attached to their bank’s branch offices, and tend to look for reactivity, flexibility and longer opening hours, which only direct channels can provide. Even if no fundamental upheaval has yet occurred, the warning signs of the brewing storm have been visible now for some years: an observable trend of decreasing visits to branch offices, as well as a regular increase in the number of transactions carried out on the internet, customer surveys also show a marked interest in using 100% online banks, particularly among the youngest clients.

At the same time, new players are preparing for the battle, but they have yet to attack the banks head-on at a large scale. The GAFAs, the telecom operators, the Fintechs, all share the flexibility of the digital players and seek to enter the game through promising niches that hamper the banks’ power. Mastering payment is a major challenge for GAFA and telecom operators, because apart from the need to provide users with simple, secure and inexpensive solutions to enable them to complete their transactions, with the advent of Big Data, the sophisticated knowledge of the customer’s purchasing behaviour has become a wealth of information that should be exploited and even monetized. Once you’ve got your finger in the pie, things can go pretty fast: from payment to credit, there’s only one step to take… that can lead you directly to savings and insurance… Especially as the Fintechs don’t hesitate to nibble market share in specific areas underexplored by banks. For example crowdfunding services to finance SMEs (notoriously under-financed by banks) or the account aggregators that the retail banks would have seen as a declaration of war between friends and had never imagined offering their customers, have quickly spread.

In this disruptive world, banks must now begin to see themselves as digital actors on the same footing as the GAFAs or the Fintechs. If all the retail banks strongly point out that they have converted to digital, attested by the opening of online services that they now even agree to make free of charge, the facts show that there remains a species barrier with the world of instant service from the digital universe that could well be fatal to them. The magnitude of the challenge is shown in the back-office disorder experienced by many banks faced with the rising demand for refinancing housing loans, following the fall in rates over the last two years and the unbelievable lengthening of processing times that subsequently occurred. Because the minimum service level of tomorrow’s bank will be set by what the digital players are offering. A bank that does not align itself is simply condemned to an ever-decreasing customer base. In a very near future, when “affluent” individuals will access expert advice on demand at any time on questions of asset optimization, investments or loan capacity all for the price of an annual Premium card subscription, why would they choose a bank that does not offer such services?

Now imagine a final year student who is being offered personalized online cash management services that allow him or her to purchase a consumer credit in-store just before passing the checkout to buy a PC, why would they want to choose a bank that does not offer these services?

Banks have no choice. They will be Fintechs or will no longer be. Of course, it will require them to radically review their supply and operating methods. First of all, they must offer the most advanced, the most extensive and the best quality customer services on the market. A revolution when they have lived with captive customers for decades, but it is only at this price that they will win customers in a digital world that has given consumers their freedom. Secondly, they must transform the branch office experience into a bonus and not something ordinary. Tomorrow’s customers will first of all be direct service customers, and if they come into branch offices, it will be no longer so much to make routine transactions, as to be advised, have services not provided or improperly provided online or by phone.  How many branches will be justifiable with these new criteria and what will they be like? It’s up to the banks of tomorrow to invent them.

Finally, this will require a complete redesign of the economic model, which will have to charge for the added value and not the transaction itself. It will no longer be possible to charge the costs of a branch office, a specialized customer advisor or access to bank notes previously paid by purely transactional services, since digitization will have made those almost free.

The risk is therefore greater than ever for network banks, downgraded to the rank of simple service suppliers, less responsive and facing much higher costs than the “pure players”; they could well suffer the fate of the great dinosaurs that dominated our planet at the end of the Cretaceous, and disappear without having been able to adapt to the upheavals of their ecosystem…