The market for banks is fast changing with new product, new markets and new players. Not only are these, but also the ways previously consumers and banks interacted changing. It is hard to say how much more change are we going to see in the banking industry. What we can say is that only unchangeable element in the banking industry. Other factors, people, things, interactions and relationships are changing.
Denecker et. al (2014) states in his article that banks are constantly changing as a result of new technology. New technology is making old process obsolete and slow and, therefore, all the hue and cry in the market is for change. People are not happy spending time in long queues anymore. They want things done fast and accurately. For this purpose, a new kind of banking has been introduced, mobile or e-banking.
McCormick (2014) also agrees with the notion that this is the era of change, and banking industry is going through massive change. However, there are some areas in which the industry is lagging behind, and that is because of the fact that the executives in many banks and the industry do not know much about the new technology. So much so, 30% of the time of board meeting is spent on discussing technology and technology related issues. Even after that banks are not being able to come up with the satisfactory response to the new payment methods that are being introduced in the market. They are lagging behind, and unless they change their way of thinking and make room for technology, the things can go out of hand. The new market share that is up for grab can be taken away by some alien competitor from outside the industry. Someone who is not known to the industry, but is making leaps in the industry due to its technological capabilities.
The above rationale presented by McCormick (2014) is also supported by Denecker et al. (2014). Denecker terms the new competition in the industry as attackers. Needless to say these technology rich firms come from the IT and Technology sectors. For example, Paypal, GooglePay and Moneybookers are grabbing the market share of the banking industry very fast. They are attacking the beachhead of the banking industry and are providing financial service to the clients. This is a direct, full frontal attack on the bank’s customer base, and the attackers are pretty much successful. The introductions of smart phones have made the matters worse for the banking industry. The ease at which the customers can make transactions has really changed the industry, but the banks are not able come up with any viable solution as yet.
Denecker et al. (2014) also identifies the problem. The article talks about how the banking industry is laden with the baggage of extreme regulations, costs and security concerns, whereas the new players or the attackers who are threatening the banks to take over their market share are free from such regulations. Banks are required by law to be transparent and follow the regulations issued to them by the Federal Reserve. On the hand, the new market players have little or no regulations and free playing field as compared to the banking industry.
Despite these rules and regulations banks are trying to come up with the solution. Catalysts banks are providing the industry with the ideas for e-payment platform and systems. These ideas need to be picked up by the market leaders such as Barclay’s. Although, Barclay’s have been able to come up with an alternative platform by the name of Pingit, still most of the industry is waiting for the success report of this project. Only after Pingit has been successful, the other banks are going to invest in the new venture. Most of the bank industry is made up of followers and fast followers. This can be another reason why the industry has failed to introduce new technology. However, the industry must realize that they must be innovators and catalysts rather than the follower, because the new players or attackers they are dealing with come from the highly innovative IT industry, and these firms like Google, Paypal are considered as the most innovative companies around the world. Hence, the banks need to be more innovative and just like McCormick (2014) observes the executives of the banking industry need to be trained in the new technology first so that they can pose threats to the invaders or attackers of the banking industry.
Although Denecker et al. (2014) believe that the total net income for the bank is relatively safe because most of the services provided by the banks have not been attacked yet. Bank’s lending services and deposit account services are not really tested by the attackers. McCormick (2014) argues that in few years time, the attackers will also start providing the customers with other services. Some of the services have already been provided by the attackers, such as the prepaid account services by PayPal. Money transfer service by Western Union and small payment services by Sage. The banks will really be tested in the coming years, and they are not showing any sense of urgency. This can be very dangerous for the industry, because the attackers are picking up their ground and are almost ready to attack the beachhead of the industry. Hence, the banks are required to get out of the comfort zone and start doing something about it before it gets too late. The enemy is already at the gates, armed with new technology, creativity and innovation. The banks cannot sit in their forts hoping that the weaponry that the attackers have is not enough. The banks should try to develop their own new weapons to outcompete and outperform the attackers. Until this is not done, the banks are in for a tough fight and many specialists in the industry believe that this war is for the banks to lose.
Denecker et al. (2014) also states that the transition of the banking industry toward the digital platform is going to help the banks to reach out for new customers, enhance its value proposition and increase the revenue earned. This is a profitable proposal for the banks and they should immediately start working in order to increase their revenues and customer base. If these banks are serving a wider target market and dealing in small, but profitable transaction their margins are going to rise and it will make them more profitable. Just like McCormick (2014) believes that technology is going to banks more profitable Denecker et. al (2014) conforms to the idea.
In the last part of his paper (Denecker et al, 2014) has done some data analysis. It clearly shows that people are clearly inclined toward adopting new technology. The rise in the use of debit and credit card confirms that. There are more than eighty percent people who are using the plastic money. Similarly, the share of cash notes and checks have fallen. Initially, people and banks were also wary about the feasibility of using these cards for transactions where a large sum of money is involved. However, these days’ people have become so accustomed to it that the proportions of cash and checks have fallen by a great degree. The success of debit cards and credit cards rise rested in the training and informing people on the use of these cards. A similar approach has been suggested by McCormick (2014) for online and e-payment banking. First of all it will look difficult, but once the executives and bank employees are trained enough to teach the customer using these service, the overall outcome will be position. Therefore, the banks are responsible for training the executives and bank employees in the use of these services so that they can enlighten the customers and teach them about the use of these service. In the end, if all is done well, the banks can introduce these services successfully.
It can be concluded from the above paper, that banks should introduce technology and e-payment systems. Both McCormick and Denecker seem to have an agreement on that. Denecker seems to be more positive toward the approach, but McCormick seems to be little wary because he thinks that the bank executives themselves are not very well trained in the new technology. However, both of them agree of the fact that the introduction of this technology is going to be profitable for banks and it will build up new customer base, just like the use of debit cards and credit cards have increased over time.
Denecker, O., Gulahti, S. and Niederkorn, N. (2014). The digital battle that banks must win. [online] Mckinsey.com. Available at: http://www.mckinsey.com/insights/financial_services/the_digital_battle_that_banks_must_win [Accessed 6 Nov. 2014].
Sidel, R. (2014). Banks Stumble Along Tech Frontier. [online] WSJ. Available at: http://online.wsj.com/articles/SB10001424052970203764804577056151701316644 [Accessed 6 Nov. 2014].
Sperling, E. (2010). Banking On Technology. [online] Forbes. Available at: http://www.forbes.com/2010/09/17/wells-fargo-internet-technology-cio-network-banking.html [Accessed 6 Nov. 2014].