How Consumer Sentiment Has Changed the Dynamic of Financial Disruption

“In the U.S., 33 percent of millennials (ages 15-34) believe that within next five years they will not even need a bank”. – McKinsey & Company. Global Payments 2015: A Healthy Industry Confronts Disruption.

It is difficult to conceive a reality where banks stand redundant and, while the probability of such a happening is highly unlikely, a large number of individuals globally are adopting a new set of expectations for the infrastructure that supports their pecuniary activities on a p2p, p2b level, e-commerce, or for cross border transactions.
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While the efficiency of different complementary services may not be uniform across all sectors of banking and monetary transactions, with expectations having been established by more modernized sectors such as the payments sector [35% of fintech companies are active in payments sector (McKinsey)], consumers are increasingly putting pressure on banks and other financial institutions to put in place infrastructure that meets these expectations across the board for services like retail banking, availability of information, transparency, fraud detection and compliance (ID verification, KYC, Credit Review).

Consumers are also becoming noticeably more independent when it comes to their financial decisions. Even in terms of advice from financial services firms, they don’t want to talk face to face with an advisor but they want to feel special & have the ability to switch seamlessly between personal and hands-off options. These are no meager demands to place on a traditional bank whose entire infrastructure requires significant investment in data and analytics capabilities (McKinsey) to support these demands. As Eli Broverman, Co-Founder and CEO of Betterment explained “In some cases, investors want to self serve, but they want to self serve in a different way than they have traditionally self served. They want that advice in a digital format.”

To succeed, financial institutions will need to dramatically increase their customer insights and understanding allowing for a tailored and unique experience for each customer interaction. As customers grow accustomed to faster and more convenient payments on the retail side, they will soon demand similar conveniences and service levels in transaction banking as well (McKinsey). As consumers grow accustomed to the benefits of using technology in their daily lives, their expectations also grow. Nonbank digital entrants have used superior design and user interface to build solutions that often surpass consumer and merchant expectations in terms of end-to-end customer experience. By integrating payments into commerce, nonbank attackers have created more seamless, personalized and interactive experiences, contributing to increased conversion rates (McKinsey).

The one aspect that the traditional banks have in their favor is the vast amounts of data being collected and stored, which banks can use to develop insights on consumer behavior and maybe even get ahead of the curve. As of now though, it’s a catch up game; Banks’ core platforms will need to be updatable in real time, fraud platforms and processes will need to be very near real time, and clearing systems must be capable of handling exchange of information, posting of transactions to the customer and funds availability all in real time. Or face being left behind in this new form of disruption the industry is facing.
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Read the whole article on Crowd Valley News.