Mobile - Frank M. Rafik

How New Technologies are Serving as Platforms for Faster Innovation

December 31, 2015         By: Paul Schaus

The pace of change in technology is becoming a growing issue in nearly every industry, but few industries are as ill prepared for it as banking. Banks face some of the most stringent regulatory requirements of any industry, and their bottom lines have been hurt by reduced fee revenue and lower consumer demand for credit. These conditions make it difficult to devote the necessary resources and promote an organizational culture that can keep a bank up to speed with the rapid changes taking place in technology.

Things aren’t going to slow down though; that pace of change is only going to accelerate in the near future. One of the major reasons for that acceleration is the rapid adoption of new technologies that serve as platforms for new digital products, services, and experiences. The digital disruption that banking – and nearly every other industry – faces is being driven by the convergence of several of these technologies: mobile computing, cloud storage and computing, big data and analytics, and social media. Each of these technologies creates opportunities for companies to offer new digital experiences for their customers.

As adoption of these technologies picks up, both startups and established companies will create those new experiences faster and faster, building upon previous products and services that have already proven popular with consumers. The best example of this trend in banking is how mobile computing is changing the industry.

Mobile has been the most impactful platform for change in banking in recent years, giving consumers instant access to their banking and financial information wherever they go. The rapid adoption of mobile banking has upended business models in the industry, with banks scrambling to figure out what they should do with their costly branch networks as foot traffic continues to fall.

Mobile banking has also changed consumers’ relationship with their finances. Mobile users are the most engaged banking customers, often checking their bank accounts multiple times a day. This increased engagement is now opening the door for new mobile finance and commerce services, mainly mobile payments apps and real-time financial advice delivered through the mobile device.

So we are really just starting to experience the full impact that mobile computing will have in the banking industry as a platform for new services. Mobile banking has overturned traditional consumer banking behaviors and industry business models. Mobile payments is set to take off over the next few years, and will prove to be just as disruptive of a force. All of the major providers of mobile handsets and operating systems are now including their mobile payments apps in new models, and all of the major issuers have announced support for these solutions. Several major issuers are also releasing their own mobile payments solutions, so it’s likely that many consumers will have multiple mobile payments options on their phones. In addition, all of the major nationwide retail chains are upgrading their payments terminals to accept NFC payments.

As more transactions go through mobile devices, we will see the convergence of mobile with some of the other disruptive technologies mentioned above. All of that payments data on the phone will be sent back to the cloud for analysis, allowing mobile payments providers to deliver insights back to the consumer through their mobile device to help them improve their spending habits. If Apple, Samsung, and Google do a better job at providing those insights than banks, then they could become consumers’ go-to source for financial advice, severing banks’ relationships with their customers.

This illustrates a common theme around technologies that serve as platforms for new digital experiences: they allow startups and new entrants to succeed if they can provide better experiences than incumbents can. We’re starting to see that in mobile, as technology companies have an early step on banks in the mobile payments market.

In addition to the technologies already mentioned above, banks also recognize that another major new innovation could disrupt the industry: the blockchain. Originally invented as the public ledger for Bitcoin transactions, banks (and Silicon Valley) are realizing that the blockchain could serve as a platform for many new digital products and services, just like mobile computing has. Many large banks around the world have been experimenting with private blockchain technology in their innovation labs. Santander Bank has publicly said that it has found at least 20 use cases for blockchain technology in everyday banking.

Of course, the blockchain will also be combined with other major technologies to speed up the delivery of new products and services. For example, Visa has demonstrated a proof-of-concept combining blockchain, e-signature, and connected car technology to digitize the process of signing a lease, buying insurance, and making payments for a new car.

Now that financial services has caught the eye of the startup world and many tech heavyweights, these new entrants will be working hard to create new banking and payments experiences for consumers based on mobile, cloud, big data and analytics, and, eventually, blockchain technology. Consumer and enterprise adoption of these technologies is accelerating. The major technology companies have huge piles of cash to invest in their innovation efforts, and startups have no shortage of venture funding to work with. Plus these new entrants don’t have the regulatory burden banks do.

All of this creates an environment where the pace of change will continue to quicken. Banks need a sound business strategy centered around their key customer segments, and a plan to acquire or build the technology necessary to follow through on that strategy. Without it, they will likely be left in the dust by a rapid avalanche of trends outside of their control.