If banks don't innovate, others will step in to fill the gapby James Barty / June 19, 2014 / Leave a comment
This piece is from our special report on digital banking. Click here to read the first piece in the series, “A bank branch in your pocket.” Click here to read the second piece in the series, “the end of cash.”
Banks are doing a good job of keeping up with advances in new technology at the moment, with digital apps, faster payments, contactless debit cards and payments over mobile phones. But the speed with which new technology is being developed means that banks will have to make substantial investments if they are to maintain this.
The main incentive for banks to develop a new digital offering is the desire to deliver banking in a smarter way to meet the growing expectations of their customers. Huge numbers of people now have smartphones filled with apps to help them manage their lives. They demand banking services in the same way as they might demand any other service. Digital banking apps have proved very popular and the take-up has been substantial. People now access their banking app 20 to 30 times a month, but visit their branch less than once a month—the banks have been genuinely surprised at how fast that has taken off. RBS says its busiest branch is its mobile app at peak commuting time in the morning as people log into their accounts.
For the banks the key is to continue to innovate and implement change because, if they don’t, others will potentially do it in their place. We are already seeing the first internet-only banks being set up in the UK, which represent a challenge to traditional lenders. There is also a real possibility that other organisations will come in and cherry pick some of the banks’ business: Google Wallet and Paypal offer the ability to make payments across their software, and Facebook plans to introduce this.
To meet this sort of challenge, banks are developing more sophisticated technological products for customers—as described above by Sean Mahdi and Merryn Somerset Webb—such as Paym, the mobile phone-based payment system, and cheque imaging, where cheques are paid into your account by scanning them with your phone. As each innovation is introduced this is creating one of the most advanced payments systems in the world.
Another big incentive for banks to press on with developing their digital services is that they are much cheaper to run than the traditional paper-based style of…