Digital challenge to banks thrown down at Davos

Jack Ma has thrown down the gauntlet to the Worlds of Finance as we know them today. His challenge came at the January 2015 World Economic Forum.

Such is Ma’s confidence in the disruption that digital innovation will bring that he has laid bare for all to see the strategic ambitions of three organisations that he runs: Alibaba, Alipay and Yu’e Bao (Mobile Money Market).

His challenge also demonstrates his unmitigated faith in the organisations to make the strategy happen. His declaration to those whose businesses are directly threatened is breathtaking.

The timing coincided with press coverage of Santander stating that they ‘intend to use old-school branches, plus a more aggressive IT budget to beat off competition” from Fintech startups and challengers new to the sector. The diametrically opposing views could not be more stark.

Brett King of Moven was quick to respond: “What Jack Ma knows—and companies like Moven, Square and Apple know—is that acquiring a current account customer through a branch network is hellishly expensive compared with digital acquisition.

“Banks like Santander, Chase, BofA, Wells typically pay somewhere between USD$180–350 to acquire a customer. They have to offer incentives like free toasters or $50–150 opening deposits to get you into a branch.

“At Moven we’ve got our CAC down to $10–12 per customer and believe we can improve on that significantly.

“Additionally, our conversion rate on downloads is as high as 77 percent. I bet no branch network in the world can come within shouting distance of those metrics.

“You could argue that there are still some customers who would prefer to come into a branch to open an account, but you’d be crazy because based on those numbers it’s just bad business.”

Is the Finance sector able to learn from other industries that have historically been confronted with a seismic shift? Typically, incumbents—whatever the industry—adopt defensive strategies rather than change. The lesson being that just because a model has worked successfully in the past doesn’t mean it is right for today—let alone fit for the future.

Take retail as an illustration. To increase customer footfall, you beef up the supply chain and the logistics and open new stores….it’s what everyone did until a decade ago. Today, Alibaba simply adds a couple of servers to its technology stack.

Ma is also showing the way in banking. Yu’e Bao reportedly took in US$93 billion in deposits in just eight months. No branch network in the world has ever come close to that performance in deposit taking.

Digital is changing consumer behaviour at a rate we have not seen before, and it means branches are visited less and less. Branch numbers—and staffing within those branches that remain open—are imploding. As customer acquisition and service shifts to digital, the cost to serve tumbles.

More widely, there is increasing acceptance that life is lived through standard preprogrammed flows; travel bookings and retail purchases are both relevant to the digital banking experience. If you don’t like the flow, choose another provider. Add in the fact that face-to-face doesn’t necessarily guarantee added service or accuracy. We all make mistakes, no matter what amount of training we have, and we’re inconsistent from one human to another—especially when it comes to advice on, say, creating an optimum financial package. Within the next decade, artificial intelligence will apply algorithms which can ‘understand’ and advise contextually on what you best need.

According to King, “The next bank won’t be a network it will be an experience.” With 30 or more banking-license applications coming through in the UK alone, major brands need to respond quickly and decisively. At a recent Digital Banking Club in London (December 2014), Atom shared the budget for its entirely digital-based platform launch.  The contrast between this and the cost disclosed by a fellow-speaker representing an established high-street bank of its own investment in upgrading to “digital” was three orders of magnitude. The audience, including many representatives of other high-street banks, was left in no doubt that if you are looking for growth or investment , you won’t get it investing in a branch network today. Digital it is.

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