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Banking Disruption in Financial Services: Threats and Opportunities

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There are three forces shaping the future of banking. Technology innovation is the first. For most traditional financial institutions -- banks and credit unions -- technology innovation is a weakness; instead, they rely on third-party firms ranging from established core providers to startups to provide them with a mix of products that they repackage and resell to their customers. Demographics is the second force. Millennials now account for 25% of the US population with 80 million and growing. The third force is the emergence of new business models on the one hand driven by Millennial demand and communication preferences, and on the other, enabled by new technologies as they are invented.

The report examines data from multiple sources and suggests potential defenses for institutions to fend off competitive threats from technology, retail, and telecom firms that are gaining traction in the payments and banking arenas.

Publicada em: Tecnologia
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Banking Disruption in Financial Services: Threats and Opportunities

  1. 1. 1 Disruption in Financial Services: Threats and Opportunities Written by Andrew Tilbury 11.12.14
  2. 2. 2 ABOUT BLUEPOINT SOLUTIONS Bluepoint Solutions provides end-to-end payment processing and content management solutions to community financial institutions. More than 1,400 credit unions and community banks nationwide have deployed its enterprise technology, including the largest corporate credit unions and credit union service organizations in the country. Learn more at bluepointsolutions.com.
  3. 3. 3 THE FUTURE OF BANKING IS AT RISK. This report examines data from multiple sources to identify and explain the forces that are shaping payments and banking today. With substantial banking income at risk, it also suggests potential defenses for banks and credit unions to fend off competitive threats from non-traditional financial services firms entering the payments and banking arenas. If you have difficulty answering any of the following questions, this report will be helpful as a strategic guide to plan your future product roadmap and IT budget allocation. • Are you prepared to compete with technology firms that start providing financial services? • Do you have a well-articulated strategy for attracting and retaining Millennials? • Have you determined which digital wallets or services you will adopt and offer to your customers and members? • How are you adjusting your product roadmap to accommodate shifting consumer preferences and the growing importance of the mobile channel? • Do you have a future growth strategy that relies more on mobile and social technology than it does on your branch or ATM networks?
  4. 4. Disruption is Here Technology Innovation New Business Models Demographics BANKING REVENUES ARE AT RISK 35%of banking revenues are projected 4 to be at risk by 2020 due to disruption in the financial sector Source: Accenture
  5. 5. The Apple Effect In Q3 of 2014, Apple generated $4.5b in revenue from iTunes and its App Store. There are more than 800m active users of iTunes — many of which already have stored debit and credit cards. Apple could quickly become the dominant, global provider of mobile wallets with the unique combination of its global smartphone market share, launch of Apple Watch — the first wearable device capable of making point-of-sale purchases, and reach of its card-issuer, retailer, and banking partnerships. Apple has the potential to disrupt financial services with the same effect that Walmart had on retailers Home Depot had on hardware stores, and the Internet had on travel agents. Add to this unique set of capabilities the immense brand recognition, brand loyalty, and trust that Apple has with its users, and a vision quickly emerges of a new banking ecosystem wherein traditional banking institutions rely upon Apple for inclusion in the world of payments. 5 Source: Company Filings
  6. 6. Banking with Non-Banks The majority of Americans are willing to bank with at least one non-traditional financial services firm with which they already have a relationship. Traditional financial services firms no longer need to compete with just their peers; they now face a new challenge: competing with companies from other industries that previously weren’t competitors. 58% of Americans aged 35-54 are likely to 77% of Americans aged 18-34 are likely to Source: Accenture How likely would you be to bank with a non-bank? This creates difficulty in both how to compete, but also where to compete. 6
  7. 7. New Threats — Present and Future Source: Accenture 7 Which of the following companies would you be willing to use as a provider of financial services? New Threats To Finserv
  8. 8. 8 “ Your biggest threat isn’t other financial services providers. Your biggest threat is non-financial services firms entering banking and payments with innovative products, respected brands, and massive customer bases. ”
  9. 9. 9 TECHNOLOGY Established technology firms are developing new products — think digital wallets — that enable the creation of new business models with enormous existing customer bases. 1b Android users globally 800m iTunes users 100,000 106m active accounts Retailers, salons, meals sold Source: Company Filings
  10. 10. RETAIL Retailers looking to cut costs, collect valuable 10 customer insights, and boost loyalty programs are looking for — and developing their own — new payments systems, including full service checking accounts. 237m accounts at the end of 2013 76.4m members 15 MINUTE 90% of Americans live within 15 minutes of a Walmart store 8 cents of every dollar spent in America is spent in Walmart $100b in Revenue in 2013 Source: Company Filings
  11. 11. 11 50.5m subscribers TELECOM 110m subscribers 34% market share of wireless subscribers in the US 54m subscribers Source: Company Filings Telecom providers enable adoption of new business models through expansion of high-speed data access and mass adoption of smartphones with built-in NFC functionality.
  12. 12. Paradigm Shift in Banking Channels The attraction of digital banking — especially for Millennials — is undeniable Devices are pulling people away from traditional FIs and branch networks 12
  13. 13. Away from traditional financial institutions, and towards non-traditional financial service providers Out of the branch, and onto the computer Off the computer, and onto the mobile device 13 Paradigm Shift in Banking Channels
  14. 14. 94% Are active users of online banking 72% Are active users of mobile banking 72% Would be likely to bank with non-financial services companies with which they do business 67% Feel the traditional and digital experience they receive from their bank is somewhat or not at all seamless 39% Would consider using a branchless digital bank 33% 1/3 of the US Population Millennials: By the Numbers 14 Source: Accenture, Nielsen, Pew Research
  15. 15. 15 “ ” Branch growth has peaked. Online banking growth has stabilized. Mobile is the current avenue of growth. Social is on the horizon.
  16. 16. Clicks versus Bricks Online and mobile have grown at the expense of the branch. 47% of people use mobile or online channels as their primary method of banking. 47% 120,000 90,000 60,000 30,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Credit Unions Commercial Banks Number of U.S. Branches 16 Sources: Bank of America, Business Intelligence, CUNA
  17. 17. How are the Big Banks Approaching Mobile? Online growth has stabilized; Mobile use has doubled in the last 3 years Chase Chase 90 67.5 45 22.5 0 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Bank Of America Wells Fargo Online Customers Mobile Bank Of America Wells Fargo Customers Sources: Company Filings, BI Intelligence 17
  18. 18. Shifting Habits are De-Emphasizing the Branch Each week… of customers use ONLINE BANKING use MOBILE BANKING visit a BRANCH Social will be the next wave of growth. It is an opportunity for FIs that embrace it, but a threat to those that ignore it. 57% 22% 14% use SOCIAL MEDIA to 10% interact with their FI Online and ATM are still the 2 most commonly used banking channels. 18 Source: BI Intelligence
  19. 19. Consumer Preference is Driving Future Technology Investment The paradigm shift towards mobile and social banking is gaining momentum. FIs are shifting technology investments accordingly. Mobile Spend Total Tech Spend 14.6% 4.2% CAGR of mobile technology spend in the next 4 years. Change in total technology spend between 2013 and 2016. vs Sources: Aite, BI Intelligence, CEB Tower Group
  20. 20. Banking Apps are as Prevalent as ATMs All of the 20 largest banks and 20 largest CUs in the country have NATIVE apps for both Android and Apple devices. 20
  21. 21. Wallets: By the Numbers 21 38% 38% of people would use a smartphone as a wallet. 50% 5 out of 10 of the largest banks launching with Apple Pay. 220k 220,000 merchants accept Apple Pay. 110k 110,000 merchants accept CurrentC from MCX $27b PayPal's mobile payment volume in 2013. 6 of the largest card issuers are partnering with Apple at launch Sources: Bank of America, Company Filings
  22. 22. The Future Will be on Your Wrist 22 Wearables Today already own wearable technology would purchase wearable technology would not buy it 5% 44% 47% Apple will ship 15m watches in 2015, securing ~40% market share of smart watches. The launch of the Apple Watch will validate wearables as a viable product and payment category — just like iPod, iPhone, and iPad validated their categories. Apple Watch will be able to make point-of-sale purchases. CaixaBank and Visa are piloting payment wristbands to 15,000 customers. Linked to credit or debit accounts, the wearer simply will wave it in-front of a reader to make a purchase. Barclays is also piloting a wearable called “bPay Band” that will be available in 2015. Sources: Bank of America, BI Intelligence Estimates, Company Filings
  23. 23. The Wallet Wars Have Started Millennials are the largest potential pool of new members and are also the least satisfied. The mobile wallet could deliver the seamless, frictionless experience that Millennials crave. Retailers such as CVS and Walmart are trying to pick sides and keep Apple Pay out of their stores. Banks and Credit Unions are evaluating their options for staying relevant in the wallet ecosystem. 23 Banks and credit unions need to be on the forefront of delivering the technology, services, and experience Millennials are looking for today.
  24. 24. 24 “ The potential for retail, technology, and telecom firms to disintermediate financial institutions from payments and, ultimately, their customers is real; but there are distinct growth opportunities for those willing to adapt to the new environment. ”
  25. 25. Move Beyond the Transaction The goal of these financial institutions should be to shift service offerings, business models, and culture to stay positioned as critical players in the value chain of payments and the larger 25 banking ecosystem. 40% of customers in the US and Canada have been at their current bank for 10 years or more. Source: Accenture “ ”
  26. 26. 26 Create the Banking Experiences Millennials Want Recognize they value different things than their parents Convenience over Brand Immediacy over Trust User Experience over Relationship Self-Service over Face-to-Face
  27. 27. Eliminate the Reasons to Switch to a Non-Bank International remittances p2p payments Wallet Mobile deposit Prepaid cards Personal financial management 27
  28. 28. Omni-Channel Banking is not Just a Buzz Word It’s the key to creating a seamless banking experience that is defensible against new threats and marketable to new customer segments. mobile online social branch / ATM 28
  29. 29. Move Beyond the Transaction 29 74% of people in the US characterize their banking relationship as TRANSACTIONAL RELATIONSHIP VS “ ” My relationship is defined by simple transactions like paying bills, checking account statements, etc… Source: Accenture
  30. 30. Relationship banking that delivers long-term strategic guidance is where traditional financial institutions have the advantage. 30 “ ”
  31. 31. Who Will the Winners Be? 31 Early adopters Innovators Agility Embrace change Grow market share First-movers Move fast Fast growth Low risk aversion LEADERS FOLLOWERS Wait and see Copy cats Reluctant to be first mover Never try new technology without seeing its feasibility proven Slow to change Moderate risk aversion Stable market share LAGGARDS Shrinking market share Late adopters Resistant to change Reactive / not Zero innovation proactive High risk aversion
  32. 32. 32 “ ” FIs need to refashion their internal culture to embrace innovation and become the first-movers in delivering new service offerings or they will lose the fight for Millennials — and their future.
  33. 33. Sources 33 Disruption is Here: 1 Accenture, “Banking 2020,” 2013 The Apple Effect: 1 SeekingAlpha.com, “Apple’s (AAPL) CEO Tim Cook On Q4 Results- Earnings Call Transcript,” 2014 Banking with Non-Banks: 1 Accenture, “The Digital Disruption in Banking,” 2014 New Threats- Present and Future: 1 Ibid Technology: 1 TheVerge.com, “Google touts 1 billion active Android users per month,” 2014 2 Asymco.com, “Monthly Apple Users,” 2014 3 Paypal.com, “Online: Love at first site,” 2014 4 Square.com, “Business Types,” 2014 Retail: 1 Statisticbrain.com, “Wal-Mart Company Statistics,” 2014 2 Trefis.com, “Costco Wholesale (COST),” 2014 3 GeekWire.com, “Amazon Prime tops 20 million members as c company touts its best holiday season ever,” 2013 Telecom: 1 T-Mobile.com, “T-Mobile US, Inc.: America’s Un-carrier,” 2014 2 Statista.com, “Market share of wireless subscriptions held be c carriers in the U.S. from 1st quarter 2011 to 2nd quarter 2014,” 2014 2014 3 Sprint.com, “Sprint Reports Results for the Quarter Ended M March 31, 2014,” 2014 Millennials: By the Numbers: 1 Accenture, “The Digital Disruption in Banking,” 2014 2 Nielsen, “Millennials: Breaking the Myths,” 2014 3 Pew Research, “Millennials in Adulthood: Detached from Institutions, Networked with Friends,” 2014 Clicks versus Bricks: 1 Bank of America, “Trends in Consumer Mobility,” 2012 2 BI Intelligence, “The Mobile and Online Banking Report: Mobile Is Pulling Customers Away from Branches and Online Banking,” 2014, p. 7 3 CUNA, “Credit Union Report year-End 2013,” 2014 How are the Big Banks Approaching Mobile?: 1 BI Intelligence, “The Mobile and Online Banking Report: Mobile is Pulling Customers Away from Branches and Online Banking,” 2014, p. 10-11 Shifting Habits are De-Emphasizing the Branch: 1 Ibid, p. 3 Consumer Preference is Driving Future Technology Investment: 1 Ibid, p. 12 2 Ibid, p. 19 Wallets: By the Numbers: 1 Bank of America, “Trends in Consumer Mobility Report,” 2014, p. 11 2 MCX.com, 2014 3 Apple.com, “Apple Pay,” 2014 4 Paypal-media.com, “Financials,” 2014 The Future Will Be On Your Wrist: 1 Bank of America, “Trends in Consumer Mobility Report,” 2014, p. 12 2 CaixaBank.com, “CaixaBank launches the first Visa contactless wristband, supporting payments with a simple tap of the wrist,” 2014 3 BI Intelligence, “The Wearable Computing Market Report: Growth Trends, Consumer Attitudes, and Why Smartwatches Will Dominate,” 2014, p. 10 4 Mobile Payments World, “Bayclays Set to Launch Contactless Payments Wristband,” 2014 Move Beyond the Transaction (1): 1 Accenture, “2014 North America Consumer Digital Banking Survey: The Digital Disruption in Banking,” 2014, p. 2 Move Beyond the Transaction (2): 1 Ibid, p. 4

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