Brett King is a bestselling author, American Banker’s Innovator of the Year for 2012 and the founder of the direct mobile bank Moven. He is an International Judge for the GSMA Global Mobile Awards, the Asian Banker Retail Excellence Awards and for the Middle East Business Achievement Awards.
A global thought leader in financial services and customer experience, King is a sought after expert on innovation, technology disruption, customer experience and channel distribution strategy. He publishes regularly in his role as industry advisor on Huffington Post, Internet Evolution, Seeking Alpha, American Banker, FinExtra and his personal blog Banking4Tomorrow.com.
In 2013, a report stated that 70% of IT spending was spent on making IT compliant with regulatory requirements – even if this was 50% of the IT spend, it’s likely too much. Up to 75% of Banks’ tech budget today is spent on maintenance, integration and routine tasks1. In 2012, Robert Half Consultancy did a survey showing that company heads spend 20% of their time dealing with compliance and regulation. Gartner Research2 exposed that 63% of the IT spend was simply on Tunning the business’, and just 12% on transforming the business. With 45,000 FinTech players globally spending 100% of their budget on transforming experience, banks need to really step up here to survive.
The tension is building between creating great new customer experiences versus spending to make sure the bank stays legally compliant. One of these builds a better brand, more engagement and more revenue and the other does not. You can’t transform your business if you’re spending on process, on regulation and on legacy thinking.
Let’s consider this. KYC regulations have got significantly heavier over the past 20 years due to FATF AML3 reporting requirements and CIP (Customer Identification Program) requirements emerging from the post-terrorist financing push after 9-11 in the US. We now understand that we don’t actually need such harsh account establishment rules to prevent money-laundering or suspicious transactions, because that is based more significantly on overall account activity.
We do still need to uniquely identify customers to ensure that identity theft isn’t occurring and to limit financial crime, but if we are relying on a face-to-face identity event for that in a bank branch, we will kill the overarching objective of 100% financial inclusion – the stated goal of most economies in the world today.
Needless to say, that the physical signature is an artifact of 2,000 years ago and is not unique, secure, or verifiable in most instances today. Simply put, if you are requiring a customer to open an account by signing a piece of paper, then you are going to kill financial inclusion, you’ll reduce security, increase fraud, and you won’t be able to deliver those products and services in real-time over a mobile phone in the future – a basic and fundamental requirement of the banking system that is emerging.
So the trick to improving customer experience, generating more seamless engagement and digital revenue is also the best way to reduce spending on supporting Legacy compliance and bank processes or policies.
The top 5 banks in the world are ICBC (Industrial and Commercial Bank of China), Wells Fargo, China Construction Bank, JP Morgan Chase, and Bank of China. Together, they have 550 million bank accounts, with 250 million mobile users. Combined, these banks have a market cap exceeding US $1.2 trillion and employ close to 2 million people. Big numbers right?
Well, let’s take a look at this from a definitions perspective. What exactly is a bank account?
It is essentially a value store; a safe place where you can store money or monetary value, for the purpose of savings or for the future potential of purchase and money movement. However, more recently we’ve seen a number of alternative value stores emerge worldwide, including prepaid and gift cards, mobile airtime accounts, airline miles and rewards programs, mobile wallets, closed Loop payments systems, etc.
If we count a bank account, though, as a value store that you can use to pay for goods and services, that might be a better definition, and while you can use airline miles for buying some things, they aren’t widely accepted from a currency perspective.
There are, however, dedicated mobile value stores that are extremely widely adopted and accepted globally today. They might include your ¡Tunes account, PayPal, Bitcoin or Alibaba’s ALiPay. How do these compare in terms of reach and number of users or accounts?
If you take just iTunes, PayPal and ALiPay today they account for 1.2 billion accounts, that is, more than twice what the top 5 banks have in terms of account holders. If you include M-Pesa, MTN Money, BKash, G-Cash and other mobile money services you can easily add another 200 million account holders.
That means quite simply that mobile bank accounts, mobile value stores or mobile wallets already outnumber traditional bank accounts 2 to 1. But if you insist on a more classical definition of a bank account, then the Likes of M-Pesa in Africa is a better mobile-based bank account analog. You can use an M-Pesa account just Like a debit card at most merchants (5 times more acceptance than debit and credit cards in Kenya), you can save and you can even access nominal credit facilities. By any classic definition of banking utility the mobile money accounts are acting as a much more accessible, Low friction access point to banking services for developing economies.
Thus, in the developed world it is accurate to say that by 2020 more people will have a bank account on their phone, than a classical bank account issued by a bank branch. In the developed world, the transition will take just another 5 years, but by 2025 the world’s bank account will be a mobile phone – not a cheque book, not a passbook, not a piece of plastic, but a mobile smartphone.
This will surely change the way we think about banking itself. Clearly a merchant will be penalized if he does not offer access to mobile payments. Even cash will be a negative in most developed economies as the use of mobile payments skyrockets. The most Likely candidates to go cashless first are the Nordic countries Like Denmark, Sweden and Norway, but the UK and other parts of Europe are not necessarily far behind. Keep in mind, however, going cashless is not the goal here, financial inclusion and financial access is.
Ultimately the solution here is wrapped up in skating where the puck is. We all know that we’re moving inevitably towards mobile engagement, but we’re spending big bucks on reinforcing the processes and models of the Legacy bank. In a recent report4 76% of banks serviced said they considered digital onboarding absolutely critical for the future of the business.
When you transform your onboarding and acquisition strategies for digital, you need to be focused on great customer experience or it won’t work. When you rebuild customer experience to create frictionless onboarding, what you’re also doing is streamlining organizational effort around compliance and process. You are optimizing for digital.
The outcome is a shift in spending that generates low-friction customer revenue, and changes the prioritization of IT spend internally, away from legacy, and towards the future of the business.
It’s really inevitable that banks are going to have to rebuild this basic capability as mobile money and alternative financial services start to compete for value stores on your mobile phone, but even more so as branch activity continues to decline. Thus, transformation, great customer experience, and reducing IT compliance spend, all come down to a central mission – engage customers in real-time via digital.
The side effect of this is going to be growth at a much lower cost than the bank has ever experienced before. This won’t break the bank, but it just might save the bank!