Having the privilege of talking to senior people in banking organizations in many countries, the topic of non-bank competition is a consistent favorite. While many names spring up in this debate, the discussions recently have focused on what Apple and Apple Pay means for the payment and wallet space in conjunction with the introduction of the iPhone 6 and foray into wearables with the still unproven Apple Watch.
While non-traditional players have challenged legacy retail banks in the past, such as Metro Bank, Simple, Moven and Fidor or retailers/telcos like Tesco, T-Mobile and Walmart, introducing checking or prepaid accounts, most are just nibbling at banking’s toes.
Banking Isn’t Being Disrupted … Yet
The predicted customer disintermediation and resultant ‘banking’ revenue impact has not materialized since few have reached the scale that would concern banks who have a lot of other priorities on their minds. While these non-traditional players are less inhibited by the hurdles such as legacy systems, extensive brick and mortar infrastructure, overstaffing, commoditized products and services and compliance pressures, only a handful of non-traditional players have been able to leverage their brand differentiation to offer much outside the existing banking paradigm.
Fundamentally, despite the hype and ongoing dialogue from commentators in the marketplace, banks just haven’t been disrupted. And as long as they can ignore this rhetoric, most believe they are not yet at risk.
Despite this overall lack of true disruption in the financial services industry, Apple has done quite a bit to position themselves over the last 5+ years for a potential checkmate move. With the release of iOS8, the iPhone6, the Apple Watch, and their control over both the hardware and software, Apple is in a unique position to control many key components of the ecosystem and the end user experience of providing a differentiated financial services experience.
Apple Pay’s Impact On Banking Isn’t About Technology.
Interestingly, the match of technology and software that Apple has brought into the ecosystem is not the most important transformation for bank and credit union executives to pay attention to. Well, at least not the only one!
Throughout history, banks have been in control of the financial ecosystem end to end. Sure Mastercard, VISA and other intermediaries play their part, but this is in accordance with the the industry’s wills and decree.
Because of this control, banks haven’t really innovated the industry. They haven’t challenged or changed the legacy paradigm. They have perpetuated their existing form and defended themselves with the majority of organizations selling almost identical products year after year.
What Apple brings is not just technology (even though the technology has the ability to be surprisingly disruptive in the short term), but the potential for a fundamental paradigm shift of control within the financial services industry. It has the ability to leverage the data within the payments process to make people think differently about their overall banking relationship.
The same digital technology which has been hailed as the poster child for cost efficiency and service for banking has significantly reduced the barrier to entry for firms like Apple. And while banks have been furiously trying to ‘Applefy’ themselves for the last 5+ years, with nice wood floors and an open store concept with free Wi-Fi, this has been nothing more than a slick veneer on an old paradigm.
Traditional bank dominance and control has led to lethargy and complacency in terms of the speed, cost and aspirations for the market, providing the springboard of opportunity for Apple and other technology providers. The momentum of many of these new entrants will most likely flourish in 2015 and beyond.
Bank Lethargy and Apple Exuberance
For decades, the lack of meaningful competition and aspiration beyond incumbent banking organizations has led to bank operations becoming bloated and slow, with financial organizations delivering propositions which pay only token nods to consumer centricity. While the discussion of ‘customer centricity’ and ‘customer experience’ begins in earnest, the ‘frivolity’ of these aspirations is often knocked off either during budgeting or strangled during a long and protracted delivery round. As a result, the core objective of improving customer experience has yet to be achieved.
Equally, banks attempts at innovation are hampered by escalating costs caused by broken core systems and outdated operating models while suppliers tend to provide ‘market following’ solutions well after consumer needs are identified.
Conversely, Apple continues to deliver on both customer experience and innovation expectations. Rather than proclaim a customer experience strategy, Apple provides proof in the products they introduce and the experience they provide. Their ability to transform their offering year after year with their iPhones, iPads, stores, etc. is in stark contrast to the slow transformation in the banking industry.
What Apple brings to the market is a significant control over an ecosystem that combines value added innovation and customer experience to the masses … each and every year. Alternatively, most banks have difficulty delivering a banking app upgrade in less than two to three years, with most providing only miniaturized version of their online banking offering.
This is a stark contrast of transformation. For Apple (and other technology companies), what is being delivered is exceptional and the pace and quality of innovation and change continues to soar. Apple’s difference is their ability to partner, innovate, cut code and drive change to market, which compared to banks is like watching a Lamborghini drag race a snail. Even with a 100 year head start, that race will only end one way.
The Apple Effect
If we look beyond the iPhone 6, iOS8, NFC, payments, data disintermediation debate, and all the value added services that Apple has patented for family sharing (and could arguably deliver in the financial services space), what does banking look like in the future?
Spending time in banks, you find that some of the best people in banking know they may be ‘powerless’ to change the behaviors of the masses, get the level of board investment required, or improve the delivery experience enough to avoid this eventuality.
Apple has the size, investment potential, opportunity for gains and the well-worn track record of excellence in delivery to stand toe to toe with the big boys in banking and come out on top. One thing that is for sure is that Apple will not play nicely for long with those who slow them down, or be intimidated by the banks or other existing providers. You only need to look at what they did with the music, media and newspaper/magazine negotiations around data ownership and revenue to see examples.
The Branch of the Future May Not Be A Branch
While many banks worldwide speak of a commitment to traditional branches (albeit in a smaller footprint), it’s clear that Apple sees the future of payments and digital delivery of value differently. What we have seen is the beginning of a massive change in the way people make payments … from plastic to mobile devices. We may also see changes in the way people manage their digital applications … from mobile phone to wearables.
These may not be rapid transitions, but will definitely expose banking’s inability to deliver innovation and a differentiated customer experience without third party intervention. Banking is stuck between a rock and a hard place, having to enter into an uncommon and uneasy alliance with Apple or else face the potential of being the only kid on the block to not take Apple Pay.
Despite a 100+ years head start in the market, banks are realizing that it is not the much misquoted Darwin reference that its the fittest or biggest who survive, but actually those that are most responsive to change. Banks don’t need to change their websites or mobile apps or their core banking engines as much as how they serve their customers.
Merely asking the question ‘what is the branch of the future’ shows a lack of understanding of the realities of the digital consumer, who wants simplicity of access and delivery of products and services 24/7/365 in the location of choice. While definitely not becoming a bank, Apple (or another technology firm) could easily become the ‘front door’ to the digital consumer’s branch of the future, owning the experience while relegating today’s banks to comparatively invisible, secondary positions.