Why banks struggle to compete with challenger banks

Unlike fintechs, humility, adaptability and transparency are vague values for the profit-making banks

“The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.” (Microsoft founder, Bill Gates)

Banks are, starkly, culturally different from the challenger banks (or fintechs) giving them a run for their money. And this could be their biggest undoing. In a time when customer intimacy is not a public relations exercise but a necessity for business survival, banks still epitomise the rallying call of the entrenched: “But we’ve always done it (treated the customer) this way.” This article follows last week’s entitled, ‘Being digital does not make banks tech-savvy’. Unlike the mushrooming fintechs globally (like Safaricom, or, corporate on-line lender Lending Club), going digital for banks is driven more by the desire to ‘evict’ the customer from the banking hall than to simplify his life.  That’s why their customer interaction processes remain analogue (detached) even as the bank goes digital; much like a retailer going online, but still operating from 8am to 5pm.

Borrowing from last week’s analogy, a ‘digitized’ parent knows that he must throw out the parenting rule book he grew up on and embrace a new one on the go, if he is to raise a socially adjusted child. He dared not ask his parents, “What is sex?” for instance, but knowing his son has options (read, the Internet), he tries to address the question when asked.   It’s scary but he knows it must be done. And so weaning himself off hubris, he humbly reinvents himself and therefore his relationship with his son. 

As for banks, they struggle to accept that they are no longer in control of the banking environment. Unlike fintechs, humility, adaptability and transparency are vague values for the profit-making banks; they are more familiar with control, rigidity and obfuscation. For instance, they had to be dictated to by Central Bank, to display the cost of every transaction; meantime, Safaricom loudly displays tariff rates at every M-PESA agent and reconfirms it with Hakikisha.

You see, we are no longer ‘refugees’, meekly waiting for banks to dole out conveniences like an ATM or longer opening hours. We now demand it.  “More than ever before, the future is being driven by the consumer. ‘Spoilt’ by what other industries are building expectations of, for instance Amazon, Apple, Google, (Safaricom) and Facebook, the consumer is looking at transactions today and saying, “Why can’t your bank apps be as easy to use as for tech firms?” (Digital Banking Report.)

And that’s the point-banks aren’t competing against banks; banks are competing against technology. This change in competitor landscape means banks must re-think their potential.  Alas, their response to this is, “Banking is complex and regulated.”  So was media before social media. Successful bank digitization is not just automating existing services and making them available on self-service platforms. Digitization should involve a cultural change in the mind-set of bank staff.

The senior management program MAGNETIC (Retaining today’s promiscuous customer) addresses these challenges; and through case studies, participant-led discussions and debates, and using robust models reveals solutions to them.

You may also want to read, “Are Kenyan banks too big to fail?”

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