The financial crisis may be over, but banks are still feeling the pain from the several fundamental forces at work that are reshaping the industry and creating a tougher environment. While profits have risen, they have done so overwhelmingly due to the improvement in asset quality, not gains in revenues. Reflecting this performance, banking stocks haven't caught up to their pre-meltdown levels, and the overall market continues to outpace the recovery in the banking sector – and the gap only appears to be widening.
Regulatory compliance pressures, cultural or generational shifts, and technology driven entrepreneurial activities are forcing banks to rethink how they develop and deliver banking services to their empowered, digitally conversant customers.
Compliance paves the way for greater customer insights: Regulations put in place to ensure the integrity of financial institutions result in high operating costs, and mandates to upgrade customer services. Returns have been impacted as the industry absorbs billions of dollars in compliance related costs from reduced transactions and system upgrades. But forward looking banks view compliance mandates as an opportunity to gather customer-related information and insights that can provide a strategic advantage. They recognize that data needs to be shared effectively across organizational silos to create a 360 degree view of customers.
Millennials and mobile banking drive customer experiences: The rise of mobile banking serves as a good example of how rapidly customer relationships have evolved over a short period, led largely by millennials. The number of active mobile banking users is growing rapidly. Juniper Research forecasts that over 1 billion mobile phone users will be using their mobile devices for banking purposes by the end of 2017. Mobile banking in the US is expected to grow at 11% per year, reaching 130 million users by 2016. In a few short years, mobile banking transactions will match the level of transactions conducted using PCs and laptops. Traditional banking business strategies built on physical proximity to customers are no longer the most compelling model for success. It is clear that consumers are in the driver's seat, demanding that services are offered to them, whenever and wherever they want.
Millennials are well known for their technology prowess. They demand compelling digital experiences. They also want superior personal service at local branch offices. Although 90% of Millennials use online banking, 52% are visiting their branches as frequently as the year before. Innovative and compelling user experiences delivered across multiple channels are becoming just as important as competitive
products and services across all segments.
Disruptive forces transform customer engagement: The third major trend is the disruptive force exerted by upstarts as well as established players, which poses a constant threat of disintermediation. For instance, Australia's CommonwealthBank enables its customers to make payments to their Facebook friends or anyone with a mobile number or email address by leveraging their app. This is a fine example of how disruptors are changing the dynamics of customer relationships, thereby affecting highly profitable banking services. Banks that develop a clear understanding of the evolving needs of their customers will be better positioned to deploy new business models, and engage them