Banks In Trouble As They Struggle With The Pace Of Digitalisation

Banks In Trouble As They Struggle With The Pace Of Digitalisation
SHARE
THIS



In this opinion piece, Andrew Birmingham, the editor of B&T’s sister business site Which-50.com, says bank’s sluggish approach to digitisation has them ripe to be disrupted…

Here it is in such simple terms that even the board of directors at a bank can understand. It’s the Loan Book, Stupid.

Lending constitutes one third of the revenues of a typical retail bank, but recent analysis by Bain & Company and SAP Value Management Center finds that “…most banks have digitalised only fragments of the process for marketing, selling and servicing loans.”

That’s basically an open invitation to disruptors.

The finding is contained in a new report called “Retail banks wake up to digital lending” written by Bain analysts Richard Fleming and Joe Fielding.

“New digital entrants, ranging from financial technology start-ups to incumbent retailers and telecommunication providers, have spotted the opportunity, and are attacking thin slices of the lending profit pool,” they say.

And they note that Fintechs have proven particularly adept at providing a better experience for often underserved parts of the market. While they don’t say so explicitly the implication is that banks are paying the price for taking customers for granted.

“The fintechs also are creating new models to make lending decisions, source capital and service loans. Often, they can offset at least some of the scale benefits of large banks with simpler digitalized processes. In some instances, they enjoy a regulatory arbitrage; Prosper and LendingClub source funding in a way that requires less capital to be held on their own balance sheets.”

The authors caution that banks need to accelerate investments in digital lending or face a material decline in profits and loss in market share.

The Bain report echoes earlier research and analysis by the likes of McKinsey & Company, and Macquarie Equities. Indeed 18 months ago Macquarie warned that Australian banks are set to lose up to a third of their revenues, as dotcom giants like Google, Paypal and Alibaba muscle their way into the payments markets and use their superior customer understanding to disintermediate the incumbents.

And looking at the Bain report’s assessment of key digital metrics in retail banks around the world, its hard to believe matters have much improved.

How banks fare on key digital metrics
How banks fare on key digital metrics

Among the findings of the study;

  • Most banks lack digital cross-selling expertise, with the average number of loans at just 1.1.
  • Banks spend only 18 per cent of their marketing budget on digital initiatives.
  • Some 14 per cent of simple loans and 36 per cent of complex loans require rework.
  • All of the above translates to mediocre combined annual growth in loans, at 3 per cent for 2011 through 2014, and flows through to cost efficiency metrics.

“Across all countries, most banks’ capabilities fall far short of their own aspirations,” say the report authors.

Latest News

News.com.au Unveils New Homepage
  • Media

News.com.au Unveils New Homepage

Australia’s leading national news website news.com.au today unveiled a new homepage. As the gateway to Australia’s largest news website, the news.com.au homepage delivers 135 million page impressions per month. The redevelopment of the news.com.au homepage has been designed to evolve the brand into the next decade with plans to roll out continued updates across the […]

Study: Startup Mentality Defined By Culture More Than Age Or Size
  • Marketing
  • Media

Study: Startup Mentality Defined By Culture More Than Age Or Size

The lines between startups and corporates should no longer be defined by organisation size, but by the kind of culture they foster, a panel of top marketers have agreed. Some of Sydney’s top marketers – including Guzman y Gomez CMO Lara Thom, Outdoria CEO Nick Baker, Menulog’s head of marketing Tasman Page and Facebook ANZ’s […]

Cupcakes on a cake stand with sparklers
  • Media

The New Daily Turns Five

Online news site, The New Daily, the brainchild of industry super fund boss Garry Weaven and former Age and Herald Sun editor Bruce Guthrie, turns five this week. It boasts a monthly Google audience of more than two million and close to 500,000 daily subscribers. It’s impressive climb up the Nielsen news site rankings – from outside […]

Nielsen: Aussies Aged 50+ Spent Most Time Online With News
  • Media

Nielsen: Aussies Aged 50+ Spent Most Time Online With News

Nielsen Digital Content Ratings monthly-tagged data for October 2018 revealed that more than half (52 per cent) of the total time spent online consuming news-related content during October 2018 was by Australians aged 50 plus. Desktop was the device of choice for Australians accessing news stories online, contributing to close to half (49 per cent) […]

Haystac Shakes Up National Leadership Team
  • Media

Haystac Shakes Up National Leadership Team

Haystac, part of the BWM Dentsu Group, has announced three key changes to its national leadership team as the agency evolves to service the needs of major national and global brand clients. Haylie Marchant moves into a new national role, as head of strategy at Haystac. Formerly the general manager of Haystac Brisbane, Haylie will drive Haystac’s new […]

Virtue Announces New Key Hires, Campaigns And Partnerships In Australia
  • Marketing
  • Media

Virtue Announces New Key Hires, Campaigns And Partnerships In Australia

Creative agency VIRTUE has introduced a number of key hires, innovative campaigns and an expanding roster of clients within its newly established Sydney office. VIRTUE is the creative agency born from global youth media company VICE, and will service the whole of Asia-Pacific from three offices in Sydney, Singapore and Seoul. The agency aims to […]