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    The Digital Banking Revolution
    The Digital Banking Revolution
    The Digital Banking Revolution
    Ebook165 pages2 hours

    The Digital Banking Revolution

    By "Luigi" "Wewege"

    3.5/5

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    About this ebook

    Over the past decade financial service innovations have contributed to a completely new way in which customers can bank, threatening the status quo of traditional retail banks, and redefining a banking model which has been in place for generations. These new technological advancements have facilitated the rapid emergence of digital banking firms and FinTech companies, leading to established banks being forced to swiftly increase their pace of digital adoption to stay relevant and stop mass client attrition to these agile financial start-ups. These threats come at an inopportune time for banks due to mature markets currently experiencing stagnant growth. This coupled with decreasing profit margins due to the competitive pricing of new entrants, and financial customer loyalty becoming ever increasingly more tenuous.

    LanguageEnglish
    PublisherLuigi Wewege
    Release dateJan 16, 2017
    ISBN9781541017191
    The Digital Banking Revolution
    Author

    "Luigi" "Wewege"

    LUIGI WEWEGE Luigi Wewege is the Senior Vice President of Caye International Bank headquartered in Belize, Central America, Principal of Palmetto Global Ventures a financial consultancy firm focused on digital banking and FinTech solutions, and serves as an Instructor at the FinTech School which provides online training courses on the latest technological and innovation developments within the financial services industry. Outside of his main roles Luigi additionally serves as a Mentor at FinTech Go a startup accelerator for financial technology companies, as a Team Member of the FinTech Portfolio the world's 1st member-owned FinTech innovation ecosystem, and as a speaker for the Silicon Valley Innovation Center. Luigi is also the published author of: The Digital Banking Revolution which is available in audio, kindle and paperback formats throughout all major international online bookstores. Email: notify@cayebank.bz Website: www.cayebank.bz LinkedIn: www.linkedin.com/company/caye-international-bank

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    Reviews for The Digital Banking Revolution

    3.5/5

    4 ratings1 review

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    • 4/5
      Good Read..gives a nice overview of the transformation in the banking industry.

    Book preview

    The Digital Banking Revolution - "Luigi" "Wewege"

    Dedication

    This book is dedicated to my amazing parents, Desmond and Loretta, without whom none of my success would have been possible!

    Praise for The Digital Banking Revolution

    The Digital Banking Revolution captures the effects of disruption brought to the banking industry by emergent financial technology businesses. The author provides a fascinating examination of several companies who have recently developed new financial innovations and how they are demonstrably significant to the consumer.

    Victor von Gierszewski

    Managing Director

    TNS Global

    The Digital Banking Revolution is an informative read focused on the transformational changes facing traditional retail banks worldwide. It covers insightful well-researched analysis on: big data, customer engagement, disruptive technologies, mobile payments, and the changing financial behaviors of consumers, in particular millennials.

    Michael A. C. Hart

    Chairman and CEO

    TPS Capital

    The Digital Banking Revolution provides a unique take on the consumerization of retail banking services. It elucidates on how banks are facing increasing pressure from digital competitors, and how by recognizing these threats they can now go on the offensive by developing innovative technologies of their own.

    Reginald D. Jele

    Chief of Staff to the Minister of Finance

    Republic of South Africa

    The Digital Banking Revolution should be considered a survival guide for bank leaders, providing those in the industry with a strategic blueprint on how to adapt, evolve and succeed in this digital age.

    G. Paul Warner

    Former Private Bank Director

    National Australia Bank

    The Digital Banking Revolution is an insightful look at how financial technology has brought welcome changes to the banking industry. This is essential reading not only for the next generation of retail bank customers, but also for those who want to fully understand how financial services will be conducted going forward.

    Thomas J. O’Rourke

    Assistant Director, Banking

    The Bermuda Monetary Authority

    The Digital Banking Revolution is an absolute must read for those who wish to gain a deeper understanding of how innovative technologies are shaping the future of financial services.

    Boris Simic

    Senior Manager - Business & Financial Strategy

    Klarna Inc.

    Contents

    Introduction12

    Overview16

    The past provides lessons16

    Brief history of banking16

    Banking in the modern era20

    Select major international events in banking history25

    An imperfect system – Financial crises28

    The financial crisis of 2007–0928

    Financial innovation and complexity32

    Regulatory overhaul34

    A new potential role37

    Rapid transformation40

    The customer shift40

    FinTech - overview42

    FinTech - outlook45

    The financial disruptors47

    PayPal48

    Square50

    Amazon52

    Facebook53

    Google  55

    Skrill57

    TransferWise59

    Alibaba61

    Bitcoin63

    The digital financial revolution65

    Specific changes which redefined a banking model67

    Loss of customer trust67

    Better service experience68

    The millennials have arrived69

    Mass adoption of smartphones69

    Regulation for the financial consumer72

    More efficient financial services73

    Economics 101 - supply and demand75

    An industry transformed77

    A new era of banking80

    The rise of digital banking firms80

    Banking on the go83

    Contactless cards87

    Check imaging technology89

    Could social media shape the industry?90

    The world of FinTech wearables93

    Notable financial innovators96

    Paym96

    Midata97

    Are bank branches disappearing?98

    Unlocking data for customers100

    From incremental change to total reinvention104

    Financial innovations from around the world108

    Global FinTech108

    Australia109

    Turkey110

    Iceland111

    New Zealand113

    Norway and Sweden114

    Asia region116

    Africa118

    The Republic of Ireland120

    Poland123

    United States124

    A digital blueprint for banks127

    Digital banking value?129

    Maximize use of existing technology133

    Apply minor technology interventions133

    Identified areas for sweeping transformation135

    Cross-Selling in the Digital Era136

    Human resources in the digital era137

    Optimizing structure and incentives137

    Emphasis on business outcomes138

    Devise a new strategic vision for staff139

    The future of banking141

    List of figures147

    List of sources149

    About the author162

    Thank you164

    Foreword

    For many years, retail banks have been secure, highly profitable businesses. However, recent industry disruption has come knocking at the door of these financial giants. The turning point was the global financial crisis experienced between the years 2007 and 2009 which not only led to large losses, and even the collapse of a significant number of established banks, but has shaken the trust of financial customers worldwide to their core. These factors, combined with the fact that banking has been relatively undisturbed for centuries, meant it was time for change, and that change has been the rapid rise of financial technology companies.

    Emergent innovative financial technologies are profoundly changing the way in which we spend, move and manage our money, unlike ever before. The digital transformation and its pace of change have been truly astounding, dramatically shifting customer behaviors and expectations of their financial service provider. Retail banks must now become positioned to fulfill their customers’ every financial need, especially as the millennial generation is poised to soon command the largest purchasing power of any age group, and banks will need to become cognizant of this generation for a multitude of reasons. Research undertaken by the Cassandra Report into how millennials conduct their financial services has shown a defined trend in that they typically do not have the same legacy relationship with their banks as older generations have had. The research indicated that millennials judge banks based on their digital capabilities, and will not hesitate to switch their bank account to another provider if they consider a better banking service available. The overall progress of financial service innovations has been driven by adoption across all age groups, but the demand from the millennial generation to push the boundaries of innovation, and think about financial services differently has been a major catalyst for disruptive change.

    I consider The Digital Banking Revolution a well-written and an informative read, capturing the current dramatic shift of how financial innovative technologies are shaping the future of banking services. The book also provides those who work at senior management level within the banking and finance industry, with an invaluable resource outlining how to adapt, evolve and succeed in this digital age. Additionally, I would recommend this book as a must read for those who wish to gain a deeper understanding of how financial services will be conducted going forward.

    Thomas J. O’Rourke

    Former Large Bank Examiner-In-Charge & Team Lead for Northeast Region

    The Office of the Comptroller of the Currency – United States Department of the Treasury

    December 2016

    Introduction

    Banks have always fought to gain absolute power and market share, knowing their competition and serving a marketplace that had relatively few alternative choices. However, the battlefield is changing as financial technology advances and new players emerge. Today, financial customers have become as restless, demanding more from their financial service providers than ever before. Many retail banks around the world have now reached a pivotal moment in their history, and they need to transform through financial technological advancements to stay relevant, or risk the possibility that agile financial start-ups could confine them to a limited utility role. This challenge comes at an inopportune for retail banks just as industry profitability stagnates, and customer loyalty becoming even more tenuous.

    To illustrate how rapidly new technology can transform an industry consider that it took just 18 months for Google to erase 85 percent of the market capitalization of the biggest GPS companies in the world after the launch of its Google maps app. Alibaba on the other hand which is considered China’s equivalent to Amazon, became the world’s fourth-largest money market fund only nine months after entering the market.

    These examples show how today’s technology-enabled disruptors can dramatically change markets in a short period. For many, the first real disruptor to enter the banking sector in the current era was PayPal. Initially, traditional banks treated PayPal as an annoyance, limited to eBay and with little potentially to disrupt the highly lucrative and bank dominated payments industry. How wrong they were and at the end of 2015 it was reported that PayPal had 173 million customers, $9.2 billion in revenue and $1.2 billion in profit and was more valuable than their parent eBay. PayPal has paved the way for the payments space to be transformed, with popular retailers having also shown remarkable success moving into payments, and for example: the Starbucks loyalty card handles nearly one-third of the company’s United States-based transactions. Previously a tight regulatory environment has always acted as a barrier to entry for those who wanted to access the banking industry, but today these barriers are constantly becoming more relaxed. To illustrate, PayPal has been a licensed bank in Europe since 2007 and Facebook, which has more than 250 million users in Europe, may soon be authorized by the Central Bank of Ireland to handle payments across the entire European Union. Other new entrants who have grown rapidly without becoming regulated banks are: Google with their Wallet, TransferWise, and SimplePay. Many of these nonbank financial institutions have all relied on similar white-label services such as those offered by The Bancorp, Inc. who are able to provide regulated banking services to their clients’ customers.

    In a digital world, winning and retaining customers hinges on creating value for them that enhances the convenience and quality of their everyday lives beyond mere financial transactions. With more interaction comes more opportunity for selling. This point of view is at the heart of the success of major digital players such as: Apple, Amazon, Alibaba and Google. For retail banks, this requires a dramatic shift in strategic focus from being a provider of financial products and services to rather being a provider of solutions. Banks cannot respond to these threats by simply being more technologically advanced or by reducing the number of branches they operate, but by rolling out better mobile and online banking services. What banks need to do is first defend their position, but also to learn how to play a greater role, not just at the exact moment of the financial transaction but before and after it as well. For retail banks to ultimately regain control in this era of digitization, as well as succeed in an increasingly competitive market they will need to outsmart and outmaneuver these new financial disruptors. Although this will not be an easy undertaking, and to illustrate the varied amount of threats facing retail banks the following chart (See Figure 1.) outlines the biggest challenges

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