If we go back a few months, right before the outbreak of the Covid-19, a common view held the banks by now doomed to inevitable decline, affected by the aggressiveness of FinTechs and by the expansionist ambitions of the big players of the digital age.
Which have acted, in the banking sector, according to the methods already tested in many other sectors: from books and retail trade (Amazon), to tourism (Airbnb, Booking, Uber) to communication (Facebook, Google, etc.).
Breaking down traditional value chains, using digital platforms to create new business models around which to gather growing masses of users.
The banking system thus saw the emergence in a short time, new competitors almost everywhere: who offers payment systems, who offers loans to individuals and businesses, others offer savings products or more simply systems to manage individual budgets.
Committed to dispose of the large mass of NPLs accumulated, with a great, necessary, attention to costs and a certain, traditional, reluctance to change, the banks have lost ground compared to the new digital players.
To tell the truth, there have been some attempts at recovery: resigned alliances with digital competitors (in payments in particular), acquisitions of promising startups, or finally, more recently, the creation of systems (still very limited), of open banking.
However, even the latter, in the end subjected to the rhythms set by the big digital players and to regulatory initiatives whose rationale is not always easy to understand.
Disruptive Innovation: in which direction?
Nothing, on the other hand, could disprove the prophecy of those who saw the banks inevitably destined to take a melancholy avenue of sunset, pressed by the pace of innovation of FinTechs.
Either you adapt or you die, Clayton M. Christensen, the theorist of Disruptive Innovation, wrote in the XNUMXs, observing digital transformations that were beginning to impact entire sectors of industry and services.
But things don't always turn out as you imagine and if we are learning one lesson today, from the Covid 19 emergency, it is that you should never take anything for granted.
And in fact, what the banks have not done in years of discussions and conferences on digital transformation, they have implemented quickly in a few weeks, channeling internal and external skills, resources, processes and knowledge towards the sole objective of remain open and operational.
Working in the pandemic imposed the push for digitization, to transfer everything possible online, to widely establish smart working, which until a few months ago was rather opposed.
Therefore, it does not seem certain that disruption always goes in one direction: the opposite can also happen, at least in theory. Is that the prey manages to catch up on the predator.
Investments in FinTechs are down
Fintechs are not yet widespread in Italy and we have few references.
Listening to what is being said in the US today, however, it would seem that Pandemic and Fintech do not get along very well at the moment. In fact, with an economic crisis of the size and breadth that lies ahead today, most investors are thinking of moving away from any possible project that requires a certain degree of risk and long payback times. Like those in general connected to the world of banking and finance.
Furthermore, there are entire industries, such as loans to individuals or small businesses, where this is happening two opposing but concurrent forces. The risk for the FinTechs that offer credit is growing (given the macroeconomic context) and at the same time the trust in purely virtual operators by those in need of loans is decreasing. Ultimately, the latter prefer to contact the branch of a traditional bank, to have a physical point of reference.
Hard times therefore for Fintechs and this could be good news for traditional banks.
The big bet, however, will be played in the future, when economic activities will fully resume and when the new economic and social context begins to take shape in which we will have to get used to living with the dangers of infection.
In what scenario and with what challenges will traditional banks operate
Banks, as we have seen, have quickly switched to smart working, have managed complex issues such as those of data breach and cybersecurity risk management just as quickly.
Smart working will have two implications. First of all, on the organization of work. Through this modality, in fact, it is desirable that the barrier of work organized for pre-arranged procedures and flows of information can be overcome. Which brings with it an inevitable bureaucratic implication: the opposite of proactivity. Also in this case, what hours and hours of coaching on "agile" work have not done, the Covid19 effect could offer as a dowry.
Smart working will also be able to raise the level of digital skills of workers.
Although recent years have seen an important generational change, the average age of bankers is high and the level of education still sees graduates in the minority.
For this there is still a lot to do and today may be the right time: giving life to the digital transformation of many internal procedures, encouraging the establishment of task forces with the task of spreading IT culture among colleagues, organizing themselves to provide assistance to customers starting to practice remote operations.
Home Banking and new technologies
In fact, working with the bank away from the branch represents the method that most leads to competing on the same ground as FinTechs.
Even today in the Western world, recourse to home banking is limited in absolute terms and concentrated on certain groups of subjects, with certain characteristics of age and cultural level. The era we are living in could accelerate its spread exponentially if the banks are willing to do so.
First of all, it will be necessary to dramatically increase the level and set of available technologies.
As the experiences already underway in the Far East demonstrate, banks will have to rapidly adopt data analytics and artificial intelligence tools.
These and other means will be able to improve both the relationship with customers and the ability to design new products and services.
Anticipating requests and needs, also thinking of the post-emergency phase, will have to become a formula for strengthening the bank-customer relationship. The active use of the vast amount of data that banks have available today will allow for better definition of the customer's profile, risk level and preferences.
Similarly, the use of behavioral economics tools will allow the services to be offered to be fine-tuned with greater detail and precision.
A mix of micromarketing and behavioral economics, supported by work on big data, to analyze and interpret customer needs and get in touch with them, to make tailor-made proposals, with respect to individual needs.
What about branches?
An American banker, one of those who represents the face of retail banks, scattered with their branches in the most distant territories and in the smallest enclaves of that country, stated in an interview that their employees love to chat with their customers, talk about how they are doing and about the facts or problems of their local community. Branches are a neighborhood place, thanks to which those banks can boast formidable brand power and an equally strong, ingrained loyalty.
In recent years and around the world, branches have been a burden on the banking system in terms of costs. Today they return to being an important point of reference for individuals and businesses.
Territorial proximity, which is also knowledge of who lives and works in a given context, offers the possibility of intervening more effectively in the assessment of credit and its disbursement.
It allows the local community to feel the proximity of the bank.
While the operational effectiveness of branches will need to continue to be improved to alleviate the burden of their costs on banks' income statements, it is hard not to see their revitalization as key customer relationship points today.
The new terrain of the competition
Hybridization of the relationship with customers through the search for the right balance between personal and digital relationships, massive use of innovative tools made available by ICT technologies, are the two key aspects around which to redesign the role of banks in the economic and social context which is configuring.
Even following the logic of digital competitors (think of Google, Apple, Amazon, Facebook), who have made the market places they developed into a meeting place for multiple subjects, drawing formidable advantages thanks to the network effects thus generated.
We will see if the banks will continue in this direction and how the FinTechs will react, which have great familiarity with sophisticated technologies and the inexhaustible obstinacy of the innovator on their side.
