banking disruption in financial services: threats and opportunities
TRANSCRIPT
1
Disruption in Financial Services: Threats and Opportunities Written by Andrew Tilbury 11.12.14
2
ABOUT BLUEPOINT SOLUTIONS
Bluepoint Solutions provides end-to-end payment processing and
content management solutions to community financial institutions.
More than 1,400 credit unions and community banks nationwide
have deployed its enterprise technology, including the largest
corporate credit unions and credit union service organizations in
the country. Learn more at bluepointsolutions.com.
3
THE FUTURE OF BANKING IS AT RISK.
This report examines data from multiple sources to identify and explain the forces that are shaping payments and banking today. With substantial banking income at risk, it also suggests potential defenses for banks and credit unions to fend off competitive threats from non-traditional financial services firms entering the payments and banking arenas.
If you have difficulty answering any of the following questions, this report will be helpful as a strategic guide to plan your future product roadmap and IT budget allocation.
• Are you prepared to compete with technology firms that start providing financial services?
• Do you have a well-articulated strategy for attracting and retaining Millennials?
• Have you determined which digital wallets or services you will adopt and offer to your customers and members?
• How are you adjusting your product roadmap to accommodate shifting consumer preferences and the growing importance of the mobile channel?
• Do you have a future growth strategy that relies more on mobile and social technology than it does on your branch or ATM networks?
Disruption is Here
Technology Innovation
New Business Models
Demographics
BANKING REVENUES ARE AT RISK
4
35% of banking revenues are projected to be at risk by 2020 due to disruption in the financial sector
Source: Accenture
The Apple Effect
In Q3 of 2014, Apple generated $4.5b in revenue from iTunes and its App Store. There are more than 800m active users of iTunes — many of which already have stored debit and credit cards.
Apple could quickly become the dominant, global provider of mobile wallets with the unique combination of its global smartphone market share, launch of Apple Watch — the first wearable device capable of making point-of-sale purchases, and reach of its card-issuer, retailer, and banking partnerships.
Add to this unique set of capabilities the immense brand recognition, brand loyalty, and trust that Apple has with its users, and a vision quickly emerges of a new banking ecosystem wherein traditional banking institutions rely upon Apple for inclusion in the world of payments.
Apple has the potential to disrupt financial services with the same effect that Walmart had on retailers Home Depot had on hardware stores, and the Internet had on travel agents.
5
Source: Company Filings
Banking with Non-Banks
The majority of Americans are willing to bank with at least one non-traditional financial services firm with which they already have a relationship.
Traditional financial services firms no longer need to compete with just their peers; they now face a new challenge: competing with companies from other industries that previously weren’t competitors.
58% of Americans aged 35-54 are likely to
77% of Americans aged 18-34 are likely to
Source: Accenture
How likely would you be to bank
with a non-bank?
This creates difficulty in both how to compete, but also where to compete.
6
New Threats — Present and Future
7
Source: Accenture
Which of the following
companies would you be willing to use as a provider
of financial services?
New Threats To Finserv
8
Your biggest threat isn’t other financial services providers.
Your biggest threat is non-financial services firms entering banking and payments with
innovative products, respected brands, and massive
customer bases.
“
”
9
TECHNOLOGY
1b Android users globally 800m iTunes users
106m active accounts Retailers, salons, meals sold
100,000
Source: Company Filings
Established technology firms are developing new products — think digital wallets — that enable the creation of new business models with enormous existing customer bases.
10
237m accounts at the
end of 2013
76.4m members
15 MINUTE
90% of Americans live within 15 minutes of a Walmart store
8 cents of every dollar spent in America is spent in Walmart
$100b in Revenue in 2013
RETAIL Retailers looking to cut costs, collect valuable customer insights, and boost loyalty programs are looking for — and developing their own — new payments systems, including full service checking accounts.
Source: Company Filings
11
50.5m subscribers
TELECOM
110m subscribers34% market share of wireless subscribers in the US
54m subscribers
Source: Company Filings
Telecom providers enable adoption of new business models through expansion of high-speed data access and mass adoption of smartphones with built-in NFC functionality.
Devices are pulling people away from traditional FIs and branch networks
The attraction of digital banking — especially for Millennials — is undeniable
Paradigm Shift in Banking Channels
12
Away from traditional financial institutions, and towards non-traditional financial service providers
Out of the branch, and onto the computer
Off the computer, and onto the mobile device
13
Paradigm Shift in Banking Channels
94% Are active users of online banking
72% Are active users of mobile banking
72% Would be likely to bank with non-financial services companies with which they do business
67% Feel the traditional and digital experience they receive from their bank is somewhat or not at all seamless
39% Would consider using a branchless digital bank
33% 1/3 of the US Population
Millennials: By the Numbers
14Source: Accenture, Nielsen, Pew Research
15
Branch growth has peaked. Online banking growth has stabilized.
Mobile is the current avenue of growth. Social is on the horizon.
“
”
Clicks versus Bricks
Online and mobile have grown at the expense of the branch.
47% of people use mobile or online channels as their primary method of banking.
47%
30,000
60,000
90,000
120,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Credit Unions Commercial Banks
Num
ber o
f U.S
. Bra
nche
s
16Sources: Bank of America, Business Intelligence, CUNA
ChaseChase
How are the Big Banks Approaching Mobile?
0
22.5
45
67.5
90
Q4 201
1
Q1 201
2
Q2 201
2
Q3 201
2
Q4 201
2
Q1 201
3
Q2 201
3
Q3 201
3
Q4 201
3
Q1 201
4
Q2 201
4
Online growth has stabilized; Mobile use has doubled in the last 3 years
Wells Fargo
Bank Of AmericaOnline
CustomersMobile
CustomersWells Fargo
Bank Of America
Sources: Company Filings, BI Intelligence17
Each week…
of customers use ONLINE BANKING
use MOBILE BANKING
visit a BRANCH
Social will be the next wave of growth.It is an opportunity for FIs that embrace it, but a threat to those that ignore it.
57%
22%
14%
Online and ATM are still the 2 most commonly used banking channels.
use SOCIAL MEDIA to interact with their FI10%
Shifting Habits are De-Emphasizing the Branch
18Source: BI Intelligence
The paradigm shift towards mobile and social banking is gaining momentum.
CAGR of mobile technology spend in the next 4 years.
Change in total technology spend between 2013 and 2016.
14.6% 4.2%
Consumer Preference is Driving Future Technology Investment
FIs are shifting technology investments accordingly.
Mobile Spend Total Tech Spend
vs
Sources: Aite, BI Intelligence, CEB Tower Group
All of the 20 largest banks and 20 largest CUs in the country have NATIVE apps for
both Android and Apple devices.
Banking Apps are as Prevalent as ATMs
20
Wallets: By the Numbers
21
38% 38% of people would use a smartphone as a wallet.
50% 5 out of 10 of the largest banks launching with Apple Pay.
220k 220,000 merchants accept Apple Pay.
110k 110,000 merchants accept CurrentC from MCX
$27b PayPal's mobile payment volume in 2013.
6 of the largest card issuers are partnering with Apple at launch
Sources: Bank of America, Company Filings
The Future Will be on Your Wrist
22
Wearables Todayalready own wearable technology
would purchase wearable technology
would not buy it
5%
44%
47% Apple Watch will be able to make point-of-sale purchases.
CaixaBank and Visa are piloting payment wristbands to 15,000 customers. Linked to credit or debit accounts, the wearer simply will wave it in-front of a reader to make a purchase. Barclays is also piloting a wearable
called “bPay Band” that will be available in 2015.
Apple will ship 15m watches in 2015, securing ~40% market share of smart watches. The launch of the Apple Watch will validate wearables as a viable product and payment category — just like iPod, iPhone, and iPad validated their categories.
Sources: Bank of America, BI Intelligence Estimates, Company Filings
The Wallet Wars Have Started
Millennials are the largest potential pool of new members and are also the least satisfied.
The mobile wallet could deliver the seamless, frictionless experience that Millennials crave.
Retailers such as CVS and Walmart are trying to pick sides and keep Apple Pay out of their stores.
23
Banks and Credit Unions are evaluating their options for staying relevant in the wallet ecosystem.
Banks and credit unions need to be on the forefront of delivering the technology, services, and experience Millennials are looking for today.
24
“
”
The potential for retail, technology, and telecom firms to disintermediate financial
institutions from payments and, ultimately, their customers is real; but there are distinct growth opportunities for those willing to adapt to the
new environment.
Move Beyond the Transaction
25
The goal of these financial institutions should be to shift service offerings,
business models, and culture to stay positioned as critical players in the
value chain of payments and the larger banking ecosystem.
of customers in the US and Canada have been at their current bank for 10 years or more.
40%
Source: Accenture
“
”
26
Create the Banking Experiences Millennials Want
Recognize they value different things than their parents
Convenience over
Brand
Immediacy over
Trust
User Experience over
Relationship
Self-Service over
Face-to-Face
Eliminate the Reasons to Switch to a Non-Bank
International remittances p2p payments
Wallet Mobile deposit
Prepaid cards Personal financial management
27
mobile
online
social
branch / ATM
It’s the key to creating a seamless banking experience that is defensible against new threats and marketable to new customer segments.
Omni-Channel Banking is not Just a Buzz Word
28
Move Beyond the Transaction
29
of people in the US characterize their banking
relationship as
VS
TRANSACTIONAL RELATIONSHIP
74%My relationship is defined by
simple transactions like paying bills, checking account
statements, etc…
“
”
Source: Accenture
Relationship banking that delivers long-term strategic guidance is where traditional financial institutions have
the advantage.
30
“
”
Who Will the Winners Be?
31
Agility
Early adopters
Innovators
Embrace change
First-movers
Move fast
Fast growth
Low risk aversion
Grow market share
LEADERS
Copy catsWait and see
Reluctant to be first mover
Never try new technology without seeing its feasibility proven
Slow to change
Moderate risk aversion
Stable market shareFOLLOWERS
Late adopters
Zero innovationReactive / not proactive
Resistant to change
Shrinking market share
High risk aversion
LAGGARDS
32
“
”
FIs need to refashion their internal culture to embrace innovation and become
the first-movers in delivering new service offerings or they will lose the fight for
Millennials — and their future.
Sources
33
Disruption is Here: 1 Accenture, “Banking 2020,” 2013 The Apple Effect: 1 SeekingAlpha.com, “Apple’s (AAPL) CEO Tim Cook On Q4 Results- Earnings Call Transcript,” 2014 Banking with Non-Banks: 1 Accenture, “The Digital Disruption in Banking,” 2014 New Threats- Present and Future: 1 Ibid Technology: 1 TheVerge.com, “Google touts 1 billion active Android users per month,” 2014 2 Asymco.com, “Monthly Apple Users,” 2014 3 Paypal.com, “Online: Love at first site,” 2014 4 Square.com, “Business Types,” 2014 Retail: 1 Statisticbrain.com, “Wal-Mart Company Statistics,” 2014 2 Trefis.com, “Costco Wholesale (COST),” 2014 3 GeekWire.com, “Amazon Prime tops 20 million members as c company touts its best holiday season ever,” 2013 Telecom: 1 T-Mobile.com, “T-Mobile US, Inc.: America’s Un-carrier,” 2014 2 Statista.com, “Market share of wireless subscriptions held be c carriers in the U.S. from 1st quarter 2011 to 2nd quarter 2014,” 2014 2014 3 Sprint.com, “Sprint Reports Results for the Quarter Ended M March 31, 2014,” 2014 Millennials: By the Numbers: 1 Accenture, “The Digital Disruption in Banking,” 2014 2 Nielsen, “Millennials: Breaking the Myths,” 2014 3 Pew Research, “Millennials in Adulthood: Detached from Institutions, Networked with Friends,” 2014
Clicks versus Bricks: 1 Bank of America, “Trends in Consumer Mobility,” 2012 2 BI Intelligence, “The Mobile and Online Banking Report: Mobile Is Pulling Customers Away from Branches and Online Banking,” 2014, p. 7 3 CUNA, “Credit Union Report year-End 2013,” 2014 How are the Big Banks Approaching Mobile?: 1 BI Intelligence, “The Mobile and Online Banking Report: Mobile is Pulling Customers Away from Branches and Online Banking,” 2014, p. 10-11 Shifting Habits are De-Emphasizing the Branch: 1 Ibid, p. 3 Consumer Preference is Driving Future Technology Investment: 1 Ibid, p. 12 2 Ibid, p. 19 Wallets: By the Numbers: 1 Bank of America, “Trends in Consumer Mobility Report,” 2014, p. 11 2 MCX.com, 2014 3 Apple.com, “Apple Pay,” 2014 4 Paypal-media.com, “Financials,” 2014 The Future Will Be On Your Wrist: 1 Bank of America, “Trends in Consumer Mobility Report,” 2014, p. 12 2 CaixaBank.com, “CaixaBank launches the first Visa contactless wristband, supporting payments with a simple tap of the wrist,” 2014 3 BI Intelligence, “The Wearable Computing Market Report: Growth Trends, Consumer Attitudes, and Why Smartwatches Will Dominate,” 2014, p. 10 4 Mobile Payments World, “Bayclays Set to Launch Contactless Payments \Wristband,” 2014 Move Beyond the Transaction (1): 1 Accenture, “2014 North America Consumer Digital Banking Survey: The Digital Disruption in Banking,” 2014, p. 2 Move Beyond the Transaction (2): 1 Ibid, p. 4