Innovate or die in the age of the digital disruptors
Digital disruptors are encroaching on the territory of the traditional financial institutions with new business models that pose a very real threat to many of their core offerings. This could bring to the end the monopoly that they have held onto for decades.
Consumers are fast recognising that technology can provide a way of making their lives easier across almost every aspect of society. Mobile apps that connect to supermarket loyalty cards provide a near seamless experience to help save time when doing the weekly food shop; photos and documents can be shared from the cloud in seconds; and a car for a lift home can be booked at the click of a button. It’s no wonder that banks are concerned about providing the customer experience that consumers expect.
Blockbuster is a good example of a well-established business that failed to innovate, and as a result, met its demise. At its peak, Blockbuster was worth $8.4 billion. When the new kid on the block, Netflix, began to operate a similar business model, but instead via post and without late returns charges, Blockbuster believed that its tried and tested business model was strong enough to hold up against the competition – even going as far as stating that they did not consider Netflix to be a competitor.
Blockbuster was right – until Netflix saw the bigger picture and launched an unlimited video streaming service with a monthly fee in 2007. Blockbuster continued to fail to accept that Netflix was a competitor and carried on with business as usual. Three years later, Blockbuster filed for bankruptcy.
What’s the lesson for the traditional financial institutions? An increasing number of empowered, always-connected consumers expect to interact with companies in real-time and are growing tired of the poor experience and services offered by banks. Banks cannot afford to delay exploring innovative ways of keeping their existing customers, and must think about serving the customer of the future too. Without doing so, they are at risk of becoming irrelevant to a whole generation.
Banks used to form a crucial part of everyone’s lives, but they don’t have exclusivity on a number of their products and services anymore. You can use peer to peer crowdsourcing to raise funds, FX specialists to buy or sell currency in seconds and at better rates than provided by the banks, and it is estimated that around 15% of payments are already being processed by non-bank payment providers.
While there may not be a single large disruptor in the financial sector, banks’ core services are being targeted from many sides. As each profitable part of the business gets disrupted, it becomes harder for a bank to sell more products to its customers, and keep hold of the business on which they had an iron grip for years.
Digital disruption in the financial B2C space is moving at a lightning fast pace, however, B2B is an area to which many FinTechs are now turning their attention.. If consumers can make and receive payments in seconds, rather than days, why can’t businesses?
Banks have not previously had any need to make improvements in B2B payments. With the majority of large incumbents operating across the globe, setting up multiple business banking accounts in local currencies for their customers is the norm. Clearing and settlement happens in days, making it hard for businesses to keep on top of cash flow. This issue affects SMEs in particular, who end up paying a huge amount in bank charges and high FX rates when making bank transfers – especially those conducted outside of the EU. Unfortunately, these businesses are often unaware there is a better way of managing global transactions.
This issue was identified by Saxo Payments, and the Saxo Payments Banking Circle was born. By allowing companies to join as Members or as Merchant Members via their payment providers, businesses can make payments, both domestic and cross-border, in real time at minimal costs. By providing our services to businesses now, we’ll be helping them to remain relevant in the era of digital disruption.