Is digital disruption a threat or an opportunity for banks?

Despite being heavily dependent on technology, banking has so far been relatively untouched by the digital disruption transforming so many other industries.

Research comparing 10 major sectors, conducted by the Leading Edge Forum (LEF), shows banking well behind entertainment, media, retail, education and healthcare in terms of the effect of digital transformation. Only manufacturing and insurance are ranked lower.

But that’s going to change, and soon.

“The potential for disruption is strong across the entire banking industry value chain. We expect increasingly fierce competition between traditional banking incumbents and emerging financial technology [fintech] players,” says LEF research director David Moschella.

In the UK, a relaxation of the rules around awarding banking licences has already seen a flurry of so-called challenger banks emerging, targeting mostly retail banking. Perhaps the area seeing the most change is payments, with the launch of Apple Pay and other mobile-based services that threaten to disintermediate banks from the consumer spending transactions that generate so much valuable – but largely under-utilised – data and intelligence.

But it’s not only the customer-facing areas of banking that are vulnerable. At the recent Sibos financial services conference in Singapore, the word on everybody’s lips was blockchain – the emerging distributed ledger technology that could radically alter the way asset transactions are conducted and take huge costs out of banks’ back-end processing and reconciliation networks. But blockchain could also drastically reduce the cost of entry for new services to compete against the cumbersome processes that mean it can take days for financial transactions to reach customer accounts.

Lawrence Wintermeyer, CEO of Innovate Finance, the UK fintech association, says that venture capital (VC) investments show where the opportunities for disruption in banking lie.

“The VC money is going into payments, peer-to-peer and – in the UK – to behavioural analytics. In the US it would also be ‘robo-advice’ – algorithmic guidance and advice – whe

via www.computerweekly.com