How Chief Digital Officers Can Deal With Digital Disruption in Banking

James Haycock, Adaptive Lab, CDOSummit, 2015 London

James Haycock, Managing Director at Adaptive Lab speaking at the 2015 UK Chief Digital Officer Summit

“Banking is necessary but banks are not.”

While this infamous prediction from Bill Gates hasn’t come true yet, it might if banks don’t respond properly to digital disruption, said James Haycock, Managing Director at Adaptive Lab.

In his presentation “Bye Bye Banks?” held at the 2nd annual U.K CDO Summit, presented by Accenture Strategy, on October 7th, 2015 at 30 Euston Square, London, Haycock discussed the types of disruption threatening banks today and revealed one important way they can respond.

Haycock is co-author of Bye Bye Banks?: How Retail Banks are Being Displaced, Diminished and Disintermediated by Tech Startups and What They Can Do to Survive.

He argued that there is a three stage disruption scenario that is currently underway in the banking sector:

1. Displaced

Existing organizations are getting displaced by the arrival of new players.

“These new players are free of the legacy that traditional banks have,” Haycock explained.

TransferWise, a UK-based peer-to-peer money transfer service is one example of this. The service grew in popularity because it avoided the costly bank and service fees associated with traditional international bank transfers.

One advantage these disruptors have is efficiency and lower costs. “They’re leveraging the luxury of not having a legacy cost space,” he said.

New regulations may also play in the favor of the disruptors, Haycock said.

In Europe, the upcoming PSD2 series of regulations will require banks to offer their API’s to third parties, creating further opportunities for startups to develop services previously offered by the banks themselves.

“This will accelerate this movement of banks being displaced from their customers.”

James Haycock’s presentation “Bye Bye Banks?” at the UK CDO Summit on 7 October, 2015

2. Diminished

Not only will bank revenues be diminished in the wake of disruption, switching frequency will increase greatly.

New payment methods and applications will allow consumers to switch between different bank accounts or services on a case-by-case basis.

Rather than using a bank-issued credit or debit card, in the future consumers will have a digital wallet or smart card that can utilize multiple services. The digital wallet will automatically choose a financial service based on spending habits: if the consumer is a frequent flyer, it will choose a payment method that gives them more frequent flyer miles, for example.

Haycock said Apple Pay is an early example of this innovation.

3. Disintermediated

James Haycock, Adaptive Lab, CDO Summit, 2015 London

James Haycock: Managing Director at Adaptive Lab

The final stage of disruption in the financial industry will be total disintermediation. Consumers will be able to send payments without going through a clearing bank to enable that to happen.

The blockchain is one model that can do this. It’s a system that allows transactions to happen by distributing secure information across many users’ computers.

Combined with the bitcoin crypto currency, it cuts out the middle-man in financial transactions: the banks.

Blockchains “allow a complete change in how interactions are happening.”

To find the one big way banks can deal with digital disruption, read more below. 

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