It is clear that the digital revolution has caused significant disruption in the retail banking space, particularly consumer payments and lending. A plethora of new entrants have seized the opportunity to transform the customer experience.
Challenger banks will hope to evolve to the corporate space; however, they are unlikely to be of significant relevance. Hefty capital requirements will also hamper their ability to effectively compete with traditional lenders.
The real threat to banks comes from the non-bank players. In the payments space, Amazon, Apple, Google, Microsoft, et al, bring serious and sustained competition with a loyal and digital-savvy customer base.
The banks have always invested in technology; however, the regulatory burden and the cost of maintaining legacy systems results in an inability to match the pace of change of the more nimble fintech companies. They have to change and be able to continually innovate or risk becoming marginalised to simply providing the pipes for others to use, resulting in falling profits and a real lack of opportunities to generate additional revenue.
While we want real-time payments, they can’t just be fast, they have to address concerns around reliability, risk, security, compliance and enhanced automation
The banks need a digital strategy to remain relevant – and how effectively they utilise new technology either via acquiring or partnering with fintech will determine who remains standing as we see further consolidation in the banking sector. British American Tobacco already partners with fintech companies to support treasury operations and e-commerce while currently assessing providers in the trade finance space.
Over the coming years, we hope to see the banks make the necessary investment to support the domestic payment modernisation currently under way across the world. While we want real-time payments, they can’t just be fast, they have to address concerns around reliability, risk, security, compliance and enhanced automation.
We also expect significant improvements in cross-border payments, with fintech again leading the way. Distributed ledger technology is a game changer and it is reassuring to see the banks now starting to make the necessary investment and reassessing their approach to payments. Those that can commercialise their strategy and invest in digital infrastructure will be the clear winners in the long term.
Neil Wadey is group treasurer at British American Tobacco
Click here for Michael Barrington-Hibbert’s take on why the banking industry must evolve.