In a recent report by Accenture, the banking industry was identified as a "digitally contestable market." Over 35% of banks' market share in North America could be up for grabs by 2020. Accenture points to a market shift from traditional branch banking to mobile banking and other forms of digital banking. Significantly, the Accenture report finds that consumers identified mobile banking and online banking as the most important areas that banks should be developing, over ATM access and branches. A recent Bankrate survey supports this finding, noting that more than 30% of Americans haven't visited a bank branch in the past six months.
What entities are vying for the market share of traditional bank branches? Some unusual potential competitors are emerging. One potential competitor to community banks, as discussed previously on this blog, is the U.S. Postal Service. Another possible competitor, identified in an article for Wired Business, is Starbucks.
Many are familiar with the ability to register a Starbucks giftcard and use it like a debit card at any Starbucks, "re-loading" when all money has been debited from the card, or even setting up "auto-loading" so that the balance of the card never falls below a set amount. Wired Business points out that Starbucks Cards are acting, in effect, as savings accounts. In fact, Starbucks giftcard transactions accounted for about $2.5 billion in U.S. sales for Starbucks in 2013. Starbucks giftcards and other services for storing money are working their way into the game. If Starbucks expanded its financial services, it could potentially edge into the traditional banking industry.
In an effort to maintain market share, banks have responded to the new digital market by strengthening their mobile banking services and thinking beyond the traditional branch banking model. BBVA, based in Madrid, recently acquired "Simple," a mobile banking start-up with a base of 100,000 customers, for $117 million. The Accenture report suggests that banks develop "light branches," with a small staff and real estate footprint, or even kiosks that feature video interaction with remote staff. At a recent investors' conference, JPMorgan Chase noted that it planned to follow such a model, decreasing branch headcount and square footage, and increasing banking kiosks.
While mobile banking services and kiosks seem to be breaking new ground, any bank contemplating adapting to the market by offering these services should remember that these services are subject to regulation. The FDIC provided insight into the potential rewards and risks of providing these services in 2011, noting the need to secure authentication of mobile customers, detect mobile malware and viruses, transmit data securely, and control for compliance risks.
What should banks avoid in this new digital landscape? Social media. Social media does not address the issue of access identified in the Accenture report, regulations prevent banks from addressing customer service issues on such a public interface, and a recent survey by the Carlisle & Gallagher Consulting Group found that 87% of consumers think banks use of social media is "annoying, boring, and unhelpful."
For further information visit Waller's Banking Law Blog
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