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Dealing with the Risk of Disintermediation

Posted by Amit Dua (View Profile | View All Posts) at 12:54 PM

Mobility has transformed the underlying calculus of banking. As a generation grows up accustomed to ubiquitous access to yesteryear's supercomputer on their person, mobility becomes more than a channel; it becomes the focal point around which a majority of customers construct their expectations of banking.

Mobility has transformed the underlying calculus of banking. As a generation grows up accustomed to ubiquitous access to yesteryear's supercomputer on their person, mobility becomes more than a channel; it becomes the focal point around which a majority of customers construct their expectations of banking.

Thus far much of the disruptive action around mobile banking has played out in the payments space, be it peer-to-peer or commercial transactions. But given the relentless advances in mobile technologies, the epicenter of disruption will start to shift towards the core of banking, to loans and deposits. And as that happens, mobility has the potential to significantly disintermediate banks from the customer in more ways than one.

1. Customers will opt for seemingly "bankless" payment experiences: Customers are already grappling with a surfeit of mobile payment options, 26 in the U.S. alone, at last count. The action will continue to heat up, but customers will increasingly tend toward a model that eliminates "payment rituals" in favor of experience even if it means disengaging their payment activity from their bank, at least at the front end.

2. Customers will borrow on the path of least resistance: Platforms like Prosper and Lending Club are already disintermediating banks by directly connecting borrowers and lenders. And customers seem to like that model. Lending Club, for instance, boasts a personal loan portfolio of US$ 4 billion, three-fourths of which has been added in the past two years. In the future, SME customers will increasingly bypass banks for relationships with similar platforms to negotiate personalized borrowing arrangements.

3. Customers will park their money where it counts: In China, where household saving rates are high by almost every standard, 8-10 percent of deposits are now flowing into Yu'e Bao, Alibaba's money market fund. Elsewhere, companies like Groupon, PayPal and Square are already navigating access to deposits of their small business customers by offering them merchant accounts. This is clearly a trend that represents a huge risk to the banking sector's overall performance, greater than that posed by disruption in payments.

The single biggest lever that banks have to thwart this invasion is the years of trust they have built with their customer relationships. And banks also have the added advantage of access to customer financial data which can help them improve their understanding of customer needs and deliver products and services that are designed for individual contexts. Through it all, they have to factor the rising expectations of experience among banking customers into every product, service, transaction and interaction.

Comments

Disintermediation has haunted banks for quite a while, with the internet, Quicken, PayPal,American Express and shared loaning names as causes. None, as such, have satisfied the disintermediation buildup.
Banks have to overcome with this disintermediation risks.

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