Business

Why you can bank on digital disruption continuing

The ATM may be another casualty of online banking as cash and cheque transactions become less and less frequent
The ATM may be another casualty of online banking as cash and cheque transactions become less and less frequent The ATM may be another casualty of online banking as cash and cheque transactions become less and less frequent

DIGITAL disruption has been one of the developed world’s key societal and business themes of recent years. Just ask airlines, travel agents, taxi companies, and a range of other industries.

Arguably, banking has been ‘disrupted’ by digital technologies more than most other sectors.

Relationships with customers are changed almost beyond recognition. New ways of for businesses and consumers to do their finances have also emerged which have, or have the potential to, displace banks completely.

In Northern Ireland, we still have more bank branches per head of population than just about anywhere else. But that will almost certainly change further because ‘millennials’ are increasingly relying on digital banking; sometimes on services delivered by third-party start-ups.

A recent survey of 1,500 US-based millennials ages 18-34 on their banking habits and preferences shed some light on the likely future. A key takeaway was that branches are quickly becoming obsolete. This is shown through declining branch visits, rising transaction costs per visit, and more attractive options available through online channels.

The ATM, it seems, will be another casualty of online banking, as cash and cheque transactions become less and less frequent. Since banking online is often easier and less expensive, more and more millennials are choosing to go this route.

Why are the habits of millennials important in understanding the future of the banking industry?

Currently millennials make up the largest share of the population, as well as the largest proportion of the employed population. It is a generation that is almost as large as their ‘baby boomer’ parents, characterised by their reliance on and use of technology. New technology providing instant and 24-hour access has transformed the way millennials live, including the way they bank.

Instead of branches and ATMs, customers are beginning to rely increasingly on their smartphones. Smartphones are the millennial’s device of choice - no one in this generation is ever without their phone. Because the smartphone is so omnipresent, it will soon become the main banking channel, replacing branches as the most frequent way clients interact with their money. We saw Apply Pay recently launched in Northern Ireland as the latest stage of smartphone driven change.

Smartphones also have the advantage of being able to collect more data on financial habits than human advisors at banks, tracking spending habits and relaying them to apps that then analyse the information and provide feedback to the user.

All banks have apps for smartphones, but third-party start-ups are also quick at offering services that make it easier for their customers to manage their money. Banks that don’t act fast will lose customers, and erode their relationships with the customers they retain. Banks could also lose out on cross-selling and branding opportunities.

Because of this, banks need to keep changing their approach and consider new avenues of doing business. It is important to implement strategies to win customers back with value-added services not available through a touch screen.

New opportunities for traditional banks include offering seminars, networking opportunities, and business clinics. Another way to benefit small and online businesses is to offer them space to showcase their products. With their infrastructure, including possessing physical branches, and their established reputations, traditional banks in Northern Ireland are ideal to offer opportunities that digital platforms cannot.

Businesses in Northern Ireland can also become more adept at capitalising on the opportunities that digital disruption offers from a financing perspective. We saw recently that Newtownards-based See.Sense raised nearly £68,000 from over 800 backers on the Kickstarter crowd-funding platform in less than 16 hours. This was to fund its next stage intelligent bicycle light. In 2013 See.Sense raised nearly £34,000 (€48,000) for its first product, with over 500 people providing backing.

You can certainly bank on digital disruption continuing. Those that act quickly and smartly have much to gain. Those that don’t have it all to lose.

:: Patrick McAliskey is managing director of Novosco, an indigenous hybrid cloud company with offices in Belfast, Dublin and Manchester. It employs more than 100 people and works for leading organisations across the UK and Ireland, including many of the north's top companies, UK health trusts, councils and other organisations.