The global banking industry is on the brink of disruption as consumers are driven away from traditional brick-and-mortar retail bank branches and automated teller machines (ATMs) and into the arms (and apps) of new fintech services.
That’s the view of Karan Sachdeva Sales Leader Big Data Analytics APAC, IBM who says millennials will be the most active users to move towards modern fintech and digital banking.
He made his comments on an official IBM blog A big data–enabled modern recommendation engine for retail banking where he suggested, “As banks are challenged to grow revenues and contain costs, few resources are available for product innovation, which brings them to great risk of being disrupted and experiencing revenue erosion.”
According to Sachdeva, “They (millennials) will be most likely walking away from using traditional and legacy banking systems. As per PWC studies Millennials form 25 per cent of the workforce in the US and by 2020 they will form 50 per cent of the global workforce. FICO consumer research reckons that 83 per cent of millennials use credit cards to support their lifestyles. ”
The implications of a such a disruptive banking consumer diaspora provide profound threat to revenues and profits of banking industry, says Sachdeva.
And yet he argues banks have not yet learnt how to tap into the millennial mindset in the same way as digital businesses like Amazon and Netflix.
Although he is too polite to say so, that’s probably because the banks still don’t want to believe it. As recently as last week four senior banking industry executives told Which-50 they were convinced consumers would forever insist of human interaction for something as serious as a home loan. Yet when pressed they can never really explain why, beyond current sentiment.
Whichever side of this argument you sit on, Sachdeva’s view is that the future of retail banking is wrapped up for better customer profile (and by extension customer service) using big data.
“Data science–based collaborative approaches and content-based filtering are being extensively used to offer the most appropriate product or bundle of products at any given time to customers,” he says.
“Retail banks have to increasingly rely on marketing and product innovation to grow the total value of their average customer. Simultaneously, banking customers are using more channels, particularly online and mobile, to access banking information and transact in real time, thus increasing the volume and variety of data collected and the number of sales opportunities.”
Furthermore he argues that the data, when consolidated and analyzed longitudinally can better profile the customer and segment the market and also develop advanced models on the most appropriate product or bundle of products to offer at any given time.
“In the past, the cost of storing data for all customers and customer interactions has prevented that data from being actively analyzed to drive real-time offers. A consequence of that ineffective marketing is that it depletes customer sentiment and drives down return on investment (ROI). “