ATTAINING COMPETITIVE ADVANTAGE IN FINANCE:

THE current banking model is predominantly premised on brick and mortar infrastructure, while being underpinned by paper based work in most of its activities. However, the rapid developments in information technology and mobile banking platforms is fast changing the operating environment for banks.

The distinction between banking institutions and mobile network operators is almost non-existent now. In this regard, banks have been compelled to innovate and redesign their business processes to achieve efficiency and cut the costs of operating. In order to realise the efficiencies required, banks will now need to consolidate their products and services, adopt add-on sales, refine customer base and at the same time adopt selective growth strategies.

Since the mid-1990s, there has been a fundamental shift in banking delivery channels toward using self-service channels. These delivery channels include ATMs, electronic banking, credit and debit cards and execution of payments through electronic funds transfers at the point of sale (EFTPOS). This has seen the advent of a new brand of banking, that is self-service technologies (SST) which yield benefits such as standardising of service delivery, reduction of labour and service costs by creating infrastructure which will service customers competitively in remote areas.

The adoption of the electronic banking services has the advantage of promoting a cashless society. Following the introduction of e-banking channels, what was traditionally done in a banking hall can now be done by a customer from anywhere at any time. These services can be conducted outside working business hours, during weekends and public holidays and this brings about convenience, and flexibility. This development reduces the demand for a brick and mortar models of banking.

The RBZ (2014) noted that mobile financial activity totalled a cumulative US$6,1 billion as at December 31, 2014 indicating the growing threat faced by traditional banks from technology monetary transfers. This has been attributed to the fact that the mobile money industry has provided the possibility of outreach, vastly beyond traditional banking networks and at significantly lower costs due to the mobile phone characteristics of ubiquity, convenience, speed, security and lower costs. Emerging business models which are using technology to remodel banking and thus bringing to the fore cost advantages are proving to be a real threat to the banking sector. A reduction in revenue base for the banking sector will result in outdated business model becoming obsolete with banks that have a low cost-to-income ratio being the ones with an ability to withstand and survive disruption.

The facts above show that the future of the financial sector will no longer rely on brick and mortar but on information technology. As a result of these new delivery channels which bring down costs of doing business, the future of financial transactions is going to be highly digital and this will be complemented by the shift in demographics towards a techno savvy population. The digital technology will be influencing the behaviour of both customers and employees. There will be increased Fintech competitors encroaching into the domain of traditional financial services. It should be noted that the technological improvements will lead to: i) Development of customer centric business model; ii) Optimisation of the distribution channels; iii) Simplification of business and operating models; iv) Obtaining an information advantage; v) Proactively managing risk, regulations and capital; vi) The streamlining of operations with a number of workers losing out; vii) New consumer functionalities are being built on existing payment systems and will result in meaningful changes in customer behaviour Key Disruptive Trends (Mobile Payments, Streamlined Payments, and Integrated Billing etc.).

The consequences of the above development will include among others: a) Financial institutions losing control over their customers’ transaction experience as payments become more integrated; b) With reduced visibility, becoming the default card among specific customer segments will become critical; c) Winning issuers will be able to gain visibility into more of customers’ spending patterns, build more holistic understanding of customers, and create more competitive offerings; d) Intensified competition will narrow spread between deposits and loans, decreasing financial institutions’ profitability; e) As savers turn to alternative platforms, traditional deposits and investment products will be eroded; f) Distribution of customers’ credit portfolio over a large number of alternative platforms may make it difficult to measure customer’s creditworthiness; g) Financial products will increasingly be offered on a stand-alone basis limiting incumbents’ ability to competitively cross-subsidise; h) Financial institutions’ ability to collaborate with non-traditional players and other institutions will become essential; i) Financial institutions will need to choose where they will specialise and where they will leverage external partners (e.g., product manufacturing vs. creation of customer experience).

What can financial services do to create competitive advantage?

Players in the financial services sector are supposed to: i) Rapidly embrace technology based to provide cutting edge integrated financial solutions. There will be expected to automate processes to increase efficiencies to cut costs emanating from traditional back office processes; ii) Consider the impact of geography now on future markets in light of the future of work- the concept of the “building as a brand” will disappear. There is need to invest in technology to limit the cost of compliance while investing and retaining “home grown” IT talent to be able to create cutting edged solutions at low costs (STERM). iii) Embrace the future of work wellness agenda by rethinking where and how employees work now when expectations and delivery costs are still relatively low e.g. flex hours, work from home, and bring your own device (BOYD) concepts. iv) Ensure that employee engagement results can be cut by age group and consider how you might use predictive analysis to highlight potential retention issues. v) Rethink use of office space to cut overhead costs and create wellness friendly work stations.

The first conclusion we should draw from all these developments taking place in the financial services sector is that the future of work is currently being redefined. Technology will take the lead, implying that the work force will need to be retrained and be technologically savvy.

We now need to invest a lot of time in understanding the Work, Worker and Workplace of the future. Greater focus should be on how these three factors will change and impact each other and how we as bankers can be prepared.

We have need to put into context the historical background of the work, the worker and the workplace of the past. The bank of the past was a Brick and Mortar Bank but the modern or contemporary bank in transition is a hybrid bank. Even today’s most technologically advanced banks need buildings to keep large server rooms and banks of computers. They still need cash vaults to keep cash notes and coins and documents of value. Some people still keep valuables in safe deposit boxes in a bank, jewellery, diamonds gold and other precious stones, art and valuable documents such as title deeds and bond certificates. We should now accept that the bank of the future will probably need no buildings at all. It will need far less people if any at all, it will not need to invest in its own computer networks as the all computing power will be rented from the cloud. There will be no need for cash notes and coins or cheques as most if not all transactions will be transacted by electronic representations of money such as crypto-currencies. There will be no central banks to issue currency as crypto technology will overtake the process and monetary systems are managed by everyone everywhere.