August 28, 2012
Australian Banks have often been at the forefront of global banking trends, or at the very least, fast followers that learn quickly from the mistakes of others. In Australia, mobile banking has quickly become a "war" amongst the majors with a range of different banking services and approaches – from basic access to transactional histories, transfers, payments, integrated retail services, and even near-field-communications-based micro-payments systems.
But how much of the mobile banking channel do banks really need to own? Most banks no longer own or operate their own ATM networks. They control the flow of transactions through that channel, but they generally have little to no interest in owning the assets or operating ATM cash management processes. Mobile banking is a complex and costly business to be in. With the advent of Internet banking, it quickly became clear that the cost of delivering online banking services through the internet was rarely, if ever, a more cost-effective channel than the bank-owned and operated PC-based products (remember the dedicated dial-up modems!). But in theory it should have been. All of the cost modeling showed that it should be cheaper. Yet banks have continued to invest more and more in building out, maintaining, operating – and particularly securing – their Internet banking channels.
So why have the banks continued to invest in Internet banking but outsourced the ATM channel? Obviously it's the belief that the banks need to maintain relevancy by building their brands and embedding their services into the daily lives of their consumers. Can't ATM's do that? I remember in the early 1990's, ATMs were going to be filled with all kinds of additional relationship management and brand-building capabilities that would engender loyalty with consumers and drive profitability for banks. But that's not how things have panned out. ATMs remain (for the most part) utilitarian transactional interfaces to core banking services – with some marketing fluff thrown in. In reality, ATM strategies were more about driving penetration than enhancing the consumer experience.
Mobile banking certainly has an opportunity to achieve both: increase penetration and strengthen the brand relationship with consumers. But at what cost?
In the 1980s and early 1990s, marketing theorists proposed that the "loyalty ladder" was the way to achieve higher profitability. Turn "suspects" into "prospects," prospects into "customers," customers into "clients," clients into "supporters," supporters into "advocates," and advocates into "partners." We still see a similar approach used today by social media theorists. Yet Australian banks were some of the first in the world to realize that advocates and partners actually tend to cost you money. They often expect better and more personalized services – in return for being a referral channel for your business. Australian banks worked out that the most profitable customers were the ones that were just "pissed off" enough that they wouldn't get up off the couch and move to their competitor (FYI, "pissed off" is an Australian expression for being "annoyed" – apologies for any cultural sensitivities in using this turn of phrase). Their marketing resources were busy running the gauntlet of spreadsheets and clumsy data warehouse analytics to identify exactly how you could both woo and attract consumers, while at the same time locking them into inescapably high-margin services.
And how does this all fit into mobile banking? Well, the cost of cultivating digital relationships is incredibly high. The long-term effectiveness is arguable at best. If a bank wants to be in the mobile banking game, at least for retail consumers, then it needs to make some wholesale changes to its business. Quite frankly, most global banking organizations aren't there yet. The infrastructure is still stuck in the desktop era (if you're lucky!), the organizational structures are often counterintuitive to the consumers' wants and needs, and the business processes required are still being worked out.
The most visionary of banks – Australian or otherwise – will design and develop the next generation of banking platforms to be independent of whether they own and operate mobile banking services themselves or not. There are plenty of potential channel partners to work with – telcoms, mobile device manufacturers, software development companies, and online retailers, just to name a few. But let's be clear. It's not about creating a new consumer banking channel by "deploying an integrated Facebook banking app." It's about re-evaluating the role and capabilities that a banking organization will need – and benefit from – in the future. That's a completely different conversation.
With the banking industry in Australia continuing to make record profits – largely on the back of a lot of legacy technology – it's still going to be hard to argue that these banks need to do anything different…let alone risky. But with markets being disrupted by emerging technologies and lower barriers to entry, the risks might be in holding onto something they should never have owned in the first place.