Disruption in the banking sector – Manila Bulletin


My Gen Z son had to physically go to a physical branch of one of the largest banks in the Philippines to reopen an account, only because his previous account, which he had held for several years, was automatically closed because that he had placed all of his money in an investment portfolio of the same bank. Obviously, this bank doesn’t consider my son’s overall worth as a customer and instead treats him in silos. “This is totally crap,” said my son, who promised he would eventually transfer his money to another bank that wouldn’t have the same problems.

This is precisely the reason why traditional banks are losing their appeal to the younger generations and will lead to its definitive demise.

Take the example of Germany, where bank branches are closing at a record pace according to Deutsche Bank, which last year announced plans to close 100 of its 500 Deutsche Bank-branded branches and around 100 of its roughly 800. Postbank-branded branches, according to Bloomberg.

On the other hand, Germany’s second-largest lender, Commerzbank, recently announced that it would “close 340 branches by 2024 as it grapples with the switch to online banking and cashless payment options,” according to the report by the German online news agency, The Local.

Another recent report from Forbes said three big banks plan to close more branches as thousands close in the US and UK amid the impact of COVID-19 and growth in services digital banking. The news agency further reported that “Huntington Bancshares, Wells Fargo, Sierra Bancorp have all announced branch closures in recent days in Ohio, Philadelphia and California, respectively”; and “over 4,000 UK bank branches have closed in the past six years as lenders increase digital services for customers.”

This all follows the recent exit of Citibank from consumer banking in thirteen markets.

Clearly, the pandemic has accelerated the shift to digital banking as people around the world stay and work from home, leading to the closure of these once ubiquitous banking outlets. The maturation of fintechs and digital-only banks has attracted the younger generations of bank customers, further accelerating the decline in bank branches.

In fact, digital-only banks, also known as neobanks, are growing and taking huge market share from traditional banks around the world. In Europe, neobanks gained more than 15 million customers between 2011 and 2019, and by 2023, neobanks are expected to gain up to 85 million customers, or the equivalent of 20% of the European population, according to a AT Kearney’s 2019 report. One of the main reasons for the upsurge in neobanks, especially in the UK, is the Open Banking initiative which was launched in 2018. This has led to the rise of neobanks such as N26, Revolut and Starling Ban , and has emerged as a challenger to the incumbents.

Open Banking is the system allowing access and control of consumers’ bank and financial accounts through third party applications. It has the potential to disrupt and reshape the competitive landscape and the consumer experience in the banking industry. Two models of open banking have emerged – market driven and regulatory driven.

In market-oriented countries, countries like India, Japan, Singapore and South Korea “do not have formal or mandatory open banking regimes, but their policymakers are introducing a series of measures to promote and accelerate adoption of data sharing frameworks. in the banking sector, ”according to a Deloitte report.

As part of regulation, central banks issue regulatory frameworks that traditional banks and neobanks must adhere to, such as those issued in Hong Kong and Australia, which has also led to the rise of neobanks.

In the Philippines, The BangkoSentral ng Pilipinas (BSP) laid the groundwork for open banking, releasing the first draft of the draft open finance circular in December 2020, a proposed framework for implementing open banking in the country. .

This led to the formal request by two foreign banks and two local banks to acquire a digital banking license in the country, according to BSP. Other local banks have expressed interest in exploring a digital-only banking model. Already, “most of the big banks already have substantial digitization to reduce costs for both the bank and their customers, with IT and digitization investments of 3 to 5 billion pesos per bank per year”, according to a report from the Manila Bulletin.

Open Banking initiatives and the rise of fintech around the world are truly disrupting the banking industry. In fact, bank branches could disappear by 2034 in the United States if current trends in footprint reduction continue, according to a study commissioned by Self Financial, a fintech aimed at an underbanked population with insufficient credit. or defective. The study found that the branch closure rate in the United States doubled from 0.81% per year between 2012 and 2015 to 1.6% between 2015 and 2018.

But it is the United States; in the Philippines, bank branches will continue to be a fixture for many years to come. But if we superimpose this on the developments in our Internet infrastructure and the technological knowledge of young Filipinos, the demise of bank branches could accelerate. That’s why traditional banks need to transform now… urgently.

The views, information or opinions expressed by the author do not necessarily reflect or represent those of FINEX and its board of directors..The author is CEO of Hungry Workhorse Consulting, a digital and cultural transformation consulting firm. He is Chairman of the Information and Communications Technology Committee of the Institute of Financial Executives of the Philippines (FINEX). He is a member of the Institute for Digital Transformation, based in the United States. He teaches strategic management in the MBA program at De La Salle University. The author can be emailed to [email protected]




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