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Millennials will morph banks into software companies

October 3, 2018 / Comments (0)

To win over millennials in the digital future, banks will need to overhaul their IT systems and morph into “programmable enterprises”, where success will be defined by the quality of software rather than financial products.

That’s the view of Telstra, which has just released its 12th report studying the impact of the millennial generation’s use of mobile technology on banking. The largest network services provider for the financial services sector, Telstra is also advising banks on computer system architecture.

The report finds Commonwealth Bank of Australia has a 36 per cent share of the market for millennial customers, more than twice its nearest rival (ANZ at 14 per cent), while CBA subsidiary Bankwest, followed by ING Direct, have millennial customers with the largest level of deposits and loans.

But the report predicts ANZ is well placed to pick up more millennials this year, after adopting Apple Pay and introducing its “Job-ready” account package targeting young adults.

The millennial generation’s unquenchable thirst for digital experiences makes it imperative for banks to structure data like technology giants Uber, Facebook, Alibaba and Airbnb, which means “technology investment planning processes in traditional organisations need to be re-engineered quickly,” Telstra says.

Disruptive world
“The future performance – and perhaps survival – of many institutions may be based on their capacity to transform their business models and cultures to operate in an increasingly exponential, disruptive world,” says the report, titled Exponential performance in a millennial, mobile and programmatic world.

Each of the major banks spend more than $1 billion a year on information systems but much of this is deployed to legacy infrastructure. In contrast, fintech disrupters use new technology that is software-controlled and data-driven, allowing them to radically reduce the cost of customer acquisition and marginal cost of servicing them to near zero.

“The fight for customer relationships is the fight for millennial relationships, and being able to operate at a significant advantage when it comes to the cost of customer acquisition puts the attackers in a strong position,” said Rocky Scopelliti, global financial services industry executive at Telstra and the author of the report.


Banks will need to re-engineer their IT systems to become more software controlled and data driven. Louie Douvis

“One major hazard for traditional organisations is that their technology investment models are simply not designed to cope with exponential technologies. These processes need to evolve, or institutions will be outflanked by companies who have the capacity to out-scale institutions before the threat is even recognised.”

Telstra’s “Millennials, Mobiles and Money Index” (3MI), created from 27,000 consumer research interviews across eight markets, finds Australian banks are still shifting from “legacy” to digital offerings and are lagging the UK, US and China in the move. Australian millennials have an average “wallet” (deposits plus loans) worth almost $90,000, just below the level for the adult population. But by 2028, millennials will be the most profitable customer demographic for banks globally, according to the 3MI.

Bankers pessimistic

Telstra’s survey of 164 financial services executives across 11 countries found 93 per cent believe data and algorithm investment will have the highest impact on innovation over the coming three years, and more than 80 per cent flagged the importance of application programming interfaces (APIs), software that allows computers systems to connect.

“In an exponential world, APIs become the cement connecting internal and external data and services. Management of APIs and the ability to attract and retain developer communities around organisational APIs are becoming critical capabilities.”

But the report also reveals that bankers around the world are pessimistic about the ability of their institutions to adapt. The survey of executives found only 8 per cent say banks sufficiently emphasise the need for agility while 93 per cent say failure is not considered learning but instead career-limiting.

The report also examines the impact of particular technologies such as personal assistants, smart chatbots and natural language voice interfaces, which are now immature but “potentially offer institutions a holy grail: experiences that customers find both satisfying and engaging, and delivery models that companies find affordable, scalable and through which they can differentiate themselves.”

Last modified: October 19, 2018

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