Banks have to say goodbye to payment transactions

Dr. Daniel Fasnacht

Springer Professional, 24 January, 2020, Interview published in German.

Digitization and new competitors have turned payment transactions inside out. Their influence on other financial areas is also increasing. Transformation expert Daniel Fasnacht explains why traditional companies can help open innovation concepts and agile structures.

springerprofessional.de: You say that financial services are becoming more digital, more mobile and more global. What does this development mean for the relationship between banks and their customers in the next five or ten years?

Daniel Fasnacht: Digital self-service completely changes customer interaction. With the Internet, we have transparency about products and services. We can also use our smartphone to do everything immediately and anywhere in the world. Customers must be picked up where they are, including communication channels. Accordingly, it is becoming increasingly important to know information about the current life situation of the customer and his behavior and to use it in such a way that customer added value can be generated from it.

A lot has already happened, especially in payment transactions. Fintechs and the big US tech groups are very creative here. How can traditional money houses hold or even regain market share in this area?

Payment transactions are already in the final phase of the transformation. Seven of the ten most valuable companies in the world have platform business models with their own payment systems. Banks can no longer keep up with the high number of users from Google, Apple, Facebook, Amazon, Microsoft, Alibaba and Tencent and have to say goodbye to this once lucrative business. Hardly any money can be earned in traditional payments. Instead of holding market share here, banks should look for new business models.

Now many influences come from Asia, especially in the financial sector. Chinese consumers in particular process almost all of their financial transactions using smartphones and corresponding apps. There are apparently no concerns about data protection and confidentiality - hardly conceivable in Europe. So local money houses don't need to fear Asian competition?

All banks have to take competitors from other industries and regions seriously. Chinese companies are digitally superior to us and have been putting data at the center of their business activities for ten years. Chinese have gotten used to doing their everyday life with so-called super apps. That's why many of my publications include Chinese case studies. China's lax regulation and lack of privacy protection bring competitive advantages. I think data protection is also a question of generations. The generation Y and Z have a different understanding and only disclose their data if this results in advantages for them.

In times of negative interest rates, consumers are increasingly looking for good investment advice. Wealthy customers are often only noticed when they are already in the middle of life. How can you win over customers at a young age?

Research assumes that digitization is changing branding and leadership. Even if products and services will be assessed and purchased less on the basis of the brand in the future, customers can be emotionally addressed with its values. The customer journey begins with early experiences. If interactions are always perceived positively, this supports customer loyalty. It is therefore about perceiving customers as children, inspiring them and offering them tailor-made solutions throughout the entire life cycle.

Where and when do you think the institutes should start?

One-dimensional strategies, rigid processes and rigid systems prevent different, constantly changing segments from being served. Generally, you need agile structures and resilience, the systemic resilience to change. If we focus too much on today's environment and focus exclusively on existing customers, we will miss the next megatrend. If a customer segment is neglected and better served by rapidly growing innovations than by traditional processes, we speak of disruption. Customers change their behavior quickly, and asset managers have to be prepared for it.

How far have digital tools changed wealth consulting, but also other financial areas?

There are many technologies with disruptive character. While hopes in Robo Advisory have been put into perspective, blockchain asset management is still in its infancy. I see great potential in areas of artificial intelligence. Not only can efficiency gains be achieved, but specific customer needs can also be satisfied. Predictive Analytics can be used to make predictions based on historical data and with the help of machine learning about future, sometimes non-existent needs. Such, as well as many other technological innovations, lead to increasingly complex systems with new properties and phenomena that continuously change our lives.

What are the limits?

In addition to scientific boundaries, the time of technological singularity - the time when artificial intelligence surpasses human intelligence - will be a milestone.

Banks are increasingly focusing on cooperation and networking as an important pillar of their strategies. Are the future-proof business models of the banks exclusively on the platform?

In the future, it will be a matter of meeting other needs of everyday life in addition to financial services. The digital platform provides access to integrated services and regulates the exchange of resources and services from various actors. Based on the open innovation concept, vertical integration can be dissolved, and added value can be generated via cross-industry ecosystems. Financial service providers urgently need new skills to monetize data and develop business models for their shared added value.