Traditional banks are coming under increasing pressure from their digital competitors. Their survival will depend on redefining why they exist, cultivating relevant relationships and innovating.
The increasing number of people who do their banking online and by mobile phone has caused banks to close branches and lay off workers in countries ranging from Uganda, to the US, the UK and the Nordic region of Denmark, Finland, Norway and Sweden. Now that e-commerce companies like Amazon are looking to expand their financial innovations in the banking market, there's a fear that this will bring about the demise of traditional brick-and-mortar banking.
While changes in strategy, technology and customer preferences are leading us into the unknown, it is too soon to consign banks to the grave. Financial technology (fintech) and technology companies such as Amazon may be disruptors and innovators, but the new competition is not a zero-sum game. Yes, banks as we know them likely will change, but they will not become extinct if they base their futures on three strategies: (1) redefining why they exist; (2) growing and cultivating relevant relationships; and (3) innovating.
Why do banks exist?
First, it is important for banks to understand why they exist. The leadership of individual banks and the banking industry association need to understand their models not simply in terms of what they do or how they do it. Leadership expert Simon Sinek believes that inspired and distinguished leadership in industry occurs because of companies effectively communicating why they are doing what they are doing. Most banks' mission and vision statements are well crafted yet fail to say why they exist.
My experience as a strategist in the financial services sector has led me to understand that banks exist to facilitate benefits for making our lives easier. The driving force of donor-funded market facilitators such as the Financial Sector Deepening (FSD) network funded by UK aid is that improvement in the financial services ecosystem will lead to reduced vulnerability and poverty. Market facilitators are important because they understand why banks should exist and aid them in the form of technical assistance to achieve the end goals mentioned above.
Banking is about relationships
Second, banks need to recognise that banking is not about transactions but about relationships. How banks and clients relate is changing, with increased use of technology. Nevertheless, banks need...