Why it's OK to be a Dumb Pipe
People far brighter than I have been suggesting for some time that banks risk becoming “Dumb Pipes”, losing control of the upper layers of customer engagement to more agile FinTech firms and simply providing access to the intra-bank money transfer and deposit services that they are uniquely regulated to deliver in most developed markets.
Now I should say that I am a huge fan of FinTech and spend a lot of my time working with agile, smart, innovative firms who are working to reinvent our relationship with our money. I’m also part of the management team for Next Money in the Middle East. As I have previously written, I think the Financial Services world is at the beginning of a period of a meaningful change, after all FinTech has attracted over $6.5 billion in H1 of 2017 alone. I hope this change continues to gather pace so that we can all benefit from the value this sector will undoubtedly create.
But, and it is a big but, I think banks will continue to have a huge role to play for decades to come. I’m not just talking about challenger banks or even those incumbents who are investing heavily in innovation, I mean even the most traditional, backward-looking institutions.
So why do I think they have a future? Trust. A recent YouGov survey found that in the UAE 74% of customers surveyed trust their bank and EY’s 2016 Banking Survey found that when asked specifically about their bank keeping their money safe, 93% of customers worldwide do trust banks. So how do FinTech’s stack up? Well according to a RFi Group survey earlier this year that took in 25 markets when asked “do you trust this organisation to hold your personal information and maintain it securely?” 65% of consumers trust banks while only 41% trust telecommunications firms and even fewer (just 38%) trust tech firms.
I believe this means banks will be with us for a long time to come. Perhaps not as our primary point of interface with our money but likely as the face of that interface. Meaning branding for banks is going to be increasingly important and protecting the trust that people have in that brand is going to be vital. As Accenture’s paper on Cybersecurity in Banking highlighted last year 53% of banking executives expected to invest in better security around their systems but this still leaves a huge 47% not planning to make that investment. In Europe, where PSD2 comes into effect in 2018, banks will be required to open up their payments networks and some of their data to third parties. This change will mean trust in data security is likely to be key as banks develop new API’s to enable this sharing of customer information.
What will it all mean? Well the smartest way for banks to stay relevant is to innovate, collaborate with FinTech firms and maintain a customer focus. But the one thing they must maintain while they do that is trust, that means investing intelligently in cybersecurity, acting with integrity and managing their brand. Some banks may not become dumb pipes, but if you have to become a dumb pipe make sure you’re a trusted one!