With today’s economic uncertainty, some may question whether this is a good time to be discussing disruptive innovation in banking. I would argue there is no better time than now. For starters, the business models of the retail branch bank were developed decades ago and no longer fit most people’s lifestyles and needs. The world is changing rapidly but banking really hasn’t kept up with the pace.
The second reason is that we live in a very special time when we have never had so many powerful tools and sophisticated infrastructure to build solutions. Technology has never reached or impacted as many people as it does today. There are 6.4 billion wireless connections, which reach 80% of the total world population. Within five years 80% of the world’s population will have Internet access – primarily through smart mobile connections. Right now there are over 900 million monthly active users on Facebook. There are 340 million tweets sent every day, and 6.1 trillion SMS text messages every year. This is changing everything – the way we interact, shop, learn, bank, heal, stay healthy, entertain, and live.
I have had the privilege recently of working with many banking innovators on three continents to deliver mobile financial services that empower people’s life and work. I have been deeply moved — sometimes to tears — to see how digital communications technology is improving people’s lives. In Africa, people for the first time feel truly empowered, and a part of more than just their village, when they used their cell phones to fight corruption. Child soldiers exchange guns for mobile phones. In the Middle East women activists use Twitter to fight for equal rights for women. In India, hard-working parents sacrifice and save to purchase computers to make sure their children have a better education and better life.
My book, BankRUPT: Why Banking is Broken, How it can be Transformed, takes a hard look at banking today, especially large banks. The book has three parts. The first part addresses why banking is so broken, including insights into how we got to this place. The second section looks at typical families and how the banking crisis has impacted them. The third part examines what can be done: how can banking make big changes that will translate into a very different kind of banking that serves the needs of the average family and helps small businesses.
What is fascinating about the time we live in is that we are first seeing many of these disruptions and innovations happen in far-away places like India and Africa. So, although the developed world is impressed with the technical innovations of PayPal and Square, these models are mostly about added convenience for those who are already receiving service. This is good innovation, but lacks the breakthrough quality we see in branchless banking, innovative credit, and mobile payments in Africa and Asia. Here we see whole new models of banking, credit, and payments emerge that are different not only because the access point is mobile, but because the value chain, business models and infrastructure are transformed to be fundamentally lower-cost while increasing reach.
I believe banks are working hard to become consumer-centric, drive down costs, revise business models, and be well positioned to deliver more value. Mobile, cloud computing and big data are helping them achieve this. Yet my belief is these innovations will get them back to where they should be, but will not create future global leadership in banking or true financial inclusion. This will require disruption – change that is discontinuous. If banks want to keep from fading into the background and decreasing in importance, they must do even more. They must participate in disruptive change.
The goal of my BankRUPT book is not to provide all the answers, but to ignite the conversation. There is a need for change and investment in modern infrastructure, similar to what is happening in India. India, which traditionally has been slow moving to change banking, has recently stepped up the pace of change and investment with projects like Aadhaar (the brand name for the country’s Unique Identification Number) and the Interbank Mobile Payment Service (IMPS). Government initiatives combined with private sector-led investments by banks, telcos and microfinance institutions have set the stage for rapid increase in bank accounts, cards and electronic transaction volumes. This modern infrastructure will drive a “richer” banking environment while enabling commercial and government efficiency.
What is needed is to transform banking in more places than India. It is not far-fetched to say that within five years nearly every human being on the planet Earth will have access to the Internet and rich data services. Sooner than you imagine, we can have a banking system designed for seven billion people. It’s starting to happen right now in densely-populated places like India and Kenya, and it will impact how banking is done everywhere.
Carol Realini is author of BankRUPT: Why Banking Is Broken And How It Can Be Transformed