Banks have long been able to thrive in a relatively closed market which was defined by regulation. But, recent technological innovations combined with deregulation all across Europe are profoundly changing the market. Today, there are three different types of new entrants which have the potential to disrupt the business model of retail banks according to Jean-Yves Bruna, a Chief Strategy and Development Officer in a leading European Banking Software Company.
I/ Jean-Yves Bruna’s bio
Jean-Yves Bruna is the Chief Strategy and Development Officer in a leading European Banking Software Company. He’s a seasoned Banker and General Manager of European (Italy, Spain, Poland) and Latin America Banking and Consumer Finance subsidiaries (managing thousands of people) of an International Bank.
II/ The first disruptor are retail companies
Retail companies have a daily relationship with consumers. Consumers flock to retail stores. Retail companies strive to increase consumer average consumer purchases: they’ve created consumer credits subsidiaries to increase consumer spending power. Doing so, retail companies entered a new market (the consumer credit and cards market) to the expense of banks that used to enjoy a monopoly on the consumer credit market. Now large retailers are entering the payment and Digital Wallet Market
III/ The second disruptor are telecommunication companies
The second disruptors are telecommunication companies like Orange and SFR in the French, like Orange or M-Pesa in the african market for instance. They are offering , since 5 years consumers and merchants payment services and Digital wallets through their mobile devices using telecommunications networks and extending to-up initial functionalities . This is the second element that’s slipping away from the hands of retail banks. From a regulatory point of view, this has been enabled by:
- the European Payment Services Directive, allowing non banks to enter into the payment value chain, creating “Payment Services Providers” with an “European passport” ( one PSP established in one European country can provide payment services to another European country)
- the recent DME2 Directive, regulating the creation of another more comprehensive status “Electronic Money Issuer”, transposed into French regulation, since beginning of 2013 and shaping the future “Digital Wallet” markets
Telecom companies have a much larger client base then banks, which provides them with the power to transform markets. Compare the client base of Orange of 30 million clients and a client base of SFR with 20 million against the domestic client base of BNPP or Société Générale of around 2 million clients.
IV/ The third disruptor are internet giants
The third disruptors are internet giants, like Google, Amazon or PayPal. Google is working on the Google wallet. It wants to be able to account for every single purchase people make , and leverage the payment data for marketing, using its strong “Big data” capabilities . Google wallet will manage for decisional analytics and Business Intelligence , information pertaining to:
- the time
- the location
- the identity of the person completing the purchase
- the nature of the good purchase
The intent is to provide, beyond payment facilities, added value services to end-users, such as geolocalized and contextual marketing , fidelity coupons,…
Telecommunication sponsored payments, retailers and Internet giants are also a threat. All those B2C giants are spelling a critical strategic risk for the banks, cutting them off from their exclusive relationship with clients.
V/ Banks are facing 3 disruptors
- The first disruptor are retail companies
- The second disruptor are telecommunication companies
- The third disruptor are internet giants
How should retail banks deal with new entrants? This is a question I addressed in a follow-up conversation I had with Jean-Yves Bruna.