In the 80s getting a job in a bank was considered the way to a well paid and secure job for life. Fast forward 30 years and the situation has changed completely.
In fact, the banking industry is going through a revolution: more precisely a digital revolution. Traditionally very conservative in its development, the banking sector is facing several challenges that are forcing it to review its entire business model. On one side, the recent recession has showed that reckless behaviour and lack of stringent policies were no longer sustainable.The backlash linked to the bailouts of massive banks by the governments with tax payers’ money have lead to toughening up the regulations that affect the sector. But more than regulations, what is really disrupting the banking sector is the digital transformation.
Only 10 years ago it was normal practice for most of the customers to go to the local branch to get their baking operations done: queues at the bank counter, forms that had to be manually filled in, hefty transaction costs that had to be paid were common. Things have changed very swiftly and, in my opinion, for the better.
If you do a very high level research and visit some of the banks’ branches in your city you will notice that most of them are empty and that the average age of the population that still goes to the physical bank branch is over 70. Very rarely you will see a Millenial interacting with an employee at the bank counter.
This is under everyone’s eye and it is changing the banking sector to the core.
What’s going on? Most of the clients use internet banking for their operations and never (or very very seldomly) visit a branch as they don’t need to: why wasting time when I can do what I need with my laptop and with a smartphone? What clients may still need is an ATM machine to withdraw cash, but going to the branch is not seen as a necessity. They can easily find cash machines in a city and the smartest banks don’t charge additional fees if a client doesn’t use theirs!
One of the most relevant data when it comes to the evolution of the bank’s customer behaviour is the rise in the use of mobile devices (smartphones and tablets) when interacting with the bank. Clients use apps for every aspect of their life and banking is one of them. The rise in the use of mobile devices shows that the main barrier linked to the security of data has been broken: systems like vocal and visual recognition make it very safe to use your iPhone or iPad to manage your banking transactions.
In Italy, in particular, the banking sector is well beyond its European competitors. One one side a managerial mentality that is still rooted in the 1980s coupled with an outdated and over protective employment legislation that makes making people redundant a hard task to achieve, play an active role in the lack of competitivity of the Italian banking sector.
When it comes to employees in most cases they were hired in the 80s or early 90s (most of them with only a high school diploma), they achieved high salaries due to promotions linked to their seniority and collective agreements provisions – not due to their abilities to do the job – and cannot be dismissed even if unskilled and not willing to keep up with the pace due to an employment legislation that goes back to the 70s. Banks have to hire skilled employees, but have troubles attracting and retaining them due to obsolete managing practices and to the fact that in demand skilled individuals look for better growth and earning opportunities that usually are not offered in Italy, where salaries and career progression for the newcomers are extremely poor.
In addition to outdated legislation and managerial practices, difficulties to dismiss people that do not meet the minimum capability requirements to be competitive in todays’ market, there is the issue of the excessive number of physical branches. Italy has the highest number of bank branches pro capita in the EU: think about the fixed costs of running empty expensive places. Again outdated managerial practices and employment legislation play an active role in this situation. You can also assess the poor customer service offered by most of the traditional banks where, if you go to the branch, it is not unusual to deal with a bored employee that spends his/her time complaining and make you feel like a nuisance.
However, it is not all “bad news”. Old business models are going to be swiped away by how the market is changing. Some traditional banks have set up or acquired more modern way of doing banking like Fineco, ING, Che Banca. But it is not enough. One of the biggest challenges traditional banks are facing (regardless where they are based) is the new breed of competitors that are entering the sector.
One of the characteristics of digital change and disruption is that the competitors are not coming only from the same sector. They come also from sectors that traditionally are not linked to it: the real threat for the traditional banks are technology giants. They go under the acronym GAFA: Google, Amazon, Facebook and Apple.
These organisations already have the technology, they already have the data relating to their cleints’ behaviour, they already have skilled employees with a digital transformation disruptive mind. Traditional banks may aim to enter into partnerships with these companies that are going to lead the way. But having expensive branches and unskilled workers is not going to work. Collective agreements and iper protective employment law? Soon they are going to be a thing of the past because the market is evolving in a way that makes them obsolete. And it is not necessarily bad news.
Also my 85 years old mum has recently decided that she had enough with the inefficient local bank branch and went for an online solution: behaviours are changing and new exciting opportunities are just around the corner. And for those that cannot keep up, they will simply disappear.