Digital Attacker Banks’ Time Has Come

The digital age offers new opportunities for established organizations, but it also poses enormous challenges. Customers in the digital age want everything right away — and it must be convenient, customized etc. If they find a cheaper offer online, there is little to prevent them from cancelling their current contract.

Over the past decade, the industry has witnessed a radical shift in the perceptions of value proposition — from incumbent multinationals to responsive and scalable digital entrants reinstating their relevance for markets. While the phenomenon is often referred to as disruption, it presents a glorious opportunity for embracing value creation by embracing new-age digital principles.

Speaking in the context of the financial sector, banks across the world are currently experiencing an era of hyper digitization. Traditional banks face disruption from various quarters, making it imperative for them to evolve to remain profitable over the medium-to-long term. The disruption is starkly evident as new entrants pose a formidable threat to the incumbent banks.

Disruption in the financial services sector is posing formidable challenges for incumbents. This is largely due to the various products and services new players offer that incumbents are still getting accustomed to and trying to adapt. A digital attacker is one that typically has no physical locations and serves its customer primarily through digital platforms.

Digital attackers — that is, digital-only banks using a cloud-native, low-cost platform — historically were secondary banks for consumers. Many attackers garnered smaller deposits and more limited lending than traditional banks. Incumbent banks need to watch out for these digital attackers because not only do they serve as an alternative to banks, they are also leaders in adopting technology, helping customers and businesses to uproot legacy technology that plagues traditional players.

Image Credit: Oliver Wyman

Digital attackers have gained ground among consumers, and they hold more promise than initially meets the eye. Traditional banks risk losing market share if they don’t respond to these new models. An inflection point in adoption is near, as some attackers have shown that they can please customers and achieve a large scale. They are expanding from retail to small business accounts, from deposits and basic transactions to lending.

With innovative opportunities and leadership commitment, digital attackers can embrace challenger ambitions in line with global leaders. Key initiatives include enabling secure data exchange, embedding third parties on the bank’s platform, originating and/or embedding bank products on third-party platforms, supporting the launch of micro-banks and providing customers with third-party apps.

Many incumbent banks have realized the compelling logic of having a separate digital bank. Regulatory changes (such as open banking initiatives and the Revised Payment Services Directive, PSD2, in the European Union, or video-KYC and Unified Payments Interface in India) that are designed to promote innovation, better prices and a better experience have primed the field for more competition.

We are seeing the major private sector banks in India such as Kotak Mahindra Bank, HDFC Bank, Axis Bank, DBS Bank, etc. offering digital saving products, which give the consumer the luxury of freely accessing and performing their traditional banking activities 24×7 without having to personally go to a bank branch to get their work done. Digital banking can be done either through a laptop, a tablet or a smartphone. This is just the beginning and the future will show many incumbent banks adopting the agility and customization of the digital attackers.

At the current rate that digital attackers are progressing and evolving, traditional financial services firms will need to learn to disrupt, or they will be disrupted. Incumbents can gradually move toward a challenger model by swiftly adding new digital capabilities on top of their current model.

11 thoughts on “Digital Attacker Banks’ Time Has Come

  1. The most unfortunate part of digital banks is accessibility. The only way these are accessible is with a toll-free number. The most frustrating part is the experience with the toll-free number. Many banks have restricted dial-in with preset numbers and often the problem we face is not configured in such a set-up. Paytm is one such example. In stark contrast, the new small banks offer excellent services.

    Liked by 1 person

      1. I hope so. Many of the systems that banks employ are not designed to delight the customers. The banks need to be proactive else they will lose customers to the one that are more sensitive to their needs. Let’s hope it paves way for better banking infrastructure.

        Liked by 1 person

    1. Thanks, Mano. Along with a ribust digital infrastructure, we need to develop a sound digital culture to prevent innocent citizens from being looted. Digital and financial literacy is a must to survive in the coming days.


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