Google, Facebook challenge global banks, Lorre White

“The competitors of tomorrow will not be large scale banks, they will concentrate on the single aspects of retail banking – it is akin to guerilla warfare,” Farhad Irani, the head of retail banking at Middle Eastern Bank Mashreq, the largest private bank in the UAE, said. Photo: Reuters

SHAUN DRUMMOND

The chief threats to global banks’ business model come from internet giants like Google and Facebook seeking to capture customer transaction data, and telcos moving into the payments space, according to two senior global bankers.

Farhad Irani, the head of retail banking at Middle Eastern bank Mashreq – the largest private bank in the UAE – and a former head of Asia for PayPal, said there are a host of companies, from Google and Amazon to numerous start-ups, that now compete with banks in every aspect of their business, including payments, deposits and lending. Many niche players fail, but those that provide something useful and secure are chipping away at bank earnings.

“The competitors of tomorrow will not be large-scale banks, they will concentrate on the single aspects of retail banking – it is akin to guerilla warfare,” Irani told a Sydney forum held by payment consultant RFi on Thursday.

“If one billion Facebook users traded their own currency, it would become a top five world currency. Regulation is the only thing that stands in the way [of that].”

TELCOS TAKE BANKING ROLE

Standard Chartered’s global head of retail and personal banking, TS Anil, said in the developing world those regulatory constraints often don’t exist. And where there is little banking infrastructure, the proliferation of mobile devices had speeded the trend for telcos to fulfil the role of banks. As a result, financial services companies now often piggy-back their services off phone providers to gain access to emerging markets.

In developed countries, because of the capital requirements and ability to manage risk, Mr Anil said banks would likely remain the chief facilitators of retail payments. The danger is that they will lose direct access to customer transaction data, and the margins they can earn from cross-selling products will be eroded. Along with that comes “brand dilution” as banks just provide the “rails” of the transaction system. That would reduce their ability to price loan risk because the banks have less data on customers, Mr Irani said.

The telcos’ incentive is that their margins from providing internet access are declining, and offering payment solutions is the most obvious choice to replace that.

“There is increasing confrontation between telcos and banks,” Mr Anil said. “There is a tussle in terms of who owns the end customer.”

Mr Irani said this was occurring in developed economies as well. “NTT Docomo [Japan’s leading mobile phone operator] is a fraction away from taking away all domestic payments in Japan.”

Two answers to the threats are spending on people and technology that provide the best functional and emotional experience for customers, and partnering with companies eating into their margins.

Source via Lorre White – The Guru of Luxury.