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How Banks Can Survive Digital Disruption: Strategic Choices for Retail Banks in the Digital Economy

Dear Customers, Partners, and Colleagues,

 

The digital economy is changing our lives. Everything we touch, say, and do is connected. By 2020, there will be an estimated 2.5 billion people connected on personal and business social networks worldwide.1 An estimated 200 billion devices will be linked to each other on the Internet of Things.2 The digital economy will change how we work, live, and function as a global society.

 

The digital economy is dramatically changing the retail banking industry by influencing the way we bank and creating new competitors in the marketplace. So-called “FinTechs” are coming up with completely new business models that address existing inefficiencies – for instance, approving a loan in minutes, which can take banks multiple days. Retailers and Telco's are offering financing options as part of their value chain at the point of sale, in real time. Google, Apple, and social networks like Facebook, with access to billions of people, are entering the banking market and providing mobile wallets and procure-to-pay (P2P) payment solutions. As a consequence, traditional banking value chains and business models are being disrupted.

 

How can banks survive digital disruption? We see banks acknowledging the need to reimagine their business models, processes, and work. With mounting demands to run their organizations more efficiently, achieve new product innovations faster, and provide more personalized solutions to customers, banks are in need of a new approach that can support all of these objectives simultaneously. It takes more agile, end-to-end digitized processes based on a single source of information, from planning and execution to prediction and analysis, all in real-time, to provide a superior customer experience.

 

Leading banks extend their value chain “beyond banking” through partnerships and are the interface to the customer. For instance, when a customer buys a home, a bank should not only offer a loan, but the entire set of services necessary to own a home. Banks have to become part of their customers’ daily lives; they must anticipate needs and become the life coach for their customers. This will drive customer loyalty and ultimately more business.

 

Successful banks will establish the “bank’s marketplace,” or join powerful networks to survive in the digital economy. They should draw on their networks of providers, customers, and partners in order to evolve into 21st century service organizations. They cannot simply provide the platform for peer-to-peer lending and crowd funding, but must also be active in a marketplace and network that enables business between their commercial and retail customers, with the bank providing financing, insurance, payment, and other related services.

 

The changing competitive landscape will lead to a world of coopetition in which banks and nonbanks both compete and cooperate. “Banking-as-a-service” allows non-banks to leverage economies of scale, while both they and the banks can benefit from each others’ strengths and expertise.

 

Digitization also allows banks to drive “inclusive banking” and reach new customer segments, such as the unbanked, and provide basic banking services at almost zero cost by leveraging mobile and cloud technologies. Banks play a key role in driving prosperity.

 

This document offers our perspective on where the industry will go, and how SAP can help banks with the digital transformation. Thank you for your interest. Let’s innovate the future, together.

 

Falk Rieker

Global Vice President Banking IBU

SAP SE

 

 

1. SAP Estimates and “3 Ways the Networked Economy is Changing Your Life” Forbes, January 2015 http://www.forbes.com/sites/sap/2015/01/14/3 -ways-the-networked-economy-is-changing-yourlife/

2. “A Guide to the Internet of Things” Intel, IDC, http://www.intel.com/content/www/us/en/inter net-of-things/infographics/guide-to-iot.html 

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