The Modality Shift of Banking – Conclusion

As we detach ourselves from physical artifacts associated with traditional businesses, traditional distribution models rapidly fail. The fact that you own or participate in a network or virtual monopoly that supports an outmoded distribution model is of no benefit when that network is surpassed by a generational leap in technology delivery at the front end or a significant and irreversible shift in behavior. The challenge is re-tasking your business to be a part of the technology or new distribution model that enables that different behavior.

Typically, the new technology or business model disrupts in one of the following ways:

  1. Creates a cheaper, simpler or more convenient approach when compared with the old method or processes,
  2. Involves a new technology that is vastly superior in speed, quality, form or function when compared with the old method (not an iteration, but next generation improvement),
  3. Creates a dynamic shift in components of the value chain such that the old method is no longer viable or worth the premium levied, or
  4. Results in the creation of a completely new model that completely replaces the need for the traditional players such as in the case of combining two previous products or business.

As in the case of the Telegraph and Fixed Line businesses, this was about a better approach to person-to-person communication. In the case of Encyclopedia Britannica, Stock Trading and Travel Agents, the new technology disrupted the value chain so that traditional distribution methods were no longer able to compete, or the ‘value-add’ of a human interaction was no longer worth the premium. In the case of media such as print, music and movie/TV content, it is a combination of disruption of the network, new technologies at the front end (i.e. computers/tablets/smartphones instead of TVs/newspapers/CD players) and a change in the distribution model in respect to the value chain and cost structures.

Is it really going to happen?

So how viable is this shift in banking? Well almost all the physical artifacts in banking can be replaced by something better. The cheque has already been replaced in most developed economies by debit cards and electronic transfer methods, but even plastic cards themselves are a target for disruption via NFC-enabled mobiles. Cash itself is increasingly becoming a poor instrument for day-to-day payments.

The branch, which originally was designed as a transaction point for cheques and cash, is increasingly facing the same challenges that Britannica, Merrill Lynch and Travel Agents faced – is the value-add of a human interaction enough to differentiate against a rich, optimized, digital interaction when and where you need your banking?

Everything about retail financial services that relies on outmoded physical artifacts, proprietary and outdated networks, and processes that are complex and unwieldy – all lend themselves to disruption. If you can think of a better way to do your banking, then you already realize that the current status quo is not sustainable. In today’s environment, if you can imagine it, then someone is probably building it.

If you are an incumbent player you might argue, for example, that NFC requires critical mass to reach adoption, but so did the internet, so did music downloads, so did Wikipedia and electronic stock trading.  The question is, do you wait until the disruption takes place to start planning for the new reality?

Where are the key threats?

The biggest single threat is distribution model changes. By 2015 aggregate interactions for retail banking will mostly have shifted away from branches to mobile, web, ATM, and call center. On that basis alone banks that are carrying large branch networks will face major disadvantages on an operational cost basis, against competitors who are more nimble, efficient and enable day-to-day behavior better. The good news is, before the decline really starts to bite, the evidence shows that when you strongly support new channels that it doesn’t cannibalize your existing business, it just adds new revenue to the mix. Get focused today on revenue generation through direct channels. Remove the friction, go after revenue.

The cloud, mobile and social will certainly be a part of the shift as well. PayPal has already shown that a new interface can work on top of the old architecture. Increasingly mobile payments are going to sit on top of that old architecture too. The opportunities, however, are more than putting new skins on the old payment system. The opportunity here is to understand the context of payments and work to augment the payments architecture through understanding payments behavior. Start focusing on why, when and how customers make payments, and work to reduce friction and enhance value.

Physical artifacts are going to continue to be challenged by modality. If you have retail banking management asking the question about how to get customers back into branches, or arguing that cash is king, ask yourself how these leaders will fare as increasingly they are faced with disruptive behavior and the breakdown of traditional models. Start looking for leaders who are excited about the future and see the opportunities for adaptation.


  1. Aden says:

    You know I am in agreement with the whole digital transformation thing but I still see value in face to face for more complex products. Also intrigued by how sales and advice regulation will adapt to online models or video sales/advice calls e.g. What are the implications of RDR in the UK? (Far too complex for my little brain)

  2. Brett King says:


    Probably the most complex product for most non-HNWI customers is a mortgage, and we’ve shown we can sell that via phone and online for years, so that argument is wearing thinner. You’ll still have HNWI advisory spaces, but the average retail banking customers just doesn’t need advice because the product complexity is part of the problem (simplification and less friction required).

    On the regulatory environment, one of the key learnings out of the recent US rating downgrade is that we now recognize that the more you increase the complexity of management, and the more risky over time those processes become. The regulatory environment will have to adapt to less complexity – because complexity reduces competitiveness of the industry.


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