Disruption creates a shift in behavior for an existing habit. Much like healthcare, disruption works on pre-existing conditions. It’s finding how to ‘break the habit’ into a more convenient, efficient and effective behaviour, that is often the challenge.
FinJa founder Qasif Shahid argues that once a physical, analog process has been digitized, its usage increases exponentially. “Be it Google searches replacing the encyclopedia or e-mails replacing letters, growth always accompanies digitization of an analog process. Demonetization and incentivization of a product allows its usage to increase multifold. Add to the fact that it is digitized and you can see phenomenal growth.”
The recent demonetization of mobile transactions in India, for example, saw a 435% increase in Paytm’s traffic, an e-commerce company in India. The phenomenal rise in traffic helped lurch the company forward in terms of sales. For digital transactions in Pakistan to witness similar growth, the regulatory bodies will have to remove taxation and place similar demonetization tactics.
A survey conducted by the Economist Intelligence Unit states that ‘regulation, and not FinTechs, will have the greatest influence on how banks will shape their strategies and services.’ If mobile payments were to be introduced to the unbanked population of Pakistan, people will start making these transactions at least 20 to 30 times daily. Much like what the digital camera has done to traditional cameras, digitization is doing to transactions. A camera reel needed to be refilled each time it ran out memory and a someone else developed your negatives into photographs and the digital camera completely eliminated this middleman and made the film camera obsolete. Unlimited memory and higher lens quality ushered in an era where people could now afford to document relatively trivial moments of their lives, more commonly known as selfies.
Digitization removes the need for traditional gatekeepers, which in this case is the bank, to facilitate transactions taking place between a buyer and a seller. This reduces operational cost of the transaction. Qasim explains, “This is why the poor merchant is paying an additional 2 to 3 percent for every transaction.” The reason why FinTechs are so popular is their marginally lower costs of transactions and ease of access for their users.
Management teams of banks need to understand that not understanding and embracing disruption in the market will upend their businesses entirely, leading to many of them having to close shop. Wells Fargo and HSBC have closed dozens of their branches in 2016 alone, with Wells Fargo aiming to close around 400 more branches in 2018. Tim Sloans, the CEO of Well Fargo says, “They still want to come to our branches, but they’re accessing us online, on mobile, through ATMs and over the phone.” The banking giant seeks to save $2 billion a year by getting rid of some of their branches.
These changes indicate the increased preference customers have started placing on online and mobile banking, forcing established trends in the market to either adapt or become irrelevant by digitized alternatives.
Take Netflix as an example of how a company taps into customer demands by providing tailored products to individual customers. Previously you had to buy an entire subscription of a TV channel in order to watch just one of your favorite show, but with Netflix, you don’t buy an entire bundle of irrelevant sports, music and review shows; you just buy that one TV series.
Pakistan has a banked population of 16% while the remaining populace simply doesn’t feel the need to use a bank. They either don’t have the accessibility nor feel it enhances anything they are presently doing. They might find some services useful but don’t have a need or understanding about the others. If anything, the gatekeepers intimidate the larger population of having the state of their finances open to an unknown and untrusted party. To some extent, digitization can help solve this problem by making the very role of the bank irrelevant. By exposing proper channels of supply and demand, customers can locate relevant products to their needs and convenience. The customer gets visibility of the entire chain of the transaction and hence, has control over it.
Banks will have to properly gauge what their customers demand and cater specifically to that demand. Adapt and execute.