Time for banks to join MNOs as pipes and let the cool brands handle the customers

The not-too-distant future could see banks shutting their branches, losing their brand identities and becoming ‘dumb payment pipes’, handling transactions from a new breed of online and mobile-based service providers. Or they could carry on much as they do now.

These were the two conflicting views posited in the Sibos Labs Innotribe debate on the future of banking, which sought to navigate its way through the likely impacts on the retail banking sector of mobile, social networking and, well, mobile social networking.

All sounds very familiar doesn’t it: it’s the same debate that the telecoms industry is having about the role of MNOs in the ‘who owns the customer’ debate (not to mention the will MNOs become banks debate)… In fact, odd as it may seem, the world’s of retail banking, mobile and telemedia are surprisingly closely linked.

Banks will continue to handle the movement of value, but by not getting in early on developments in mobile and social banking, they will simply be payment processors for a new breed of service providers that offer the services. The same has happened to telcos: they wanted to own the customer, and have failed. In the future telcos will carry the traffic and banks the transactions – the customer will be interacting with other, cooler, brands.

But it goes deeper than that: most retail banks are now really ramping up their trials of contactless payments with mobile devices, the use of mobile devices as card readers and payment authorizers, mobile banking and the wifi/wimax-based, location-based possibilities of banking and much more.

Billing for online and mobile content and services is also slowly become the preserve of the banks and credit card companies too. Its an interesting time.

But what it shows is that the banks and the MNOs are destined to become pipes: one for money and one for the content. This is a massive shift in the world order and doesn’t come a moment too soon. It will allow those with the service ideas to dominate the customer facing element of business and lets, finally, the boring, generally poorly regarded massive corporate banking and telco brands disappear.

Its already happening. Google and Apple, while not dominant in numbers, are the dominant brands now in mobile and online. They will soon become the dominant customer facing brands in retail banking, telecoms and billing – but only as the customer sees it. They will get all the glory, but the old world gets all the cash!

But still the old world clings to the misconception that it still has a role to play. Here at dull banking conference Sibos in Hong Kong, the ‘old world’, represented at a panel ‘face-off’ by Richard Jaggard, Head of Sales Global Payments and Cash Management Asia Pacific, HSBC, and Mary Knox, Research Director, Banking and Investment Services, Gartner Industry Advisory Services, Gartner argued vociferously that all the web, mobile and social networking brings to banking are new channels to customers and that, basically, what banks do will never change.

Chris Skinner, Chairman of the Financial Services Club & CEO, Balatro, and Tim Collins, Senior Vice President, Experimental Marketing, Wells Fargo, on the other hand, tried to convince the audience that mobile, not only offers the consumer “a branch in their pocket”, but also that mobile web access and social networking, are the tools of the upcoming generation and, whatever banks think, it is how they will interact with their customers in the future.

“Banks continue to put their heads in the sand when it comes to mobile and social networking,” said Collins. “It tool 10 long years to get banks using the web and they will take the same slow approach to mobile. But their customers get it and are bemused that their banks aren’t getting it. As a result telcos, and Google and Nokia and others will fill the gap and the banks won’t be involved.”

Skinner cited the example of Kenya, where Vodafone is now the biggest bank in the country. “In developing countries, the vast majority of banking is done using mobile and they are way ahead. This is what the future will look like.”

Knox, however, pointed out that, while this was certainly true in developing markets, “it is only because they have no better alternative. In the US and Europe, bank branches are very strong and will stay strong as they work and its what people want to use to interact with banks,” she said.

But, this may well be true today, but tomorrow’s ‘digital native’ consumers – kids that have never known a world without the web or mobile – will be very different indeed and will want to use social networking, mobile and other services, through consumer brands they trust, rather than going in to a bank branch, said Skinner. And that this is why retail banks face an uncertain future.

Jaggard, in defence of the banks, countered with the argument that “banks do get it and we are not ignoring it. But we are being realistic about the challenges of doing it – and anyway banks will underpin the whole thing anyway”.