Setting the scene.

In the last 20 years almost every part of our lives has been transformed. We have experienced two decades of digital revolution. The internet, social media and mobile devices have changed the way we interact with friends and family, the way we buy and consume music, films and television, and the way we read books, newspapers and magazines.

This revolution has taken longer to penetrate and transform financial services, but increasingly the same forces are reshaping how and why we interact with our banks as well as the types of organisations we expect to perform some of the most basic banking functions, such as lending money, taking deposits and handling payments.

At the same time several ‘challenger brands’ have entered the banking market, with many having built a business around just a new approach whether that’s digital-only, peer-to-peer (P2P) services or a more customer-oriented, data-driven approach. Indeed developments in handling data that allow banks to predict and map behaviours are allowing some of these challengers to take an evidence-based approach to shaping future services.

Meanwhile new payment systems and digital currencies mean the way consumers interact with their primary banking provider is changing. As in other markets, new entrants and challengers have begun to transform
consumer expectations. Consumers comfortable with a fast and painless mobile and digital retail experience expect banks to offer something similar.

Pretty soon the executives at the top of our major retail banks will be looking around and wondering who ate their lunch.

The numbers speak for themselves. At 31 December 2013, $9.2bn was held in PayPal accounts1 and PayPal transacted $7,118 in total payment volume2 every second during the third quarter of this year.

I believe banking is approaching what I call its “e-book moment”. There are strong parallels with the recent disruptions in publishing and the book market, where the combination of powerful new entrants to the market, especially Amazon, and changing consumption patterns driven by new technology (in particular e-readers, such as the Kindle) have transformed the business. Five years ago, 96.1% of books were sold in printed format but by last year that had fallen to 85%3, with just 47% sold in physical stores4. It’s a tough time to be an independent bookstore at the moment. How long before it is also a tough time to be a major retail bank?

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