Disruption is everybody’s favourite buzzword right now. It is so widely used that one can’t help being skeptical when one hears the ‘D’ word. While young entrepreneurs today, thanks to easy venture money, are trying their best to disrupt sectors that could do without disruption, it’s financial services that actually needs disruption to make it more democratic.
Until now, the traditional bastion of banking has remained unchallenged, helped by protective regulation and the lack of credible alternatives. Mobile phones are now threatening to change that. A whole bunch of digital payments companies today offer mobile-first services that enable you to receive and transfer money or shop online and — with the advent of payments banks — save and make investments, too. Cognisant of how the new entrants might eat their lunch, almost all private sector banks and savvy public sector banks are now fighting the digital battle with their own set of offerings. That and more is the focus of this issue’s cover story.
The challengers, on the other hand, are working overtime to create a habit and replace cash with digital transfers. The irony is that they are doing so by paying cash. When cash discounts vanish, will users still stick around? There is little doubt that digital payments could comprise the bulk of commercial transactions in the near future, but if it is indeed e-wallet companies that will lead the charge is open to debate. Their vicious discounting cycle means the fight for low-cost deposits — a key source of competitive advantage in the banking business — will no longer remain low-cost.
Meanwhile, it’s highly likely that traditional banks will defend their turf by leveraging technology and forging strategic partnerships. In any case, lending, the main activity of banks, continues to remain protected, which gives banks the leeway to remain competitive. But there is one caveat: in theory, there is always a way for incumbents to reinvent themselves and remain in business, but in practice, few have shown the mettle to fight the onslaught of technology. Banks, however, can take solace because the regulator, after all, remains their biggest shield.