Digital disruption to banking

Digital disruption is coming to banking, the only question is when. Canada recently had one of its telco apply for for a credit card licence and it was recently approved.

This announcement  while not groundbreaking in itself signals changes are coming to financial services. The only question is one of timing.

Banks and other financial organisations in Australia and New Zealand are heavily regulated. The barriers to entry are high.  This allows a certain degree to protection for the incumbents. However cost barriers are quickly falling for banking. Digital engagement and servicing gives a scale to new entrants that incumbents can only dream about. Profit levels for banking in Australia and New Zealand are also high by world standards meaning that competitors are looking to “cherry pick” the opportunities from existing players. In other words the Australian and New Zealand markets are prime digital disruption targets.

Coles (a very large supermarket chain in Australia) has already signaled strongly that they are going to enter the mainstream financial services market. I’m sure they are looking to piggy back off the success of  similar supermarket forays into financial services in the UK a decade ago. However in 2013 a player such as Coles has a massive opportunity that was not available in 2003, digital. In 2003 it was really only the internet. Now engagement and acceptance of the digital channel is so much stronger and people are prepared to trust such systems. Mobile technology only improves this opportunity when you consider that how the weekly shopping trip (possibly even more frequently) gives the new entrant into this market (namely Coles) a large leg up in the share of mind stakes. A customer is more likely to see their supermarket marketing more than their banks now and as a result the ability to transfer people to their business is significant.

Coles and Woolworths in Australia already have their own credit card “switches” so are not reliant on banks for any of the transactional functionality. It is only a matter of time before the large supermarkets decide to try and take more of the banking pie. Digital disruption is coming.