PwC New Zealand is warning New Zealand banks that 80 percent of their consumer banking business could be disrupted by the end of the decade through the creative use of technology by new players.
In a commentary adding a New Zealand context to a report Future of Banking in Australia from its Strategy& [sic.] arm, PwC NZ says the Australian report highlights the impact brought about by the constantly changing technology environment, stating that it “could empower competitors to improve consumer relationships, potentially relegating banks to being wholesale providers of balance sheets and other undifferentiated services.”
According to Sam Shuttleworth, banking and capital markets leader, with PwC NZ, New Zealand banks, most of which are Australian-owned, face the same level of exposure. “Many may find they aren’t ready. In fact, 70 percent of NZ CEOs in financial services are concerned with the pace of technological change,” he said.
Citing figures from PwC’s 2016 Global CEO, Shuttleworth said: “To make the issue more urgent, 80 percent of consumer banking could be disrupted between now and the end of the decade by FinTechs and other forces.
Changing technology was one of six trends driving long-term change in Australian banking identified in PwC’s report on Australian banking. It said: “Information systems are becoming more open, modular and capable. For banks, this increases both the scale and speed with which they can leverage data, analytics and communications to create richer, more targeted value propositions for specific micro segments or even individuals.
“Unfortunately, the same applies for current and potential competitors. Many will be better placed to take advantage of the most lucrative new opportunities and to insert themselves into the relationship between banks and their customers, potentially relegating banks to being wholesale providers of balance sheet and other undifferentiated services.”
Shuttleworth said that the profile of the consumer banking customer in New Zealand had also changed, making them more amenable to innovative services from disruptive new players.
“In New Zealand, half of our population have some form of debt, with 24 to 35 yea olds the most indebted age group, which brings up questions about how our banks service different, less-wealthy demographics and whether their appetite for risk is changing as a result,” he said.
“This also poses some big questions for CEOs in the sector: Are NZ banks ready for a wider change to their banking models because of a change in their customers’ circumstances? From an ageing population to one with different levels of wealth, banks will seek to be more responsive to our shifting demographics.”
The IT industry also cops a serve in the PwC report for promoting technology that is ill-suited to the new era of digital disruption.
“Currently banks in Australia are being pitched offers to replace 70s – and 80s-era technology with integrated systems designed in the 90s and refined in the 2000s,” PwC says.
“These systems were not designed to accommodate the cloud, the API economy, mobile apps, unstructured data or threats to cyber security that are orders of magnitude greater than owners of mainframe systems ever needed consider. Yet these are exactly the battlegrounds on which supremacy in digital banking will be won or lost.”