Are we still giving traditional banks too much credit?

While in theory, these businesses grasp the potential benefits of embracing non-traditional banking and financial services, several myths prevail that inhibit their openness to new providers.

Andries Kok

The security conundrum

Data security is undoubtedly a persisting concern, and there is a perception that traditional banks are far more secure than their non-traditional and smaller rivals. In fact, the opposite is often times closer to the truth. The major banks very seldom develop new or introduce the latest security offerings – indeed, these banks buy the same technology as their non-traditional rivals. And being less hampered by bureaucracy and legacy systems, smaller and alternative banking providers often introduce safer systems before the major banks.

For instance, some local banks use 128bit encryption SSL keys to secure the connection for their online banking site, while several smaller providers use far stronger 256bit encryption keys to secure their connection. (The 256bit encryption keys have been available for more than a year now, but some banks are still using the older technology.)

Humans vs machines

Another stubborn myth that prevails is that traditional banks are able to provide more efficient customer service – and being large and established, have a better view of transaction histories than their smaller rivals. Again, the opposite is usually true. Working with small and alternative banking providers, one is automatically working with people – as opposed to large and impersonal call centres or mechanised response systems.

So when there is a query around a particular transaction, customers of non-traditional banking providers can immediately speak to someone who will have a much better view of the electronic trail than a call centre employee, who needs to trawl through several layers of bureaucracy. Naturally, the customer service and trouble-shooting element with alternative banking providers is thus often far superior to what any of the traditional banks can offer.

The sticky issue of costs

As with any business function, cost is always a bugbear, and businesses tend to assume that large banks are more competitive on price than non-traditional providers.

Yet precisely because of their size, big banks are usually far more expensive than alternative banks. They have branches nationwide, sprawling call centres and armies of staff, ongoing legal fees, and the like – and these massive operating costs are naturally built into the fees they charge customers.
Smaller, non-traditional providers do not have these costs – and because they often specialise in one, niche area of banking (facilitating EFTs, for example) – they can provide essential services at far lower fees.

A global shift

Admittedly, the traditional banks still benefit from several inherent competitive benefits. They have large and established customer bases, vast amounts of customer and transaction data and capabilities to enable payments, security, and financing – all of which are difficult to reproduce for new and smaller entrants.

Without doubt, however, they are steadily losing market share to more agile and innovative non-traditional banking providers. According to Accenture’s Global Consumer Pulse Research, non-traditional competitors are gaining ground with banking consumers. The report revealed that 44% of consumers across industries globally say they would consider products and services from companies that are not generally considered part of traditional industry definitions, and 43% would be open to products or services not just from companies – but also from other consumers.

As local businesses look to trim down operating costs and streamline services in an increasingly tough environment, we can surely expect to see them leveraging the benefits of non-traditional banking providers in the coming years.