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The same degree of disruption that has upended the retail industry is coming to banking, according to Paul Kasinski of Sageworks. “Banking won’t be done the same way five years from now,” Kasinski recently told a group of startups and developers at American Underground, which is one of the 12 Google for Entrepreneurs tech hubs in North America.
Prior to his position on Sageworks’ board of directors, Kasinski served over a decade in the retail space.That was during a time when disruption was the norm for the industry overall. Using the history of retail, Kasinski said the parallels between the retail and banking industries are numerous, which is why he was drawn to banking. “Millennials were the biggest drivers for the recent changes in retail and the same thing will happen in banking because they don’t want to walk into a branch,” Kasinski said. Bankers can prepare for the changes by being creative and looking for ways to alter routine, he said. The customers of tomorrow are looking for service providers that are bold and can save customers time, money and energy. The tools are available to alter the space; it is just a matter of who will do it and when it will happen. Based on retail trends, waiting around for disruption is not recommended, he added.
Looking back at retail history, Kasinski said, disruption really started in 1888. This was a time where the merchant was king. The merchants ran dry goods stores that had everything anyone needed, whether it was the seed for the crops, dresses for church or a brush for the horses. The merchants were the ultimate symbol of wealth during this time comparable to doctors, lawyers, or even pro-athletes today. However, everything changed once Sears launched the catalog. The new technology of railroads was leveraged perfectly by the catalog. All of a sudden, the people of the town didn’t need the local dry goods merchant anymore and in a matter of years, they were all gone.
Jump ahead to the 1950s and another example of retail disruption appears in the form of malls. Using the interstate system built after World War II, malls were able to blow up the commerce space. Up to that time, virtually all shopping was done on Main Street. The drug store, hardware store, butcher and baker would have all been found on Main Street downtown. However, the malls utilized the interstate system, and by the late 60s and early 70s most of the retailers on Main Streets had either gone out of business or moved to locations closer to the mall.
Finally, another example of disruption is the shift to customer-centric business models in recent years. Customers want things quickly and for the process to be easy. Think about the rise in ordering food. Going to the grocery store is time consuming and customers are “over it.” The move toward “push-button” models -- where customers can very easily purchase what they need outside of an actual grocery -- is a sign of major disruption brought on by the internet.
These are just a few of the examples that Kasinski presented to prove that every industry deals with disruption.
Banking and finance is generally being done the same way today as it was 50 years ago, Kasinski noted. “There is an opportunity and a need for disruption in banking,” he said. One way disruption can take place is through the use of data via an open banking API. APIs are very useful for institutions. Banking APIs present an opportunity to pull data from multiple sources into one single interface. This follows the trend of making things easier for customers, whether it be in a B2B or B2C format.
Just like railroads were the vehicle that the Sears catalog leveraged to help disrupt the retail industry, APIs can be a vehicle for banking disruption. Open banking APIs present a unique opportunity for technology companies and forward-looking financial institutions to get data and functionality and disrupt current banking processes and experiences to make way for the next generation of banking. Companies and financial institutions will be able to use the data to make unique inferences about their customers that will allow for better and more effective service.