Banks around the world may close 30 percent of their branches in five years as the growing use of smartphones, tablets and computers reshapes the financial sector’s landscape, Citibank Taiwan chairman Victor Kuan (管國霖) said on Tuesday.
Digital banking is set to overtake branch networks as the preferred access channel for how customers interact with their bank, as social networking, mobile devices, data analysis and cloud computing gain importance and prevalence, Kuan said.
“Banks may be the biggest beneficiary as the evolution pans out given their better grasp of clients’ spending behavior,” Kuan said in a speech about the sector’s future transformation.
Online retailers, which are strong competitors in the third-party payment services market in China, possess only a knowledge of sales details related to specific products, Kuan said.
Globally, there are 2.5 billion Internet users and 1.8 billion using social networking Web sites, he said. In China, 1.3 billion people are Facebook members, accounting for 95.6 percent of the world’s largest population of 1.36 billion, he said.
There are 5.1 billion mobile phone users, more than the 4.2 billion people using toothbrushes, Kuan said, while 1.45 billion use computers and 1.5 billion people own a smartphone or a tablet.
That explains why more people use mobile payment services than checks, thanks to the high penetration of mobile devices, Kuan said.
In the US alone, banks closed a net total of 1,487 branches last year, according to US research firm SNL Financial, the highest number of closures since the company began tracking the sector in 2002.
The majority of the closures were attributed to the increasing use of online and mobile banking as technology enables consumers to manage their accounts, make remote deposits and shop for services more efficiently from their desktops or smartphones.
Citibank aims to develop into a technology firm with a banking license, instead of a bank with technological capability, Kuan said.
“The key to success lies in how banks approach the transformation from the very beginning, looking at themselves as companies engaged in a digital business, rather than banks in the process of digitalization,” he said.
In the past, banks looked to engage customers through the provision of loans at certain points of their life, such as marriage, becoming a parent, buying a home and planning for retirement, Kuan said.
That business model limits interactions between banks and customers, he added.
Now, banks can deepen the engagement to everyday life by providing utility bill payments, wealth management, foreign travel-linked foreign exchange, discount offers for dining, movies and other recreational activities, among other aspects of life, Kuan said.
Nearly 50 percent of music and news consumption has shifted from the physical to digital platforms over the past decade, lending support to digital banking, he said.
Financial payments represent the last mile in the online-to-offline business, with credit card payment providers standing at the offline end and third-party payment service providers at the online end, Kuan said.
The business is still emerging in Taiwan, but in China banks face sharp competition from companies in other sectors, he said.
Banks can partner with online retailers by tapping the third-party payment market through provision of cash flows, or electronic wallets, Kuan said.
Customers are willing to pay for digital banking when they believe it offers convenience and value, according to a report by PricewaterhouseCoopers.
Social media notifications, an e-wallet for loyalty cards and financial tools provided by banks are seen as added-value services that could be charged, the report showed.
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