In the past 20 years Australia's big banks have directly benefitted from a strong domestic economy, strict regulation and a mining boom. In the next 20 years they're likely to require more innovation.
As technology pervades our lives the leaders in any industry will be the businesses and companies who decide to adapt and innovate. It might be obvious but it's the reality many businesses are facing and it's not easy.
In the world of finance, Commonwealth Bank (ASX: CBA) has spent billions of dollars upgrading its legacy systems and so far it's paying dividends. For example in 2009 the bank released five million "contactless" cards into the market, and supplied merchants with "tap and go" payment terminals – now they're everywhere.
The Commonwealth Bank has not been alone in recognising the trends of its customers. Former National Australia Bank (ASX: NAB) chief financial officer, Mark Joiner, told The Australian Financial Review all banks will have to respond to customer trends or risk going out of business: "In the last 20 years the way you won was to grow faster than everyone else, but in the next 20 years you are going to win by optimising better than everybody else." Optimising requires the banks to understand not only the process but the customer.
Those with the biggest IT budgets and the most sophisticated technology can produce meaningful information for management teams. More often than not, understanding customers will lead to automated processes. In our professional lives many things are now becoming automated and when you automate, you boost profit margins.
In recent times the banks have recognised the need for mobile banking applications and personalised hubs to support customer interaction. Mr Joiner believes recognising the role of technology can not only improve customer experiences but reduce costs: "It's a transformational opportunity in terms of the cost structure for a banking operation."
Having access to customer data affords analysts an insight into the likely future trends of the banking sector. Each of Australia's biggest banks, including the Commonwealth Bank, NAB, Westpac (ASX: WBC) and ANZ (ASX: ANZ) are currently undertaking some type of technology development to improve the way they interact with customers as a result of their customer data analysis.
Foolish takeaway
Senior bank managers garner important information from the interactions the banks have with their customers and are rapidly developing new technologies to streamline processes. In the future banks will use customer data to fine tune their operations and respond to the demands of both customers and shareholders. Branches will close and jobs will be cut as financial institutions become more like IT service companies than traditional brick-and-mortar retail stores.
