Our proprietary Disruption Framework has identified Financial Services as the most susceptible to disruption. We view the risk as real and imminent. We estimate that A$250-300b (loan value) is at risk with P2P lending and mobile payments being the key disruptive trends.
Banks – build vs buy, compete or collaborate? Like industries before them (ie publishers and retailers) banks have been slow to respond. We believe they need to respond more aggressively. They need to decide whether a ‘build or buy’ strategy will be optimal to counter disruption. Buying into innovative technology now and combining that with their capabilities (data, customer relationships and brand) will ultimately stand them in a better position in our opinion.P2P lending – lending for and by the people: We believe P2P lending with lower operating costs (1/3rd of typical retail banks), favourable demographics, and lower credit risk, is threatening to disrupt the personal loans (A$100b total loan value) and SME lending (A$150b) segments. While NAB and Westpac have made early stage investments, we believe they are only dipping their toes at best.Mobile payments – disintermediating the wallet: We believe mobile payments (mobile wallet), driven by Moore’s law, digitalisation of goods and services and increasing social acceptance, are bypassing the traditional banking model by allowing consumers to pay for goods and services using a non-bank solution. In the near term, with more than A$500b of card payments processed, there is more than A$7.5b of revenue at risk. However, we believe a much greater risk could be the threat that consumers start to deposit their savings in a mobile wallet to make payments, thereby circumventing banks and cutting off the cheapest source of funding (ie retail deposits).