As digital commerce takes hold, some innovative players are removing "friction" from shopping, using customer-provided data to automate the entire process. For banks, frictionless commerce is a threat—and an opportunity.
Banks and the Frictionless Future
A.T. Kearney research indicates that the fastest-growing segment of digital commerce, and perhaps the most strategically disruptive, will be “frictionless” transactions. Frictionless commerce occurs when consumer purchases are automatically initiated without an explicit consumer purchase decision. Instead, the purchase decision is made on behalf of the consumer, with his or her advance consent, using real-time, integrated data from preferences, past behaviors, sensors, and other sources of contextual data. Take, for example, grocery: think of a "smart fridge" automatically placing delivery orders for food items it senses are running low.
As frictionless commerce becomes mainstream, some crucial questions are emerging: How will traditional financial services firms fare in a world where an increasing percentage of purchase transactions occur automatically—without conscious consumer choice? What happens to banking and payments service providers when consumers are no longer asked, “How would you like to pay for this?” Could traditional players lose their “top of wallet” advantage?
The sobering reality is that banks do risk being cut out. As bank customers increasingly form shopping and payments relationships with convenience-driven digital retail aggregators, banks could be relegated to a commodity role, and wind up with little more than the low-value-added utility activities the digital aggregators don’t want.
At least one vitally important factor favors traditional financial services: consumer trust.
Leveraging Consumers' Trust in Banks
As digital commerce expands and grows ever more diverse, so do the chances for catastrophic security breaches such as those already experienced by Target and Home Depot. Beyond basic data security concerns, the growing volume of consumer behavior and preference data being captured through frictionless commerce will raise new questions about how all this intimate personal data might be used, and by whom.
For traditional financial services players, there may be a silver lining in the dark cloud of consumer fears in digital commerce: a new market opportunity. Consumers trust established financial services firms with their personal data far more than they do the new age digital commerce players.
In the age of frictionless commerce, how might traditional financial services players leverage their strong trust franchise? Ideas to explore might include:
- Develop and innovate new bank-branded service offerings around data privacy and Personally Identifiable Information (PII), including facilitating PII changes across retailers and vendors.
- Introduce differentiated levels of data security, allowing consumers to choose their degree of security and make their own trade-offs between convenience and risk.
- Build alternative, “walled garden” ecosystems for digital commerce that only allow appropriately authenticated, trusted parties.
- Move to “own” trust in digital commerce by making it a more explicit part of banks’ value propositions and go-to-market strategies, instead of staying above the fray while the trust advantage inevitably erodes as new digital aggregators grow.
- Pursue strategic partnerships with digital aggregators and other FinTech players, to blend their advantages in speed and consumer convenience with the trust advantage owned by established financial services firms.
- Explore the development of bank-branded aggregator services, offering the same retail shopping proposition, perhaps with more consumer-friendly tools and guidance, and most certainly with superior controls around data security and privacy.
The rapidly evolving digital marketplace will surely bring to the surface many emerging and unmet consumer needs around data security and privacy. Traditional financial services players increasingly recognize the strategic imperative to prepare now to capitalize on this important new area of commercial opportunity.