Fifty years on from first ATM, banks face another revolution
It's now 50 years since a curious new machine was installed at a bank in the Rockville Centre, New York. The device, known as an automated teller machine, or ATM for short, was a bold experiment. Celebrating the anniversary of America's first ATM, its inventor Donald Wetzel recalled his uphill battle to convince banks and customers that this was their future. The most common response when he pitched his innovation? 'Are you nuts?'
Banking leaders feared that nobody would trust a machine with their money. Tellers worried about mass job losses.
But customers quickly overcame any reluctance and embraced the technology with gusto. Not everyone was enthusiastic, however - Wetzel's wife has still never used an ATM - but the machines went mainstream in no time.
Banks needed fewer tellers but used the savings to open new branches, allaying fears of mass layoffs and doubling their workforce from 1970 to 2010.
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Fast-forward five decades and a new wave of financial technology (fintech) is on the cusp of mass adoption.
The first ripples of this digital disruption are being felt in some of the larger retail banks, with younger customers increasingly open to payment apps and peer-to-peer transfers. What will happen in Ireland when this digital wave truly hits? Will big-name Irish banks shrink or will they be washed away entirely by a financial services tsunami?
One thing is for sure: Irish consumers are showing an increasing appetite for fintech. A recent report by EY revealed a near three-fold increase since 2017 in the number of Irish consumers embracing financial technology.
The EY Global Fintech Adoption Index, which examines the fintech industry and demand for these services globally, shows almost three quarters of all Irish adults (71pc) avail of fintech services in one form or another, higher than the global average of 64pc.
Just two years ago, fintech adoption rates in Ireland stood at 26pc - 7pc below the global average of 33pc.
Irish adoption is being driven by greater use of money transfer and payments, insurance, peer-to-peer payment and non-bank money transfers, as well as insurance comparison sites. Not surprisingly, fintech use is higher among the younger generation and at its peak in the 25-34 age groups across all categories, except insurance and financial planning.
For consumers, banks and businesses, the challenge is predicting the likely shape of the new order in the banking sector. The rapid arrival of new players will fuel fintech uptake, and there are several ways in which they will change the future landscape of Irish banking.
The field is diverse but there are five main categories of newcomer: challenger banks, like mBank in Poland, have a physical branch network to complement a strong digital offering; sBanks are subsidiaries of larger incumbents, created as digital-centric fighter brands; eBanks are digital-only operations backed by a full banking infrastructure but without bricks-and-mortar branches; iBanks offer mobile-only (app) propositions; and neo-banks are digital-only banks that rely on chartered banks to take care of the money in the background.
Which of these will dominate and what happens next? The first possibility is that the status quo survives. This seems highly unlikely. New entrants to the market such as Revolut and N26 are already making waves. A second scenario would see a challenger bank enter the Irish market, offering something similar to the mBank model. Big on digital and with a lower cost structure, they would have an impact without spelling the end for established banks.
Scenario three is an influx of eBanks, iBanks and neo-banks. The battle for millennials and gen-Z business would be fierce. Expect an epic battle as competitors seek to 'buy' a new generation of customers.
The long-term effects for banks losing the war for young, entry customers, would hit hard when that cohort matured into mortgages, car loans and insurance products.
The fourth scenario should strike fear into the heart of pillar banks but may excite customers: the big tech giants - Google, Apple, Facebook and Amazon - are already active in this sector and may hold the key to our banking future.
If that's not frightening enough for banks, consider the impact of the European Payment Services Directive 2, which will blow open the payments infrastructure and data landscape in ways that benefit the disruptors.
Money supermarkets could become the norm. Just as Trivago, Skyscanner and Airbnb revolutionised the way we book flights and hotels, the future of banking could be defined by entities with no inventory and a customer-centric value proposition.
But our relationship with big Irish banks depends on how they respond to the new threats to their business.
If Irish banks offer innovative new customer-centric services - stealing the clothes of the trendy disruptors - they may still be part of our future.
But make no mistake, this is an existential threat for traditional banks; failure to adapt guarantees decline. Even ATMs won't last forever.
Today, there are 3.5 million of them around the world, but cashless payments could soon make them obsolete.
Fifty years since their invention, they've had a good run. Today, the pace of change has accelerated to breakneck speed. In future, no bank or technology will have the luxury of five decades of dominance.
Niall Corrigan is head of digital & CX, EY Financial Services, with EY
Sunday Indo Business