One of the industries I am particularly interested in focusing on as it relates to digital innovation is consumer banking. It’s especially relevant to me as consumer banking is often touted as a prime example of digital transformation in comparison to an industry I’m quite familiar with work in – namely, healthcare. While I won’t dive into the specific comparisons made between the two industries here – I’d like to explore some of the factors that have made and continue to make consumer banking especially ripe for digital transformation by zooming in on digital innovation winner Chase Bank. Chase doesn’t have a presence in Boston, but having banked with them personally for the last decade I’ve been able to observe their digital transformation and early adoption of technology firsthand. Here I’ll focus on the evolution of online and mobile banking, which have separated Chase from the pack, at least temporarily, in this fast moving industry.
Years ago, Chase was one of the first large institutions to offer online banking – which was an incredible innovation because it created immense and immediate value for both consumers and the bank. With simple things like transaction history and account balances at their fingertips, suddenly consumers didn’t have to go through the mundane task of balancing their checkbook anymore, saving a great deal of time and effort on a daily basis. Value also accrued to Chase, as fewer consumers needed to use in-branch teller services with the advent of online banking, resulting in value creation and capture for Chase in the form of immediate labor and facility cost savings. Chase quickly moved to develop electronic bill payment services to build on the online banking capability, further reducing in-branch and manual check processing costs and increasing convenience for consumers. Progressing further up the value chain, more recently Chase has introduced QuickDeposit – a functionality enabling consumers to deposit checks via a mobile device, and eliminating one of the last reasons customers might need to visit a branch. This was an enormous step, creating substantial value by enabling someone like me to bank exclusively with Chase despite the fact that they have no branches or ATMs in the greater Boston area. Similarly, before there was Venmo, Chase had a first-mover advantage with their QuickPay functionality. QuickPay enabled Chase customers to seamlessly send electronic payments to one another for free – an enormous convenience as we all know.
The key point here is that Chase is able to offer all of these services for free to customers and still capture value for two primary reasons. First, their investments in digital infrastructure have kept customers out of branch locations and resulted in a disproportionate reduction in Chase’s physical infrastructure (i.e. branch) costs. Secondly, Chase attracts more customers based on the value of convenient, technology-enabled banking. More customers means value capture through the incremental dollars Chase can hold and invest, as well as additional revenue opportunities through credit cards and loans.
Admittedly, competition in this market means Chase’s technological advantage is almost always short-lived. However, the company continues to harness digital transformation even within the walls of the traditional branch. Out of an innovation center in (my hometown!) Columbus, Ohio, Chase is starting to overhaul its branches in a new format, orienting the space around re-vamped ATM’s with features previously only available at a teller window (see video), and recognizing a customer via his or her fingerprint, integrating the physical with the digital. These continued investments in digital innovation will make Chase a winner into the foreseeable future. The challenge, as I mentioned previously, is that the industry is fiercely competitive and catches on quickly to new technologies. The double-edged sword of digital innovation in this market means that while Chase can simultaneously offer consumers a convenient set of online and mobile features for free AND reduce their own costs, there is an incredibly strong incentive for competitors to make the same investments. Chase will have to find a way to differentiate some of their innovations in the future to sustainably stay ahead of the market, but I am confident in their ability to win in the future by continuously introducing value-creating technology to the industry.