Digital disruption: the question is not when, but how

One of Australia’s leading banking executives has warned that digital technology is set to revolutionise the industry in highly unpredictable ways.

CBA chief executive Ian Narev said that although a lot of people claim to know how the three Ds – disruption, digitisation and democratisation – will play out in the industry, nobody can know which of them will be right.

“Some of the trends are pretty predictable,” he said, while speaking at the Australian Financial Review’s recent Banking and Wealth Summit.

For example, increasingly fast broadband will lead to rapid innovation and proliferation of devices that people can use to access broadband, he said.

Another predictable trend is that big data tools will raise the bar in analytics, he added.

However, Mr Narev said what is less clear is which business models are going to respond directly to those trends, and which ones will be successful in doing so.

“What we can also see from the supply side of this equation is that we’re not in one of those environments where technology as an externality is going to lift everybody,” he said.

Mr Narev said CBA was responding to the three Ds with the three Cs – capability, culture and cycles.

Companies that are able to notice and quickly adapt to customer feedback now have a competitive advantage, according to Mr Narev.

“That is one example of a capability we need to build, as if we’re a 21st century technology company – not a 20th century financial institution,” Mr Narev said.

When it comes to company culture, Mr Narev said it is all about attracting and retaining the right people, and the values that are built around them.

“One of the great tests of a good executive team in financial services I think has been and still is how many of the business-line executives that you have in your team could step into the chief risk officer’s role tomorrow if he or she was unable to continue,” he said.

In terms of cycles, Mr Narev said it is important that financial institutions do not lose sight of one of their main purposes – to match savers with borrowers.

He said there are many new business models that are providing exceptional benefits for consumers and businesses.

“We must embrace them, but we have to understand also that they need to be built to withstand an equity event or general capital weakness,” he said.

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