Will traditional retail banks survive the threat of the new technologies - the internet and telephone banking? In the new millennium, retail banks around the world are under two related strategic threats from totally new technologies: banking on the internet and banking by telephone including using mobile phones. This case study examines this competitive problem. Some adaptation is clearly required, but might the threat be exaggerated? Or will traditional retail banks largely disappear? Back in 1994, Bill Gates, the chief executive of Microsoft (USA), upset the banking community by deriding them for being 'dinosaurs' and claiming that his company could 'bypass them'. Subsequently, he explained that what he meant was that banking software systems were old- fashioned, rather than the whole banking infrastructure. But the jibe hit home, with some banks reconsidering how they handled customer transactions. The need to adapt has become particularly acute as computer usage has grown, telephone messaging has become cheaper and more reliable, and the internet web network has shown explosive growth. Mobile telephones have even allowed people in Africa and Europe who were too far from a retail bank to undertake banking transactions - see Case 2.4 Traditionally, retail banks asked their customers to come into their marble-clad banking halls to receive their cheque books, pay in their cash and negotiate their loans with their friendly but often rather distant bank managers. Now such transactions are increasingly being done on the telephone to call operators at central locations or on the internet without human intervention. There are still some security problems but these will be overcome. The pace of modern life, the lower loyalty of newer customers and the increased competition from many new lenders are beginning to transform the nature of banking transactions. To what extent should banks therefore embrace the new technologies? The easy option would be to move onto the web. The much more difficult problem would be whether to close many branches and provide a service mainly through the web and through telephone banking. Some suggest that there is no fundamental strategic issue. Essentially, they argue that telephone and internet banking will shortly be offered by all the major banks, so there will be no competitive advantage in it. Moreover, bank branches are still important for paying in cash, raising loans and many other more complex transactions that require the personal touch. Finally, they point out that the real benefit for customers would only come if they changed their account, and this is a long and tedious procedure that deters many people. Others argue that the revolution is coming. New customers are computer-literate, the internet provides the possibility of a 'financial supermarket' of choice for a wide range of financial services and a one-stop shop. Even in those parts of Africa and India where retail banks are thin on the ground, internet banking using a mobile phone is now taking off

Moreover, the rapid acceptance of the new services shows that there is substantial customer demand. Gary Hamel has dismissed traditional retail banks as 'mausoleums-in-the- making' and suggested that they will largely disappear within ten years. For new providers of financial services, there would be a clear case for using the new technology. But for the existing retail banks, their substantial investment in a branch network makes the strategic decision more difficult. Richard Lynch 2012. This case was written by Richard Lynch from published information only. Case questions 1 What strategy would you recommend if you were managing a large retail banking network? 2 Can you think of other industries and markets that might also be affected by the new technology of telephone service and the internet? What are the strategy implications?