Customer-centric now: The traditional branch-centric system is under assault as technology provides consumers with the flexibility to bank on their own terms. To adjust, financial institutions should act quickly to place the customer's needs at the center of every decision.

• Author: Kessler, Lance

EASTMAN KODAK CO. AT ONE POINT OWNED 89 PERCENT MARKET SHARE of photographic film sales in the United States. Kodak invented photographic film and then went on to invent the core technology used in digital cameras. Kodak filed for bankruptcy protection in January 2012. Technology had thrown its business into disorder. Ironically, Kodak was disrupted by the very technology that it had invented.

Where did Kodak make its mistake? The corporation made a strategic decision to introduce digital photography slowly--over a 10-year period--rather than immediately. The company made this move because it feared that digital photography would threaten its photographic film business. At the time, the company dominated both film and camera sales in the United States.

We can list many companies that have been disrupted by technology, such as Borders, Blockbuster and Encyclopedia Britannica. We can also name industries that have been disrupted by technology, such as the music industry, the newspaper industry and the publishing industry. They all had to make a choice: Adapt and prosper or resist cannibalizing your existing business and fail.

Moving away from the branch-centric model

Banks are currently facing a similar dilemma. Most banks have built a branch network that has been the focus of their business for decades. Banks are excellent at branch banking. They have been successful at executing a branch-centric approach to the marketplace (see graphic below). Except for a few years during the recent financial crisis (late 2007 through 2011), the performance of the banking industry has been stellar for many years. Banks have been reluctant to do anything that would threaten this approach. They have invested significant resources in the branch system. They understand branch banking and protecting it has been paramount.

Banks have historically owned the payment system in the United States. If you were doing a financial transaction, it was going through the bank, and in most cases, that meant the branch. But that is changing dramatically. Technology is providing consumes with the ability to do banking on their own terms and not the bank's.

Let's look at what has been happening in recent years. Technology applied to banking is nothing new. However, in recent years consumer acceptance of technology related to banking has accelerated at a pace never seen before in our industry.

Anyone who remembers when Internet banking was first introduced will recall that it was tried several times and failed to be accepted because of security concerns. It wasn't until all of the security concerns were satisfactorily addressed that consumers embraced it. Then, as they also gained an increased comfort level with technology in general, the Internet as a platform for other banking applications as well as other forms of electronic delivery was embraced.

Consumer...