Within a generation, the world has been transformed by unprecedented economic and political developments – a new world order is shaping up right before our eyes – Joe Nellis, professor of global economy at Cranfield School of Management
From the early 20th century, banks were majorly involved in four major services– Loans, payments, and investments along with being the holder of public valuables. Indeed, many would still argue that these are the core pillars of modern banking as well. Of course, they are right. Our banking needs have not evolved much. However, with technological progress, the way we perform these tasks has changed. Undoubtedly, this changes everything!
With increased technology application, fintech and big tech are capturing larger chunks of the banking value chain. For instance, these firms have made serious inroads in payments and checking accounts. The major reason this has happened is because of technology applications to improve customer servicing which, to put lightly, has not been a priority of traditional banks.
The response of traditional banks should go beyond the closing of branches, becoming mobile-first, and launching new online offerings. Moreover, they need to use customer data to become a central part of their customer life by being one-stop-shop for all financial and if possible, non-financial needs.
Rising customer expectations means that customers now expect banking service levels matching that of other modern digital service providers. Basically, banks have to start acting as financial advisors instead of just being a safe holder of deposits.
Banks of the future – intuitive, personalized and know-it-all
Today we see an increased application of new-tech such as IoT, Big Data, cloud, augmented reality and AI. As such, future banks will use intelligence derived from customer data to provide an enhanced banking experience. Thus, instead of giving a rearview perspective on finances, they will provide an integrated view of a customer’s financial future.
Based on insights derived from transactional data they are likely to become a financial marketplace. Consequently, they will list third party service providers and are likely to be recommendation engines as per customers’ needs. Being a marketplace, they will own the process of search, application to services, customer verification and delivery of services and products. All this be provided at a much lower cost for the customer as banks will negotiate on behalf of all their customers giving them immense negotiation power over third party providers.
Megatrends likely to influence the future of banking and banks
The ongoing digital revolution is paving the way for a new era in banking– where banking is available for all, is a frictionless experience, and above all highly personalized. With the current pace of innovation, supporting banking reforms, maturity of fintechs and adoption of successful uses cases by incumbents, the below parameters are the megatrends that will pave the way for a new era in banking.
- The first megatrend says that the next wave of digital banking solutions will be driven by API and open banking legislation. Open APIs will enable seamless incorporation of financial and pseudo-financial services into our digital activities. Moreover, deep mobile penetration provides a never-before opportunity to serve 1.8 billion global unbanked customers. These new customers will be a gold mine to unlock banks’ full potential enabling them to provide better services in exchange for personal data.
- By 2020 millennials (first digital natives) will comprise 35% of the global workforce. With millennials demanding superior services, we foresee banks organizing themselves around customer needs instead of products and services. Banks are likely to work alongside fintechs, and big techs previously thought of as competitors to cross-leverage customer lifestyle and banking data to deliver the best in class banking services. This new demography makes this banking megatrend one of the most important ones.
- Traditional banks work on legacy systems that are complex and costly to manage. The reason behind this is that each product or service has separate operations and technology stack. Enter digital-only banks that operate like tech start-ups and provide highly intuitive experiences on the back of intuitive technology. They show great promise on improving customer experience – by providing cheap innovative customer first products and services.
- The ecosystem consisting of third-party financial providers, merchants, telecoms, and other businesses will make banks digital aggregators. This system will assist them to better anticipate customer needs, recommend solutions, and target customers. They will expand customer relationships as other financial institutions will be unable to match their financial and behavioral insights.
- Increased application of technologies such as AI and data analytics will make banking platforms seamless and frictionless. We are likely to see increased applications of robo-advisors to manage our day to day and long-term financial goals. With increased digital partnerships across the banking ecosystem, we will see the integration of banking across daily digital touchpoints making banking a truly organic experience.