For an industry with such a conservative reputation, banking has been upended more times than most, and not just because of digital technology.
Change is a constant, from deregulation to the internet to the pandemic. This time, we’re on the verge of something else.
It’s not going just to prompt banking to do what it does better; it’s going to fundamentally shift what banking is – to customers and itself.
There’s no more urgent incentive to change than when profitability is threatened, and lockdowns and social distancing has seen the sector pivot with lightning speed – faster even than many thought possible.
And just like the current challenges are being imposed from the outside, most of the innovations are also coming from outside the banks – most prominently from fintech.
It’s all giving rise to a new way of thinking, from ‘enhancement’ to ‘invention’, going beyond just being the best possible digital version of what you used to be.
You have to be something else entirely. Thankfully, some trends are already emerging that give us a glimpse into what the banking provider of tomorrow will look like.
The Super-App; connected to everything
Technology has always been about convergence. Instead of a phone, camera, planner and mp3 player in our bag, briefcase or pocket, now they’re all in one.
It’s no different in software.
Users in other sectors are quite used to going to one site or platform for news, chat with friends or making bookings or purchases. If the immortal line characterised the early web ‘the network is the computer’, today we might say ‘the app is the network’.
Traditional banking apps have merely digitised the traditional way to bank – check balances, transfer funds, paying the odd bill, etc. Anything more involved still needs a completely separate system, interface and customer experience.
Instead, think of Amazon or WeChat’s forays into financial service or POS solutions like Apple Pay, leaching profits from banks’ ability to capitalise on every transaction.
Building similar systems can be a risk for traditional financial institutions, but the benefits are potentially limitless.
Climate Change; global citizenship
After decades of lip service of being green, customers not only see through it, they won’t tolerate it and will leave a provider to favour another that means what it says and shows.
There’s nowhere to hide for companies, and if the threat of bad PR when transgressive behaviour that makes your firm a social media pariah isn’t enough, public sentiment is causing regulation to become tougher on how corporations treat the planet.
The frameworks used to assess big companies’ environmental performance are becoming a lot more verifiable than just slapping a green sticker on the product brochure.
Banks will have to play a more active role and spend real money, creating mechanisms to accurately assess and report on their activities and their customers as well.
It will only increase the compliance burden on what’s one of the most regulated sectors of the economy. And considering it’s going to cost (by one estimate) $150tn to achieve net-zero emissions within 30 years.
The banking sector funded the fossil fuel industry to the tune of almost four trillion dollars between 2016 and 2020, aggressive climate action is going to be the toughest of choices.
Innovation; tomorrow’s world
Growth in banking has traditionally come from new products.
But when things all came crashing down during the Global Financial Crisis, the financial sector closed ranks, concentrating on getting their houses in order rather than innovating.
Banking has therefore looked like more of the same for the last decade.
But fintechs and other outsiders addressing the pain points consumers complain about is going to force change. A lot of banks thought going digital was all the fix they needed.
But the forward-thinking are looking at platforms and solutions by outsiders and understanding where they can fit into the banking business, licensing or buying the technology to offer a better customer experience.
That then opens up new markets banks traditionally haven’t had any interest in like access to low-income earners or those in the developing world without credit histories.
Fine Print; fees (or not)
Bank fee marketing is a model of something being too good to be true.
Fees used to be simpler (and visible), but when ‘free’ banking products emerged, true costs were just renamed and scattered across ever-more complicated structures.
The fintechs have none of the bloated processes of banks, often consisting of nothing but databases and machine learning engines, so they can offer the closest thing to a free financial product as there’s ever been.
Nothing is stopping a bank from getting in on the ground floor, acquiring or licensing a proven platform and finally proclaiming it will offer true relief from fee fatigue.
In fact, in the face of far cheaper competition, some banks are cutting fees altogether, trying to balance winning new customers with the resulting loss of revenue.
But the new class of finance platforms offer is keeping their users better informed – warning them when a sneaky fee might be levied by a third party, for instance, or giving them the option to cancel a transaction rather than incur an overdraft.
Our research found that if banks did the same, they’d rebuild customer trust to the tune of a 9% revenue increase.
Caring; banking for the heart as well as the brain
We all love our devices and the platforms we access on them, so an app that made banking (transfers, bills, balance checks, etc) easy seemed like a no brainer to make customers happy with bank services.
So how come the consumers who have confidence their bank will take care of them long-term has dropped from 43% to just below 30 between 2018 and 2020?
Was it because the pandemic years and branch lockdowns made the flaws and gaps still in bank systems more apparent? The answer is simple and one that fintechs and other players have already hit upon; digital alone can’t replace authentic engagement.
It can be as simple as the ability to deal with your bank via SMS (which research shows over 60% of millennials want to do but which no bank we know of offers).
But at a deeper level, it’s about connecting with and understanding customers’ financial journey, offering advice and guidance instead of just new products (something three-quarters of bank users said they’d welcome through a banks’ digital interface).
The ability to predict circumstances based on customer actions and offer guidance proactively is something fintechs are already perfecting with machine learning algorithms, deployable and usable much faster than traditional banking services.
The New Crypto; digital currency growing up
Digital currencies have been a Wild West until now, the traditional finance sector wary of stepping into such a volatile area. But that’s changing.
With 78 countries looking into launching their own national cryptocurrencies, banks now know they need a way to engage with and offer them to savvy customers.
A trial in China involving 140 million people and US$9.5bn has already been carried out.
Such experiments will become more widespread, and as banks take the likes of Ethereum and Bitcoin on board it’ll prompt another crucial development.
Digital currencies have been little understood by most this far, but as banking embraces them, they’ll have a strong incentive to use marketing to demystify them so the rest of us can confidently adopt them.
As that continues, regulatory frameworks will develop to curb the worst excesses we’ve seen and make them a safer financial instrument for the economy as a whole.
Intelligent machines; AI and finance
We’ve already seen a home loan provider that can go from initial enquiry to the contract issue in just one hour. Interestingly that’s not from a bank but a fintech, built from the ground up as a financial services platform based on machine learning technology.
The computation of models and variables is making the back-office functions of a bank faster and cheaper, all done using a moderately-priced cloud service rather than branches, human assessors or the traditional chains of command and referral.
The fintech sector has now proven that third party computing and APIs can plug financial institutions into technologies that can let them not only carry out their normal functions better but functions they never could before.
A home loan provider can eliminate between 50 and 60% of the workload by having AI synthesise income statements and balance sheets rather than spend money and man-hours on human assessors to do the same job (and do it much faster).
Streamlining or automating carves out corporate bloat that banks can then discount products sustainably instead of burying hidden fees deep down in the T&Cs.
Open world; payments of tomorrow
Open-source principles already dominate plenty of sectors in the web age, and the traditionally closed shop of payments will be the latest to adopt them in the coming years.
Though Venmo, Paypal, etc seem less restrictive than banks or credit card providers, they’re in competition with each other and therefore just as closed.
But a customer-centric industry will need a different framework.
We already take it for granted we can pay/get paid anywhere anytime, with no concern for silos of corporate competition, and banking has no choice but to get on board.
Then there’s the standards and practices approach in many jurisdictions.
Regulators are increasingly enforcing open and universal standards that offer lower barriers to entry for nimbler, more innovative players.
Tourist season; far-flung investment returns
It’s ironic that people and businesses alike have spent the last couple of years locked inside in such an interconnected world. International acquisitions and partnerships are way down, part of the reason for the lack of innovation we’ve seen lately.
But that’s set to change as the world reopens and businesses look further afield than their own quarantine bubbles, looking for growth opportunities in advances from overseas rather than just spinning up another new product.
The growth will come from absorbing smaller rivals and programming and platform design by fintechs that’s tailor-made for the consumer banking sector.
Human Factor; attracting (and keeping) good people
When we suddenly had to work from home Zoom became a verb, like ‘Google’, ‘Photoshop’ or ‘Uber’.
We were lucky the solution was already there in front of us, but when COVID hit, it prompted a scramble to issue digital remote working systems across the economy.
That’s left a lot of digital expert-shaped holes in the leadership of many banks, but it goes beyond just tech experts and their utility. The tech-savvy workers value freedom and flexibility – values that are often at odds with the rigid hierarchies of banking.
Employers need to extend their innovation to people, not just technology. The new normal is agile collaboration, no more concern for ranks than for the time zone.
When banks invest in training and skills but lose staff to industries where humans are treated better, how can we expect them to treat us better as clients?
The pandemic imposed a new way of working we weren’t ready for, but it cemented trends that had been building for years around remote working, BYOD and hot-desking.
Many of us have found those cultural shifts so freeing we don’t even want to go back, and chief among them is the generation who will shape the banking industry, and it will cause the sector to let go of old systems and embrace them.
Your banking experience will fundamentally change in the near future, but it won’t happen in a vacuum, and it’s not going to be because of some universal but blind imperative to evolve the way nature does either.
It will take considered and carefully guided direction, many of it obvious, some only so in hindsight when it threatens bottom lines. But it will be customers who ultimately benefit as banking finally catches up to the world the rest of us want to live in.
Alex Trott, Banking Lead at Accenture Australia and New Zealand