Change is imminent in banking, it is one of the few industries that are still behind in developing and improving customer experience. Banks should provide the same quality customer experience as businesses outside banking. In fact, midsize and larger banks are making massive investments to transform their businesses into digital service providers in order to improve their customer experience. The most essential thing in this transformation, is to make the process of banking easier and more inclusive and the way to do it is digitalizing - this is what fintech companies are doing. Big banks are losing to smaller niche players that are digitalizing every part of the banking process and making it more accessible for larger audiences.
The biggest companies that exist today are digital companies. Digitalization is also (surprise, surprise) the disruptive force of the banking industry. Open sourcing, APIs, apps, analytics – over a $100 billion in investments in fintech companies in the past 4 years. Banks tend to be too slow with their business development and will most likely lose to their competitors, if the only people in the leadership teams and board rooms are bankers instead of technologists. In the near future, banks that hesitate taking the leap towards digitalization and underinvest in new technologies, maintain a traditional franchise without any digital competencies. This will lead to less effective and successful competition in the key segments of the industry.
IoT is increasing rapidly in our daily lives. Smart fridges and other appliances are able to make purchases automatically or order maintenance, soon our smart shoes and cars are able to do the same. IoT alone will create millions of transactions, this is an amount that banking industry in its current state is unable to process. We need payments to be processed in seconds and this is why mobile operators and banks will most likely work together and use the infrastructure to answer the publics’ demand. Voice assistance is predicted to become more mainstream, and so will voice payments. Banks need to figure out what IoT and voice payments could mean for the near future of banking. Is voice technology just another layer of security to add to our accounts or something even more disruptive?
2. Mobile banking
Mobile banking continues to conquer the industry globally. About 95% of the world lives in an area covered by a cellular signal and in fact, mobile browsing has exceeded desktop browsing. On the other hand there are millions of people that are unable to access currency and checking services. Mobile banking services can enable consumers all over the world to pay, shop, sell, transfer and make deposits. Over 86% of millenials are already using mobile banking and other mobile financial services, other generations are catching up fast.
3. Regulatory revolution
European monetary institutions are getting ready for the second payment services directive, PSD2 – these kind of regulatory changes have the potential to turn the current banking industry into something less recognizable. The PSD2 directive requires EU banks to open the EU payment market to companies offering consumer or business-oriented payment services based on the access to information about the payment account. These regulations impact on how banks and fintech companies can treat consumer data and this will echo on for years in the industry. The way these financial institutions choose to treat data is becoming more and more important. Other regulations have the potential to put fintech companies and banks on the same side of the table (for example the granting of limited charters to fintechs), whilst other regulations might even eliminate some of the methods fintechs have prospered on.
Virtual reality experiences can offer a personalized newsroom for customers, meetings, advisers and for example portfolio overviews. This type of virtual technology enables new kind of ground for communicating between customers and advisers. Newer generations want to interact in a different type of platform so the ways how you find advisors, collaborate with your customers and educate them are all transforming. In addition, as working from home becomes more and more mainstream, it’s way more convenient to set a virtual appointments with your banking adviser if you’re not happy with a bot. Digital advising is definitely not a new invention but it is coming more general and going virtual.
5. AI and Machine Learning
From risk assessment to chatbots and AI operated product sales, machine learning and artificial intelligence are at the core of any modern bank’s innovation strategies. Bots, virtual assistants and advisors are becoming smarter by the day. Banks are either partnering with startups to deploy these technologies or doing their AI work in-house. AI will evolve to a critical feature that helps drive better outcomes for clients, increase efficiency and cover talent shortfalls. AI interfaced advisory models being developed right now will disrupt the conventional models used as they can asses a large number of complex data sets (econometrics, trends, tax rates, fees, interest rates, cash flow cycles, liquidity needs etc.) that are used to create highly tailored advice for the clients' needs. This type of digital self-service AI advisory is most likely offered to lower-valued clients and higher-value clients will still be relationship managed but will still benefit from the AI algorithms “heavy lifting”.
This year the industry will see blockchain moving from hype to reality. Blockchain is going to, for example, save banks millions on derivative contracts, changing the money transfer systems and include e-commerce. Banks will move from proof-of-concepts to blockchain for data. New blockchain projects like R3 and Hyperledger continue to grow. Banking professionals expect to see blockchain initially used in internal bank processes, transactions and in trade finance. The PSD2 regulation will benefit the end users by enabling data aggregation across multiple providers. Fintech companies and other providers will most likely become the front-end interface and relegate some of the financial service providers and commodity processors. Companies that see the information, have the opportunity to understand their customer needs better and suggest better products for them and provide accurate advice – in other words improve the customer experience.