By Ian Bradbury, CTO for Financial Services, Fujitsu UK
Banking has changed a lot since the turn of the millennium. Many people now manage their finances from home and can pay their bills at the click of a button. And these changing consumer behaviours are ultimately reshaping the way that banks operate, and their investment priorities.
You only have to look at Lloyds’ mental health campaign this year and JP Morgan’s decision to prioritise social responsibility over profit to notice that consumers today expect more than “traditional” banking – and banks are happy to deliver, often going above and beyond to promote long-term sustainable development.
This shift in the purpose of banks has come on the backdrop of significant industry changes – for instance bank branch closures and the rise of digital alternatives to traditional banking.
As banking continues its transition to digital, the social purpose of the industry has changed. But the future of the modern bank looks to be taking shape here and now.
In what ways are banks changing their social purpose?
Traditionally, the role of banks in society has been to reinvest their customers’ money for their own profit and the profit of their customers. While this is still an influence, consumers are now far more conscious about the broader social impact of financial institutions.
This consumer demand has come at a time when competition is as fierce as ever. The rise of app-only challenger banks has resulted in several new competitors surfacing for traditional banks, some of whom have struggled to keep the pace with their technological advances.
The rise of challenger banks, coupled with a decline in bank branches and free-to-use ATMs, is part of the process the industry is going through as it undertakes digitisation. But there is plenty of evidence to suggest that customers still want a physical experience in banking; we found that two-thirds (67%) of customers are still more likely to do business with a bank if it has a high street branch. Besides this, the modern consumer – and especially millennials and gen Z – care much more about social issues, the environment, and sustainability. This makes them a tough crowd to please, and banks, both traditional and challenger, are joining a race to re-shape the industry so it fits the demands of today’s consumers.
For instance, while banks digitise, they have a moral responsibility to make sure that everyone has access to banking services and money, regardless of location and income. Industry bodies have since responded to this with a push to protect the area’s most vulnerable from the decline in banking infrastructures. But as more banks become digital-first, they must ensure there is no one left behind, and their banking capabilities satisfy a wide range of consumers.
As such, it is essential that banks identify their social purpose – what makes their existence desirable from the perspective of society – especially as more traditional banking services close down. This could be by playing a role in tackling climate change, safeguarding against a financial crisis, or, as Lloyds Bank did, creating an open environment to discuss difficult personal finance issues. Ultimately, banks will start to be redefined by the purpose they have in society. But change must start from within and getting the organisational culture right is more important than ever. With diversity and inclusion, for example, becoming a must-have rather than a nice-to-have element, we’re likely to see banks under more scrutiny in the coming years.
Social purpose: a generational divide?
The changing role of cash in society has re-shaped the role of banks. They are no longer considered to just be a means of profit and many consumers do not choose banks based on how their money is being invested.
Banks have visibly been going through a lot of challenges – from the reduction in bank branches to the challenges posed by digital-only challenger banks, it is clear they are teething when it comes to digitisation.
What’s more, they are now dealing with a generation that has grown up with digital technology. Banks are under more pressure to keep up with digital transformation, and a majority (63%) now expect technology to play a bigger role in how they pay for things. And the introduction of challenger banks into the market has disrupted the traditional players.
Banks are expected to be more socially responsible and Lloyds and JP Morgan’s push to be more ethical signpost where the industry is headed. But this change is not necessarily a generational thing – it’s a mindset change throughout an industry which is itself going through a huge transitioning period, in an age where businesses are expected to play a greater role in the livelihood of their customers.
What is the future of banking?
As banks adapt to a digital society, they face new challenges; a new social purpose that plays a huge role in how banks now interact with their customers. From mental health to general social responsibility, we’ll see banks have more of a role in tackling wider societal issues that impact their customers. Ultimately, banks that fail to adopt fully an ethical agenda will be vulnerable to long-term decline.