By Sudeepto Mukherjee, Financial Services Lead at Publicis Sapient, reveals insights from the Publicis Sapient 2021 Guide to Next report and points to the five themes that will dominate transformation in the year ahead.

Twenty twenty-two will see unprecedented changes in banking and other financial services, with new innovations being added at scale and wholesale transformation programmes deployed to engage new demographics and change the customer experience forever.

We predict that the following themes will dominate the financial services sector over the next year.

1.Purpose as the new profit

We have seen in recent times that consumers, employees and shareholders are looking for far more than simply financial performance from their chosen organisations. Regulators are taking a zero-tolerance approach, as can be seen from the recent events at Barclays. Banks and other financial services firms are facing this added level of scrutiny on how they conduct their business and, even more so, from their consumers, who are now highly watchful. The triple bottom line will, going forward, become a higher priority for senior FS executives. We have seen firms such as Natwest publish their first ESG supplement to shareholders that detail their non-financial performance providing more disclosure on purpose, sustainability and ESG factors. Financial services firms will need to articulate a sense of purpose that extends beyond profiting shareholders.

• Financial inclusion will become a goal for financial services firms. The G20 in 2021 reaffirmed its support for this goal and digital transformation to reach the goal will be further prioritised. Expanding financial products and services to underbanked populations will be front of mind for those taking a long-term view.
• Ethical financial services will gain attention, with individual consumers and institutional investors increasingly prioritising this as a differentiator. It is well documented that younger consumers are intent on putting their money where their values lie. In the long running aftermath of the financial crisis, prioritising an ethical model will be a great way for banking institutions to re-establish trust with their consumers.
• Financial services will also need to incorporate sustainability considerations into their investment approaches and take a leading role in confronting the climate crisis. We have seen from the recently concluded COP26 that governments expect financial institutions to play a major role in facilitating the transition to a more sustainable future.

2. Customer experience will rule the day

The generic journeys and products currently offered by most financial services companies, that offer only a thin veneer of personalization and barely scratched the surface of feeling tailored, are no longer going to work in appealing to the customer. We see in recent surveys that the big banks in the UK consistently trail the new digital only new entrants when it comes to customer satisfaction. The future will be significantly different.

• Experiences are going to start feeling like they are customised for the individual by meeting specific needs. The availability of a wide array of data from the Cloud and access to sophisticated AI-driven analytics algorithms will facilitate the creation of more personalised experiences and products.
• Customer journeys and products will feel more inclusive —not like one journey or product was designed for 20 million people. Most institutions are moving towards a customer journey paradigm that will allow them to focus on improving the end-to-end experience for their customers.

3. Platform transformation

Companies that don’t modernise their IT infrastructure and move to an open platform-centric architecture will fall behind. Platforms and ecosystems are replacing standard distribution channels. We have seen in areas such as insurance and wealth that customers demand access to a broader set of products and services that can only be enabled by being part of a larger ecosystem. Regulations like open banking and PSD2 also facilitate this transition. To stay competitive, all established companies need to accept that the recent rise in platform businesses will continue and adjust accordingly. They can build platform businesses or partner with them—but they cannot afford to ignore them and go at it alone.

We will see new patterns emerging:

• Transform or die. Transformation will no longer been seen by a sizable minority as a frill. Tech start-ups and other nonbanks have successfully embedded financial products into their digital offerings—chipping away at the market share incumbent banks enjoyed – in the coming year there will be a scramble to catch up to avoid losing more.
• Paying back a friend on Venmo using emojis isn’t just convenient and sociable, it’s participation in a seismic shift of how money is managed and transmitted – this coming year traditional banks will have to get creative.
• Cloud transformation will be scaled up. Currently a very low proportion of banking apps are held on the cloud. This will need to increase for stability and customer experience and companies will be investing heavily.
• Growth of open banking and related services. New banking business models will move towards collaboration and away from competition.

4. Data is the new oil

Financial institutions have lagged behind Big Tech in utilising data to drive competitive advantage. While banks and insurance companies have huge amounts of very valuable data about their customers, strict regulatory frameworks, a strong controls mindset and inability to access complex legacy data stores have prevented these organisations from fully leveraging data to drive differentiation and competitive advantage. This is likely to change as technology and modern processes begin to allow companies to overcome these barriers. As data becomes more accurate and easily available, AI & ML will also come to the mainstream and help make processes like fraud detection and customer onboarding more efficient. Executing the right data strategy will ensure that products/services can respond to customer feedback quickly and better decisions are made across all functions.

• New data and API infrastructure will be built by financial services firms on the right path. And not only this, but they will focus on enhancing their culture to ensure that decisions are driven by underlying data and insight at all levels.
• AI and ML will be built at scale as trust in data and algorithms increases.
• All data will be vetted for potential insights and incremental uplift. This includes selecting an alternative data ecosphere and identifying areas for data instrumentation.
• Personalization at scale will happen. However, all this can only happen if proper governance and control frameworks are put in place to ensure adherence to data privacy and enhanced cyber security. We will continue to see huge investments in these two areas.

5. Reimagining Financial Services

This is more a wish than a prediction. But as the trends above take shape – more customer centricity, platform enablement and dataful products and services – institutions will have a unique ability to go beyond their traditional space to open up new opportunities for customers. We have already seen banks expand their portfolios of banking products with Goldman and now JPMorgan launching new digital retail banks. However, the opportunity is there to go further as we have seen in Asia, where banks like SCB have ventured into food delivery and travel services.

• Banking/Insurance as a Service options will be examined more closely, as institutions look at new channels to distribute their products and services. We have already seen this happening through HSBC’s recent tie up with Oracle’s NetSuite.
• Non-financial services will begin to crop up to capture mindshare and wallet share via partnerships with ecosystems and other key players.
• More collaboration between incumbents and fintechs/Big Techs to drive innovation across the ecosystem. The large incumbents now see the advantages of partnering with more innovative, tech savvy-companies to provide more differentiated services. This will become more prevalent in the coming year.

All in all, 2022 will be a hugely transformative time for Financial Institutions. The recovery from the pandemic with renewed customer demand and high expectations will create a unique, once in a generation opportunity for financial institutions to reimagine their purpose and the services that they provide to their customers.