By Jacob Morgan, senior analyst, Forrester Research

For at least the last decade, banking has been close to a break-even business in some sectors — and then came COVID-19. Banks were already wrestling with a long list of challenges before the pandemic forced years of disruption into many lives. Customer behaviours have become dislocated, and the world’s workforce has been upended; risk models are broken, and many other assumptions are under question. But when we look back on this great pandemic reset of the early twenties, we will see it as a point when leaders pivoted and rebooted their strategy — capitalising on the pace of change and innovation, asking what else they were missing, and setting their course for the next decade.

Covid-19 has shifted banking’s focus but won’t dominate the future narrative

Many of the drivers of change were already firmly rooted over the past decade — COVID-19 simply changes the emphasis. The lifestyle platforms in China and India — Alipay, Paytm, and WeChat — have already spawned financial ecosystems, changing customer expectations that usher in the financial marketplaces of the future. Regulators have shaped expectations for consumers over consent and data ownership while tinkering with the economics of products and laying groundwork for broader collaboration. Technologies such as APIs, data fabric, and cloud will evolve with AI, 5G, and distributed ledgers to enable more agile and rapid delivery of new business models and capabilities. The drivers of the future are evolutions of the past.

By 2030, banking will be invisible, connected, insights-driven, and purposeful

Four themes define the future of banking: invisible, connected, insights-driven, and purposeful. This will lead to cars that refinance based on the usage patterns of their owners, banks that customers’ trust to manage their identity, data, and algorithms alongside their money; autonomous finance that orchestrates financial needs, allocating income based on customer preference. While some of these themes are playing out now, they will be far more prominent by 2025 and table stakes by 2030. 

Invisible: banking will become increasingly invisible and autonomous

Leading banks will use technology and far deeper customer insight to insert financial services at the customer’s moment of need. Many consumer interactions will become disintermediated by aggregation platforms or subsumed within intelligent agents. The bank will own the service and product, not the channel, and must assume fewer direct interactions in order to be present in the moment and the ecosystem. Traditional distribution models are evolving, making use of marketplaces and technologies such as open APIs and 5G to connect finance with homes, machinery, vehicles, and other devices. Autonomous finance will allow customers to determine the level of involvement they have with their finances and will orchestrate financial outcomes with algorithms. This will pose challenges for many banks as their retail brands become increasingly invisible to the end consumer. Trust in the provider that powers the experience is paramount, whoever owns the interaction. 

Connected: a connected world requires banks that build constellations of value

To be present in the ecosystems and products that customers use banks must cease to see partnerships, and intermediation of brand, as a threat. Banks will assemble constellations of value — interoperable, trusted environments that enable collaborators beyond banking to weave value into frictionless, rich customer journeys. Banks will build their own constellations and be part of several others. Products accessed or distributed via others’ platforms will drive superficial value, but deeper engagement must come from the ongoing interaction with the host bank, via blended human and digital experiences over conversational interfaces. The human must not get lost, though — knowing when to escalate to a trusted human for advice or guidance is crucial. Branches will consequently become advice and collaborative engagement environments, with distinctive experiences in centralized hubs, supporting remote spokes that are located — sometimes temporarily — at the point of need. “Trusted advisor” status is what will differentiate banks from all other touchpoints that offer embedded financial services.

Insights-driven: the next decade is all about insight and who you trust to act upon it

Banks will unleash insight from data and elevate custodianship of consumer trust. The quality of insight will be a key battleground on which banks differentiate — at one end is engaging personalisation; at the other, autonomous finance. Banks will build a consumer-insight continuum, fusing their own data with that of partners to create event-driven engines using AI and predictive analytics. These engines will support not only advice but also capabilities like underwriting-as-a-service, continual pricing, and precision risk assessment, the connected car that generates financing adjustments based on its usage.

Banking’s expanded role around consent and identity will enable consumers to have finite control of their financial and digital lives. Consumer trust is the critical asset here. Banks must firmly step up with advice and generate financial intimacy with their customers – customers that expect “RoC” — return on consent for that trust. They will demand greater transparency over the use of their data and will expect granular control of data sharing for more personalized advice and engagement — whether via the bank’s virtual agents, in a connected car, another’s platform, or in a pop-up branch.

Purposeful: banks will be purposeful to match customer, employee, and stakeholder values

Consumers will prefer banks that align with their environmental and social values in a more purposeful age, where local and cooperative principles align to matters of global responsibility. Consequently, open innovation and engagement via code, content, and knowledge will create communities driven by a shared purpose, generating collective product development to benefit all. In a post pandemic era, well-being will come to the fore and banks will develop programs that offer holistic financial well-being, not only because it will help deepen customer engagement and attract new business but also because improving consumers’ financial well-being ultimately contributes to financial stability and preserves the integrity and operations of financial markets. Some banks will succeed in expanding their role into becoming trusted repositories for consumers’ personal data and digital identity, not just for their money — but to do this, they will need to garner the trust of both consumers and regulators.

The future of banking must be viewed from three perspectives

In the era of open finance, no bank can do it alone. Connected business models will offer banks multiple routes to market — and success — most of which involve collaboration. Future banks will operate in multiple modes concurrently: direct to consumer, -as-a-service, marketplace seller, and platform owner. Consequently, banking must be viewed from three perspectives – that of the bank, that of the customer, and that of the collaborator. Each of these will play a central part in defining the next decade of banking. To be successful, banks will have to selectively leverage and extend the trust they possess, and carefully choose their collaborators and key battlegrounds.  Designing to support integration with other platforms and brands will require a step-change in collaboration, an outside-in cultural mindset that at one extreme will see banks position themselves as an environment for firms to collaborate through. Chinese platforms such as Ant Financial and Ping An Insurance point the way — not simply with personalization and consumer convenience but also with expansive insights-driven opportunities around identity, consent, collaboration, and ecosystem orchestration.

Banks will have a stark choice: Own customers, or power finance. Few can manage both

To compete in a world with increasingly blurred boundaries — where smart devices and nonbank platforms such as Google can deliver the banking experience, ride-sharing apps can supply loans, and cars can be distributed ledgers — successful banks will ruthlessly determine and play to their strengths.

Some banks will pivot fully to be the platform and rails that other firms run upon, other banks will contest the tech titans for customer primacy and engagement, and some will do both. Larger banks possess the payments networks, resources, and consumers needed to fight for customer primacy on many fronts and will continue to be financial generalists. Most smaller banks will have a stark choice: Own customers, or power finance. Either way, no bank will do any of this alone.