Where Does Banking Go Next?

By Tom Rich, Business Consultant at BJSS

The banking landscape is changing and changing fast. Challenger Banks, leaps in technologies and now pandemics are shifting the goalposts of what banking will look like in the coming years and decades. Even with the industry going through a period of deep uncertainty, primarily due to the impact of Covid-19, it’s always important to keep one eye on the future to understand how to adapt and find success in what’s to come, rather than just treading water

So what does the future of banking look like? We believe that the future of retail banking can be summarised in three words: Personalised, Collaborative and Trustworthy. Becoming a ‘Bank of the Future’ will require time, resources and investment across both people and technology. But those who invest in and can achieve it will flourish in the digital age.

Personalised – The customer is always right satisfied

Banking is undergoing a period of intense digitisation. Mobile and digital banking have become so normal that challenger banks forgo the high costs of brick and mortar premises, arguing that they are no longer essential in the modern age. This drive shows no sign of stopping. The modern consumer demands a product that meets their exact needs, precisely when they need it. A ‘one size fits all’ approach to personalise banking is on the way out, banks must offer highly personalised, detailed, almost bespoke services to their consumers or risk losing them to any number of competitors who will be willing to do so.

Whether it be using machine learning and AI to deliver purposeful insights directly to a customer’s pocket, chatbots to quickly resolve queries or data analytics to pool together a complete view of finances; we will see a technological arms race over the next decade with each competitor trying to out-serve the customer. A notable feature of such a race is that once one firm has new and engaging features, consumers will expect other firms to quickly match them. If they fail to do so, then consumers will seamlessly switch. A recent piece of research released by Charlie Barton of Finder, found that 23 per cent of British adults had opened an account with a challenger bank. This is expected to double within the next five years – so people are willing to move their finances to more personalised and modern offerings when they appear. Firms that cannot keep pace with these demands are going to find their future business in a precarious position.

Collaborative – Together, stronger

However, this does not mean that firms must struggle in isolation to deliver all these products. We are going to see an ever-growing banking ecosystem of firms which offer different parts of a consumer’s demand profile and companies will need to work in strategic partnership with others to deliver a full suite of products and services to the customer. This may come at the cost of some brand recognition as separate products are amalgamated into single apps or websites, but ultimately customer acquisition and retention is the goal alongside the collection of highly valuable customer data. If the collaboration proves to be effective, then a bounce in sustainable revenue streams can be expected.

A prime example of this in the UK is Open Banking. Originally introduced to foster competition and benefit consumers, this initiative allows firms to access an individual’s financial data held at other firms and offer them services based on their full portfolio. Open Banking is a game-changing idea in theory, but yet in practice, in my opinion, we have yet to see truly exceptional products and services on the back of it. However, familiarity and usage is on the rise with recent data from OBIE showing that over 1 million people in the UK are benefitting from the technology and you can expect that number to shoot up much further. We are already seeing some fledgling companies starting to leverage the functionality available, and as these hit the mainstream, others will surely follow suit.

Trustworthy – The Social Contract

The relationship between a bank and its customer contains an ever-increasing amount of data intimacy, as the volume of personal financial data that is shared grows. Data privacy and protection is quite rightly a hot topic at the moment. Recent research from IDEX Biometrics showed that 75% of UK consumers are concerned about the security of personal data they share with organisations. Another insight study, from PACE UK, showed trust was the second most important consideration for a customer when choosing a new bank. These are significant numbers, and as younger generations grow up in a digital, data-driven world, consumers will increasingly take an interest in how and what their data is used for. Banks must understand they are undertaking a social contract with those who choose to use their services. They need to ensure that they are ethical and transparent in how they use their data or risk losing consumers to those competitors who are.

With an increasing number of competitors and a reputation tainted by behaviour of the past, banks will also want to ensure their social and environmental responsibilities are visible and that they are seen as performing a positive role in the communities in which they operate. As we touched on earlier, brand recognition within products may become less visible as time goes on, and so being visible in the social responsibility and community space is a sure-fire way to win the long-term loyalty and trust of customers.

It’s Time to Adapt

With this volume of change coming, banks and other financial service providers are going to have to be masters of continuously evolving themselves and their business models to suit the new world and its customers. Traditional banks have been slow to embrace Agile methodologies in their structures, missing out on the benefits of this way of working. By adopting agile ways of working, banks will be able to deliver a high volume of technological change in a controlled and efficient manner. It’s high time the retail banking incumbents ensure that they can operate with agility so they can compete with the newer entrants such as the FinTechs and challenger banks, who typically can enact change at a faster pace and remain at the forefront of innovation.

There is equally something to be said about the skillset of the “Banker of the Future”. Banks should get started sooner rather than later in tooling up their employees to function in this new digital era. As advances in automation and RPA remove the burden of manual and repetitive tasks, this will free resources up to focus on value-adding propositions. All employees will need to be comfortable and adept at working in change environments and understand how new technology can and is deployed. The future banking employee will need skills in project and risk management, and as it becomes an ever-growing priority for the bank, employees will even benefit from being educated in customer design and experience.

The Future is Now

The future of banking is evolving all the time. The chaos that Covid-19 has brought this year has given many institutions the time to consider what really matters to their core businesses and their customers. We aren’t nearly out of the Covid-19 woods yet , but firms in the retail banking sector must use this time to rethink their strategy to align with what is required to succeed in the future: focusing on personalised services and collaborative products – all backed by a trustworthy brand.