Banks Will Have A Stark Choice: Own Customers Or Power Finance Few Can Manage Both
In the era of open finance, no bank can do it alone. Because of this, we examine the future 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. Some banks will pivot fully to become 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. Banks will have to selectively leverage and extend the trust they possess and carefully choose their key battlegrounds.
Leading banks are already pivoting and rebooting their strategy capitalizing on the COVID-19-driven pace of change and innovation and setting their course for the next decade. Forrester is on that journey with them.
If youd like to learn more, please take a look at our new report on the future of banking and audio insights from our research interviews, accessed below. Please reach out if you have any questions or would like to know how we can help you and your firm prepare for the future of banking.
You can now access this complimentary webinar replay around The Future Of Financial Services, part of our Europe Financial Services Webinar Series. to watch.
Related Forrester Content
Your World Open The Future Of Banking Transformation
Jim Marous, Co-Publisher of the Financial Brand and Owner & Host of the Banking Transformed Podcast joins Finastra for a conversation on banking transformation, open banking, fintech ecosystem and platformication, cloud migration, and the importance of driving a committed ESG agenda.
In this video Jim Marous and Margaret Franco, Finastra’s CMO, discuss the future of banking transformation, covering off the below topics.
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Jordan Friedman Ceo Of Zodaka
The future of banking is digital. Banking is inherently a perfect industry towork with technology. For the first time ever small banks can have access to the same or better tools as bigger institutions, and they can also have the same reach through partnerships and creative products instead of opening more branches. I think we will continue to see the proliferation of E-banks offering incredible deals and service rates. Much of the retail banking market is there for the taking as people become more disillusioned with the majors and small banks continue to innovate and compete nationally.
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The Future Of Banking
We uncover whats coming for the banking sector and what advances you will see over the next decade. What do these changes mean, and how can you benefit from the banking evolution?
For many Canadians, banking has always been pretty straightforward, and services such as online banking have made the process quicker and easier. Lately, weve started hearing terms like fintech and open banking used more often. What do they mean and whats next for The Future Of Banking?
Per Christian Goller Ceo At Aprila Bank
The future of banking for SMEs is in the re-bundling of banking services. We do not believe in the unbundling of the banks from a corporate bank perspective. The daily routines of a CEO are already complex enough, without adding lots of apps leading to distributed information for the person in charge of the business. The banks will certainly not disappear as their balance sheets cannot be substituted by fintechs. However, we strongly believe in a re-bundling of bank products, meaning that financial offerings should and will be integrated into new environments where they are a more natural fit for the customer. For Aprila Bank, that means that we have integrated our financing offerings inside cloud accounting systems, where the SME already is present and have an overview of their financial needs. We have brought the bank to the customer, instead of the customer to the bank, so to speak. Re-bundling of bank offerings into natural environments where the customer already is, is what we believe in.
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Patricia Russell Cfp Founder Of Financemarvel
The future of banking will be faster, smarter, more accessible and with more choices to customers than ever before thanks to proper aggregation and wise implementation of artificial intelligence, Big Data, blockchain technology and other incredible new advancements which have started to surface into the mainstream as of 2019. Gone forever will be the days of 3-day transactions and settling time, multi-day bank approval waiting times and a whole host of other issues currently plaguing the financial world.
The Bank Of The Future
These five developments laid the foundations for change, providing enough impetus for the first wave of disruption to gain traction and proving the concept of an alternative to banks.
New entrants will now come to a market where millions of potential customers have already turned to a non-bank technology company for their banking needs – and will expect more. Even those customers who dont currently need or use a fintech service will consider them as an alternative equal to or better than a bank.
Consumers expect a major shift in their own behaviour over the next five years, according to YouGov research for a report published by my own company, Transferwise. In 2015, 68% of people had never used a technology provider for financial services such as in-store payments, international money transfers, lending, wealth management, property investment. In five years time, half of consumers expect to use a technology provider for at least one financial service. A third expect to use a technology provider for 50% or more of their financial needs.
Looking ahead to ten years time, the picture changes even more dramatically: 20% of consumers anticipate they will trust technology providers with all their financial service across the board from credit cards to mortgages.
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The Future Of Digital Banking
This brings us to the real debate. Has the future of digital banking already begun? Many fintech experts argue that what we see today is not digital banking but simply digitized banking. Hundreds year old financial products are being adapted to the digital era and distributed via smartphones and the Internet. Thats not so innovative when you think about it. The process can be compared to the transformation that Internet ignited in the media world when we went from reading newspapers to following news online.
Many believe that the real innovation will sprout once the legacy banks and fintech startups move away from modernizing the digital experience and plunge themselves into launching new digital capabilities.
The recent massive influx of new players in the financial services space has caused disruption primarily in three main segments: payments, lending and personal finance. The fintech focus on these three segments because they are the areas where fees can be significantly knocked down and a strong digital interaction initiated as well as because of the inherent opportunity that comes with it to work better, cheaper and clearer, providing better transparency of what is happening and why.
The Future Of The Banking Industry
If you asked an average customer-oriented bank what they were in the business of doing, theyd look at you rather strangely, as if you were asking them something so obvious, you might be taking them for fools. Evidently, banks exist to keep money safe, to make it grow and to deliver it swiftly to their customers when they need it.
In highly competitive times, banks will do their hardest to demonstrate prowess in these three areas. They will let the world know that they are a safe haven, that they are extremely adept at making portfolios grow and that they respond with unparalleled rapidity to customer demands. Some are even open 24 hours a day. One could, in a generous moment, even feel rather sorry for banks given the sweat they must expend competing in these areas. It is extremely hard to grow a portfolio more than 4.5% per annum, never more so than when markets are relentlessly saggy or volatile.
Its only when we insist on the original question that the founding assumptions behind modern banking reveal some of their strangeness. What really do we want from banks? And then the real enquiry: what do we want from money?
How happy our money makes us isnt just a question of the amount we have it partly depends on how we have made it. The more pleasurable the process of accumulation, the less substantial the overall sum might need to be .
The Time To Act Is Now
It is evident that there are plenty of opportunities for banks to integrate and accelerate financial technology. Meanwhile, fintechs can use this opportunity to create new, innovative products for the new, modern, financially savvy retail and corporate consumer. However, the first, crucial step to this process is for traditional banks to identify their place on the digital banking spectrum be it through FI-Fintech partnerships, BAAP, AI or blockchain, banks can formulate a clear strategy once they understand the digital banking spectrum.
The fintech revolution is set to continue to disrupt, and traditional banks must keep up with the pace of technology in order to stay relevant and competitive. In this rapidly evolving, ever-changing market, its time to innovate, integrate and accelerate into the future.
Future Of Retail Banking
Technology geared toward improving retail banks’ operational efficiency is positively impacting the market. According to Insider Intelligence, 39% of retail banking executives say that reducing costs is where technology has the greatest impact, compared to only 24% who say it’s improving customer experience.
Retail banks are also launching platforms in the Banking-as-a-Service space to remain competitive. For example, UK neobank Starling used to exclusively offer business-to-consumer retail banking services but, after launching a BaaS platform, Starling diversified its product and revenue streams, helping it remain relevant in the neobank space.
Meanwhile, mobile banking has solidified its place as a must-have feature for financial institutions to remain competitive, particularly among digitally-savvy millennials and Gen Zers. In fact, over 45% of respondents to Insider Intelligence’s fourth annual Mobile Banking Competitive Edge Study identify mobile as a top-three factor that determines their choice of FI.
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Conventional Banks Are Catching Up
There are signs that mainstream banks becoming more digital-friendly for the future of banking. For example, Hello bank! by BNP Paribas Fortis is the first mobile-focused bank with accounts managed exclusively through its app. In keeping with a changing consumer landscape, Hello Bank! provides help and support to its customers through an online forum and a range of social media services. A number of these services also make cross-border banking easier than ever.
Elsewhere, theres been a growth in the number of apps that help customers manage their finances on a day-to-day basis. For example, Yolt allows users to add all of their accounts and view them in one app, all the while receiving tips on their budget for that week or month. Standalone savings apps are becoming increasingly common, too.
This includes apps that round a users spending on each transaction up to the nearest unit and put the remainder into a savings account. Such simple innovations can offer users a new, easy way of saving money if they cant afford to put hundreds of pounds or euros away each month.
The Future Of Banking Extends Well Beyond Just Financial Services
The Financial Brand
Fintech firms and bigtech organizations are capturing more and more of the banking value chain, providing services such as payments, checking and even savings accounts that could erode much of the traditional bank revenues in the foreseeable future. These new entrants pose a threat to banks by raising service expectations and coming between banks and their customers.
The response goes far beyond closing branches, improving online and mobile banking offerings or making current products and services more digital. Instead, banks need to move further into the daily lives of customers, providing assistance before, during and after the financial transaction.
Customer behaviors and expectations are quickly adjusting to a world where products and services are recommended based on past behaviors and where location-based offers are provided instantaneously on their mobile device. Customers dont want to go to branches or do banking. They want financial information and the ability to transact fingertip-ready.
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The Next Age Of Moneykind: The Future
Having covered four ages of moneykindâbarter, coins, paper, chipsâwhat could possibly be the fifth?
When we are just at the start of the Internet of Things , and are building an Internet of Value , how can we imagine something beyond this next ten-year cycle?
Well we can and we must, as there are people already imagining a future beyond today. People like Elon Musk, who see colonizing Mars and supersmart high-speed transport as a realizable vision. People like the engineers at Shimzu Corporation, who imagine building city structures in the oceans. People like the guys at NASA, who are launching space probes capable of sending us HD photographs of Pluto when, just a hundred years ago, we only just imagined it existed.
A century ago, Einstein proposed a space-time continuum that a century later has been proven. What will we be discovering, proving, and doing a century from now?
No one knows, and most predictions are terribly wrong. A century ago they were predicting lots of ideas, but the computer had not been imagined, so the network revolution was unimaginable. A century before this, Victorians believed the answer to the challenge of clearing horse manure from the streets was to have steam-powered horses, as the idea of the car had not been imagined. So who knows what we will be doing a century from now.
2116. What will the world of 2116 look like?
A child has been born who will live until 2166. What will they see?
David Bakke Writer At Money Crashers
One item that seems to have a place in the future of banking is that online banks will continue to emerge and thrive and local branch banks will continue to diminish. However, it’s unlikely that online banks will ever entirely replace local branches unless for some unforeseen reason we go to a completely non-cash society, which is rather unlikely. Along those same lines, being able to pay for things with your phone will continue to push out the need for a debit card. Although again, that’s not to say the debit card will become extinct any time soon.
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About Sam Mire
Sam is a Market Research Analyst at Disruptor Daily. He’s a trained journalist with experience in the field of disruptive technology. Hes versed in the impact that blockchain technology is having on industries of today, from healthcare to cannabis. Hes written extensively on the individuals and companies shaping the future of tech, working directly with many of them to advance their vision. Sam is known for writing work that brings value to industry professionals and the generally curious as well as an occasional smile to the face.
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Security Challenges In A Digital World
With the advent of open banking and transaction processing technology, its clear that the way personal finance looks and works is going to change significantly over the next decade. With new opportunities, however, come new challenges especially in the area of security.
Thats because hackers and fraudsters are getting better at exploiting their customers through scams. This means that banks are constantly innovating to improve the security of their online banking systems and apps.
The Big Picture: How Is Fintech Disrupting Financial Services In Emerging Markets
While some business models are more relevant to financial inclusion than others, the overall impact of fintech innovation has been to unbundle value chains in ways that could prove beneficial for low-income customers and providers who serve them. On the consumer end, this means customers gain access to a rapidly growing range of financial service providers, often with innovative models that offer products in a different way, at lower cost, with fewer preconditions and less administrative red tape. On the back end, it means that providers themselves are able to rely on a growing range of third-party fintechs who offer highly specialized, value-adding, and cost-effective solutions to core banking processes. In both cases, highly scalable innovators are redefining how banking works.
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The Changing Investment Banking Landscape
The unprecedented public health, economic, and societal impacts of the global COVID-19 pandemic have intensified the forces that are creating challenges and accelerating disruption in the investment banking industry: falling equity prices, liquidity stress, evolving financial regulations, market democratization, pricing pressure, increased client sophistication, shifts to remote working arrangements, and rapid technology advances.
Against this tough backdrop, we anticipate that investment banking will transition from a full-scale service model to a bifurcation of two broker archetypes: client capturers that specialize in front-office functions and flow players that focus primarily on middle-office functions . These archetypes will likely operate within an interconnected, increasingly globaland, potentially, virtualecosystem that includes partners collaborations that provide various back-office functions.
Industry realignment should create opportunities for investment banks to drive toward higher levels of return. However, to deliver on this agenda, organizations can no longer tinker around the edges. It is likely that many will need to dramatically retool their current business models and operational platforms to prioritize client-centricity, disruptive technologies, regulatory recalibration, and workforce and workplace evolution. In addition, they should determine which archetype they want and are able to be within the new ecosystem.
What is a connected flow model?