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One of the things we learned over the last year is that you can speed anything up. The banking and fintech industry has compressed around a decade of e-commerce innovation into a period of 10 months. Unsurprisingly, people have adapted. Consumer expectations have shifted and businesses have turned accordingly.
This change has been represented in the financial sector by customers using digital services, including many who have never completed financial transactions online before. Currently, millions of banks are doing banking without entering a physical location, and this trend is unlikely to change. It is often quoted that necessity is the mother of invention. In many ways, this pandemic has proven that necessity is also the mother of adoption.
Now entrepreneurs, executives and industry executives are facing an unprecedented and unexpected rate of change. Advances that were estimated to have taken years could now turn out to be the "new normal" in a matter of months. The future of banking will be different not only in terms of faster digital adoption, but also in terms of the service offerings they offer and the relationships that institutions have with each other and with their customers.
Soon the most successful banks will be less dependent on traditional services and sources of income. They depend more on the ability to see customers' financial needs end-to-end and meet those needs in a connected, seamless, and smooth manner.
The following eight factors will have a major impact on digital banking by 2025.
Related: 6 Technology Trends Every Bank Should Be Prepared For In 2021
1. Physical decline
The relevance of stationary banks will continue to slowly but steadily decline, giving way to the overwhelming use of digital services via mobile devices, computers and other devices. While physical banks are unlikely to disappear completely in the next decade, many of the remaining banks will have to be repurposed to meet niche needs as general financial services become increasingly available online.
2. Thinner purses
It is beneficial for consumers to maintain access to a variety of payment options, but these options include cashless money as well. Not only are electronic transactions more convenient and efficient for individuals in general, but digital financial ecosystems also offer significant benefits to businesses, governments, and economies as a whole. The question is not whether companies and countries are going cashless, but who is leading the charge or is on their heels.
3. Cardless payments
A century ago it would have been almost impossible to convince anyone that one day their entire fluid value would be available for viewing and transactions would be completed on a small plastic card. Today you might have similar difficulty convincing some that maps will soon be out of date too. The Asian markets are leading this trend, with more than 50% of transactions being made with digital wallets. The massive growth in solvent IoT devices and associated services are the main drivers of this trend.
4. Competition with non-banks
Despite the ongoing debate among lawmakers, regulators and executives, SaaS companies like PayPal, Stripe and Venmo are not considered banks. Increasingly, however, they will serve customers' financial needs in the same way that traditional banks do today. The rise of super apps like China's WeChat, Singapore's Tomb, and Indonesia's Gojek will continue to disrupt the financial world.
5. Credit relevance
Consumers will continue to need credit as long as wages and spending needs are misaligned. What will change, however, is the way financial institutions make credit decisions, which affects the relevance of credit scores. Just as credit issuers have taken a more comprehensive approach to assessing creditworthiness after the 2008 financial crisis (taking into account home value, criminal history, professional background, and other non-traditional factors), today's institutions are turning to artificial intelligence to identify the risks and opportunities analyze consumer lending. The amount of data available to banks is only growing and they will increasingly use it to find better decision-making methods.
Big data and AI-driven analytics are creating a new paradigm in financial services where the bank treats each customer as if they have their top priority. Instant borrowing, proactive product suggestions, detailed shopping guides, budget recommendations based on factors like real-time location, spending profile, and more are expected to be the new standard for financial institutions' approach to customer personalization.
There are many players in the financial landscape, including traditional banks with online services, pure digital banks, fintech apps and related service providers, merchants and, of course, consumers. Variety is nice, but it can also lead to transaction issues, privacy, and fraud that are significant concerns for everyone involved. Groundbreaking innovations can therefore only disrupt financial markets to the extent that consumers are convinced of their safety and efficiency. Increasingly, the solution to these challenges will lie in payment and financial stacks that are designed to provide interoperability.
When it first switched to digital financial services, regulators reacted ad hoc. As new technologies come into play and tech giants like Google and Apple become increasingly disruptive in the financial industry, these transformations will force policymakers to identify emerging threat vectors and address risks comprehensively. In contrast to today's mostly national supervisory systems, a global approach may be required to ensure the stability of the sector and new licensing and supervisory authorities may emerge.
Related Topics: Top 5 Fintech Trends That Will Shape Financial Markets In 2021
The future of digital banking looks promising, but the unprecedented pace of innovation and shifting consumer expectations require a new level of agility and forward thinking. Even when financial institutions try to differentiate themselves from competitors, co-innovation becomes an essential part of success.
People and technology will play a crucial role in these developments. Technical skills and digital services must be extremely resilient and always available when the customer needs them. However, human capital will be just as important as any other good. Executives need to know how to upgrade, retrain, and retain their talent to drive innovation. And they have to do all of this while challenging their teams to do things that tomorrow's customers expect. The companies that manage to seamlessly combine these two dynamic forces – people and technology – are the ones most likely to lead the challenging, changing times that lie ahead.