“Change is the law of life, and those who look only to the past and present are certain to miss the future” – John F. Kennedy
Heraclitus, a Greek philosopher said “Change is the only constant in life”. Change is happening everywhere and in all walks of life as we see it. The year gone has taught many lessons to both individuals and organizations to ponder over and see things from a new perspective. Many industries could not sustain themselves as they were not ready for the circumstances that doomed their very existence. Only the vigilant could survive the onslaught brought about by the recent situations and technology was the savior in most cases. The financial industry too saw many digital innovations to overcome the recession that followed the arrival of the pandemic. The digital touchpoints saw huge traffic owing to the mandatory norms like social distancing forcing many earlier non-users to jump into the tech bandwagon.
The once static banking industry is undergoing a series of drastic changes because of the fierce competition from the Fintechs and Decentralized Finance (DeFi) atmosphere of today forcing them to adopt never before digital strategies. They have to now operate along with the new crop of online financial service providers that have only multiplied during the pandemic and increased undue pressure on banks to follow suit. The rise and rise of technology have indeed brought about a sea change in procedures and regulations across the industries for more acceptance and ease of new developments.
Changes in the Banking Industry
Reduction in Brick and Mortar Banking: The future may see a complete shift from physical bank branches to everything happening online. The industry will finally realize the operating benefit through online mode than the physical branches which are too many and expensive to maintain. The costs thus saved can be utilized for offering better and more sophisticated online products and services that provide a better value to the customers.
Omnichannel Banking: Customers across all industries want a seamless experience without hitches. The banking industry is no exception to this and with globalization and changing customer needs, the expectations have skyrocketed. Making customer experiences seamless would mean making the customer experience simpler, straightforward and hassle-free. This further implies that banks must accomplish very high levels of multichannel delivery results and become truly omnichannel.
Customers should not experience lapses as they move across channels. A customer should be able to start a digital journey in one channel, pause briefly and move effortlessly to another channel, then be able to continue later in the original channel to complete the journey. Banks will have no choice but to adopt an omnichannel strategy to retain their customers in this cut-throat competitive atmosphere. The products delivered will be interactive, give a personalized experience through multiple channels and enabled for multiple devices, through a digital banking platform. They will enable multiple delivery options across channels, but also differentiate their services based on customer profiling and customer preferences. The apps offered in this model will be used not only for regular banking needs but also double-up as an investment, insurance and shopping destination for the customers.
Open Banking/Banking driven by APIs:
One of the biggest trends that are foreseen is the rise of Open Banking or API powered banking that will enable third-party service providers to have free data access creating a healthy collaboration between banks and non-banks. This partnership will help in creating a better experience for the customers and will also open up new revenue avenues. The model created by this combination can even help in more penetration of the services for underserved markets.
Everything in Cloud:
Financial institutions are facing challenges presented by new dimensions, including ever-changing customer expectations, emerging technologies and new business models. Cloud technology will help in facing these challenges with ease as Cloud is comparatively less expensive, faster and a more elastic alternative to an on-premises data storage and compute option. Cloud will make scaling up the infrastructure fast and efficient, decreasing the time to react considerably and will help connect the enterprise in collecting, storing and analyzing data efficiently. It helps enterprise-wide synchronization by breaking operational and data silos, such as customer support, finance, risk and regulatory compliance, across functions. This leads to the integration of business divisions, sharing data and driving combined decisions to help solve customer issues. With the cloud, banks will be able to respond quickly to outages and disruptions through data backup and seamless recovery. It allows moving data across data centers and regions taking security also into account. Banks will further look at the cloud to increase operational efficiency, scale-up and create new business models. Cloud adoption will help banks equip themselves with the capacity to be able to process enormous, fluctuating volumes of data to become more resilient with redundant systems uncovering new revenue streams with risk mitigation.
Innovation will be the key for the future sustenance of the banking industry and this will require managements to think out-of-the-box for providing valuable services to its customers. New ways of earning income from products and services not being offered as on date have to be thought of to win both financial rewards and customer loyalty. All the banks are already into other businesses directly or indirectly like cross-selling of insurance, mutual funds, etc. This gamut will increase making way for new revenue streams through restrictive sharing of the data/information to enable fintechs to develop new sustainable business models.
The new forms of currencies are eating into the revenues of the traditional systems by venturing into digital financing solutions that are a direct threat to the banks. Many nations are forced to legalize such digital currencies and many more are bound to follow. There is a need to nurture this decentralized ecosystem with an open mind carefully and have a suitable regulatory framework put in place for its overall success and widespread acceptance. The best way is to enable the banks to act as custodians to this new type of currency with the proper framework and monitoring by the regulator(s).
Simplification: Simplification of the processes is the key to attract new customers and increase the loyalty of the existing customers. The mushrooming of fintechs with their simple product/service offerings has indeed created a healthy competitive environment, forcing banks to transform themselves to catch up. Various innovations in banks like digital onboarding, AI-driven decision making, automation of mundane tasks and omnichannel presence have helped smoothen the customer journeys to a large extent offering a pleasant experience.
Growth of non-banks:
The near past saw an enormous growth of nontraditional lenders by the way of non-banks or neo-banks or fintechs, whatever you wish to call them, making their presence felt in the space where the banks had firm hold since long. Most end-users do not understand the difference between these nontraditional and commercial bank lending but will not shy away to approach them if the rates offered are reasonable and competitive. Traditional Banks will have to live up to the expectations and offer similar facilities or just lose customers.
Collaboration is the Key: Collaboration will be the key for the banks to adopt the innovative latest technologies. The advent of many fintech players such as non-banks or neo-banks or startups catering to the never explored strata of the consumer base has started a revolution in the space of offering fintech services. The competition will make way to collaboration with these newcomers for mutual benefit leading to bringing out out-of-the-shelf products/services by way of innovations.
Inclusive Banking: Consumers are in for a treat as the best of both the worlds of traditional banking and neo-banking are coming in a big way. Banks have realized that collaboration, rather than competition, would benefit where customers may be provided with a delightful experience by the synergies of tie-ups. More underbanked may be brought into the fold by way of tech-enabled products/services reaching the end-users through their mobile devices.
Regulation and Governance:
The role of the regulators has drastically changed in the present context of umpteen fintech service providers offering varied products and services in the atmosphere of technological explosion. The focus has shifted more towards the risk arising out of such engagements as these fintechs gain a huge market share in a very short period of time. The regulating authority has no choice but to force them to play by the same rules that govern other players in the market.
Employee Engagement: Along with the latest technological initiatives and innovations, banks need proper support from their employees to understand and support their customers for a friction-free experience. If banks are unable to make employees accept these changes, the digital transformation dream will not be fully realized. The technology transformation can always be enabled but it is necessary for the banks to engage employees early in the process to get them to understand and acquire the new digital capabilities necessary for the change. So, the requirement of tech-aware employees is bound to increase and banks need a suitable human resources strategy to stay ahead in the race.
The new changes that are evolving and going to surface in the banking/financial sector are because of the nature of technological innovations, changing customer preferences and the addition of new and efficient competitors continuously bringing a paradigm shift in the way things are perceived. These nature of changes focus not only on being customer-centric and service-oriented but also give preference to the security/privacy concerns and regulatory obligations that are needed to safeguard the customer.