The banking industry is in the midst of a shakeup, which is increasing competition. It seems that everything can be done online, almost eliminating the need for brick-and-mortar institutions. How can we expect technology to continue to change the landscape for financial institutions? One thing is for certain – tech touches nearly every aspect of the banking industry and is launching it into a digitized future.
When forecasting the banking of the future, there are several areas to consider:
This area of banking refers to the types of services banks offer consumers, such as savings and checking accounts, credit and debit cards, and loans. Consumers continue to demand access to these types of services from their phones and computers, forcing banks to reconceptualize the entire market. According to Business Insider Intelligence, 39% of retail banking executives report that decreasing costs is where technology is the most impactful, compared to only 24% who say it is improving customer experience. To remain competitive, retail banks are launching platforms like Banking-as-a-Service, which is an end-to-end process that lets third parties connect with banks’ systems directly via APIs so they can build banking offerings on top of the providers’ regulated infrastructure. BaaS allows financial institutions to diversify their product and revenue streams, among other factors, which allow them relevance in the neobank space.
Mobile banking remains the go-to method for consumers to monitor their accounts, make transfers and deposits. According to Business Insider Intellidence’s Mobile Banking Competitive Edge Study, 89 percent of survey respondents reported using mobile banking. Yet, security remains a top concern for consumers, so allowing them access to services like placing holds on credit or debit cards, scheduling travel alerts, and filing and reviewing card transactions remain crucial security banking features. Another emerging trend in mobile banking are mobile wallets as these emphasize convenience, allowing users to make purchases online or in-store with their smartphones instead of their physical cards. Other mobile banking options include money management features to help users reduce spending and increase savings. Millennials in particular cite savings tools and financial wellness scores as important to their mobile banking experience.
As mobile banking has increased in popularity, online banking has done the opposite. In fact, Business Insider Intelligence reports that mobile banking is growing at five times the rate of online banking while half of all online customers are also mobile banking users. While online banking still accounts for some business, to keep up, financial institutions should invest just as much in their mobile banking to attract Millennials and Gen-Zers.
Known as neo-banks, these types of institutions are redefining the future of banking. While high regulatory barriers have slowed the development of digital-only banks in the U.S., the recent loosening of said regulations are setting the stage of neobanks in the U.S. For instance, San Francisco-based neobank has already attracted 2 million customers, showing that the landscape in becoming increasingly digital.
As with any other sector, if you want your bank or credit union to remain competitive in the coming years, it is time to look ahead to the future of banking technology. And they’re not as far off in the future as you might think – in fact, many forward-thinking institutions are already implementing the following in their day-to-day businesses:
According to Forbes, this technology was on top of the list of technologies banks plan to pursue fintech partnerships for, in addition to being the most frequently-cited technology for addition or replacement. Yet, merely adding this component to your list of services isn’t enough. According to Cornerstone Advisors partner Terence Roche, in addition to account opening, financial institutions also need to focus on digital marketing, contextual product offerings, data-driven campaigns and an easy fulfillment process. Mergers & acquisitions in the account opening space, such as Jack Henry/Bolts, Temenos/Avoka, and Q2/Gro Solutions, will continue to name an impact in 2020.
Banks and credit unions continue to lead in this space. According to Q2, consumers transferred roughly $300 billion in funds to others through their financial institutions in 2018, with about 40 percent of transfers attributed to Zelle. While this is a significant figure, banks still need to compete with popular apps like PayPal and Venmo. In fact, when Millennials were surveyed about P2P providers, 44 percent said they would very likely use a PayPal debit card and even make it their primary card. Further, a quarter cited Apple and Google, and one in four pointed to Venmo.
In the past two years, there has been a trend of banks and credit unions investing in CRM, representing a shift from “Distributed CRM” (or CRM embedded in point solutions like account opening systems, loan origination and digital banking) back to enterprise-wide deployments. Yet, not all financial institutions are on board. Cornerstone’s Ryan Meyers reports that bank-specific CRM models are still new and most organizations are waiting to see the results or are putting other resource-intensive projects first.
Forbes reports that the percentage of financial institutions planning to add or replace new account/teller systems doubled between 2018 and 2019. This jump reflects two factors: improving the in-branch account opening experience and consolidating/coordinating the branch and digital account opening processes.
A trend among community banks, many financial institutions are seeking to grow their commercial lending business by expanding into commercial and industrial (C&I) loans. This includes them investing in commercial LOS to improve their speed to market.
As customers continue to look for convenient options, digital banking remains a steadfastly popular choice. While banks look to digital to provide security and cost-efficiency, the true value of digitalization is what it can offer consumers. This only serves to raise competition amongst banks if they want to stay relevant in the digital landscape, though according to Raconteur, traditional banks have an advantage in the range and complexity of products they offer, as well as an existing clientele. Regardless of which financial institutions will pull ahead in the race for business, it is clear that the time for digitizing is now.
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