Growth remains tenuous for retail banks, costs keep spiralling up and return on equity remains stubbornly low. Regulations continue to impact business, while technology is being increasingly pushed as a potent enabler of both customer experience and operations. With non-traditional players challenging the established order, incumbent retail banks are rapidly changing norms in order to bring in customer-centric innovation. Customers are demanding better service levels and higher value. Meanwhile, trust in financial institutions has perhaps never been lower.
On the upside, we can expect the future of retail banking to look very different from today – some of what we will see will be evolutionary and some will be radically different. Banks will need to deal with changing consumer demands, new technologies and business models, and establish strategies to help them prepare for next level banking. We will also see banks becoming more customer-centric and focused on delivering financial well-being by applying data analytics.
We can be certain that the landscape will become more competitive, efficient and innovative in delivering autonomous experiences, that are not possible today. Leading banks will harness digital capabilities to give customers more flexibility in terms of financial objectives and interactions. The future of retail banking will entail the use of emerging technologies in redefining the bank-customer relationship in a hyper connected world, and the emergence of the ‘super-app’. More on this later.
Will banks become invisible?
Customers are connected and want a seamless, hassle free and ubiquitous banking experience. So we can expect that traditional banks will eventually cease to exist, or be left behind. Already several banks have reduced employee count, closed less sustainable locations, and are experimenting with new retail concepts. According to PwC, banks can automate their services and digitalize their products to become ‘invisible’. For instance, a bank can negotiate the cost and payments to repair a damaged car by contacting experts and validating the right price, and also assess the insurance payout. According to a Finastra report, banking as a service could reach USD7 trillion by 2030. The report shows 85% senior executives confirm the implementation of banking-as-a-service or are planning to do it within a year. Financing at the point-of-sale and buy now pay later are also expected to grow 104% by 2024.
Becoming a part of life
A trend, therefore, we see is that retail banking will become more digitally interlinked in their customers’ lives. Banks are increasingly using digital technologies like AI, data analytics, blockchain, chatbots and open APIs, to put customers at the center of their innovation. Over the next few years, banking experiences will become more personalized and data-driven. From traditional branch-based servicing to end-to-end digital offerings – mobile banking, electronic KYC, all-in-one digital wallets, virtual assistants, etc – banks could be invisible, but a deeper part of customer lives. UK fintech firm Revolut uses Google Cloud to help customers easily access their money in more than 150 currencies and withdraw money at the same exchange rates as banks, while maintaining minimum fees. The firm can handle more than 230 million transactions for a global customer base of 3 million, and can scale up faster and cost efficiently with Google Cloud.
In the US, financial institutions such as JP Morgan, Goldman Sachs, Bank of America, Fidelity, and Vanguard all have active and successful investments in fintech ecosystems. Mid-tier and regional banks such as State Street, PNC Bank, and Schwab are running smaller initiatives based on geographic, personnel skills and business needs.
Emergence of crypto and DeFi
Crypto and DeFi (decentralized finance) based banking is set to disrupt the current banking ecosystem. Crypto is being adopted rapidly in the last couple of years, and despite the recent pullback, it still is a USD1.6 trillion market. Crypto is typically not part of the money in the traditional banking system such as bank accounts, ETF’s mutual funds, etc. At the same time expanding at a CAGR greater than 10%, crypto is eating away money from US banking. With protocols like Ethereum, Cardano, and the peer-to-peer approach, Crypto threatens the centralized nature of banking. Banks no longer need to play the role of trusted intermediaries because that function has been taken over by blockchain.
Building the super-app
Customers are asking for a single app that will let them access all their banking and financial needs, including any offerings customized. Most banks are yet to cater to this demand where a single aggregating app can pull in all of these different products and services under third-party brands. But some firms, like UK-based Monzo, have already tied up with other providers for various offerings, including forex products. This naturally entails a radical shift in mindset that moves away from the bottom line and towards a multi stakeholder approach. The focus will be on customer experience and sustainability. Banks can extend their future capability by creating more human experiences with technology that goes beyond just banking. An aggregated platform like a ‘super-app’ will address customer demand for simple, intelligent financial services.
Banks will need a different looking glass
A lot of what senior executives have been doing will have to be reversed if banks want to revitalize their core systems and create new products and services to excite customers. Everything from operations to innovation will be customer driven rather than based on internal requirements. Banks will have to mine and analyze customer data from social media, spending history and other data sources to map customer behavior. Putting this goldmine of insights to good use will be the differentiator between who will sink and who will swim. Another important action required from banks is to stop shying away from technology and invest in the right tools. While banks are struggling with legacy systems, lean and agile fintech start-ups are wooing their customers. Building future proof technologies and data-driven processes will help banks keep pace with the competition.
Tectonic shifts ahead
It takes courage to adapt and thrive in an industry being disrupted by powerful factors. Traditional ways of operating will no longer work and will require a blend of revolution and evolution to meet customer expectations in the next decade. Technological prowess, regulatory pressures, and changing customer profiles will compel banks to change. Along with the end of standardization, we can expect to see banks adopting hyper-personalization and introducing autonomous offerings that serve customer needs almost automatically. Technology will alter everything — becoming a potent enabler of enhanced service and reduced cost.
Empowering the future of banking
As a trusted digital transformation partner for banks, Xebia bridges evolving customer needs and dynamic market demands with our innovative technologies and domain expertise. Our experts help traditional banks and digital banks capitalize on the confluence of digital technologies to revolutionize customer experience, and enhance service offerings through innovation and digital ecosystems.