The pandemic has accelerated so many things in our lives? One area that has seen a big shift is the banking and fintech industries. In just 10 months, they compressed a decade’s worth of ecommerce innovation into their services. And guess what? People have adapted! Consumer expectations have changed, and companies are pivoting to meet those expectations.
A big part of this change is that more and more people are embracing digital services, even those who have never done financial transactions online before. Millions of people are banking without ever walking into a physical location, and it looks like that trend is here to stay. They say that necessity is the mother of invention, but in this case, it’s also the mother of adoption.
But all this change isn’t just affecting customers. Entrepreneurs, business leaders, and industry executives are facing an unprecedented and unexpected rate of change. Things that were supposed to take years are now becoming the “new normal” in just a matter of months. The future of banking will look very different, not just in terms of digital adoption, but also in terms of service offerings, who provides them, and the relationships between institutions and customers.
To be successful in this new landscape, banks will need to rely less on traditional services and revenue streams. Instead, they’ll need to be able to see their customers’ financial needs from end-to-end and meet those needs in a seamless and frictionless way.
1. Physical decline
Traditional brick-and-mortar banks are slowly fading away. With the widespread use of digital services via mobile, computer, and other devices, physical banks are losing their relevance. Although they are unlikely to disappear completely in the coming decade, they will have to repurpose themselves to serve niche needs as general financial services are increasingly available online.
2. Thinner wallets
When it comes to payment options, thinner wallets are in fashion, and cashless options are becoming more prevalent. Electronic transactions are not only more convenient and efficient for individuals but also deliver significant advantages to businesses, governments, and economies at large. The question is not whether companies and countries will go cashless, but rather, who will lead the charge or resist the change.
3. Digital transaction
The world of banking and finance has come a long way from the days of physical currency and banknotes. Back in the day, it was unimaginable that one day we would carry our entire wealth in the form of a small plastic card. Yet, today, digital banking has become the norm and it continues to evolve at a rapid pace. In fact, the latest trend in banking is the decline of plastic cards, and it’s happening faster than we can imagine.
Digital wallets have become the go-to for millions of people across the world, especially in Asia where more than half of all transactions are already being made via digital wallets. This shift towards digital wallets and cardless payments is driven by the growth of payment-capable IoT devices and accompanying services. It’s no longer just about convenience, it’s also about the enhanced security and the ability to have greater control over our finances.
4. Rivalry with fintech companies
As non-bank entities like PayPal, Stripe, and Venmo continue to serve customers’ financial needs, traditional banks face stiff competition. Despite the ongoing debate between lawmakers, regulators, and executives, these SaaS companies are expected to serve customers’ financial needs similarly to traditional banks. The rise of super-apps like China’s WeChat, Singapore’s Grab, and Indonesia’s Gojek will also continue to disrupt the financial world.
Credit is an essential part of our lives, especially when our income doesn’t align with our expenses. However, the way financial institutions determine creditworthiness is changing. Traditional factors such as credit scores may no longer be sufficient to evaluate a person’s eligibility for a loan. Banks are now using artificial intelligence to analyze massive amounts of data to discover better methods of assessing risk and reward. This shift in approach means that creditworthiness will no longer be based solely on credit scores, but on a broader range of factors such as professional background, criminal history, and other nontraditional criteria.
6. Individualized customization
The era of personalized banking is here, thanks to big data and AI-driven analytics. Financial institutions will treat each customer as if they are their single greatest priority by providing instantaneous borrowing, proactive product suggestions, detailed guidance on purchases, and budgetary recommendations. Factors such as real-time location and spending profiles will be used to customize banking services to meet the individual needs of each customer.
The financial landscape is complex, with many players involved, including traditional banks, digital-only banks, fintech apps, merchants, and consumers. The diversity is great, but it also creates transaction friction, privacy and fraud concerns for all parties involved. To overcome these challenges, innovative solutions are needed that provide interoperability by design. Payment and financial stacks that offer seamless integration between different financial services and providers will become increasingly important. This way, consumers can safely and efficiently conduct transactions across multiple platforms and providers.
As new technologies and players like Google and Apple continue to disrupt the industry, policymakers must identify emerging risks and create comprehensive solutions. In the future, a global approach may be necessary to ensure stability, potentially leading to the rise of new licensing and supervisory bodies.
Despite the challenges, the future of digital banking looks bright. Financial institutions must be agile and forward-thinking to keep up with consumers’ changing expectations and differentiate themselves from their competitors. Co-innovation will become an integral part of success, with companies working together to create innovative solutions that meet the needs of their customers.
To thrive in this dynamic environment, companies must leverage both technology and human capital. Tech capabilities and digital services must be resilient and available when customers need them. At the same time, human talent is critical, and leaders must upskill, reskill, and retain their talent to promote innovation. They must challenge their teams to think creatively and develop solutions that meet the needs of tomorrow’s customers. Ultimately, the companies that can blend people and technology seamlessly will be the most successful in the changing times ahead.