COMMENTARY
Jan. 11, 2019
By Laura Crozier, CFA, Global Industry Director, Banking at Software AG
The banking industry has been rocked by digital disruption. With customer expectations being set by experiences beyond financial services, banks have increasingly accelerated their digitalization in order to act on deep data-driven insights and deliver high-touch customer experiences.
As we move into 2019, here are the top trends we can expect in the banking space.
#1: Digital Experiences Will Continue to Challenge Banks to Innovate
Digital-first competition has given traditional banks incentive to kick-start their focus on innovation.
Fintechs and big techs like Amazon and Apple are nipping away at the traditional value propositions of the banks with instant pay offerings like Venmo, and Amazon and Apple pay. Banks like JPMorgan and Bank of America are fighting back with Zelle, which enables account holders at participating banks to pay each other instantly. However, the future will go beyond a transactional approach: it will be for the banks to become a "financial wellness partner" for their customers.
Banks will re-engineer their value propositions to go beyond what we might think of as traditional "banking." Payment services will not only move dollars from point A to point B, as bank will partner with the customer to provide guidance in real time about budgeting relative to goals. And instead of a consumer going into a branch to get a mortgage, they now can go online and have a home buying experience curated by their bank. Services from mortgages to real estate agents to insurance can all be part of the overall experience.
#2: Pruning the Branches
Overall, U.S. banks have closed nearly 9,000 branches over the course of a decade, dropping substantially from their peak level in 2009. While many of these closings are the result of mergers in the industry, a large bulk are an outcome of increased growth in digital channels.
Bank branch closings will continue as customers increasingly adopt mobile and online banking. Most banks will maintain smaller anchor branches to provide a reassuring brick-and-mortar presence versus purely digital competition. However, as they digitally transform and focus on costs, they will transition remaining branches to low-volume/high-value activities, such as financial advising. This will also be true for the more than 1,200 small banks that have expanded their branch networks since 2012.
#3: Banks Will Get Back to Basics
After years of spending on mobile, client-facing technology, banks will realize that they have reached the limits of what they can deliver to clients in a contextual experience unless they thoroughly and intelligently automate processes. As a result, the back office will get some much-needed investment in banking.
This is especially true when considering a possible economic slow-down looming on the horizon. Business teams will be pressed to demonstrate rapid ROI for technology projects. A pragmatic and focused use of machine learning and robotic process automation will help to strip out the costs of swivel-chair integration, manual errors and expensive humans deployed on low-value activities.
#4: Usage-Based Models Will Change How Customers Consume and Purchase Goods
Companies now offer usage-based cost models on everything from cars to machinery, giving them rich insight into how, when and where customers use products. With the rise of outcome- or usage-based cost models, financing for fixed assets will change dramatically. Instead of loan payments being based on time, payments will increasingly be made based on the income stream generated by a piece of equipment – as measured by a sensor – and shared with the bank. Industries such as automotive manufacturing and insurance will see the emergence of on-demand, "pay-as-you-go/live" services, infrastructure and lower-commitment products, similar to what has happened with high-end fashion. With services like Rent the Runway and Trunk Club, retail customers rent dresses for a night versus buying them for a lifetime – it’s likely that other industries will soon follow.
From usage-based financing and the automation of processes, banking and mobile payments are poised on the cusp of a new digital age. As more banks continue to embrace digital this year, we can expect more efficient processes
Cover photo: iStock
Topics: Mobile Apps, Mobile Banking, Mobile/Digital Wallet
Companies: Software AG
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