6 Global Trends Which Will Impact the Future of Banking
Future of banking – reshaped
Let us understand the global trends which will reshape the Future of Banking and how to upskill accordingly to be relevant in such future job roles!!
Post Covid, the world has become ever more digital and this has led to increasing interconnection between new technologies that allow the free flow of data, insight, resources, products and services. Such has been the inter-knitting of sectors that trends in one sector of the economy, can easily impact other sectors. We list here are some non-banking trends, which are impacting the financial sector and will decide the future of banking in due course.
From the pandemic, we are now able to see the emergence of new trends across multiple industries which are impacting banking – as we know, and disrupting legacy business models. This now has the potential to alter consumer’s financial lives for the better. Now some of these trends are already in the growth stage of their lifecycle process, while others are still in their nascent stages. One thing we must understand here is, that these trends maynot be inclusive in nature, but as banking goes – we must understand these, as financial and strategic plans are built around these trends to capture the customer.
It has now become crucial that banks and NBFC’s embrace an innovation culture, increase their data and analytic maturity and invest in advanced technology. Also they should be look beyond the traditional quarterly numbers and think three to four quarters ahead in the business cycle of the economy to avoid the inherent risks and take advantage of opportunities that are present. Most importantly, financial institutions need to look beyond operational execution and product delivery, potentially creating and bolstering new business models.
1. The urge to become a Super App
A Super App is nothing but a single app that will integrate other apps that a user uses every day. So you will find shopping, grocery, food delivery, movie ticket booking, travel booking and also traditional banking/wallet all clubbed into a single app.
The key to creating a super app is an established user base, thereon engaging them with light but great UI and UX. In the back-end the app can deploy deep first-party data to personalize targeting, engagement and real-time offers. However the problem in most cases is, that the banking apps are seldom developed in-house, but through third party vendirs. Therefore user acquisition and onboarding is not as smooth as it should be, by leveraging data available. The end goal for banks is to increase engagements and generate alternate new revenue streams.
However no one has been able to perfect the system. We have the likes of HDFC, Kotak integrating 3rd party apps in their banking system and another model is with the likes of Federal bank – where they have been plugging with numerous partners leveraging their banking licence. If this wasn’t enough, GPay, Whatsapp Pay are catching up faster to create the next super app with both financial and non-financial services.
According to KPMG, “Banks will need to decide soon whether they plan to be a front-office player within a super app, a back office enabler or simply a piece of regulated infrastructure in the future — and then start investing and evolving towards achieving that vision.”
2. Amalgamation of Health and Finance
With advancement of technology and adoption of IoT devices for daily use, users are now able to monitor their lifestyle and crucial effects on health. This has kind of allowed creation of a pool of data which finance companies want to leverage on. Insurance companies for instance – both life and health can do a plethora of simulations and mathematically understand your health condition and tweak your premiums depending on your lifestyle and disease!!
For starters, while healthy one’s can find discount in their annual premiums – the lazy bums can be heavily penalised!!!
3. Digital First is the key
The line between digital and physical has blurred, with consumers now using digital channels more than ever. This trend is expected to increase across all industries. While organizations have enabled improved digital engagement over the past several months, there are still major pain points, mostly with speed, simplicity and cross-channel integration during the ‘first mile’ of establishing a relationship.
India’s leading private bank still faces app /net banking issues time and again.
Banks need to embrace digitally fully. Despite having Aadhar and Digital KYC through new age authentication apps, certain banks – like the PSBs still insist on customer visiting the branch to complete the formality of customer on-boarding for digital savvy customers. Now that’s for Saving account. One will be surprised to know that, even today more than 80% banks require physical interaction between banker and customer, if they have to open a Current Account!!
So there is a long way to go and a lot to be done.
The trick here is to embrace the customer journey, as though the banker was the customer – to feel the pain points and then working on easing it out.
4. Your Bank as Your Digital Conceirge
Just like you find a concierge at a five star hotel working on your behalf to create personalized experiences, banks are trying to use data and advanced analytics to understand customer buying and usage behaviors. As proactive recommendations improve, and contextual communication during the customer journey increases, consumers will begin to both trust and rely upon AI empowered engagements – thereby ensuring constant engagement with the banking ecosystem, which will in-turn bring in fee based earnings.
Differentiation in the future will be based on how organizations can leverage first-party data to optimize experiences and decision-making. First-party data will be the key to maximizing the value exchange across the full customer journey.
5. Reallocation of Capital Investment
According to a research released by CB Insights, 614 fintech firms worldwide raised $22.8 billion in investments in the first half of 2021 – more than double the amount raised in the fourth quarter of 2020 – representing the largest venture capital-backed fintech funding quarter ever!!
The reallocation of investment in fintech firms – as opposed to legacy banking or financial organizations – is something that cannot be missed. Today the biggest banks are trying to defend their turf by investing in, acquiring, partnering with, and/or serving tech-based fintech firms. Even with these strategies, existing banks are challenged to generate significant investor retun in an ecosystem filled with innovative, technology-based alternatives that don’t include costly, under-performing physical infrastructure.
So if an investor is able to get 10x- 20x return in 2/3 years with fintech vs 15-20% appreciation with banks (at the most during normal times, most are giving negative returns – If one were to see PSBs), there is bound to be pressure from investors on banks to perform. Its astonishing to observe that most PSBs have been biggest wealth destroyers for investors – forget about appreciation!!
Hence, someday boardroom discussions are going to turn nasty – where the expectations from banks get compared to fintechs and so does real world capital raising issues will creep in!!
6. Making “Financially Viable” – Sustainable
An increase in global environmental, social, and governance (ESG) awareness is already driving companies to invest in sustainability. In the past, many organizations saw sustainability as something to do in response to outside pressures or potentially unfavorable publicity. Today, more organizations are working to become more sustainable and/or to move more of its investment portfolio to sustainable business opportunities.
Banks have been slower than many other industries to focus on sustainability initiatives. There has been recent momentum towards sustainable banking since the pandemic, however, with the commitment by leading financial institutions only increasing. It is expected that more and more banks and credit unions will build a sustainability agenda as experiences from leaders are shared and pressure of interested parties increases.
To achieve the goal of more sustainable economic activities and projects, it is critical to have the right ESG data and to employ this data in a transparent and accountable manner. Transparency is also imperative.
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