By Venkatesh Varadarajan, Partner, Financial Services, Infosys Consulting
We are witnessing an evolution. Banking is changing in so many ways – the move away from cash, and even cards, the urgent uptake of online banking, and a growing interest in personal investing. The slow and steady pace of the industry has been accelerated more in the last year than in the entire decade prior.
The results of this transition are already becoming visible: the Treasury has recently raised the maximum contactless spend, hundreds of high-street bank branches from the likes of HSBC and M&S Bank continue to close, and record numbers of people are opening investment accounts. Overall, platforms like Hargreaves Lansdown, AJ Bell and others added more than 500,000 new clients in 2020 – representing a huge expansion in the potential customer base for personal investing platforms, into younger age groups and varying income brackets.
All of these changes will shake up the status-quo, putting customers at the centre of the banking sector once again. It’s becoming increasingly apparent that over the next decade, banking will be put back into the hands of the people – so by 2030, what will our banks look like?
Power to the people
The digitalisation of the banking sector has also been its democratisation. The fairly recent introduction of user-friendly, mobile-based banking apps has shortened the distance between customers and their money. This is an indicator of a larger financial trend: most people now want to be actively involved in their finances. Customers want a bank that they feel is ‘theirs’, hence the success of challenger banks like Monzo and Starling, where personalisation and ownership is integrated into every interaction.
But this goes far beyond mobile banking apps and annual spending roundups. Banks have an opportunity to capitalise on this desire for more involved, interactive banking, creating new products and services that support their customers 24/7. Whether this shift takes shape through shares and trading platforms, broader mortgages, loans and credit card offerings, loyalty and voucher schemes, or even Buy Now, Pay Later (BNPL) services, one thing is for sure: by 2030, banks will certainly be a bigger part of our daily lives, offering products and services that converge to enhance our entire lifestyles, not just our finances.
Of course, to make this diversification a reality, the technical foundations need to be laid soon. For challengers like Monzo and Klarna, whose stacks incorporate the latest technologies and digital estates, they may be able to move faster. But legacy banks have a unique opportunity too, to make the most of their huge cash reserves and loyal customer base.
Best of both worlds
Firstly, banks don’t need to upend their entire tech stack to offer more services to customers. While there will always be a natural competition among old-timers and challengers, the banks of 2030 will exist – and work together – much more harmoniously.
Many customers will likely already recognise the benefits of both kinds of bank – large high-street banks are reliable and have better lending power, whilst younger upstarts, with more mature digital platforms, will be using AI to approve loans quickly and humanoid bots to provide efficient customer support. In a decade, however, this will no longer be a choice that customers have to make. Instead, these benefits will be consolidated through open banking. Banks will be actively pulling in data from customers’ other bank accounts and profiles, collaborating on products and services, and working in tandem to give consumers the full visibility they demand. This will allow them to slice and dice the benefits of each bank as they please, in line with their individual lifestyles.
Securing your growth
This kind of convergence and collaboration between parties inherently creates gaps and vulnerabilities in financial cybersecurity systems, creating a greater need for thorough regulation and protection. Going forward, focus on security will only continue to ratchet up in response to these rising threats and vulnerabilities, which are already driving greater sophistication in cybersecurity technologies.
This balance between security and efficiency is challenging to achieve but will be vital to digital customer satisfaction in the future. So, in addition to improved cybersecurity, over the coming years we’ll also see more widespread adoption of new AI-driven technologies that can identify and eliminate false positives in risk management processes like anti-money laundering and fraud. This can help to streamline transaction monitoring and investigation processes and bring about efficiencies in teams.
Particularly in the area of risk and regulatory programmes, central regulators have already started to take a sharp view on potential risks, mandating tight measures within banks to mitigate these. This attitude will only continue to permeate the industry, so we can expect to see the ongoing growth of innovative Regulatory Hub constructs, to drive greater efficiencies using a hub-and-spoke model.
Agile methods will also become more widely adopted to fast-track programmes involving risk. Risk will increasingly be seen as a strategic function where elements such as risk data are being used for key strategic and marketing decisions, as well as monetisation opportunities that emerge from leveraging data – a phenomena that will grow alongside the increased sharing of data between financial institutions.
Innovating from the outside in
Despite this, innovation will continue at full speed, especially amongst the big banks as the competition between newer ones and those more established grows fiercer. In the past, when banks innovate, they do so from the inside out. This has often created a disconnect between product, process and platform; ultimately diluting the impact of the changes they make.
For the innovation team in the bank of 2030, this approach will be reversed. New products and services will be led by the customer, not the other way around. First up, the mining and analysis of customer data will be key for this. From social media, spending history and a growing number of other data sources, mapping of customer behaviour will become increasingly accessible to innovation teams. Ensuring these insights are put to good use will be the differentiator between those who sink and those who swim.
To enable this outwards-in approach, there needs to be a shift from the siloed development teams that exist currently, to an over-arching, business-wide innovation hub. This could mean a Chief Innovation Officer – a role most banks don’t have in their boardroom – or a team of creative, innovative thinkers who sit across the whole business, feeding into product, IT, transformation, and CX programmes. Putting customers first will rely on finding the right people to make that happen, who will build innovation into every decision – it is vital to fill the currently empty space in many banks where a business-wide innovation team should be.
The first steps of change are often the hardest, and we’ve seen legacy, high-street banks suffer because of this. But the future of banking looks promising for the most important party – the customer. The democratisation of banking, whether that be through greater control and visibility of finances, or the technologies that will enable a 360-degree helping hand with our daily lives, will be a key marker of progress. By 2030, banking should be for everyone. It’s on banks both big and small to make this a reality.