The speed of innovation within the banking industry is increasing exponentially with the consumer willingness to try new digital financial services during the pandemic. With no access to shut down branches, both traditional and non-traditional financial services providers had to respond to the customer demand for seamless and fast solutions that could make banking easier. There was very little time for legacy back-office processes to be rethought to support the solutions already provided by FinTech providers.
But while rethinking the processes, it is important to know the major themes impacting the banking industry. The question is not whether change will occur, but which changes are the biggest threats (and opportunities) to existing business models.
The digital transformation trends listed below are neither prioritized nor exhaustive in nature. Most of these trends impact the delivery of retail banking products and services directly. But of them must be taken into account for strategic planning processes. And each trend is already of a high level priority because business banking and consumer behaviors continue to change.
1. New payment innovations
The speed of payments is increasing together with the speed of payments innovation. This new innovation has forced traditional banks and even competing payment providers to start a new circle of the competitive run at higher stakes. While most of existing solutions are developed for short-term deferred payments, new alternatives have been created for larger purchases with longer-term payment conditions. That has greatly impacted not just debit issuers, but also personal loan and credit card providers.
But new payment innovations often emerge faster than the regulations aimed at protection of consumers. While regulators and legislation sort through the risks to consumers associated with new solutions, financial institutions try to create solutions with improved transparency and better risk/reward models in attempt to retain current customers and attract new ones.
2. Fast omnichannel payments
Payments is a significant part of banking and it’s not a surprise that innovations in the area of payment are accelerating. Payments are becoming more secure, faster and more embedded into every part of our lives. Consumers want to make a transaction with a push of a button on their mobile device.
As the pandemic shut down the traditional forms of in-person retail commerce, the importance of support of contactless transactions have become a necessity. Most businesses need assistance from their financial services with creating value-added omnichannel solutions.
3. Investment in technologies
If the investment in technology is not the only requirement for becoming a successful digital provider, it is certainly one of the crucial components. While the majority of fintech and big tech providers have already been built on modern digital infrastructure, most of the traditional financial institutions only start prioritizing the technology.
Mid-sized and smaller organizations (and some of the largest banks as well) have either partially modernized back-office and/or have partnered with FinTech companies or other solution providers capable of building agile digital solutions.
4. Open banking
Open Banking – one of the most important global trends in the banking ecosystem – enhances the potential for innovation by mandating traditional financial institutions to share financial data through APIs. Though the extent of regulated sharing may differ across regions and countries, the potential for new products and services within and outside traditional financial services is enormous.
Now, developers can build solutions with completely new revenue models by using customer insight for personalized and contextual solutions.
5. Platforms and embedded banking
The future of financial services shouldn’t depend on historical delivery mechanisms and traditional products and services. The use of data and applied analytics enables the banking services embedding, such as lending, deposit, and payments within non-financial solutions. As a result, consumers and small businesses do not have to go to traditional providers to have their financial needs met.
The development of “super applications” provides higher customer engagement and loyalty with overall customer experience improvement.
6. Outsourced solutions
Financial institutions have to keep pace with change by collaborating with third-party developers and FinTech providers to have tested solutions on board. This strategy is used by FinTech companies who want to expand their product offerings as well.
When hoping to add a new solution to the product mix or build an improved new account opening or digital lending process, cooperation with companies who have already had that experience with other institutions is a great option. It allows focusing on initiatives that may need greater internal resources.
7. Specialized digital lenders
In the majority of cases, lending processes in legacy banking organizations are slow and paper-based with no significant changes over the past several decades. While consumers expect their engagements to be fast and easy, borrowing at a traditional bank or credit union is painful and time consuming.
The emergence of specialized lenders helping to process mortgages, personal loans, student loans, auto loans, and even credit cards became a breakthrough. This caused an unprecedented shift of market share away from traditional banks to FinTech players leveraging a pin-point focus on modern technology, customer experience, and low cost acquisition models.
8. Personalized engagement throughout all customer journey
Due to focusing on data, analytics and modern technology, neobanks and other FinTech companies are increasing engagement across the customer journey through provision of contextual communication and offers that highlight personalization of customer experiences. With the increasing number of consumers using digital channels, the ability to reach customers with digital marketing, customized social media, and mobile app messaging is far more effective than the communication channels usually used by legacy banks and credit unions.
With consumers willing to use various financial services providers, and with FinTech providers constantly adopting new digital marketing methods, legacy relationships are lagging behind.
Prioritize for the Future
By looking at the major trends in the marketplace credit unions and legacy banks must choose the priority where there is greatest potential for their future success. One organization may choose building solutions internally, while another will prefer to partner with a solution provider or FinTech organisation to meet the customer needs. And it doesn’t matter which path is chosen, it’s necessary to go that way.
