Will banks disappear in the future?
Some people are pointing to the disappearance of the global financial services system as we have known it. The incursion of new players is even leading people to talk about the end of banking. It is difficult to predict what banking of the future will be like or what role traditional institutions will play in the new world order, but it will certainly be very different from what we know today. The one thing that is certain is that money will continue to move the world, whatever form it takes, and there will always be a need for a financial services system.
We live in a world dominated by technology and thanks to its advances, consumers now have power like never before which has transformed virtually every aspect of modern society, including their relationship with financial institutions. The rules of the game have changed forever due to the combination of a whole host of technological factors, such as communications, AI, Big Data, IoT, the rise of cryptocurrencies, increased regulation, etc.
The customer is more empowered and also more mobile. According to EMO Insights International’s ‘Emotions in Banking 2021 Study’, customers’ emotional attachment to their banks has fallen with the pandemic. In addition to this worse perception, 4 out of 10 customers would switch to a non-traditional entity if they had to choose a new financial provider, according to the Financial Innovation Barometer created by Funcas in collaboration with Finnovating. Undoubtedly, all these changes are making many financial companies consider their long-term survival. Of course, this obviously implies a radical change in approach and attitude.
For any company, not just banks, undertaking a drastic change programme is a Herculean task, especially when faced with a multitude of legacy technologies, outdated business and operating models, as well as mindsets often anchored in analogue. Adapting will require rapid change.
Challenges for traditional banking
Today, banks face challenges in four different dimensions. On the one hand, on the business side, banks have to learn how to create new products and services, both financial and non-financial. It is no longer enough to launch a new credit card in a special colour or loans with a notable name, it is essential to think about the vital needs of customers (travelling, buying a house, changing cars, studying…) and to know how to differentiate whether their context is physical or virtual, in order to be able to offer services and products that really add value where they are needed.
The second dimension is operational because most of us follow analogue, manual processes, designed 10 or 20 years ago, which are far from being adjusted to the digital day-to-day life of our customers. We cannot ask someone who shops on Instagram to send physical documents to the bank; they would not understand.
The third leg is technological. Technology has to adapt to this second wave and allow us to be much more agile when it comes to launching products and services, as well as being much more efficient in order to reduce costs. Finally, there is the mindset of the organisation itself: they need to think digital first and react faster to change (just as Netflix, Instagram or Amazon do). In short, they need to become more agile.
On a technological level, the new normal, in accordance with the open banking model, is that everything is digitalised, in the cloud, available at any time, assisted by artificial intelligence and that the customer is attended by both people and online chatbots 24 hours a day. Therefore, we believe that institutions should move forward in four directions. First, they should reinforce their channel strategy by placing greater emphasis on user experience, omnichannel and access to new connected devices, designing other means of communication, mainly by voice. Second, they should gain efficiency both through automation (robotics or AI) and cloud adoption. The third way would be to use data and the speed of reaction (big data and fast data) to improve customer knowledge and be able to meet their needs in a hyper-personalised way and in real time. Finally, banks will have to be flexible in order to create tailor-made products almost automatically; a field in which the emergence of new core banking and ‘Banking as a Service’ (BaaS) will be key.
In short, we are in a time of continuous change, and the need to constantly review and renew business and operating models, working practices and technological developments must become a matter of course. Only then will banks be in a position to maintain all those important relationships they have with customers and, at the same time, generate lucrative and sustainable new revenue streams, both of which will go a long way to ensuring that the banking of tomorrow has a future.