2020 began with financial institutions excited at the prospect of the new decade ahead. The advent of digital payment services becoming ubiquitous, digital transformation projects moving from idea to reality, and the roll-out of 5G, were among the many transformative technologies which looked set to push the boundaries of what was possible.
Fast forward 12 months and, as a result of the global coronavirus pandemic, financial institutions have had to drastically change their plans. The reality is Covid-19 has forced a different approach - one that puts safety first, which has led to a significant change in consumer behavior with a major move to online services underpinned by the need for a convenient, quick and informed approach. Accelerated by the global pandemic, and the complete closure of many high streets worldwide, the rise of digital banking has become an all too realistic future for traditional banking institutions.
Covid-19 has had a major impact on financial services. It has also shown us the resilience that organizations have. Overnight, employees weren’t able to go into their offices, branches had to close, and banks had to rethink the services that they provided online. From banking and insurance to conveyancing, financial institutions found themselves in new scenarios but adjusted quickly and efficiently. If anything, it has confirmed to long-standing organizations that financial services technology isn’t to be feared because it can enable them to catch-up, adapt and innovate in an increasingly digital world.
As well as the ability to move quickly, the shift away from bricks and mortar to digital has helped banks to realize the cost benefits. Stripping unnecessary operating costs out of the business will lead to a renewed focus. The coronavirus pandemic has also given perspective – and time to reflect on what is most important. This is something that consumers will take into a post-Covid-19 ‘new normal’ world as purpose-led banking, the green economy and new payment methods like ‘buy now, pay later’ top the list of priorities.
In the face of drastic, widespread digital transformation, I wanted to outline my top five financial services predictions for the coming year.
1. In 2020 Covid-19 accelerated financial services transformation and there’s no sign of this slowing down
For years, traditional financial organizations have watched fintech entrants eat away at their market share. The fear of digitizing services quickly enough to meet consumers’ demands, and the belief that existing banking practices were sufficient often led to inaction, but in 2020 Covid-19 forced a change, giving digital activity the push it needed. As a result of the pandemic, more traditional financial organizations now realize they can move quickly and provide digital financial services in line with what consumers expect. It has become apparent they can now implement transformative solutions across the entire organization. Whether that’s phasing out static credit scoring algorithms that focus on past behavior in favor of a more agile and dynamic model or implementing digital remortgage services that simplify and speed up the application and acceptance process for homeowners.
2. An evolution in how consumers pay
The consumer lending model has been transforming for some time now. Rather than visiting a branch, consumers are increasingly turning to a buy-as-a-service model. Credit card spend is an example of a long-standing tradition that is evolving. PayPal recently introduced an option for consumers to buy and repay the cost afterwards, not dissimilar to Klarna. The sector will have to reassess how people purchase products and borrow money, underpinned by the right level of comfort to pay it back without having to pursue them. Moreover, the traditional credit risk model that we have had in place for decades will not be a viable way to support the economic environment we should expect next year. The aftermath of Covid-19 will be challenging. Ultimately, it’ll boil down to companies needing to innovate to allow people to borrow, and a personal and sympathetic approach.
3. Humanizing the banking experience
Banking has had to become purpose-led. Where once the sole purpose in banking was profitability for stakeholders, the focus is now shifting to include support for the economy and a positive contribution to wider society. The trend will be a greater focus on employee wellbeing, collaboration with charities, and increased investment in more ethically sound companies. Alongside this will be the rise of the green economy. In the UK for example, start-ups such as TreeCard are already using the green revolution as a way to position their services as unique. The onus will be on competitors to look at where growth will come from as the UK government’s 10-point climate change plan becomes a reality in 2030. Banks will have to find the balance as consumers’ purse strings tighten and the full impact of Covid-19 is felt on the economy.
With the advent of Covid-19, the need to adapt to new financial technologies has taken on an increased significance in the drive to improve customer experience. Investment in new digital platforms and technology such as AI, RPA and machine learning to automate everyday tasks and personalize customer care will become more of a priority. In fact, in future, Gartner estimates that almost half of customer-facing employees will access external platforms or partner networks when supporting clients.
4. As financial technology becomes ubiquitous so too do bad actors
One thing that hasn’t changed is the number of technologies available to financial organizations. Quantum-Inspired technology may be the biggest beneficiary of this renewed shift to digital, but it’s realistically 10 years away from widespread adoption. Blockchain will have an impact, but it’s about finding specific use cases where the technology is a viable alternative. AI has been on the horizon for what seems like a decade now. There is one constant, however, the acceleration of cloud adoption. Large organizations have moved to public clouds, meanwhile, major players Google and AWS have doubled down investment. The Cloud is not new, but it will accelerate – rather than moving what we already have, it’ll become about reengineering everything to become cloud-native.
This rising reliance on financial technology solutions may also contribute to fraudsters’ ability to dupe customers. Organizations cannot allow fraud, identity theft and customer manipulation to become commonplace; fraudsters are putting effort into their innovation. How we protect people, provide ways to make sure they are not being defrauded will underpin the technology that we successfully adopt. While there is nothing on the horizon that is game-changing - that’s good because there is so much to achieve and fine-tune with existing technology.
5. Winners and losers will emerge as they always do, but the variables for success have changed
The financial services industry will do well to get to the end of 2020 and take what it has learned from Covid-19. The pandemic has shown institutions – both new and old – that they can undertake significant digital transformation projects, perhaps better than they initially thought. The ‘new norm’ will bring change, and all organizations should expect the unexpected. In the UK, the Bank of England (BoE) says success is all about managing stability. However, maybe it’s time for a change? Maybe it’s time to move the mantra away from stability and managing risk to accelerating innovative thinking where stability isn’t an option? This is a huge shift away from a 100-year-old mantra to the new world, underpinned and challenged by innovative new digital banking and financial technology.