Many people envisioned that the 2020s will be a decade of ground-breaking digital banking transformation, seamless innovations and technological advancements that greatly improve user experience.
These advancements are geared towards helping banks decrease cost-income ratios, increase return-on-equity ratios and improve their efficiency through and through. For example, Open Banking, which allows third-party applications to access bank accounts, is adding tremendous value to all parties concerned. Such systems have created an opportunity for companies like Apple, Facebook, Google and Amazon to compete favourably by splitting the value chain into manufacturing and distribution.
Due to the effects of COVID-19, consumer demand for more flexibility and control are driving the need for new tools and technologies.
Banks are now tasked to create new strategies and innovative solutions using available data, digital technologies, novel delivery platforms, and transactional and behavioural analytics.
Future retail banking trends are expected to improve customer experience by facilitating faster and smoother transactions. Here are a few trends expected to disrupt and shape the retail banking industry in the year 2021:
Banks will need to be proactive in recognising the changing needs of customers at the exact time they need them, as having the right products and services will no longer be enough.
1. Artificial Intelligence will drive a shift in the business model
Stakeholders in the banking industry believe that Artificial Intelligence (AI) will be the most consequential technology in the sector.
They expect that AI will play a huge role in creating an improved and personalised user experience, supporting new businesses and in strengthening portfolio management through the use of advanced investment algorithms.
Furthermore, banking executives are optimistic about using AI in fraud detection and improving back-office functions to trace anomalies in future business plans.
Business executives all over the world have invested heavily in the development of artificial intelligence. This massive investment was done to strengthen cybersecurity, curb cybercrime and prevent a breach of data.
The viability of AI depends on its expandability. Regulators require that banks must only use explainable AI. EU’s GDPR, for instance, has introduced a “right to explanation” mandate to guide AI algorithms and other new technologies.
If AI denies a customer loan, for instance, it is necessary to explain to the customer what the reason for this decision is, guide them on alternative ways of sourcing for what they need, or help them solve this problem.
2. Banks will overhaul business models to create digital ecosystems
As new banking technologies come into existence, banks have been changing their business models to be in tune with current trends. They have had to extend their most vital services from strictly branch operations to the internet and mobile banking, thereby providing more access and control to customers from any location. Basically, only the mode of access to banking services has changed. The banking services, on the other hand, did not change.
The digital ecosystem model adds more push to these changes. Ecosystem banking model is based on intuitive self-leading software which studies customer needs and integrates them into banking to create offerings that provide solutions to these needs. Just as mobile banking brought banking to customers’ fingertips, ecosystem brings human needs into banking. It is built on cloud, open APIs, explainable AI and other critical elements of modern banking technology.
3. There will be an increased expansion in Open Banking
Open banking is a banking initiative that allows third parties access to a bank’s APIs. While many people think that open banking is a European issue, the reality is that it is a derivation from traditional business practices that allow third parties to access banking data and functionality. Open banking is also called banking-as-a-service, banking-as-a-platform, open APIs, and API banking.
Open banking seeks to help financial institutions ease the burden of providing customers with seamless financial services without the usual hassles. Fintech companies and other retail banking institutions are already taking advantage of the API banking ecosystem to ease financial hassles involved in making and receiving payments, buying homes, and general financial management. This trend is expected to advance in 2021 and beyond.
4. Wider Acceptance of Real-Time Financial Products
As digital banking accelerates, there will be an increased need for real-time financial products. In 2021, real-time payment is expected to be the norm. Creating real-time experience will no longer be a challenge to the banks. The new challenge would be in creating ways to better compete with other banks in real-time payments.
Real-time payments will rely significantly on APIs. As such, the retail banking community can play a central role in putting up robust and innovative real-time transaction services that will attract individual customers as well as fintech companies.
As digital banking accelerates, there will be an increased need for real-time financial products. In 2021, real-time payments is expected to be the norm.
5. Always-on Invisible Banking will become the Norm
Invisible banking refers to the new trend where financial institutions can integrate their financial services into their customer’s everyday life. Direct deposit is an example of invisible banking.
Today’s technology-driven, always-on world is one where business opportunities appear and disappear in just a snap. Experts believe that in the nearest future, banks will need to be proactive in recognising the changing needs of customers at the exact time they need them, as having the right products and services will no longer be enough.
A Unique Opportunity
Banks are struggling to keep up with the effects of the pandemic, the dynamism of the tech world, and the increased operational pressure from customers.
In all of these, however, banks still have their resources and customers’ trust. Hence, if they implement the right strategies, and adapt adequately to the advanced technologies in banking and the digital ecosystems, they will still succeed in the long term. These changes, when implemented, will also help banks cut cost, become more efficient and achieve the required flexibility to weather future storms.