Emerging Financial Services Trends and The Future of Banking

Traditional lenders are under constant threat from Neobanks as they try to acquire large customer bases through either competitive offerings or a slicker user experience — leaving no part of the traditional banking value chain safe from being challenged. The likes of Monzo and Starling (with significant customer bases of 5 million and 2.7 million respectively) are inevitably going to continue to thrive.

Product and technology innovation are constantly pushing the boundaries of what we would consider traditional banking. Recent examples include the maturity of digitalisation of instalment payment providers (buy now pay later) and banking as a digital experience that seeks to create stronger relationships between bank and customer. ‘Banking as a Service’ (in which licensed banks integrate their digital banking services directly into the products of other non-bank businesses) has broadened the competitive landscape. This allows non-bank business to offer its customers digital banking services, without needing to acquire a banking licence of their own.

User experiences in other sectors (e.g. retail through the likes of Amazon and Apple) as well as with Neobanks have completely changed what customers expect from financial service providers. They now demand their banks not only know who they are (through a safe, smooth, seamless journey) but also tailor specific products and services given their personal situations (saving for their first home, requiring a credit card for a big holiday etc.). As an aside the trade-off between friction in a customer journey versus ensuring the right levels of fraud controls are in place is always a healthy topic of debate — having a “friction-right” journey is key.

Pre-eligibility and robust affordability checks are becoming more critical to effectively tailoring solutions to keep customers taking new products from that lender. Open Banking adoption has gained strong momentum, which will further enable a more granular view of the customer. Trust and loyalty also remain key issues across financial services, so any lender not delivering a hyper-personalised service will likely see their customers go elsewhere.

For decades, major lenders have faced the challenge of trying to rationalise their core banking platforms borne from years of acquisitions. With greater focus on digitalisation and hyper-personalisation of customer service, as well as competition from Neobanks (that don’t have the same complexity of operating systems), banks are further prioritising material investment in future-proofing their technology estates.

The aspiration for all lenders is to be able to ingest new forms of data and services to ensure they have the most robust, actionable and current view of their customers which enables more personalised services to be offered. We’ll see innovation in customer-facing ways such as products and payments, powered in the backend by richer data insights stemming from trended data, Open Banking and alternative data sources.
 

Technology and data will continue to play critical roles across the banking industry. Artificial intelligence and robotic automation will likely become table stakes, with blockchain and crypto moving along the maturity curve and potentially coming to the fore. As banks morph away from the traditional branch network, and barriers to entry continue to be lowered, it remains to be seen whether Big Tech companies will be enticed to move into the banking industry and leverage their strengths (strong UX, hyper-personalised service and significant customer base) or whether they want to avoid regulatory scrutiny. The challenge will be for regulators to keep pace with technology advancements to ensure minimum standards are met (from Tier 1 banks to Fintechs), and the end customer is the beneficiary of these developments.

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