A few years ago we published an article “Life banking: How to become trusted advisers for holistic financial health”, on how customers expected tailored, seamless and secure user experiences that excite and delight.
We have also identified three different directions for Financial Institutions (FIs) to execute a ‘playing to win’ strategy: becoming an all-inclusive destination of customers’ financial needs, providing financial solutions embedded into the dominant digital destinations of their customers, and enabling a financial marketplace.
Fast forward 4 years later — let’s see how things have changed, especially given the global pandemic. Our answer will be provided in two blog posts: the first focused on the current state, major trends, and our predictions for the future; the second a deep dive into the metaverse opportunities for Financial Services (FS).
The global pandemic has accelerated the adoption of digital products and services by several years, and this acceleration was particularly visible in Financial Services.
“Bank’s sales jumped from 25% digital to nearly 75% digital, condensing 10 years worth of changes into two months”, said W. Demchak, PNC Bank’s CEO. With the branches closed to protect both customers and their staff, digital became not just the main, but in certain instances the only channel for banking.
Furthermore, governments provided financial assistance during the pandemic and Banks had to implement the mechanisms to get these funds, a real lifeline during the pandemic, into the hands of their members and business clients as efficiently as possible.
Top themes in financial services
This dramatic digital shift pushed FIs, ready or not, suddenly into the deep end of digital adoption. Looking forward, we can find major themes for what FIs need to do to be resilient and grow despite the new, current challenges, including geopolitical tensions, macroeconomic uncertainty, inflation, increased interest rates, and so on. These themes can be broken down as follows:
Humanizing digital interactions
There is a risk of swinging too far while taking a digital (and mobile) first approach. While the objective is to empower users to self-serve, a blunt approach risks dehumanizing the banking industry, making it operationally efficient and correct, yet emotionally void.
The digital banking experience has evolved, from multiple disjointed channels, to omnichannel. From cumbersome, to better thought-out customer journeys. Yet, it still has a lot of room to improve before it reaches the level of polish provided by fintechs (see screenshots below), neobanks, or digital dragons (Apple, Google, Amazon, Facebook).
While functional and less clunky, the digital banking experience has a lot of room for improvement, evolving towards a personalized, customer-lead approach, as opposed to an account- or product-lead approach. For example, when joining our company, as part of their introduction to the other colleagues, we ask our new hires to share with us their favorite mobile apps — and none has ever included their banking app among their top 5 apps!
Evolution of payments
Humanity has moved from gold to banknotes to digital money to pay for physical goods and services. The next steps in the payments evolution are to use digital and crypto currencies to also pay for transactions happening in the metaverse, for both physical and virtual goods! Central-bank digital currencies (CBDC) are also coming.
The Federal Reserve Board has issued a discussion paper that examines the pros and cons of a potential U.S. CBDC. China has started large-scale trials of the “e-yuan”. European officials want to launch a digital euro by 2025.
CBDCs provide exciting opportunities: digital transactions represent faster, more reliable, and safer (less risk with counterfeiting) payments. Digital cash (when well protected against hacking) is cheaper to issue than minting coins, and can be easier monitored, making it harder to fund criminal activities. It can also bring the unbanked citizens into the financial system, thus boosting economic development.
The rise of the super-apps
Coined in 2010 by Blackberry founder Mike Lazaridis, a super-app is a closed ecosystem of apps offering a seamless, integrated, efficient and contextualized experience that people use on a daily basis.
Basically, a one-stop-shop which brings together paying phone bills, booking taxis, ordering food, getting a Netflix subscription, or buying insurance for your pet – super-apps use an integrated platform to carry out multiple tasks.
Designed to serve a range of everyday needs, a super-app unifies many functions in a convenient user experience via an ecosystem of third-party apps.
Super-apps are already dominant in Asia-Pacific where popular examples include WeChat (morphed from a social app into a super-app, with functions spanning messaging, networking, shopping and payments), Alipay (started as a digital wallet in China, Alipay now offers travel services, mobile phone top-ups, digital discount coupons and payments), and Paytm (which includes digital payments, e-commerce and financial services). Their revenue is expected to grow 163%, from $51B in 2020, to $163B in 2025!
The rise of Open Banking around the world is enabling super-apps to use financial data from multiple sources to target customers’ needs and deliver financial products. This will give the platforms an even greater opportunity to provide a range of financial services and target the right services to each user.
Open Banking will power super-apps by enabling personalization based on data from multiple platforms (using analytics powered by ML/AI), by empowering users and providing convenient resolution for multiple related needs on a single platform they already trust and are familiar with, and by creating a thriving ecosystem of curated partners.
Innovation is back in fashion
Taking advantage of advanced technologies (including Machine Learning / Artificial Intelligence (ML / AI), Robotic Process Automation (RPA), and cloud-based offerings specific for FS), and supported by trusted partnerships with select vendors, banks are starting to build a culture of innovation to keep up with fintechs and digital dragons (see below for a list of promising technologies for FS).
In addition to advanced technologies, new innovation processes and tools may also include rapid prototyping and usability testing, experimentation with new technologies, or running Google Design Sprints or Design Thinking workshops to assess market fit for new ideas.
In addition to partnering with fintechs, FS institutions can take advantage of their existing member base and insights and spin off their own innovation centers or startups. For example, QCash is a proprietary platform which leverages the member relationships and behavior data to automate underwriting and real-time funding for credit union members.
Not only does it provide an extra source of revenue for credit unions, but it also provides help for the underserved to achieve financial health and overall stability. Qcash is a spin-off from a progressive credit unit, WSECU, second largest in Washington state. RBC established an Innovation Lab, an in-house technology hub to incubate digital capabilities and drive innovation, with the focus on developing and executing next-generation initiatives to enhance the experience and outcomes of investors and advisors.
Partnerships with academia are another source for FIs to innovate, differentiate, and grow: the Scotiabank Digital Banking Lab (“Lab”) is the first university research center focused on financial technologies, with the mandate to study and understand the implications of digital disruption for banking and financial services, and to prepare students to operate in an environment of changing technology and innovation.
Rethinking Fees
With the proliferation of “free” offerings from fintechs and neo-banks, banks are forced to become both more transparent and more creative with fee structures. The concept of value keeps changing, as certain FS are now considered a commodity. Progressive FS institutions are starting to pay attention to Generatives which are better than free!
While these themes and trends will continue to be relevant in the near future, here are our recommendations for successful FIs who want to no only build resilience, but also differentiate and grow.
Conclusion
We are blessed to live in terrific times. Some say the next 5 years will bring more changes than the last 50 years combined.
Banking is particularly ripe for disruption, and while laggers are struggling with low revenue and negative growth, the leaders are already expanding their impact in areas traditionally considered outside of FS, and because of current economic conditions, they are accelerating their digital transformation in order to extend their lead.
Are you a progressive organization interested in using technology to craft remarkable experiences for your members and staff, in order to become more resilient, differentiate, and grow?
Aequilibrium is happy to organize a complimentary workshop to discuss your current status, objectives, and goals, and build a high level strategy and digital roadmap for you.
