New partnerships between legacy banking organizations and fintech startups and improving the customer experience dominated the list of predictions that I gathered for the fifth edition of our annual retail banking trends study. Over 100 contributors to the study also agreed that making “big data” actionable and introducing “optichannel” delivery would be important in 2016.
As in previous years, the crowdsourced panel included bankers, credit union executives, industry analysts, advisors, authors and fintech followers from Asia, Africa, North America, South America, Europe and Australia, making this analysis the most extensive in the industry.
The 2016 projections include a “doubling down” on some of the major trends from last year, with new projected trends in the areas of digital and mobile delivery, customer experience, digital payments, alternative products, innovation, authentication and advisory services. Overall, sources believed that the banking industry would still be playing “catch-up” in 2016 and that the potential to be left behind or consolidated would increase as consumer expectations escalate and margins remain thin. Said James Haycock, managing director of Adaptive Lab and co-author of the book, Bye, Bye Banks: said, “It’s plain to see that a perfect storm of competition, technology, shifts in customer behavior and regulation will wreak havoc on the businesses we trust with our money. It’s a matter of when, not if, banking is reinvented.”
As in the past, the impact of any single trend will differ based on differing organization sizes and levels of digital maturity. Below are the top 10 predictions from this year’s analysis:
The “platformification” of banking. Instead of competing, banks and fintech firms will partner more than ever in 2016, leveraging the banking advantages of scale, stability, trust, experience in navigating regulations and the access to significant capital. Conversely, by leveraging the agility, innovation culture and technological expertise of fintech firms, banks will become the hub of distribution for a broader assortment of solutions.
“The most significant trend of 2016 will be the ‘platformification’ of banking, where both existing banks and startups begin a strategic shift towards becoming banking platforms, much like how Amazon is a platform in retail,” says consultant Ron Shevlin from Cornerstone Advisors.
Removing friction from the customer journey. It is no longer adequate to wait until the customer walks into a branch or decides to purchase a new product online or via a smartphone. Instead, banks and credit unions must engage customers at every stage of their purchase journey – not just because of the immediate opportunities to convert interest to sales, but because two-thirds of the decisions customers make are informed by the quality of their experiences all along their journey.
Brian Solis, principal analyst for the Altimeter Group and bestselling author, sees an increased prominence of designers in banking: “Experience architects will rethink what a bank is and what it means to digital-first and mobile-only consumers, designing an entirely new set of products that will lead to new types of relationships. It’s innovation and disruption over iteration. The ‘uber of banking’ is imminent.”
Making data actionable. Capturing and using consumer insight can be an important differentiator for organizations hoping to build new relationships and solidify those relationships already in place. In fact, a recent CapGemini study found that over 60% of financial services institutions in North America considered data analytics to be a source of a significant competitive advantage. In addition, over 90% believed that “successful data initiatives will determine the winners of the future.”
However, having access to data and the ability to process this insight is not enough. Consumers expect their financial institution partners to be able to provide real-time recommendations based on changes in their financial profile. According to consultant Mary Beth Sullivan, managing partner of Capital Performance Group, “Banks of all sizes will leverage data and technologies to help customers make better financial decisions – improving the ability to save money, achieve specific financial goals, increase financial knowledge and manage budgets better. For many banks, this will entail partnering with technology partners rather than building in-house.”
Marketing may be one of the biggest beneficiaries of advanced data analytics in 2016. “Banks will stop talking about gathering data and starting using data to make a difference for the consumer. We will see the integration and synchronization of data sources, enabling real-time determination of relevant data points for analysis, communication and decision making – the ‘trifecta’ of big data,” said Beth Merle, vice president, Enterprise Solutions, with Epsilon.
Introduction of ‘optichannel’ delivery. Beyond “multichannel” (delivery on multiple platforms), or “omnichannel” (delivery through all channels similarly), an optichannel experience delivers solutions using the best (optimal) channel based on the customer’s need and preferred channel. In other words, rather than offering all channels for a specific solution, big data will enable an organization to point the consumer to the channel that will provide the best personalized experience.
Optichannel delivery may eventually eliminate channels and products as we know them according to Brett King, best-selling author and CEO of Moven. “2016 will be the year we start to say goodbye to traditional bank products like the credit card, and savings plans, in favor of embedded banking experiences. You’ll get emergency cash at the grocer, in-store financing at the retail store and savings triggered via wearables. None of these will have a paper application, need a signature or be based on a card.”
Expansion of digital payments. The 2015 North America Consumer Digital Payments Survey by Accenture found that while the number of North American consumers who know they can use their phones as a payment device jumped nearly 10 percentage points since last year, to 52%, actual mobile-payment usage remained flat. The percentage of consumers who used their mobile phones to make at least one payment a week grew only 1%, from 17% in 2014 to 18% this year.
Part of the problem may be user confusion, according to Bradley Leimer, head of innovation at Santander Bank. “Everyone seems to be building a wallet, a loyalty app and value-added services around payment data. And to consumers and merchants, it’s a complete mess.” These same concerns prompt independent digital banking and payments strategist Alex Jimenez to add, “Mobile payments will continue to increase in adoption, but it won’t set the payments industry on fire – we are still a while before a tipping point in mobile payments.
Executing on innovation. Although innovation is a proven path to differentiation and competitiveness, the banking industry’s short-term focus, siloed approach to operations and risk-averse culture work against the potential for meaningful advancements. The question is whether banks can replicate the best of fintech start-ups while leveraging their customer base scale advantage to respond to a changing marketplace.
Sam Maule, emerging payments practice lead at Carlisle & Gallagher predicted, “2016 will see the construction of larger sandboxes by the banks. The current legacy infrastructure doesn’t allow for enough play with fintech partners. No play and no room for real experimentation results in no real change.”
Exploring advanced technologies. Blockchain technology, robots, artificial intelligence (AI), biometric authentication and the Internet of Things (IoT) were all mentioned by our crowdsourced panel this year. While there will be a great deal of debate as to the likelihood of any of these trends gaining traction in the next 12 months, most panelists believe the debate can only be around timing.
“While AI won’t get quite to the levels of hype that blockchain is receiving, AI has the potential to really move the dial on operating costs and bring the power of digital servicing to the masses through natural language processing and interactions,” says David Brear, chief thinker at Think Different Group.
Emergence of a new breed of banks. The term “challenger bank” is widely used to describe a banking organization, started from the ground up and built without relying on another banking firm for back office support. While more common in the UK at this time, this breed of bank could emerge in the U.S.
“2016 could be the year that one of the tech giants shows their hand in financial services. If this occurs, this will mean profound cultural change that will make legacy firms consider new data and relationship driven business models, leveraging exciting new technologies, AI, advanced analytics and more,” says consultant Duena Blomstrom.
Mining new talent. Attracting and retaining top digital talent that can support this internal cultural shift will become a priority in 2016. According to Accenture, “Sixty-one percent of digital organizations see shortages of digital skills as a top challenge in digital transformation and are concerned about how they can attract and retain top digital talent.”
“It is imperative that we find experienced talent to develop disciplines like Design Thinking, Lean Start Up and proper Open Innovation, says Maria Jose Jorda Garcia, head of Customer Experience Transformation at BBVA. “These three capabilities allow a banking organization to design for the customer, to speed up value delivery and to create those customer experiences that we are all aiming for.”
Responding to regulatory changes. New European regulations requiring banks to offer application program interfaces (APIs) to the open market are set to have an enormous impact. This is both a threat and an opportunity, with many banks not having worked out a response yet.
While there has been no similar regulatory changes in the U.S. that would open the door for fintech firms to compete more openly here, it will continue to be important for all players to move in lock step with future changes. Delivering on these opportunities may be a challenge, however, since legacy technology makes it difficult to keep pace.
“Regulators are increasingly focused on fintech upstarts. 2016 will be the year it is decided where and how to tighten oversight vs. create a sandbox to protect innovation. They will do both – the question is: who will get which treatment?” says Jennifer Tescher, president and CEO of The Center for Financial Services Innovation.
“2016 will more dramatically underscore the difference between the winners and the losers, as the ebbing tide of interest rates and the economy will expose those who are not investing in new ideas and new technology to improve efficiencies and customer experiences, says JP Nicols, president and chief operating officer of Innosect.
Finally, Penny Crosman, editor-in-chief for Bank Technology News, sums up 2016 in this way: “Banks will step up their game technology-wise, they’ll continue to partner with fintech startups and they’ll begin rolling out useful mobile wallet apps that compete with Apple Pay, Samsung Pay and Android Pay. They will also start to pilot and deploy blockchain-style software for payments, trade finance and securities settlement. Finally, they will find a mutually agreeable way of sharing customer data with data aggregators and personal financial management providers to deliver a better customer experience.”
Mr. Marous is the co-publisher of The Financial Brand and publisher of the Digital Banking Report entitled 2016 Retail Banking Trends and Predictions. He can be reached at email@example.com.