We are experiencing a development. Banking is changing in many ways – the move away from cash and even cards, the urgent adoption of online banking, and the growing interest in personal investment. The slow and steady pace of the industry has accelerated more rapidly in the past year than in the entire decade.
The results of this transition are already visible: the Treasury Department has increased maximum contactless spending, hundreds of bank branches such as HSBC and M&S Bank continue to close, and record numbers of people open investment accounts at Hargreaves Lansdown reporting A 40% increase in late 2020, lowering the average age of investors by seven years. The competing platform AJ Bell saw its customer base in a similar way grow by 30% last year to almost 300,000. More than half of the new users are under 40 years of age.
All of this will shake up the status quo and put customers back at the center of the banking sector. It is becoming increasingly clear that banking will be put back in the hands of the people over the next decade. So what will our banks look like by 2030?
Power to the people
The digitization of the banking sector was also its democratization. The recent introduction of easy-to-use mobile banking apps has shortened the distance between customers and their money. This is an indicator of greater financial development: most people now want to be actively involved in their finances. Customers want a bank they think they own, hence the success of challenger banks like Monzo and Starling, where personalization and ownership are built into every interaction.
However, this goes way beyond mobile banking apps and annual spend summaries. Banks have the opportunity to leverage this desire for a more involved banking business and develop new products and services that support their customers around the clock. Whether this shift comes from stocks and trading platforms, broader mortgages, loans and credit card offers, loyalty and voucher programs, or even BNPL (Buy Now, Pay Later) services, one thing is certain: by 2030, the banks will certainly be a bigger part our daily life consists of offering products and services that converge to improve our entire lifestyles, not just our finances.
In order to achieve this diversification, of course, the technical foundations must soon be laid. For challengers like Monzo and Klarna, whose stacks contain the latest technology and digital real estate, they may be able to move faster. But also old banks have a unique opportunity: They can make optimal use of their huge cash reserves and their loyal customer base.
Best of both worlds
First, banks don’t need to upgrade their entire tech stack in order to offer more services to their customers. While there will always be natural competition between classic cars and challengers, by 2030 the banks will exist – and work together – much more harmoniously.
Many customers are likely to already see the benefits of both types of banks – big high street banks are reliable and have better lending power, while younger newbies with more mature digital platforms use AI to approve loans quickly, and humanoid bots to do it efficiently to be customer service. In a decade, however, this will no longer be a decision for customers to make. Instead, these benefits are consolidated through oPen banking. Banks will actively pull data from customers’ other bank accounts and profiles, collaborate on products and services, and work together to provide consumers with the full visibility they demand. That way, they can divide and dice the benefits of each bank as they see fit based on their individual lifestyle.
Innovation from the outside in
However, given the increasing competition between new and old, the big banks will have no choice but to keep innovating. In the past, banks innovated from the inside out. This has often led to a separation between product, process and platform. Ultimately, mitigate the effects of the changes you make.
For the innovation team in the bank from 2030, this approach will be reversed. New products and services are directed by the customer, not the other way around. First of all, mining and analyzing customer data will be the key to this. Through social media, spend history, and a growing number of other data sources, mapping customer behavior is becoming increasingly accessible to innovation teams. Ensuring that this knowledge is used wisely is the differentiator between those who sink and those who swim.
In order to enable this outward-looking approach, there must be a shift from the currently existing isolated development teams to an overarching, company-wide innovation center. This could mean a chief innovation officer – a role most banks don’t play in their boardroom – or a team of creative, innovative thinkers who operate across the company and feed into product, IT, transformation, and CX programs . When customers come first, they need to find the right people who can make it happen and innovate with every decision.
The first steps in change are often the toughest, and we have seen high street banks suffer as a result. But the future of banking looks bright for the most important party – the customer. The democratization of banking, whether through better control and visibility of finances or through technologies that enable 360-degree help in our daily lives, will be an essential indicator of progress. By 2030, banking should be there for everyone. It is up to banks large and small to make this a reality.
This article was written by Venkatesh Varadarajan, Financial Services Partner at Infosys Consulting