The bank of the future will essentially be a “data company that is inclusive and leverages technology and ecosystem partnerships to deliver value for the customer’s financial and non-financial digital ecosystem seamlessly.” The banking organization of the future will be a value aggregator, advice provider, and access facilitator—all in one. Instead of reactive and post facto notifications, there will be advanced warnings, recommendations, and advice to change course to avoid a difficult situation. The key pillars of a bank in the future will be data, API, AI&ML, a cloud-based platform, cybersecurity, and controls & compliance.
The future of the banking ecosystem will extend well beyond financial services. The industry will have to look deeper and further than just closing branches, improving online & mobile banking offerings, or making current products and services “more digital.” The banks will have to embed themselves into the daily lives of customers, helping at every stage of financial and non-financial decision-making. The bank of the future will be about empowering the consumer and not just about ‘selling.’
Data-led AI, machine learning, and customer analytics will become the driver of client engagement in the coming years. With speed being just the baseline requirement, smart banks will develop the capability of integrating themselves into customers’ lives. A truly personalized relationship based on the insights a bank has surrounding a consumer’s life will result in a vastly improved experience that saves customers’ time and money. Instead of being in multiple places, the financial institution will be able to provide a digital repository for everything in the consumer’s life and become a digital value aggregator resulting in deeper relationships, increased loyalty, and improved profitability. In the long run, customers will stick because banks will be personal: informed by intelligence gathered from data about consumer behaviors, choices, and volunteered preferences.
In order to move to be embedded into consumers’ digital lives with daily interactions, banks need to develop digital partnerships with governments, manufacturers, merchants, suppliers, small & medium-sized businesses, telcos, doctors, hospitals, and other digital companies to deliver new products and enhanced engagement for the consumer. It will also require a rethinking of the whole service architecture to be able to make sense of a torrent of data. The bank of the future could have relationships with more segments of consumers at an efficient cost (including currently banked, underbanked, unbanked, or unhappily-banked populations), using the frequency of interactions to offset the lower income per transaction.
The API economy and expanding IoT options will also significantly help transform the future of banking by enabling the integration of the best within banking, as well as the best that one can find in other industries. The banking organization of the future will leverage APIs and the cloud to deliver solutions that are personalized to the consumer’s individual situation in a given moment.
Regulatory authorities will find it increasingly difficult to strike a balance between encouraging competition and innovation and providing meaningful oversight of the disruptions caused. It is critical that the bank of the future is organized very differently and thinks not in terms of silos of products and product programs but more in terms of “customized solutions for an individual customer.” The ability to customize down to a unique individual level based on data analytics and a menu of products/services will be the most critical differentiator. This will require the regulations to evolve as well. The present-day model of very prescriptive regulations for different market segments will not be able to survive in the digital world.
The increasing level of digitization will also bring vast amounts of transparency, enabling the consumers to compare the products & services in real-time and choose the best option. That will put a huge pressure on the financial institutions to not only be flexible in terms of the solution being offered to the customer but also figure out different ways of pricing the service. The increased integration with the ecosystem will also significantly enhance cybersecurity threats. Most IoT devices do not lend themselves to the kind of security protocols that financial services require. This will pose an interesting challenge, and it remains to be seen if new cybersecurity tools will evolve or IoT devices become more compliant or a combination of the two.
The banks will have to decide if they want to be industry leaders, fast followers, or just react, which might be too late for them. But, regardless of the choice a bank makes, the key to success for a legacy bank will lie in:
- Reinventing the IT operating model to get ready for the new model with capabilities to get more intelligent about customers’ needs
- Becoming a ‘data-led’ company
- Slashing costs by simplifying legacy systems, policies, and processes
- Adopting SaaS as much as possible
- Adopting robotics/AI
- Preparing architecture to connect to anything, anywhere: open APIs
- Strong focus on cybersecurity
- Having access to the talent and skills necessary to execute and succeed in this rapidly changing landscape.
The fact is, the pace of change is increasing and shows no sign of slowing.
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