Faced with macro-economic pressures, technology adoption decisions and quickly shifting customer expectations, banks are challenged in how to respond. Or if a response is even necessary.
For hundreds of years banks have existed to facilitate commerce, serving as a gateway to exchange and store value. Customers historically have chosen their bank for a combination of two factors: trust and convenience.
Financial institutions thrived by putting themselves at the heart of communities and centers of commerce. Branch networks expanded to be close to their customers, serving communities with products tailored to their customer footprint.
Then came the internet in the 1990s, and banks began launching online banking. By 2006, 80 percent of banks offered internet banking. Many banks believed they could begin to close bank branches, transitioning from fixed-cost distribution centers to low-cost digital channels.
But when it came to financial advice and large transactions, consumers still prefer branch locations. Instead of replacing costly branches with low-cost digital channels, banks are now faced with the upkeep of ever-changing customer expectations across multiple channels.
Pressure From Fintechs
The problem right now is traditional revenue from interest rate spreads are being strained by specialist digital providers. Instead of offering a breadth of services to customers, fintechs develop one product and continuously refine the single product to the user’s needs.
But how can a bank compete and offer the services customers want with the specialization fintechs can deliver across multiple channels?
The answer is open banking—a collaborative model in which banking data is shared with third-party services across an ecosystem of trusted providers.
As commentator and consultant Chris Skinner states in his book, “Digital Human,” “A bank that is truly into their digital journey would never build anything, but would curate everything.”
A digital transformation begins with extending bank capabilities through APIs (application programming interfaces), which open up an opportunity for banks and their customers to partner with fintechs.
But customers don’t want to vet hundreds of fintech startups. Instead, they’re looking for trust and convenience in their bank, which is the bank’s biggest advantage. While not immediately visible to customers, an important aspect of trust is the bank’s continuing role in ensuring third-party solutions handle their data securely and are in compliance with regulations.
Financial data is the currency of the next generation of banks, and the value of that currency is unlocked when segments are broken down and replaced with a platform. Only at a platform level can you extract the intelligence to deliver actionable, contextualized experiences for your customer.
In many ways, banks are already platforms, with multiple product lines around deposits, lending and insurance. APIs allow these platforms to interconnect, combining data to provide a complete financial picture of their customer. Even with the rise of technology, consumer surveys have shown they trust their banks more than Google and Amazon combined.
Customers want their bank to be at the center of their financial decisions.
The late Walter Wriston, former chairman and CEO of Citicorp said in the 1970s, “Information about money is as valuable as the money itself.”
Measuring Long-Term Success
Long-term success will be measured by the ability to refocus away from transactions in favor of becoming a trusted advisor. Banks that invest in gaining a deeper understanding of their customers’ financial lifestyle through rich data analytics can begin providing personalized, contextual advice to their customers—a valuable service customers will pay for.
Banks don’t have to embark on this journey alone. Institutions should look to technology partners equipped to allow them to think bigger by offering a customizable solution.
The bank of the future looks very similar to the bank of today—focused on core values of trust and convenience.