In an increasingly digital world, mainstream banks innovate to stay ahead of the competition and provide more comprehensive services to their customers. Discover how the future of banking could look in this guide.
As with many other sectors, the banking industry faces a series of challenges as consumers manage their finances on smartphones. With fintech companies and challenger brands popping up at an increasing rate and banking technology becoming more advanced, innovation is a must for mainstream banks.
In this guide, Salvatore Orlando of BNP Paribas Fortis explains how digitization is affecting the banking sector, the ways banks are embracing new technology, and how customers could benefit from a more holistic banking experience in the future.
BNP Paribas Fortis
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Challenges facing the banking sector
Younger consumers have been brought up in a digital world. They commonly use smartphones and tablets to manage most aspects of their lives.
It’s no surprise that millennial consumers consider traditional high street banking to be a thing of the past. Indeed, receiving a cheque from Grandma on their birthday is likely to be met with a sigh when they consider the hassle it brings.
Changing consumer habits mean that brand loyalty is dropping in search of cheaper deals and better services. Banking is no exception to this trend.
Research in the United States by Accenture found that 18% of millennial customers switched banking providers in a 12-month period. That’s almost double the amount of 35–54-year-olds who switched (10%), and six times the customers aged 55 or over (3%).
With active consumers prepared to move on if they’re unhappy, there’s a market to exploit for those prepared to innovate. It’s no surprise that banking technology continues to advance at a pace. Everyone from small start-up fintech companies and challenger banks to the biggest players in tech are joining the party.
This increasing competition means the traditional high-street bank faces a fight to remain relevant to younger consumers in several key areas: innovation, service, and reliability.
The importance of digitization in banking
As well as being vital in meeting the changing needs of consumers, digitization is also important for banks – who must diversify the financial services that they offer customers dedicate greater capital to funding improvements in user experience and online security.
There will be casualties, of course. A greater focus on making day-to-day banking dynamic and improving digital user experiences could have a knock-on effect on older customers who rely on their high street bank branches to manage their finances.
In the UK, banks streamlining to adapt to a digital world has already had two major outcomes. First of all, branches and ATMs are closing. Several major banks instead offer mobile services to customers in less accessible areas. These services involve bank staff traveling around the country in vans containing ATMs.
A second outcome of streamlining is a drop in the specialist knowledge available in bank branches. For example, if a customer wants to speak to a mortgage adviser face-to-face, they may only be able to access this service on specific days.
The trade-off, however, should mean a much more rounded user experience for customers. An increasing percentage of the population will thus move away from branch-based banking.
There are signs all around Europe that governments are beginning to understand the importance of the digital revolution. Belgium is taking its place at the forefront of progress, and not just because of its geographic position in the banking landscape.
The Digital Belgium policy encourages new players in fintech and banking to create new jobs by offering reductions in their tax bills. This resulted in tens of millions of euros changing hands as innovation became more cost-effective.
How fintech companies challenge banks
Personal finance apps have grown in popularity in recent years. There’s an array of apps offered by high-street banks to stand-alone savings, budgeting, and money management apps.
This has heralded the first set of app-only banks. These providers offer current accounts you manage exclusively from a phone. Customer service occurs through a live chat.
One of the key innovations provided by app-based challenger banks is the ability to temporarily block your card from your app. Customers can order a replacement in a few taps of the screen rather than calling a customer service phone number. Such simple additions enhance the offerings of traditional banks. Some banks already help customers by allowing them to take photos of checks, rather than them needing to visit the branch in person.
Challenger banks may not offer the same levels of customer service provided by traditional banks. However, their presence alone will encourage high-street brands to adopt a digital-fi
New innovations for new financial needs
And there are signs that mainstream banks are extending their offerings to make them more digital-friendly. For example, Hello Bank! by BNP Paribas Fortis is the first mobile-focused bank – with accounts managed exclusively through its app. In keeping with a changing consumer landscape, Hello Bank! provides help and support to its customers through an online forum and a range of social media services, rather than by making customers phone support centers and wait to speak to a member of staff.
Elsewhere, there’s been a growth in the number of apps that help customers manage their finances on a day-to-day basis. For example, the likes of Yolt allow users to add all of their accounts and view them in one app. This is all while receiving tips on their budget for that week or month. Stand-alone savings apps are becoming increasingly common, too.
This includes apps that round a user’s spending on each transaction up to the nearest euro and put the remainder into a savings account. Such simple innovations offer a new way of prioritizing saving every day.
In 2018, the Payment Services Directive (PSD2) came into force in the European Union. It’s a new set of rules for how users could access their financial information. This is commonly known as open banking. It opens out a world of new options for banks to engage with customers, and for customers to get a better view of their finances.
Basically, open banking means that providers of online accounts (including savings and credit cards) must enable their customers to securely share data (such as spending) with third-party providers (such as budgeting apps) if the customer so chooses.
There’s still a long way to go to educate consumers on the benefits of open banking. Pushing banks to properly embrace the different ways they can use these developments will be difficult. This means that 2019 could also be a big year for open banking as more providers get authorized by governments.
Blockchain technology and cryptocurrencies
By now you’ll surely have heard about Bitcoin, the most well-known of more than a thousand cryptocurrencies. These currencies are primarily used online, though in theory they can be converted into traditional currency.
Cryptocurrencies aren’t a stable investment due to how wildly they can fluctuate. That doesn’t mean they are never used for major purchases, however.
The technology that supports cryptocurrencies like Bitcoin is known as blockchain. This involves a network of computers working together to approve and process transactions. In fact, its popularity, and the sense it could be vitally important for businesses and consumers in the future, is growing.
The theory is that blockchain technology is always developing and could help customers and business process transactions more quickly and safely in the future, cutting down on administration and process times.
Security challenges in a digital world
With the advent of open banking and transaction processing technology, it’s clear that the way personal finance looks is going to change significantly over the next decade. With new opportunities, however, come new challenges – especially in the area of security.
That’s because hackers and fraudsters are getting better at exploiting their customers through scams and hacking. This means that banks are constantly innovating to improve the security of their online banking systems and apps.
How banks can help customers by embracing technology
How can traditional high street banks adapt to this digital landscape and outpace their competitors?
Simply, they could do this by making the best use of the long-term relationships, trusted brand and wealth of consumer data they have – all of which can allow them to act dynamically to offer a more holistic service for customers.
Rather than having an exhausting array of apps, the onus is on banks to help customers by providing all of these services in a streamlined manner. After all, somebody with a long-term relationship with a high-street banking brand would rather stick with them.
Banks must combine cutting-edge technology with their data to give customers a complete view of their financial lives. This can range from automated notifications and budgeting tips as well as multi-currency account management and partnering with suppliers and merchants in other industries to present offers to customers in real-time. If you can transfer money on your bank’s app, you should be able to apply for a mortgage on one too.
Ultimately, the onus is on banks to provide the best services to customers in the following areas:
- Offering a personalized view of finances
- Giving budgeting and savings recommendations
- Sending reminders based on spending and saving behavior
- Providing fast and secure engagement
- Offering access to other financial and non-financial products
- Having the very best of security protections in place
Ultimately, through data analysis and technology adoption, banks can move away from simply being known for their core of current accounts and cash machines. They can also become advisers for daily finances, offering customers a holistic personal finance service in one place.