Last update on March 11, 2019

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 is facing a series of challenges as more and more consumers manage their personal finances on smartphones and tablets. 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 digitisation 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

BNP Paribas Fortis offers a comprehensive network of specialised branches for expats, with extended opening hours. Their specialist multilingual advisers are happy to answer all your questions whenever it suits you best.

Challenges facing the banking sector

Younger consumers have been brought up in a digital world, where they commonly use smartphones and tablets to manage most aspects of their lives.

With this in mind, it’s no surprise that millennial consumers consider traditional high street banking to be a thing of the past. Indeed, simply receiving a cheque from Grandma on their birthday is likely to be met with a sigh when they consider the hassle of paying it in.

At the most basic level, changing consumer habits mean that brand loyalty is dropping in search of cheaper deals and better services – and banking is no exception to this trend.

Research in the United States by Accenture found that nearly one in five (18%) millennial customers switched banking providers in a 12 month period – almost double the one-in-ten (10%) 35-54 year olds who switched, and six times the percentage (3%) of customers aged 55 or over.

With active and engaged consumers prepared to move on if they’re unhappy with a service, there’s a market to exploit for those who are prepared to innovate. Therefore, it’s no surprise that banking technology continues to advance at a pace, with everyone from small start-up fintech companies and challenger banks to the biggest players in tech 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 digitisation in banking

As well as being vital in meeting the changing needs of consumers, digitisation 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, with several major banks instead offering mobile services to customers in less accessible areas. These services involve bank staff travelling around the country in vans containing ATMs.

Banking stamp

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 in the long term, as an increasing percentage of the population move away from branch-based banking.

There are signs all around Europe that governments are beginning to understand the importance of the digital revolution, with Belgium taking its place at the forefront of progress, and not just because of its geographic position in the European banking landscape.

The Digital Belgium policy launched in 2015 encouraged new players in the fintech and banking sectors to innovate and 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, from the 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 that are managed exclusively from a phone or tablet, with customer services provided by staff through a live chat service.

One of the key innovations provided by app-based challenger banks is the ability to temporarily block your card from your app if it’s lost or stolen, and order a replacement in a few taps of the screen rather than calling a customer service phone number. Such simple additions could enhance the offering provided by traditional banks, some of which are already helping customers by allowing them to take photos of cheques to pay them in, rather than them needing to attend the branch in person.

So while it can be argued that challenger banks don’t offer the same levels of customer service provided by traditional banks, their presence alone will continue to encourage high-street brands to adopt a digital-first approach and continue innovating.

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 centres 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, all the 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 pound or euro and put the remainder in to a savings account for them. Such simple innovations can offer users a new, easy way of saving money if they can’t afford to put hundreds of pounds or euros away each month.

Open banking

In 2018, the Payment Services Directive (PSD2) came into force in the European Union, comprising of a new set of rules for how users could access their financial information. This is commonly known as ‘open banking’, and 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 etc) with third party providers (such as budgeting apps etc), if the customer so chooses.

mobile phone banking

There’s still a long way to go to educate consumers on the benefits of open banking, and to push banks to properly embrace the different ways they can use these developments. This means that 2019 could be a big year for open banking as more providers get authorised by governments.

Blockchain technology and cryptocurrencies

By now you’ll surely have heard about Bitcoin, the most well-known of more than a thousand so-called ‘cryptocurrencies’. These currencies are primarily used online, though in theory they can be converted into traditional currency – a process that can be very expensive.

Cryptocurrencies shouldn’t be considered as a stable investment due to how wildly they can fluctuate from hour to hour and day to day, but that doesn’t mean they are never used for major purchases.

The technology that supports cryptocurrencies like Bitcoin is known as Blockchain – which basically involves a network of computer working together to approve and process transactions. Already, 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 and works 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 the security protections put in place.. 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

So 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 – one that aggregates your accounts, one for budgeting, one for day-to-day services etc – the onus is on banks to help customers by providing all of these services in an effective and streamlined manner so they don’t have to look elsewhere. After all, somebody with a long-term relationship with a high street banking brand would rather stick with them – as long as their service is excellent, of course.

Banks must combine cutting-edge technology with the data they already hold to provide customers with a 360-degree view of their financial lives. This can range from automated notifications and budgeting tips right the way through to multi-currency account management and partnering with suppliers and merchants in other industries to present offers to customers in real-time. After all, 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 personalised view of finances
  • Giving budgeting and savings recommendations
  • Sending reminders based on spending and saving behaviour
  • 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 and must move away from simply being known for their core of current accounts and cash machines, and move towards being advisers in the day-to-day lives of their customers, offering them a holistic personal finance service in one place.