Banking on the future — How will we bank in five years time?
It’s said that predicting the future is a fool’s game, but that doesn’t seem to stop many from trying. One question that is currently plaguing the minds of many due to its massive impact on daily lives -- how will we bank in the future?
One way we can at least try and fathom what the future might look like is to consult science fiction.
Don’t believe me? Take the story “Dial F for Frankenstein”, by Arthur C. Clarke, in which he describes a world where an interconnected telephone network leads to global chaos by taking over financial, transportation, and military systems.
Dial F for Frankenstein was written in 1961, almost thirty years before the invention of the World Wide Web.
In sci-fi, there's an acute lack of actual banks. They often are not depicted at all, instead the focus is placed on the transactions people make. To an extent, this makes sense, banking shouldn’t be about the physical structures or branding, it should be about the experience and the actual transactions.
Emulating the disrupters
The future of banking will likely follow what we’ve witnessed with the development of commerce or transport in the past five years.
In the previous decade, we’ve seen tech innovations continuously disrupt countless industries. The Ubers, Netflixes and Amazons of this world have all succeeded by offering consumers three things: control, choice and transparency.
This holy trinity of control, choice and transparency are, no surprise, playing out in the banking sector as well. Consumers increasingly want absolute control and visibility into how their money is invested and managed. They expect to have access to their real-time balance at any time of day, and with the click of a single button. They want choices in how they pay (e.g. mobile payments or BNPL) and where they bank. And most interestingly, they are increasingly looking for transparency from their financial institutions. Gone are the days where consumers will just accept random fees appearing on their bank statements, similar to how few of us have become more particular over the ingredients in our food. As a society, we value transparency and by being more transparent banks can engender trust and loyalty from consumers.
The banks of the future will keep these three fundamental customer needs at their core and will focus on building services designed to meet these new consumer expectations.
Being more open
Currently, much of the disruption in the banking sector has been driven by developments in open banking.
Open banking gives consumers access to their own financial data allowing them to connect their banking accounts to a whole host of other services, including additional bank accounts, budgeting apps and various investment tools.
This portability has made it easier for consumers to swap banks and apply for loans based on the best rates or services vs. who their families have banked with historically. When signing up for new products and transferring to different providers can be a seamless process it’s more challenging than ever for banks to guarantee long-term customer loyalty.
Smart banks of the future will leverage this increased hunger for spending data and trends by offering automation and personalisation services for their customers. For example, a bank can easily show a consumer how much they spent on take-out coffee last month next to how much quicker they could save for their trip to Bali by cutting that coffee figure in half. These services show consumers that their bank understands their needs and has their wallet’s best interests at heart.
Mergers and acquisitions
The current market is saturated with players planning to shape the future of banking - but this won’t always be the case. We will see consolidation sooner rather than later with a few leaders emerging and leading the way.
Up until this point, there has been a perception that much of the progress in the banking sector has being driven by neobanks, such as 86 400, Xinja and Volt. And while they have brought lots of innovation to the banking industry, it isn’t entirely true that the future of banking will belong solely to these financial upstarts. The incumbents have also been busy innovating and can bring these innovations to consumers at scale thanks to their large existing customer bases. Take Westpac and 10X who are partnering to build a digital bank, to provide consumers with greater control over their finances and Goldman Sachs with the sleek Apple Card that gives consumers daily cash back.
Right now these new banks and our financial institutions are in a race to innovation because they know that in the next five years, we’re likely to see a huge wave of consolidation. Incumbents will partner with fintechs and neobanks who may struggle to differentiate themselves amongst one another will merge to find scale.
Tech Enters Banking
One of the most interesting developments we’re seeing in banking is the entrance of big tech in the financial sector. Brands such as Apple and Amazon already have the customer bases and much of the fintech infrastructure to pivot into banking and to a certain extent, Apple is already on its way with the Apple Card.
The recent partnership between Google and Citi Group is a further example of the tech heavyweights dipping their toe into the financial world. Google may currently only be offering checking accounts through Google Pay, but expect this to be the thin edge of the wedge as consumers become more comfortable with the idea of a Google Bank.
And it isn’t just US tech that is getting involved. We’re seeing similar things in other markets, like in China, where Alipay which has 870 million users (out of a population of 1.3 billion) has totally disrupted the local banking sector by creating its own payment rails that effectively cut the banks out of the equation.
Conclusion
So what does the future of banking look like? It’s looking bright. As a consumer you can expect more control and options than ever. As a financial institution, there are many levers you can pull now to keep relevant with your customers in five years time and engender the loyalty you’ll need to help you weather the changes.
