Despite recent uncertainty in the financial markets, the economic outlook for the banking industry remains positive. Regulatory forces are encouraging innovation and new digital technologies provide opportunities to improve customer experiences. There are strong indications that banking organizations worldwide understand the primary trends impacting the industry as well as the actions that are needed to respond to competitive pressures.
The question is whether banks and credit unions will prioritize the deployment of human and financial resources to respond to these changes. Will legacy financial institutions embrace change, take appropriate risks and disrupt themselves to meet the needs of consumers, small businesses and corporate customers?
For the eighth consecutive year, we surveyed a panel of global financial services leaders for their thoughts on retail banking and credit union trends and predictions. The crowdsource panel included bankers, credit union executives, industry analysts, advisors, authors and fintech followers from Asia, Africa, North America, South and Central America, Europe, the Middle East and Australia.
We used the insights from our panel as the foundation to develop a global survey of executives involved in the financial services industry, providing a prioritization of our trends. Our global survey also provided an opportunity to do an end-of-year review of last year’s projections. Finally, the survey collected insight into strategic priorities for 2019 and analyzed the progress being made by financial institutions in the process of digital transformation.
“Most financial institutions understand the major trends that are impacting the banking industry as well as what needs to be done to respond to those trends. The challenge for legacy banking organizations is prioritizing and deploying resources in alignment with these realizations. The question is whether organizations are ready to embrace change, take risks and disrupt themselves?”
As we look to 2019, there were some noticeable changes in the trends from previous years. For the first time ever, the use of data, artificial intelligence (AI), and advanced analytics was ranked first, replacing improving the customer experience as the number one trend. In addition, there was a realization of the importance of open banking and application programming interfaces (APIs) by organizations globally. Finally, the importance of innovation was also a trend that increased in importance in this year’s survey.
By collecting insights from leading influencers, ranking the trends using an industry survey, and including extensive analysis around the progress of digital transformation, we have developed the most comprehensive annual trend report in the banking industry. For the fourth consecutive year, the research, analysis and Digital Banking Report were sponsored by Kony DBX.
A Look Back: 2018 Retail Banking Trends
As part of this year’s research, we asked survey respondents to note the top ten trends they saw in 2018. We then compared these responses to the projections that were made last year as part of the 2018 Retail Banking Trends and Predictions report (now available for free download).
As can be seen below, the top six trends projected at the beginning of 2018 were the same six trends that were thought to be important as the respondents looked back on 2018. What is interesting, however, was that the importance of the top five trends was less than anticipated. Alternatively, the impact of new competition (fintech and big tech firms), as well as the commitment to innovation, far exceeded what was projected for the 2018 Retail Banking Trends and Prediction report a year ago. Both of these variances were reinforced by the findings in our Innovation in Retail Banking 2018 report (now available for free download).
Top 10 Retail Banking Trends for 2019
The ranking of the top ten trends and predictions was done by providing a list of trends identified by our crowdsource panel of leading industry influencers and asking banks, credit unions and the supplier community globally to provide their top three predictions for 2019. The combination of evolving consumer expectations and technology trends are impacting the banking industry more than ever. As more banking interactions are completed on digital devices, increasing amounts of data are being collected and analyzed in real time.
This year’s trends and predictions reflect the reality that siloed systems that have traditionally been used for transaction, savings, investment and loan accounts are not well suited for the level of agility and scalability required for the digital age. Banks and credit unions globally have responded with an increasing array of digitalization and innovation initiatives, using cloud technologies, advanced analytics and new distribution alternatives to respond to consumer expectations.
These initiatives have driven the top three trends and predictions for 2019:
- Real-time intelligent data integration through the use of AI, advanced analytics and cognitive computing (54%).
- Customer-centric perspective and the elimination of friction from the customer journey (50%).
- Use of APIs for the transformation to an open banking platform (37%).
This is the first time since this survey has been conducted that improving the customer experience was not the top prediction. It is clear that the importance of data and advanced analytics is understood to be the most important trend in the banking industry, serving as the foundation for all other trends.
Interestingly, the importance of open banking APIs increased for the third consecutive year across all geographic segments. Given that there are yet to be concrete open-banking regulations in the U.S., the recognition of the future need for sharing data is worth noting.
Despite a change in the order of the top three trends, the overall list of top ten trends identified by the financial services industry has remained relatively consistent over time. This could be a symptom of a greater problem. The banking industry is transforming incrementally as opposed to dynamically. That said, larger financial institutions are beginning to steal market share based on their ability to deliver against consumer expectation set by the largest tech companies (Google, Amazon, Facebook and Apple).
The transformation within the banking industry will require the development of partnerships or expanded collaboration with outside organizations. It will also require modernization of outdated technologies and the rethinking of legacy processes and organization structures. The timing of this transformation will differ at different organizations, but the need for new thinking will be non-negotiable.
Top 10 Strategic Priorities for 2019
When we asked financial services organizations worldwide about their top three strategic priorities for 2019, there was a significant jump in the level of commitment to improving the customer experience compared to last year’s research. More than eight in ten respondents mentioned the priority of improving the customer experience compared to 72% last year. Interestingly, the strategic priority of enhancing data analytic qualities decreased by 9% (from 51% to 42%) conflicting with the importance shown in the 2019 trends analysis.
The reduction of operating costs remained at the same level as last year, while the priority of investment in innovation jumped to the fourth position from number seven last year (moving from 22% to 31% this year), This represents the highest level of commitment to innovation since this research started eight years ago.
Surprisingly, the priority of recruiting and training talent dropped from 28% last year to 19% this year. As with the drop in prioritization of data analytics, the drop in the prioritization of talent enhancement is a bit baffling given the fast pace of technological change in the marketplace.
According to Bradley Leimer, Co-founder of Unconventional Ventures, “After visiting Singapore, Hong Kong, Shanghai, Hangzhou, and Tokyo in the past year, it is very apparent that the next financial services business model is already here – it’s in the East in the form of super apps, where every element of banking falls into the background. WeChat and Alipay are the new normal.”
Here are what others from the crowdsource panel had to say about 2019.
“2019 will be a year of growing divergence in global regulatory standards, impacting financial institutions and Fintechs. Cyber security and data governance will be under particular scrutiny.” – Bryan Clagett, CMO at Geezeo
“Regulators will start committing to digitization, realizing that holding still means ‘accelerating backwards.’ Some regulation will be ill-designed but much will be positive, with more experimentation, collaboration, and active embrace of digitally-native regtech. AML solutions will go first.” – Jo Ann Barefoot, CEO at Barefoot Innovation Group and Cofounder at Hummingbird Regtech
“What started as a trickle last year will become a steady stream, as banks of all sizes announce they are ripping out their 25-year old core systems in a continued effort to become more modern, non-siloed digital banks.” – Don Bergal, CMO at Avoka
“The five year trend of declining deposit growth for community and regional banks will continue through 2019, as will loan originations. This will increase M&A activity as this ‘hides most bad news’, or at least defers it till a later time.” – Peter Harvey, CEO of Intelli-Global
“From fresh products and services to marketing automation, we’ll see a commitment to, and a budget for, adaptation. Even the smallest institutions are understanding that the risk of inaction far exceeds the risk of trying new things.” – John Waupsh, Chief Innovation Officer at Kasasa and author of Bankruption
“In 2019, it will be cut, cut, cut. Expect to see banks focus on operational efficiencies, headcount reductions, and branch closures. Unfortunately, innovation and customer experience are going to take a vacation.” – Steven Ramirez, President of Beyond the Arc
“Fintech has adapted to the mobile arena thereby making it much easier for hackers to leverage their way in. Cybercrooks will be at the forefront, developing new threats to target the integration with the banking systems.” – Shira Rubinoff, president of SecureMySocial and Prime Tech Partners
“My prediction is, I predict nothing. I have no idea what will happen with Brexit, or with Open Banking. I have no idea which bank will suffer an IT meltdown or whether AI will offer us better choices and more informed decisions rather than just offer a quicker more efficient way to enforce stagnate biases and beliefs. Predictions that paint a future few want get dismissed, rather than spur strategies to combat it. Predictions that promise too quick results or a utopia lead to opinion pieces about ‘failure’ and unfulfilled promises.
I predict people will keep fighting the good fight – inside banks, alternative financial institutions and new challengers. I predict money will still move around the world in a fragmented and disjointed, but still strangely efficient way. I predict we will still buy stuff on Amazon and walk down to the grocery store for milk. I predict many people will work on products and projects that will fail and many more will work on projects that quietly succeed and make work and financial services and technology better. I predict nothing, except the inevitability of tomorrow.”
– Liz Lumley, Director of FinTech and Content at VC Innovations & FinTECHTalents
Trend #1: Expanding the Use of Data and Analytics
The combination of new technologies and the ability to access and leverage real-time data allows financial institutions the opportunity to create personalization — at scale — for each individual at the right time, and with the right message.
Consumers no longer shop for a new financial institution by visiting branches, collecting product brochures and sitting down with a platform employee. Today, the vast majority of consumers do their shopping for alternative financial providers online — on a PC or a mobile device.
When consumers are looking for their new account, they are using a comparison tool that helps them determine which account best meets their needs. Ideally, this tool allows them to weigh the new options against the account they currently have, so they can see what’s similar and what’s different. After the new account is opened, consumers receive a very quick email or text thanking them for their business and helping them understand the best way to start using their account.
This assumes that the financial institution they select allows for end-to-end digital account opening, identification authorization and funding. Far too many organizations don’t provide this level of digitalization today.
It is important to make the use of data and advanced analytics a priority and develop a strategy that works from a strong foundation. Establishing a data strategy doesn’t have to take weeks or months to develop — just a deliberate top-management decision to create a path to more personalized customer experience. Most financial institutions should start making personalization work quickly with what they already have. In other words, launch an initial data and analytics pilot in days, without striving for perfection.
Building a strong personalized marketing platform at scale is a challenge with tremendous opportunities. Financial institutions that deliver customers timely, relevant, and personalized messages, however, can build lasting loyalty and significant revenue growth.
Insights from the 2019 Crowdsource Panel
“Data has long been both a competitive advantage and an acutely untapped opportunity for most banks. As they continue to grow their data capabilities in 2019, we’ll see significant advancements in the integration between their data architectures and their marketing technology stacks, leading to client experiences that are much more personalized, relevant and synchronized across channels.” – Nick Bilodeau, Head of Insurance in Canada for American Express
“2019 will be the year that we witness AI moving across the entire vertical of the financial services sector including using face recognition technology for regulatory requirements (KYC) to virtual agents on the front-end customer service side. We are likely to witness continued evolution of the digital (and invisible bank) as improved mobile devices later in year encourage greater usage of payment by face and other personalized digital interaction with the bank facilitated by AI becoming the norm.” – Imtiaz Adam, CEO Deep Learn Strategies
“Organizations must focus on relationships and brand trust in order to build brand awareness and consideration. Combine this with the fact that people are putting more trust in others they know and authentic content, as opposed to brand content and ads. Organizations will advance with combining historical data, with more sophisticated AI learning, to assist with generating relevant content.” – Danielle Guzman, Global Head of Social Media and Distributed Content at Mercer
“2019 will be the year that machine learning and artificial intelligence really begins to make a difference — not just in bank efficiency but more importantly in the customer experience. The cost and ease of implementation has decreased dramatically, putting technology within reach of even smaller financial institutions. One place where it will be most apparent is in small business lending, where automated ‘near instant’ decisions will become the norm for the majority of loans.” – David Kerstein, Founder of Peak Performance Group
“I see tech being able to get banks to adopt ‘autonomous banking’ where we can only ask Alexa how much money we’ve spent at Starbucks for so long. That’s interesting – but not useful. What’s more useful is actually predicting what I will spend, and how much I will spend — and make it so that I don’t overspend.” – Theodora Lau, Co-founder of Unconventional Ventures
“Banking should not be thinking about a specific technology like artificial intelligence, augmented reality or blockchain. To succeed in 2019 and beyond, financial institutions must mix technologies to provide unique value propositions to customers.” – Spiros Margaris, Founder of Margaris Ventures
“Not just for the big banks anymore … we will see more smaller financial institutions embrace data/analytics to better understand their customers and create complimentary digital platforms to attract deposits and extend their geographic reach.” – Joe Sullivan, CEO of Market Insights, Inc.