Trend #6: Expanding Digital Payments
Digital payment trends have consistently been ranked in the middle of annual projections. During most years, the payment space has changed less than anticipated. The long-anticipated surge in mobile wallet usage seems to be underway, though, as more consumers are reaching for their phones instead of their wallets to make payments.
While financial marketers can’t do much to move the needle with regard to merchant acceptance of mobile wallets, people are beginning to demand this functionality. What banks and credit unions can do is change their communication of the benefits to pay with a mobile phone versus a credit or debit card. This communication cannot be left to a one-time communication — it must be reinforced over and over again in all channels.
With acceptance of mobile wallets gaining momentum, changing consumer behavior becomes more important than ever, whether the shift is from plastic to mobile, or to your payment option as opposed to your competition. Look at the amount of marketing the biggest financial institutions employ to promote the use of their mobile wallet. Look at American Express.
Financial marketers face a classic “limited-time opportunity” here. Those large players are spending money now because changing consumer habits is easier now than it will prove in 12-18 months.
Insights from the 2019 Crowdsource Panel
“The key for payments in 2019 and beyond will be anticipating what comes next, adapting to changing consumer expectations, and offering connected, intuitive experiences. Financial Institutions will continue to plant a flag in new payment options, which will result in new business models and segments of clients. As these payment options evolve, speed of payment and the use of data will continue to be critically important as a focus on owning the payment relationship. Done well, these things will solidify the financial institution as a trusted advisor for the consumer’s financial assets.” – Matt Wilcox, SVP, Marketing Strategy and Innovation at Fiserv
“Since alternate and instant payments are evolving, transaction fees are getting lower and lower. Banks will soon no longer be able to generate enough revenue from transaction banking. Going forward, there will be a need to transform the business and create new types of products and services with added value for the customers. The stage of being competitive by digitalizing existing physical banking services is over. It’s time for complete digital business and payments transformation.”
– Barbara Biro, Digital transformation, alternative channel & digital payments consultant
“Faster payments will reach critical mass in 2019 as more banks, credit unions and financial services providers launch real-time P2P. Real-time payment providers like TCH, Early Warning and others will also see increased interest in their offerings as gig economy startup companies launch innovative new services that allow consumers to get access and transfer money ubiquitously reducing friction.” – Deva Annamalai, Director, Innovation and Client Engagement at Fiserv
“With payments and all banking services, organizations will strip away focus on products, allow for the pure bank utility to emerge, and build for consumer behaviors. Those organizations that eliminate the internal product silos will strip away the friction, improve the customer experience and win the battle for tomorrow’s consumer.” – Brett King, CEO and Founder of Moven and author of Bank 4.0
“The year 2019 will be see the acceleration of financial inclusion. In 2017, 1.7 billion adults (31% of adults) lacked an account according to The World Bank. The good news is that two-thirds of them have a mobile phone. Traditional and non-traditional financial organizations that aggressively leverage mobile money applications will see enormous success.” – Sebastien Meunier, Senior manager at Chappus Holder & Co.
“The first U.S. bank will trial some kind of payments functionality with smart cars, as the death of the physical plastic card enters its final phase.” – Bryan Yurcan, Senior Strategist at Caliber Corporate Advisers
Trend #7: Investing in Innovation
The banking industry is beginning to incorporate the traits and practices that were once the domain of fintech startups. Banks and credit unions have become more comfortable with a faster pace of innovation, using data and analytics more extensively and digitizing processes as opposed to simply turning paper into PDFs.
This increased commitment to innovation in response to consumer expectations and increased fear of non-traditional players are two of the primary findings of the 10th annual Innovation in Retail Banking report, published by the Digital Banking Report.
The report found a trend away from innovation to “save money” to an increasing focus on improving the consumer experience. With banks providing client access, industry expertise and ready-made infrastructure, fintech firms are bringing innovative solutions, new uses for technology and agility to the table.
Combining the power of traditional banks with the dynamic potential of fintech firms has changed the game in banking. More than ever, we are realizing that innovation in a digital world requires cultural change. Financial institutions must grow comfortable with new ways of delivering their services and organizing as a business.
To move forward at the speed of change will require a doubling down on providing a culture of innovation throughout organizations, combined with a willingness to embrace change, take appropriate risks and disrupt what has been the norm in the past. This requires getting out of our comfort zone and finding a way to serve the consumer in the way they are being served by big tech alternatives.
Insights from the 2019 Crowdsource Panel
“2019 is the year that ‘innovation’ as a means of creating enterprise value is added to everyone’s job description. Not just the board or the C-Suite. Not just the cool kids in the hoodies and jeans in the innovation lab. And certainly not just the outside consultants. It’s time for everyone to find new ways of creating real value for customers, shareholders and communities.” – JP Nicols, Managing Director at Fintech Forge
“With continued record levels of data breaches, identity fraud and paralyzing customer fear, associated industry technology spend will finally lead to breakthrough improvements in cybersecurity. New pinpointed methods will emerge for assessing how particular data compromises increase risk in order to better inform investments that can finally strengthen relationships and everyone’s bottom line.” – Jim Van Dyke, Founder and CEO of Futurion.Digital
“The new year will mark the beginning of ‘doing’ instead of ‘talking’, as banks and credit unions begin to truly develop a variety of innovative products/services that put the ‘client-first’ instead of their own interests. No more ‘one-size fits all’ marketing plans to support this seismic change.” – April Rudin, Founder and CEO at The Rudin Group
“The banking industry will finally be required to justify their innovation efforts with tangible results. Attending flashy conferences, building innovation spaces with inspirational quotes on the wall and bean bags for seating, and meeting with startups that don’t ever lead to partnership will all be on the chopping block if they don’t have demonstrable results.” – Jason Henrichs, Managing Director at Fintech Forge
“Digital commerce platforms such as Amazon and Alibaba are likely to emerge as clear innovation leaders by 2022. Consumer technology companies such as Google and Apple come a close second. The growing realization that the biggest threat for banks comes not from within the industry but from new players with advanced digital capabilities in critical areas of competitive differentiation is making banks notch up their innovation efforts.” – Sanat Rao, Chief Business Officer and Global Head at Infosys Finacle
Trend #8: Greater Impact of Challenger Banks
While the perception of fintech start-ups as a threat has gone down, the biggest perceived threat now is from technology firms, new challenger banks and existing large incumbent banks. The increase in perceived threat from challenger banks has risen in each of the past three years, fueled by significantly more accommodating regulations in Europe. The increase of threat from technology firms is led by the perceived threat from Amazon.
The threat from challenger organizations such as large tech firms and challenger digital banks is driven by the increased acceptance of using non-traditional financial institutions by consumers.
In response, many legacy banks are launching challenger brands themselves. We predict that many new banks will launch challenger brands in 2019 and beyond, creating a nimbler entity with which to prosper in the digital age.
Insights from the 2019 Crowdsource Panel
“Two things will happen to challenger banks in 2019: First, they will graduate from being start-ups and move into the grown-up marketplace, gaining meaningful market share. Second, this will lead to growing pains that the incumbents are all too familiar with. They will discover that even challenger banks can be challenged by their IT architecture! Challenger banks will find that without transparency and a reduction in complexity, their pace of innovation will be dulled.” – Laura Crozier, Global Industry Director, Banking at Software AG
“Within the next five years, the majority of new bank accounts will be issued by challenger banks. Over the past handful of years, the foundation has been established, as challenger banks have slowly siphoned away customers from traditional banks, attracting a younger and more diverse client base with mobile apps and ease of access, as well as lower fees and better rewards.” – Jason Gardner, Founder and CEO of Marqeta
“The future profitability of banks and credit unions can be predicted by their capacity to attract, engage and retain Millennials. In 2019, many players will experience their ‘youthquake’ as Millennials put more trust in non-traditional tech players” – Rocky Scopelliti, Director, Center for Industry 4.0 at Optus
“Congressional Democrats, mentored by Sen. Elizabeth Warren, will demand that federal regulators, including the Fed, promote more competition, pointing to the U.K.’s Financial Conduct Authority as a model. Results against the political power of the big banks will be limited.” – Tom Groenfeldt, Writer for Forbes
“The entrance of foreign neobanks (like N26 and Monzo) along with increased competition for deposits from existing online-only banks, will prompt smaller institutions to explore launching their own digital-only brands. A few will succeed. Most will arrive too late.” – Jim Perry, Consultant and Strategist for Market Insights
“2019 will be the year that a significant competitive threat comes from way out of left field. The fintech charter may be a catalyst, but I suspect the form of the new competition will be a surprise.” – Steve Cocheo, Executive Editor at The Financial Brand
“Despite the huge investment banks are continuing to make, most will still struggle to shift to new business models so we’ll see an increasing number of ‘greenfield’ or ‘beta banks’. This approach helps banks to more rapidly pursue and prove new business and operating models.” – James Haycock , Managing Director at Adaptive Lab
“In emerging markets, new digital financial players like Ant Financial (Alipay) and Tencent (WeChatPay) will expand and challenge banks. Fintech firms will continue to change the financial landscape as regulators open markets via regulatory sandboxes.” – John Owens, Senior Advisor for Digital Financial Advisory Services