Top 10 Retail Banking Trends and Predictions for 2018

This massive annual report combines the results of a major global research study with insights crowdsourced from a panel of 100 financial services influencers, industry analysts and banking providers.

5. Building Fintech Partnerships

In the past, many traditional banking organizations looked at fintech start-ups as more of a nuisance than a threat. Today, many are viewing these non-traditional providers as a threat as well as either a partner or potential acquisition.

In its latest Global Fintech Report, PwC found that 88% of legacy banking organizations fear losing revenue to financial technology companies in areas such as payments, money transfers and personal loans. The amount of business at risk has grown to an estimated 24% of revenues.

In related DeNovo’s research from PwC, it was found that 30% of consumers plan to increase their usage of nontraditional financial services providers, with only 39% planning to continue using solely traditional service organizations. This is an additional wake-up call to legacy organizations to determine how they will retain the key components of an existing banking relationship.

In response to this threat, 82% of traditional financial organizations stated a plan to increase collaboration with fintech companies in the next three to five years. Similarly, almost 50% of financial services firms are planning to acquire fintech startups over the same period.

Fintech startups realize that it takes more than a great solution to attract a scalable customer base. To reach beyond early adopters and the tech-savvy takes massive amounts of capital for promotion and product support. Partnering with an established banking organization who will support the expansion of users among their client base seems like a logical means to an end.

Alternatively, legacy banking organizations, struggle to keep up with consumer expectations. Size, organizational structure (silos) and even traditional leadership styles hamper the ability to deliver the new digital solutions consumers receive from other industries. Partnering with a fintech startup alleviates some of these issues, allowing the established organization an opportunity to keep pace with marketplace demands.

Fintech collaboration is not about grabbing for the ‘next shiny object’ — it’s about intuitive product design, ease of use, and 24/7 accessibility.

“Vendors that create marketplaces to aggregate/integrate enterprise banking apps and tools for banks and credit unions – will gain traction in 2018. FIs will more easily integrate and deploy best-of-breed solutions, reduce their reliance on a single, large core provider, differentiate their offering by offering a wider range of choices to their customers, and find effective and efficient approaches to core transformation.”

Ron Shevlin, Director of Research at Cornerstone Advisors, Inc.

“Banks will put pressure on core providers to become more open and accommodating, resulting in the core’s increasing appetite to acquire fintech, digital banking and data companies. The cores will begin proving they can support the changing needs of the banking industry.”
Bryan Clagett, CMO at Geezeo

“Collaboration between fintech startups and financial services organizations will heat up further, fueled by regulatory changes such as PSD2, and by industry groups like TruSight.  The challenges of fintech firms’ scaling up and the FIs’ innovation are addressed by partnerships.  Regulatory changes should also aide in making collaborations easier.”
Alex Jimenez, VP and Senior Strategist at Zions Bancorporation

“Banks will be more open to the idea of partnering with fintech firms, incumbent vendors, and even competitors, and they’ll actually begin to enter into partnerships. Like any new skill, partnering will take practice, but those financial institutions that do it well will have a significant advantage over the competition, both traditional and new.”
Dan Latimore, SVP of Banking at Celent

“In 2018, we will see more financial institutions working together on innovation projects. They are finally warming up to the idea that they don’t have to invent everything in house, and that the network effect can be very valuable for certain efforts, as we saw with Zelle in 2017. Professionally managed consortia will allow more institutions to make up lost ground on the innovation leaders.”

JP Nicols, Managing Director at Fintech Forge

“More core providers will begin to embrace the API, like FIS has done with Code Connect. This will create healthy tension that exist between data aggregators, digital banking providers, and nimble startups who all want a financial institution’s business. The net result will be cheaper and faster collaboration between a financial institution and their chosen technology partners.”
Keith Armstrong, Co-Founder of Abe AI

“The banking industry will follow the path of the computing industry, whereby the most successful players morphed from a build model to a buy model. The most successful banks and credit unions will learn to better position and build their brands and enable a new era of banking by harnessing unlimited innovation from fintech providers.”
Don MacDonald, CMO at MX

“Fintech startups merging with more successful fintech players, or hoping to be bought by incumbents, will be one of the biggest trends in 2018. AI and machine learning will play an increasingly key role for the startups as well as for the incumbents differentiating winners from losers in an increasingly competitive environment.”

Spiros Margaris, Founder of Margaris Advisory

“After years of aggressive cost-cutting due to the aftermath of the 2008 financial crisis, banks will look to partner with bank technology and fintech providers that provide solutions that can directly impact revenue. Digital lending and account origination will be the early areas of focus.”
David Gerbino, Principal of @dmgconsulting

“More banks will see fintech startups as an “enabler” rather than a “disruptor” and there will be more collaborative initiatives between banks and startups. More banks will focus on digital transformation as a key strategic agenda, rather than focusing on digital innovation in a limited emerging technology area.”
Makato Shibata, Head of Global Innovation at Bank of Tokyo-Mitsubishi UFJ

“Big retail players will realize they don’t have the technology or the reach to capture data previously only available through financial institutions or third parties, and will collaborate more with startups. It will be the year of Fintech for people.”
Matteo Rizzi, Co-Founder of FinTechStage Limited

“The innovation function grows up and moves from the Lab to the Factory. Bank IT teams will meld with business and deliver new solutions by using ideation, design development and business modeling into a complete ability to deliver customer ready solutions. This is the end of innovation islands and will be the only way to deliver true financial services innovation.”
Dion Lisle, VP, Head of Fintech at CapGemini

“While there has been a perceived slow down in venture capital fintech investment, startup activity, corporate partnership, investment and experimentation with smaller technology players will not slow down in 2018. Many banks will need sherpas and interpreters to bring these activities inside the bank to change the culture from within.”

Bradley Leimer, Managing Director and Head of Fintech Strategy at Explorer Advisory and Capital

“2018 will be a year of stretching limits for fintech partnerships.Banks want bigger impact from fintech technologies and bigger/faster results, and they will invest heavily in technologies and tools that can create a human-like experience across all channels. This may also be the year the regtech space finally gets the attention it deserves.”
Devie Mohan, Co-Founder and CEO of Burnmark

“2018 will see deep integration of AI/ML into fintech and financial processes. Fintech as an industry will mature significantly, making 2018 the year when fintech will leave puberty behind.”
Alex Nechoroskovas, Founder of Fintech Summary

6. Expansion of Digital Payments

Despite increased adoption of digital payments, cash remains a primary form of payment for many, especially for low-value transactions and by certain demographic groups. Attributes of cash contributing to continued use include speed, universal acceptance, anonymity, lack of fees, etc. Some emerging markets also still lack a modern payments infrastructure while certain cultures don’t have trust in the banking system. In other words, the reports of the death of cash are still exaggerated.

While e-payments are expected to grow at a CAGR of 17.6% from 2015 – 2019, the yearly growth rate is expected to decrease, as more transactions move to mobile payments (m-payments). Mobile payments are expected to have a CAGR of 21.8% from 2015 – 2019, helped by an increased proliferation of mobile devices. As with many of the payment trends, the impact of China on growth numbers is significant.

The integration of customer analytics, improved fraud management, dynamic wallet solutions and other value-added services will have a positive impact on both the consumer and the merchant. It is expected that ongoing improvement in biometrics and secure payments will become mandatory in the future, while integration real-time financial management solutions will become commonplace.

Finally, as fintech firms continue to bypass traditional value chain components, traditional financial services organizations will need to determine if they should partner with, buy or ignore these new competitors. Given that most of the fintech activity in the payments space has targeted the most lucrative components of the payment value chain, significant decisions are necessary.

There is no clear path to success in the new payments ecosystem, with many variables, opportunities and challenges still in an embryonic state. It does seem to be clear that success will require collaboration between players and markets. Especially as new technologies and new structures of solutions emerge in connection with open banking APIs, AI and big data, organizations will need to determine their best role in the new ecosystem.

In the end, the consumer and commercial marketplace will determine the winners, but there are tremendous opportunities for firms that embrace collaboration of insight and solutions to develop an improved value-added proposition that can address the need for speed, insight and security.

“With the fast-paced development of applications, technology and recent upgrades to Apply Pay, we can expect mobile payments to continue to grow at a rapid pace. With the surge of Cyber Security data breaches on the rise, it will be essential that these mobile payment applications and systems be put through vigorous security tests performed by third-party auditors.”

Michael Fisher, Full-time Analyst at TechCPU

“Adoption of alternative payment technologies will expand exponentially as consumers ditch cash for the convenience and security of emerging payment methods including contactless payments, digital wallets and biometric verification.”
Todd Linden, CEO of Paysafe Group

“With most larger U.S. banks utilizing the Zelle platform, we will start to see a tremendous acceleration to digital payments, especially P2P. The benefit of having a common set of rails across the majority of the largest banks in the U.S., allowing seamless payments to the majority of U.S. banking clients, cannot be over-emphasized. Watch out cash!”
James Anthos, SVP and Director of Strategic Planning at BB&T

“PayPal and Venmo will see major competition with the continued roll out of Zelle and the move to (near) real-time payments transfer. All solutions will likely continue to grow, but it will be interesting to see if Zelle is able to penetrate into known Venmo demographics.”
Chris Fleischer, Director at Fiserv

“2018 will see the consumer adoption of P2P payments accelerate to the point that this way of payment becomes a serious alternative to existing payment methods such as cash and cards.”
Ron van Wezel, Senior Analyst at Aite Group

“2018 will see the first deployments of real-time retail payments platforms powered exclusively by mobile phone access. Driven by financial inclusion, these super-scalable and ultra low-cost platforms will connect mobile wallets to institutional payers and merchants, as well as traditional bank accounts. These platforms will also enable easy access to payments for the new applications of the future, such as the solar battery leasing companies, transport companies and others.”

Konstantin Peric, Deputy Director of Financial Services at Bill & Melinda Gates Foundation

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