The banking industry has undergone significant changes that have fundamentally altered the competitive battlefield. With a focus on improving efficiencies, finding new revenue opportunities and improving the customer experience, five megatrends have arisen to impact banking in tectonic ways.
These megatrends impact the internal operations, business models and deliverables of banks and credit unions, requiring a significant paradigm shift from “banking as usual.” They all are components of the digital banking transformation process – some being revolutionary while others are evolutions of trends already in process.
The five megatrends are:
- Democratization of data and insights
- Explosion of hyper-personalization
- Shift from transactions to embedded engagement
- Acceleration of automation
- Platforms reshaping banking
1. Democratization of Data and Insights
The first megatrend impacting banking is the democratization of data and insights. More than ever, data is being collected everywhere, and it is the lifeblood of any financial institution. The democratization of data and insights refers to the process of making data and insights accessible to a wider audience, including both employees and customers. This is contrary to traditional norms, where data and insights were the domain of a few people within an organization who had specialized skills, tools and systems required to access, analyze and make use of data.
Beyond expanding the accessibility of data and insights, this trend includes the seamless integration of data using Customer Data Platforms (CDPs), which make it easier than ever to collect, analyze and deploy solutions using large volumes of data. Supporting the processing of significantly larger data sets is the use of the cloud for collecting data and creating insights at speed and scale.
“The democratization of data means that data is no longer siloed, but instead is available to all employees to be used in a strategic manner to support business objectives.”
— Brian Solis, VP of Global Innovation at Salesforce
The democratization of data and insights has the potential to improve the experiences of employees as well as the people they serve. For instance, banks and credit unions can use data and insights to build new products, offer personalized financial advice and optimize operations for maximum efficiency. Employees can also benefit from the democratization of data and insights, as they can use this data to make better decisions and to gain a deeper understanding of their customers. Finally, customers can benefit from the democratization of data by receiving highly contextual offers and by being empowered to make better decisions around their financial wellness using their own real-time data.
2. Explosion of Hyper-Personalization
In the past, personalization did not extend far beyond using a consumer’s name in a salutation or offering a product or service based on seasonal buying patterns. Sometimes, the personalization was made stronger based on demographic segmentation. The explosion of hyper-personalization is driven by the use of significantly larger amounts of data, such as browsing and purchase history, interests and preferences, demographics and even survey information.
With advanced technologies that include facial recognition, augmented reality and conversational AI, it is now possible to also offer customers highly personalized experiences that cater to their unique delivery preferences – in near real-time.
Today, self-driving cars, online retailers and entertainment streaming services build profiles that drive experiences and recommendations. This is setting the bar for excellence in financial services. Increasingly, browsing patterns and even devices like Alexa are being used to enhance the value transfer of hyper-personalization.
“Hyper-personalization is the future. Companies that understand the value of data and use it to create personalized experiences will thrive.”
— Raja Rajamannar, Chief Marketing Officer of Mastercard
Looking forward, it is likely that virtual assistants that act as digital twins and work on our behalf with trust will increasingly become the norm. This development will mark a significant shift in the way customers interact with financial institutions. Rather than relying on human advisors or customer service representatives, we will be able to rely on virtual assistants that can understand our unique needs and offer personalized solutions that are tailored to our individual circumstances. Such a shift will not only make banking more convenient, but also more accessible to people who may not have access to traditional banking services.
3. Shift From Transactions to Embedded Engagement
Traditionally, banks and credit unions have viewed their relationship with consumers as a series of transactions. However, in recent years, there has been an increasing focus on providing a seamless and integrated engagement opportunity that can result in a more stable and long-term relationship. This can involve a variety of tactics, including real-time contextual marketing messages, loyalty programs, and financial content and education.
This trend is driven by companies like Uber and Netflix, which have already disrupted the traditional taxi and movie rental industries, respectively. Increasingly, the objective is on making customers forget about the underlying financial transaction and instead provide valuable engagements across the entire lifecycle. In other words, if the experience and engagement provide value, you care less about the cost and more about the ease of the process.
“A brand is no longer what we tell the consumer it is, it is what consumers tell each other it is.”
— Scott Cook, Co-Founder of Intuit
The rise of digital technologies, such as mobile devices and social media, are at the root of this trend. These technologies have made it easier for financial institutions to engage with customers in a more continuous and personalized way. This trend has the potential to fundamentally alter the way we think about banking. Rather than viewing banking as a transactional service, it could become a key part of our everyday lives, providing us with valuable experiences and engagements that enhance our overall well-being.
4. Acceleration of Automation
The process of making digital user experiences better must go beyond the way a customer interacts on a digital device. To optimize the digital customer experience, financial institutions must use modern technology and reimagined processes to rethink the back office with the goal of increasing productivity, enhancing the customer experience, and digitizing operations. By automating repetitive or time-consuming tasks, financial institutions can free up human resources to focus on more strategic and high-value activities.
“By automating manual processes, banks can reduce costs, improve efficiency, and create a better customer experience, all while laying the foundation for long-term success.”
— Robert Prigge, CEO of Jumio
For example, by using chatbots or virtual assistants, financial institutions can provide 24/7 support to customers, helping them to find the information they need and resolving issues quickly and efficiently. This can help to improve customer satisfaction and loyalty, which are critical factors for business success. By using machine learning and other advanced technologies, banks and credit unions can gain insights into their existing operations, allowing them to identify opportunities for greater efficiency, improved product quality, and better decision-making.
It’s important to note that while automation is the process, digital transformation is the intended result. By using automation to digitize operations, financial institutions can create a more agile, data-driven and customer-centric business model that is better equipped to succeed in the digital age. Technologies such as machine learning, robotic process automation, artificial intelligence, low code and blockchain all can contribute to helping the back-office deliver what people are asking the front office for.
- The Power of Data Democratization in Banking
- Better Banking Experiences Require Real-Time Data Insights
5. Platforms Reshaping Banking
The culmination of all of the other four megatrends is the shift from traditional siloed business models to overarching platforms in banking. These platforms leverage constant learning from every interaction, collecting data on users and using it to improve services and create highly personalized engagements across the customer journey. By leveraging digital technologies, platforms can be built across industries.
For instance, the emergence of fintechs and digital-only banks are a prime example of the shift to platforms in banking. These organizations operate entirely online and offer traditional services such as checking accounts, savings accounts and loans through collaborations and partnerships with traditional banks (BaaS). Outside of banking, the emergence of “anything as a service” (XaaS) where companies increasingly offer products and services as subscription-based or on-demand services.
Alternatively, open banking involves sharing financial data between different financial organizations or non-banking third-party providers. By opening up APIs (application programming interfaces), banks and credit unions can allow third-party developers to build applications and services on top of their data.
“The future of banking is about platforms, not products; about experiences, not transactions; about tribes, not customers. The future of banking is about creating value for everyone, everywhere, every time.”
— Brett King, Founder, International Speaker, Futurist and Author
Finally, the emergence of platforms is leading to the creation of the metaverse, a virtual space where people can interact with each other and with digital objects. The metaverse has the potential to transform the way we interact with technology and with each other, offering new opportunities for collaboration, entertainment, banking and commerce. As more financial institutions move towards the metaverse, we can expect to see new and innovative products and services that are designed specifically for this digital space.