Financial institutions face a future where they will either own customers or own the means of serving them with the latest and best in digital services. Few will be able to manage both roles and many will need to grow used to being an anonymous partner powering the institution that faces the customer, as consumers and businesses increasingly demand the best. Institutions will increasingly find themselves part of collaborative efforts with other players with specialized talent and product knowledge, including traditional institutions, fintechs and big techs.
Beyond this, according to research from Forrester, the role of financial marketers will vary tremendously depending on which slices of an increasingly fragmented business that their employers choose to pursue. Some institutions will ditch nearly all aspects of what being a “banking institution” has historically entailed. These institutions will turn their transaction-oriented branch systems into “engagement hubs,” taking on the role of face-to-face financial advisor to help people sort out the best mix of services from a range of providers.
Indeed, the balance of power is changing. The time is coming when consumers will reclaim not only more of their data, but the rights to the algorithms that represent their digital counterparts to financial services providers. In fact, in the not too distant future, much as people seek help now to improve their credit scores, consumers will ask experts to help refine and fine tune their personal algorithms so they get the best service and deals from their providers.
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Four Major Changes Coming to Banks and Credit Unions
Forrester’s research, produced by a team headed by Alyson Clarke, Principal Analyst, and Jacob Morgan, Senior Analyst, envisions a future accelerated by COVID-19’s various effects on the economy, but which was already in the cards as the decade began. The beginnings of what will come in greater quantity and frequency over the next few years can be seen, say the analysts, in developments like the Apple Card produced in partnership between Apple and Goldman Sachs and in the developing relationship between Google and partner banks and credit unions.
At the core of the case Forrester makes are four points regarding the future of banking institutions. To varying degrees from one institution to another, they will become:
- Invisible: Leading institutions will use technology and data insights to inject their services at consumers’ moments of need, even if embedding services in that way renders their brand anonymous.
- Connected: Collaboration in multiple areas will be the normal way of approaching things. Rarely will an institution play all roles in providing a service to a consumer or business. “Technologies, partnerships, ecosystems and platforms will combine across multiple industries, sharing data and resources to deliver financial outcomes,” the company states in its report.
- Driven by data insights: While the trend in recent years has been for people to be willing to surrender data in exchange for goods and services, the firm believes that the desire for privacy is going to become a stronger factor in the decade of the 2020s as well. More banking services will be personalized, but consumers will control more of their data going forward.
- Purposeful: People will begin to decide which companies to patronize based on their attention to the broader social issues that they consider to be important.
“While we are already seeing these themes play out now in the industry,” the report states, “they will be far more prominent by 2025 and table stakes by 2030.”
Underlying all of this, of necessity, will be a higher level of trust on the part of consumers and businesses, according to the paper. However, this will look different from the concept of trust of the industry’s past.
Platforms and More Will Revise People’s Thinking About Banking
The concept of having “an account” with a given financial organization may fade into the background as more and more economic relationships rely on a mix of providers’ inputs to produce a given function obtained through a platform. More and more will be delivered via “autonomous finance,” says Morgan — a sort of personal balance sheet programmed to manage an individual’s cash flows and financial relationships in the optimum way, with comparatively little consumer involvement.
This shift will take time. “The notion of ‘products’ is hard to change,” says Morgan, especially as so much of bank legacy structure and IT is built around the concept. However, models are already out there. “Tesla is steadily doing that with the car becoming something that’s upgradeable over the air,” says Morgan in an interview with The Financial Brand. “The same will happen with financial services.”
Before too long, as the Internet of Things becomes a more significant factor in the economy, Morgan suggests, a vehicle might actually become an account-holder in its own right. A car could swap sensor-driven data about roads for better deals on various services, for example. On the commercial side, Germany’s Commerzbank AG already has loan contracts written such that plants and equipment equipped with sensors provide data that contributes to the automated renegotiation of loans on the fly in the background, according to Morgan.
Definitions of what a given product is will shift as more flexibility is added to new and existing ones, predicts Clarke. She points to the Apple Card, which includes elements of the traditional credit card that segue into something closer to point of sale installment finance. Increasingly consumers will insist on such flexibility to produce services that better meet their needs. Clarke thinks it’s ridiculous that most financial institutions, historically, insisted that a consumer with three savings goals own three separate savings accounts. In time, regulators will adapt to refreshed industry thinking as both move away from a cookie-cutter view of the business.
Over time, as the likes of Google develop marketplaces with customer experiences driven by their ideas supported by data analytics and more, the consumer will cease to think in terms of products and simply look for fulfillment of needs. In deals like Google’s, and more to come, says Clarke, banking institutions on the back end of those platforms may still think in product-by-product terms, but no one else will.
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Emerging Economic Empowerment: ‘I Am My Own Algorithm’
A key debate going on for a decade or so has been who owns the data around a consumer that essentially is that consumer to the financial services business. If data is generated by a person’s behavior, is that data proprietary to the consumer or does it belong to the financial institution that captured it in the role of observer?
Over the next decade Clarke believes the debate will be decided in favor of the consumer. “That’s my algorithm, so I own it, not you,” says Clarke. “Right now, financial firms own it and we don’t know what’s going on with it. But it’s almost like your preferences in the software that you use. They are how you do things, and the algorithms that represent your behavior to a financial institution are what you want and what you are. We’re at the nascent stage of this.”
In time Clarke sees this becoming something that experts like financial planners will help consumers to fine tune. In that way all of their financial services would be governed by their algorithm as they like it tweaked.
The future of one’s personal algorithm is wrapped up in the issue of trust, which Forrester sees as a key element in the ongoing evolution of financial services through the 2020s.
“To compete in a world with increasingly blurred boundaries — where smart devices and nonbank platforms such as Google can deliver the banking experience, ride-sharing apps can supply loans, and cars can be distributed ledgers — successful banks will ruthlessly determine and play to their strengths,” states the research report. Additional companies will begin to enter the fray dominated by “GAFA” — Google, Apple, Facebook and Amazon — such as Rakuten, the Japanese ecommerce giant that has been making inroads in the U.S.
Clarke believes that the issue of trust will be integral to the changes coming for financial institutions and the broader set of companies that will play a part in meeting consumers’ needs. Trust will also become somewhat fragmented as relationships morph and broaden.
“Who do I trust with my money? Who do I trust with my data? Who do I trust for advice? And who do I trust to do the right thing?” says Clarke. “In the future they could all be different entities.”
Besides the “who” of trust, Clarke says, there will increasingly be layers of trust. Some of that will be earned a bit at a time, especially by newer providers like Apple and Google.
“Every time you use Apple Pay and it works,” says Morgan, “it’s just another little reinforcement.”
Another level of trust will be among the community of providers of services collaborating to bring consumers and businesses the best available combinations. For each link in the chain serving a specific purpose for a specific consumer, strength must continue or the whole chain fails. This will be the case whether a bank or credit union chooses to be the front end of the financial relationship, distributing services fulfilled by third-party firms, the provider of “rails” used by other financial entities, or something in between.
Very few organizations will be self-contained providers anymore. And exclusivity may also go by the boards. Just as a supermarket may carry a store brand, a regional brand and a selection of national brands of some food, institutions “may choose to sell products and services that are complementary to their own,” according to the report. This will also require trust, reflected back, in part, on the consumer, who will have comparatively little involvement with some ultimate providers while relying heavily on what they bring to the chain.
The report also points out that trust will increasingly be a two-way street. Institutions will need trust to do business and must earn it.
“Consumers will expect ‘RoC’ — return on consent; their trust and permission must not be taken for granted,” states the report. “They will demand greater transparency over the use of their data and will expect granular control of data sharing for more personalized advice and engagement — whether via the bank’s virtual agents, in a connected car, another’s platform, or in a pop-up branch.” Increasingly the ability to base decisions on data analytics will hinge on maintaining access to such data.
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Will the COVID Recession Hasten or Halt These Trends?
The idea of a platform that spans all economic needs and purposes effortlessly, seamlessly and painlessly, seems almost too good to be true in the best of times, when there is plenty of income to pour in on one end of the process in order to provide the savings, investments and consumption that come out the other end.
What happens when rough times come, as is increasingly the case in the wake of the pandemic? Clarke says the COVID slump actually plays into the increased meshing of economic gears that the firm foresees.
“What are you going to do as a bank to help me do better, in terms of advice and in maximizing the deals I get, the rate on my mortgage, etc.?”
— Alyson Clarke, Forrester
On one hand, the recession has heightened pressures on traditional financial institutions to survive. Most of the juice has been nearly squeezed out of the historical margin lending business. And economic troubles will leave lenders holding troubled debt, some of which will never come back.
On the other hand, consumers stand in need of help like they haven’t needed since the Great Recession.
“In terms of the individual consumer, it’s going to be about how to help them do better and do more with what they have,” says Clarke. “What are you going to do as a bank to help me do better, in terms of advice and in maximizing the deals I get, the rate on my mortgage, etc.?”
COVID has brought up these and other questions sooner than would have been the case, says Morgan.
“Assumptions made in the past have all been ripped up,” Morgan explains. “You’ve got people coming into the collections process now that never would have come close to collections or to defaulting beforehand.”
This time around, financial institutions haven’t caused the slump, but can actually be part of the solution, says Morgan. To keep up consumer goodwill, they have to act quickly to keep these tech trends working in a positive direction for consumers.
Clarke cites the Apple Card as an example. In one sense the card is what she terms an “aspirational brand” that not all can qualify for, though many wish to. Apple has set up a program — “Apple Path” — designed to help consumers with potential to be Apple card holders to make changes to their practices and circumstances to eventually qualify.
Will Financial Marketers Still Have Jobs?
For many institutions, especially those with some size, they won’t take solely one tack. Forrester describes the multiple approach that many will take as the “constellations of value.” Often they will blend approaches from being an invisible engine behind the scenes to providing banking as a service to co-designing new ideas. But if this new twist on the business continues to grow, where does it leave the traditional financial services marketer? The careers of most have been based on promoting brand, products and in general finding ways to differentiate their employer from everyone else?
“So many banks think their brand is the be-all and end-all. The reality is that in the future they will find themselves in a collaborative environment.”
— Jacob Morgan, Forrester
The answer is, it depends.
“So many banks think their brand is the be-all and end-all,” says Morgan. “Today that is tantamount to a lack of self awareness, because the reality is that in the future they will find themselves in a collaborative environment.”
Morgan says most financial marketers will have to be ready to make a major mental shift.
“You have to become willing to potentially have your brand subsumed behind others in order to the customers,” says Morgan. “You have to pivot from thinking about ‘I need to bring customers to me’ to realizing that ‘I need to take my products and services to customers.’ Some of that may be through somebody else’s marketplace and for some institutions it might mean being the front end delivering someone else’s services to those in need.”
Ultimately, “if I am entering into a partnership or ecosystem, I need to define my boundary very clearly,” says Morgan.
When that is the world in which your institution works, the role of marketing may be less and less about visibility and more and more about functionality and design. The marketer in a sense will become an advocate for the consumer, to ensure that whatever elements go into the recipe, the final customer experience works.
“The marketer will have to work to shift from product marketing to customer interaction and customer experience marketing, adding value above and beyond the products alone,” says Clarke. “That’s ultimately what’s going to make people sticky to your brand — even if they don’t know your brand is there, because it comes down to experiential trust.”