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The rise of digital banking has been meteoric. As the world has become increasingly digitized and fast-paced, many consumers no longer have the time or inclination to go to a physical bank.
Most traditional banking institutions have adapted to this by increasing their online presence and allowing the majority of transactions to be done through mobile apps, but it may not be enough.
Grand Studio has compiled some industry trends having helped several large incumbent bank clients navigate this transition, as the digitization of the financial industry continues.
The Rise of Fintech Banks
Traditional banking is quickly becoming a thing of the past. The services that they once exclusively offered are no longer exclusive.
With the advent of Fintech solutions, retailers can offer their own payment plans, pay-as-you-go models, mobile payments, etc. which have reduced the need for using banks as a payment system.
To adapt to this, many brick-and-mortar banks have added digital-first servicing touchpoints. Both incumbents and disruptors increasingly offer products and services outside of the traditional scope of consumer banking such as robo investment advice, budgeting, personal financial management, and various types of personal insurance products.
To continue to survive in the future, traditional banks will have to do more than just adapt to the challenges that are being thrown at them. They will need to embrace Fintech solutions to enhance what they are able to offer to consumers at a lower cost, or they will need to embrace and enhance the one thing that they uniquely have left – human-to-human connections.
Banking-as-a-Service (BaaS)
Perhaps the most impactful change in recent years, and arguably one of the biggest reasons for a decline in traditional bank use, is BaaS.
With so many non-banking institutions offering banking services, there is little to no need for the majority of people to go into brick-and-mortar banks anymore. Almost every banking transaction can be done online, through a mobile app, or at a traditional retailer. Grand Studio recognized this trend several years ago when we partnered with one of the world’s largest financial institutions to create an online and mobile banking platform to service a prepaid banking product that can be reloaded at many big-box retail locations.
This has also led to a deluge of mobile-only banking firms that exist without any physical branches. The pandemic helped to spur the popularity of these banks as the need for contactless payments and peer-to-peer money transfers increased.
In addition, these banks are often able to offer lower interest rates for loans, higher yields on savings accounts, and little to no fees attached to their accounts.
The main downfall of BaaS, particularly in the form of mobile-only banking firms, is the lack of human connection. There are few, if any, times that a consumer will speak with a real person if they have a concern or problem. Instead, these companies tend to use chatbots to handle any issues that may arise, which can quickly become frustrating to most people.
Innovation in Data Exchange
Financial institutions collect a wealth of data about their customers and their behaviors in the course of normal business. It’s increasingly common for banks to offer consumers the option of aggregating accounts across institutions for the purpose of providing insights on budgeting and spending.
Behind the scenes, institutions are increasingly thinking about how to modernize the systems of data exchange that powers international consumer finance. We’ve seen in recent days the power that SWIFT yields as banks in Russia have been partially banned from the consortium, except for SWIFT, but many of the messaging technologies that power SWIFT are decades old.
We recently helped one of the largest financial institutions in the world to imagine how blockchain-based technologies might disrupt SWIFT and provide real-time data exchange and validation. The technology offers significant opportunities to improve today’s problems, like compliance with regulations regarding Know Your Customer issues, and also offers significant new opportunities that are built around secure, controllable, and instantaneous data exchange.
Through a collaborative design process, we helped our client design the onboarding process and interfaces that institutions will use to manage access to their data and exchange data with other entities on the blockchain.
From here, the possibilities are limitless. Open finances now allow for competition in curated marketplaces such as wealth management companies, in processes such as allowing alternate credit scoring/tracking companies, and in assets such as BaaS.
Eventually, this all may lead to every company incorporating some level of Fintech to expand what they can offer to their customers and their employees.
Artificial Intelligence (AI) Driven Service
For years, most banks only offered access to human brokers and stock market advice to those wealthy clients that could afford the associated fees. This led to a stratification in the market as most young adults, making up the majority of the market share, were unable to participate in the stock market. Fintech disruptors have completely changed consumer expectations – where 20 years ago, you almost certainly would have to call your broker to buy or sell equities, you can now trade fractional shares from your phone.
Changing consumer expectations in the space are creating an increasingly serious challenge for wealth management services. While today’s (likely older) are accustomed to the human-driven experience, younger consumers may increasingly see having to work with a human to manage their wealth as a net negative, not a net positive.
We recently worked with one of the biggest players in this space to understand consumer attitudes towards technology relative to their existing relationship with a financial advisor. We found significant opportunities for this client to double down on what was working (the feeling of personal support consumers get when they talk to their advisor) as they built out their long-term product roadmap.
The pending purchase of Wealthfront by UBS is representative of one-way firms will be addressing this challenge. Wealthfront gives UBS a low-touch, low-cost (maybe even free) platform through which they can engage select customers to offer their high-touch personal advisory services. We expect much more product development and purchases in this space as the players in the space confront changing customer needs and expectations.
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