Fintech promises to spur delivery of products and services that banks find complimentary but didn’t create on their own, and at the potential expense of brand identity. That’s one of the highlights of a new Forrester Research report about the future of banking.
“Designing to support integration with other platforms and brands will require a step change in collaboration, an outside-in cultural mindset that at one extreme will see banks position themselves as an environment for firms to collaborate through,” the report says.
Leading banks will employ technology and deeper customer insights to offer financial services at “the customer’s moment of need,” according to the report. This will include stepped-up availability of “invisibly” supplied services like payment apps.
“Some banks will pivot fully to be the platform and rails that other firms run upon, other (larger) banks will contest the tech titans for customer primacy and engagement, and some will do both,” the report adds. “Banks will need to support multiple routes to market for their products and services, only some of which the bank will own.”
Among the technological advances fueling this movement are APIs, cloud computing, AI, 5G and distributed ledgers, according to the report. This technology will help position banks to be direct-to-consumer and “as a service” providers, as well as marketplace sellers and platform owners.
The evolving intersection of banking and technology comes as traditional banks increasingly compete against big tech, fintechs and upstart banks for market dominance, the report says.
“The economics of the next decade will challenge banks. COVID-19 has shifted the focus but will not dominate the future narrative,” Forrester Research says. “Leading banks are pivoting and rebooting their strategy — capitalizing on the pace of change and innovation and setting their course for the next decade.”
Banks must break away from established business models in order to succeed in the fintech era, according to the report.
“Accelerating loops between technology and humans make it harder for firms to keep up, leading to greater and faster disruption. Successful banks will become adaptive enterprises. They will rethink customers and markets and invest ahead of change to become more responsive,” Forrester Research says. “They’ll do away with operating models that have hierarchical structures, fixed resources, and loose interactions — and shift to dynamic, right-sized models based on demand.”
Overall, according to the report, four themes will define the future of banking: invisibility, connectedness, customer insights and purposefulness.
“While we are already seeing these themes play out now, they will be far more prominent by 2025 and table stakes by 2030,” Forrester Research notes.
Not surprisingly, the coronavirus pandemic is bolstering interest in fintech. In a 2020 survey of 305 global banking executives conducted by The Economist Intelligence Unit:
- 77% said unlocking value from AI will be the differentiator between winning and losing banks.
- 66% said new technologies will continue to drive global banking for the next five years, up from 42% in 2019. Aside from AI, these include machine learning, blockchain and the Internet of Things (IoT).
- 42% said regulatory issues surrounding these technologies remain top of mind.
- 45% said they’re committed to transforming their current business models into digital ecosystems.
- 50% cited the importance of fending off competitive threats from the likes of PayPal and Apple, with 34% expressing the same concern about major tech players such as Alibaba, Facebook and Google.
Perhaps the most telling result of the survey: 84% of global banking executives said they believe fintechs will continue to wield a cost advantage over traditional banks. In fact, 26% of the executives mentioned investment in fintechs as an innovation strategy.
Against that backdrop, 59% of the executives said they envision the traditional branch-based banking model dying by 2025, up from 44% in 2019.
“Retail, corporate and private banks were already under pressure to deploy new technologies and reshape their company cultures in order to compete with big tech firms and payment players,” The Economist Intelligence Unit points out. “Now, as digital banking surges due to the coronavirus pandemic, this task is more pressing than ever.”