DEMYSTIFYING FUTURE OF BANKS

The future of banking will undergo a huge change ahead, and the process has already started – especially with the series of new regulations announced that support the role of new insurgent activities and a re-imagined business model for financial services. The forces in financial services that are accelerating this change for new age business models include increased cost commodification pressures, data monetization opportunities, the emergence of bionic work-forces that will reduce dependence of human labor in many roles, the systemic importance of financial institutions as well as that of systemically important Big-Tech players, the pressure of profit redistribution of traditional profit pools between multiple players, the importance of experience ownership with customers demanding that the power be transferred to them as data owners and have right to choose the experience they seek from hyper-scaled or hyper-focused specialist service providers, etc.

In effect, there is an unstoppable process of convergent disruptive forces that are reshaping banking business and customer experience models from the traditional model. There is further impetus coming from facilitative regulatory changes and the evolution of Neobanks, and other emerging platforms that offer customers with the power to engage with different financial institutions from a single channel – which will become the dominant front-end provider for the delivery of all kinds of financial services on a bank-agnostic basis.

The speed of change has accelerated exponentially owing to the current Covid crisis as it leaves no discretion for choice

Banks have been forced to invest rapidly in digitization and customers have been forced to adopt changes at an unprecedented speed. We are also seeing regulators introducing regulations at a faster pace to accelerate digitization in banking.

These evolutionary changes is leading to a rapid change in the operating model of banks, requiring the banking business architecture to get increasingly modular and open to connect with other players in the eco-system, like never before. Banking in the future will revolve around the importance of ‘mobility’ and such functionality will now be core to all B2C and C2C services. For this, boards are already revisiting investments in banking platforms to create on open-ended/service focused architecture so that banks can open APIs to partner with Neobanks/Fintechs as disruptors to become providers of innovative solutions in line with customer needs, while ensuring mobility and a fast time-to-market at all stages.

Banks in the future run the risk of increasingly becoming ‘utilities’

Therefore, banks need to fast reposition themselves as the essential railroad on which the Neobanks and fintech disruptors can ride to deliver innovative solutions at a rapid speed, in partnership with banks. The strategy for banks has to be one of ‘building partnerships’ and of ‘building secure value-added interfaces’ with other non-traditional players in the ecosystem, such that banking services become integrated to the mobility enabled day-to-day behaviors of customers, in an environment where customer-centric solutions provided by NeoBanks will increasingly be offered on a bank-agnostic basis as mere providers of the railroad. To counter this risk of becoming a utility, which can erode the revenue share of banks, the approach of bank boards/management has to be one of navigating this market evolution through speed, innovation, nimbleness and an openness to partnerships in a sharing/connected economy. The past approach of ‘banks necessarily owning all capabilities, owning/operating clunky technology and systems, and insisting on captive resources’ will not be viable ahead – as markets innovate and the broader ecosystem evolves at a speed faster than what regulation-ridden and compliance-heavy banks can hope to match.

This wave of externally imposed change and process of convergent disruption across players in the ecosystem is already putting major pressure on bank revenues and earnings, which has been accelerated by the behavioral changes driven by Covid. In the process banks, despite delivering normal profits, are unable to deliver against the shareholder expected benchmarks on economic profit/returns. So Banks, that do not manage the transition well in the face of this evolutionary changes, will end up being losers. In the new paradigm, therefore, it is imperative for banks to focus on reorganizing their operations, rethinking their organizations, reimagining the customer journeys and experience, and accelerating digitization to leverage data-driven real-time decision making to win the new opportunities being offered in this open, sharing and connected operating model and ecosystem.

Where does the future of banking lie?

The future of banking lies in making this success change and transition and it lies on investing in a culture of agility in driving transformation, and an openness to creating new partnerships and interfaces. The focus should be on owning the customer’s mind and being ‘first’’ to provide for customer needs at the most attractive value-based pricing.

Traditional banks will have to necessarily accept partnering with non-traditional insurgents, such as NeoBanks, and other players in the ecosystem, and to match up on readiness and capability to allow for such innovation and change at a rapid pace while keeping high standards of governance, compliance, asset quality, adequacy of liquidity and capital, with strong partnerships and top-tier talent within.

While, the above is a challenging transition for most banks but, if done right, the future of banking is very exciting with massive opportunities ahead! 

Quite frankly, in this new paradigm, the only one ingredient that will drive this success and differentiate on performance between banks will be the HUMAN CAPITAL/TALENT that bank’s hire, grow, progress, retain and empower to generate the required success….and this needs to be nothing short of the BEST!

And, YES...... Banks can WIN as our world gets FLATTER!

To win, banks should nurture a Founder’s mentality in it talent with a Can-Do culture than products/digitization. They should be obsessed with customer centricity & about offering customer choice and portability.

A change in mind-set is needed for banks to increasingly being open to encouraging sharing/partnering vs owning/blocking all ts capabilities. Instead the focus of banks should be on executing fast with excellence….and not get lost in just ‘Talking the Talk’. This will empower banks to be able to delight customers by offering competent, timely, error-free, real-time and need-based services, while simultaneously being resilient, and delivering with integrity and trust in line with fiduciary responsibilities and the basic expectation of customers from their banks.

To achieve the above needs a constant focus on being open to and encouraging a culture where it is safe to experiment & fail, as only such an approach will foster innovation and change.....and to do this effectively, the team should constantly focus on decoding the customer’s mind....by listening to their customers and the use of predictive analytics.

One common pitfall that banks should consciously avoid is to not get trapped into losing sight of the wood for the trees by being overly pre-occupied with consultant-speak and the exciting gizmos around technology, products and digitization….as these are mere enablers.

Instead banks should be relentlessly obsessed with constantly re-imagining customer journeys from an outside-in perspective, re-thinking organizations, re-shaping the culture, and re-designing operating models to enable fulfillment with a TRUE CUSTOMER-CENTRIC focus.

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