The Future of Banking

What would Banking look like in 2030? One possible scenario is the Banking industry performing the role of a Life Concierge. A concierge understands our needs, curates a set of options to meet that need and delivers our chosen option, all the while ensuring a superior experience. To perform this role, a Life Concierge must at least have a deep understanding of her client and a channel of interaction. Thus in the future, firms like GAFA (Google, Amazon, Facebook, Apple) can also perform the role of a life concierge, as they continue to exponentially increase their already deep insight into their customers and have well established interaction channels.

However, for Concierge Banking to become a reality, it will truly have to become Customer-Centric. Focus will need to shift from generating lifetime value FROM a customer, to generating lifetime value FOR the customer. For example, success in this future scenario would mean moving away from maximizing fees and interest generated from a customer, to minimizing fees and interest the customer pays over her lifetime. The concierge will work actively with the customer to help her achieve financial security, by helping her save, reduce debt, increase investments and buy the right insurance coverage. Further, Concierge Banking will move beyond the financial realm into other life activities, for example, planning and booking vacations or buying tickets to concerts in a seamless fashion, driven by among other things, access to a client's historical transactional data! 

Leveraging behavioral data driven insight, ecosystems enabled by API connections and digital delivery of services, all underpinned by customer centricity and trust, the evolution of banking into becoming a Life Concierge is possible. This may sound far-fetched, but it is conceivable. It may also feel uncomfortable that a firm would know so much about you, but consumers will always gravitate towards services that are friction-less, provided their data is protected and used in their primary interest.The below picture captures what a banking ecosystem to enable concierge banking could look like:

Behavioral data driven insight: It’s one thing to google a Ferrari and entirely another to buy it. Transactional data, captures actual behavior beyond just intention and hence is a better predictor. Banks are thus in a unique position to become our Life Concierges, as they have visibility to our behavior across many aspects of our lives, reflected through our financial transactions. Access to transactional data is also why high-tech companies like Amazon, have a real chance to upend the banking landscape of tomorrow.

Behavioral data sets will comprise of transactional data, social media footprint and IoT data (for example, from our car and home appliances). This data set will be enhanced with adjacent data like that of activities of our friends and with macro data like weather patterns, enabling our Life Concierge to give us more meaningful insights and actionable suggestions

This future scenario will require extremely robust data privacy and information security as a necessary condition to function. The concierge will act as a ‘fiduciary’, ensuring that at all times, the client’s interest is primary. This data fiduciary requirement might lead to new market participants like ‘Digital Identity Custodians’ and ‘Data Custodians’

Banking Ecosystems: will be an important foundational element in the evolution to concierge banking. Ecosystems will possibly evolve in three phases. 

• Phase 1: Extending existing products to adjacent offerings. For example, extending auto finance to providing insurance and a leasing market place. 
• Phase 2: Offering a seamless experience across all financial products. This would mean bringing the best products together under one roof, suited to the client’s specific needs, even if the concierge is not the product manufacturer. This has started happening but is in it’s infancy. For a start, customers can visually see all the financial products they have in one place, for example through mint.com. Institutions have also started offering some financial products that they don’t manufacture, through their ecosystem. For example, banks offering tax preparation services through a third party, as part of a business checking account. 
• Phase 3: would be onboarding of non-financial services like vacation planning and booking, onto the ecosystem. Regulatory directives like Open Banking and technologies like APIs, will enable these ecosystems to operate. Ecosystems are most evolved in China with WeChat and Alipay leading the way and providing a model for what’s possible. As Amazon and Facebook get into financial services, one can expect innovative financial services firms to move into the domain of high-tech and other companies

Digital Delivery: High Net Worth clients today receive a highly personalized concierge experience from their personal bankers. Digital will enable the industry to deliver personal banker experience at scale, to retail clients. Data and analytics will enable the Concierge to understand every client’s unique needs and preferences intimately. Interaction channels will be enhanced with chatbots, voice and personal digital assistants. Human interaction will be remote but enhanced by VR. Physical transactions like buying groceries will also become seamless. One walks in, picks up the items and walks out. As one walks into the grocery store, the Concierge will pull up our shopping list as it integrates into home virtual assistant and suggest the amount we should ideally spend. Cameras will capture items that have been picked and will confirm our identity using facial recognition. As we exit, payment will automatically happen through the financial ecosystem. Amazon Go has already made this a reality.

Creating the right Customer Journeys: When thinking about creating impactful customer journeys, we still think in the context of products and maximizing customer lifetime value. For example, customer journeys today for a financial product like a credit card, aspire to create a unique experience to maximize credit card usage. If one truly puts the customer at the center, the objective will be to create lifetime value for the customer. The journey created will be across products, both financial and non-financial, across channels and focused on helping the client achieve their objectives like financial security or a well-planned vacation within budget. A powerful example is the Simple bank account, where the default balance shown is a ‘safe to spend’ limit. The safe to spend limit is your account balance minus goals, scheduled expenses and recurring expenses. This promotes financial responsibility and it puts the client’s interest first. Another example in the future could be the concierge suggesting how the client manages their cash, in the context of their loans and investments. If I have a $5000 windfall, should I keep it in my checking account, move it to a money market account, put some of it against a credit card debt, or use it towards paying down my mortgage principal. The concierge will do all the analytics and inform me what is the best use of my 5000 dollars, given my life goals.

Trust: Banks will have to develop and maintain trust across two dimensions. The first is that their access to a customer’s data will be used with her permission and in her best interest. The second is ensuring the customer’s data and digital identify is safe from malicious forces like hackers. Very likely, a separate industry will emerge which will be responsible for managing the digital identify and data of customers. While financial institutions today are well poised to perform this role, others who have client data, like Amazon or Google, can also position themselves as data and digital identity custodians (though the likes of Google and FB are today fighting an uphill battle around privacy issues). The idea of a data and or digital custodian is already surfacing, for example with Fidelity rolling out a similar service called Akoya (https://www.akoya.com/).

A key decision firms will need to make is the role they will play in this future banking ecosystem. A few roles that seem to be emerging are as follows:

Life Concierge: will own the customer relationship. They will orchestrate the client experience by understanding their needs, curating a set of solutions and delivering solutions through digitally enabled interactions. In retail banking, up to 70% value is in the customer relationship and distribution channel and 30% in product creation. Hence the role of the life concierge will perhaps be the most sought after position in the ecosystem

Product Specialist: The product specialists will create differentiated products which address specific client needs. Their challenge will be disintermediation by the Life Concierge. Hence, they will have to work hard at continuous innovation and ensuring their products remain relevant in their chosen area of expertise. Product Specialists will also need to work on creating brand awareness with the end customer, so that they are not at the mercy of the Life Concierge. One question to ponder is if a product specialist will be able to go directly to a customer? They will definitely try and establish an independent channel, and we can continue to expect bundling and unbundling of products and client interactions. But perhaps only the largest of the product specialists will be able to establish a viable independent channel.

Data Custodian: This role will probably emerge, though the business model might very well change. Instead of customers paying the custodian to maintain our data, the data custodian will pay us for holding our data. The Custodian will in turn recoup the payment by charging the Life Concierge or Product Specialist for access to our data.

Digital Identify custodian: This is another role which will become key. Rene Descartes said, ‘I think therefore I am’ and in the future our existence will be defined by our digital identity. Compromise of one’s digital identify would be a ‘near death’ experience.  

Backbone: The most commoditized role will be that of ‘transaction processors’ like exchanges and payment gateways. These will move towards a utility model, making money at small margins but at scale.