What is the future direction of banking?
Still dealing with the damage to consumer confidence after the crisis of 2008 and the new opportunities being seized by FinTech businesses the big banks are caught in a perfect storm.
As Mark Carney, Governor of the Bank of England has said: “FinTech…will change the nature of money, shake the foundations of central banking and deliver nothing less than a democratic revolution for all who use financial services.”
Taking advantage of new technology and crowdfunding platforms, in 2016 Monzo raised an impressive £1 million in just 96 seconds via equity crowdfunding site Crowdcube, crashing their servers and setting the record for the fastest ever crowdfunding raise – writes Marc Hurr and Daniel Eduardo Suero, co-founders of iBAN Wallet.
Monzo went on to raise another £21 million in funding and secure itself as a challenger bank, putting the wind up long-established high street banks and proving the concept of a community-owned digital bank.
Similarly, alternative banking providers, such as iBAN, are using crowdfunding to fund the launch of new banking apps and features, such as peer-to-peer lending and free international transfers.
One thing these new banking providers promise is to put the customer at the centre of their business model, rather than treating customers like a commodity to be hoarded and exploited. In fact, a recent global PwC survey found that 61% of bankers thought a customer-centric business model is very important yet only 17% were very prepared for it.
It is this disparity that challenger banks are capitalising on by offering improved services based on technological innovation, something traditional banks are struggling to adopt due to their large size, complex infrastructure and existing business models.
The same PwC survey found that innovation within the banking industry was considered to be somewhat or very important by 87% of bankers, yet just 11% said that their organisation was very prepared for it.
With all this change, the direction banking is going means banking could be very different in ten years’ time. So, what can we look forward to?
Machine Learning and Predictive Analytics
Machine learning has been around for some years now, but it still hasn’t really come of age. Essentially, they are still in school – learning now to provide future benefits.
One of the main benefits to customers will be proactive assistance, not unhelpful hindsight. For example, challenger banks already offer balance warnings and advice, not a notification that you’re already over your overdraft limit.
In future, we will see these systems become even smarter, using behavioural pattern analysis and predictive analytics to find ways to help us save money and prepare for potential financial situations we might find ourselves in. In turn, this should help customers save money, providing more capital for these new banks to operate with.
We are already getting used to new forms of payment, such as contactless cards and mobile payments. So, in a sense, the future is already here.
Yet these systems still have lots of room for improvement. While convenient, contactless cards still have spending limits to avoid excessive spending through theft and fraud. They can still be lost, stolen or damaged. And you will still need your PIN at certain retailers and to withdraw cash.
The future of payment systems, however, may lie in biometrics. There are many biological features that make us unique as individuals. Even identical twins have different fingerprints, iris and blood vessel patterns, for example. These can be scanned and used to help secure our money without the need for PINs or cards, simplifying everything from purchases to online banking.
Banks have access to far more data than any other business. They know where we shop, who we work for, where we’re going on holiday, and almost everything in between. They also have access to vast amounts of data from multiple other sources, such as businesses, credit agencies, investment houses and central banks.
These data sources will increasingly be aggregated to provide a clearer picture of the world – from the micro to the macro level – allowing faster, more accurate decisions and advice. In a sense, banks can act as digital value aggregators, providing real-time value for businesses and customers.
Collaborators not competitors
In the spirit of generating value, banks can form partnerships with a network of individuals, businesses and service providers, and can leverage their power to lower costs on behalf of customers.
This stands in stark contrast to today’s approach of building more complex solutions for a higher price in order to compete against other financial institutions. It is this approach that created the complex financial instruments that, ultimately, played a huge part in the global financial collapse.
Agile and Light
Technologies like blockchain are enabling a quiet revolution – invisible and seamless – to enable more direct and transparent transactions between users. What started as peer-to-peer trading has morphed into complex networks backed by a digital ledger.
Not only does blockchain cut out the middlemen, offering traditional financial services at a fraction of the cost, it can make financial transactions more transparent and secure. Technologies built on top of blockchain, such as Etherium, are enabling the use of digital smart-contracts which make it almost impossible for financial fraud, embezzlement and dodgy trading practices to continue.
Ultimately, this technology can put users in charge of finance, rather than being at the control and whim of global financial institutions.
We believe machine learning, data aggregation, blockchain and greater collaboration will converge to offer users a more personalised and tailored service. Combine that with ever-improving digital assistants and you end up with a network of services that can use data to get smarter and be more helpful to customers, not ‘selling’ products in an attempt to extract ever-increasing profit from them.
Banks of the future can use their privileged position to offer a personal experience and form closer relationships with their customers. We think AI assistants will be the new, personal face of these banking services.
AR and VR
The way things are trending augmented reality (AR) and virtual reality (VR) will become dominant in our everyday lives. We might interact with people and businesses via VR, gain real-time information in AR, and seamlessly switch between the two.
Imagine being able to gain a real visual understanding of your finances, where they are allocated, and what you may need to save for in the future. Almost like a time-traveller you’ll able to make highly-accurate predictions about your financial circumstances, providing unimagined confidence in your future financials.