There has been a seismic shift in the way banks and financial institutions approach technology in recent years.
They have had to change.
Of the 10,000 millennials polled in the recent Millennial Disruption Index, one-third of respondents said they believed traditional banks will be irrelevant within five years.
To add to that, more than 70% of millennials would readily switch to new financial offerings from companies such as Google, Amazon and Apple that are much closer to their financial lives.
Australian banks are already reorienting how they deal with customers, and the kinds of services they offer. Westpac has a $50 million investment fund for fast–growing fintech companies while Commonwealth Bank recently spent $40 million to acquire South African start-up TYME, to better serve young savers.
Australian banks, like banks around the world, are completely changing their internal cultures and spending billions of dollars upgrading decades-old core banking systems to meet the service expectations of the 21st century digital consumer.
Of course, it’s impossible to predict the future of banking with complete accuracy. But, with my experience at consulting firms working with the banks, and based on my time in Silicon Valley so far, there are a few things I reckon will change in banking in the near future.
1. Banks will be mobile
Up to 75% of the time customers spend accessing personal banking services will be conducted on mobile devices. This was closer to 40% only five years ago. Bank applications have improved rapidly and a customer can now perform the full suite of banking services, from applying for a loan to setting up international transfers, completely online.
This is improving banks’ reach to traditionally under-served customers, like rural and developing markets. It is also encouraging the entry of non-traditional players like mobile phone carriers (Apple Pay), tech companies (Google and Alibaba), and even companies working with alternative currencies such as Bitcoin, which will challenge banks for valuable customer segments.
2. Banks will be more personal
In the past, banks only offered personalised service to high net worth customers. That’s because it was too expensive to tailor their products and services to anyone else.
Today, banks are leveraging technology to offer a degree of personalisation to the mass consumer. Consumer data may allow banks to offer bundled products, such as the most relevant savings and credit card mix based on your past usage, and tailored products, such as removing the asset-backed requirement on your mortgage if you are a lower-risk customer.
Banks are tapping the growth of peer-to-peer algorithmic lenders such as Australian start-up SocietyOne (Westpac’s first investment through Reinventure) to innovate in the use of data to improve products and pricing. This produces efficiencies for customers and institutions as individual customers get better products which they may be more inclined to take up.
3. Banks will be more open
Market databases have been developed around the world with up-to-date information on the universe of products available to consumers.
Customers can access this data at any time, and with some smart calculations, work out which products are best for them.
This gives consumers a wealth of information they didn’t previously have, to work out which products suit them, rather than the ones that banks told them to have. This produces two-way sharing of information. For example, Google AdWords just launched an insurance comparison service in the US. In return for the sales volume Google can generate, underwriting institutions are encouraged to share more transparent information on their products and pricing.
Similarly, Australian fintech startup incubators such as Tyro’s FinTechHub and Stone & Chalk in Sydney explicitly focus on growing companies which are developing new ways of collecting, analysing and presenting financial data to consumers, even offering banks greater insights into their own customers.
4. Banks will be connected
Harmonisation of global banking regulations and increasing competition across country borders means cross-border links between banking institutions will continue to increase.
Customers will identify less as a geographic customer of a bank and will be more likely to have a relationship with institutions within a region or across geographies. The structure of the banking industry may well follow the airline industry, where alliances between carriers (OneWorld, Star Alliance, etc.) have emerged to offer integrated, super-regional services leveraging strong national brands.
National Australia Bank’s CEO reportedly said recently that banks needed to have “real conversations” with their customers in order to improve relationships. We are all banking customers. We entrust our money with institutions in exchange for their promise to safeguard and grow our wealth. As banks invest more in technology, they will increasingly become closer to the customers they serve, which can only be good news for customers.
Gideon Silverman is founder of Monetise, the secure, powerful and free service that helps consumers save money across all of their financial products. Monetise uses smart algorithms and expert industry knowledge to benchmark a customer’s financial health against a database of all products on the market, updated in real–time. Including savings accounts, mortgages, credit cards and wealth products, Monetise gives a holistic view of how much a person pays each month to their bank, how much interest they receive, and how they can save thousands by consolidating or switching accounts.