Very few industries have a long history and stability the banking industry has enjoyed. Banks depend on the firm trust of their customers, and as a result, change usually takes a long time. However, in recent years, members of the banking sector have realized that evolution is necessary if they are to remain relevant in a global economy.
The banking industry is letting go of some of its traditional methods and looking at new and innovative ways to make life easier for customers. Below, 13 experts from Forbes Finance Council discuss some of the latest trends in banking and talk about what developments they expect within the sector over the next five years.
1. Leveraging Fintechs For A Better Customer Experience
By working with fintechs, banks can offer their customers value-add solutions that fall outside their areas of expertise, and the appetite for such collaboration should continue increasing. From leveraging alternative data sets and models for enhanced underwriting to offering clients instant money transfers, banks can improve their offerings at low cost while increasing speed to market. – Ryan Rosett, Credibly
Over the last decade, the number of banks in the U.S. has declined, but there’s a lot more consolidation to come as many banks are “stuck in the middle.” Big banks can, and have, developed technology to give them an edge over small banks in serving consumers, and fintechs and non-bank lenders continue to take the business in both commercial and retail lending. – Curtis Glovier, PENSCO Trust Company, a subsidiary of Opus Bank
In its December 2019 report on digital lending, Grand View Research cites an estimated market size of $3.5 billion in 2018 and an anticipated compound annual growth rate of 20.7% from 2019 to 2026. Personalized digital lending is the future. As digital infrastructure becomes more robust and more consumers become comfortable with online transactions, the banking industry will inevitably have to move lending services, whether business-to-consumer or business-to-business, online. – Pushkar Mukewar, Drip Capital
4. The Rise Of Neobanking
Expect to see the rise of mobile-based direct banks over the next five years. Neobanks is already attracting millions of customers nationwide, suggesting a consumer-preference shift from traditional, branch-based physical banking to the convenience of digital-only solutions. – Tyler Gallagher, Regal Assets
5. Automated And Personalized Customer Experiences
One of the biggest changes I see in working with various banking clients is that a lot of them are realizing they are spending excessive resources in executing repetitive processes. Banks have realized automating some of these will help free up human capital to perform value-added activities, which will result in faster execution, more efficiencies and personalization of consumer experiences. – Breana Patel, Bonova Advisory Inc.
6. Blockchain And Decentralized Solutions Replacing Most Banks
The biggest change to the banking industry is being caused by blockchain-based solutions, which enable the nearly instant peer-to-peer transfer of money. Furthermore, decentralized finance solutions based on smart contract platforms, such as Ethereum, are already enabling lending platforms without the need for financial institutions. Within five years these solutions might dominate financial services. – Christian Kameir, Sustany Capital
7. New Income From Open Banking And Data-As-A-Service
Relatively low-rate environments and commodification are squeezing traditional bank revenues. Expect dramatic business model rewrites with open banking, which creates two-sided markets like Apple’s App Store to earn revenues from both consumers and developers, or data-as-a-service and API offerings like the one from JPMorgan Chase to extend data and analytics services to institutional clients. – Wei Ke, Simon-Kucher & Partners
8. Mid-Market Banks Becoming An Endangered Species
Similar to Amazon’s impact on retail, the top five banks are setting the tone for what banking services customers expect. Regional banks are struggling to keep up—particularly with AI and machine learning—in terms of budget and human capital. The competitive advantage of scale is creating a growing chasm that will likely result in mid-market mergers as a means to leverage assets and talent. – Shawn Sweeney, Spinnaker Consulting Group
9. The Democratization Of Consumer Finance
Secure, mobile-forward solutions will continue to enable rapid, real-time “anywhere, anytime” answers to consumer needs and wants. These AI-fueled services will manage and optimize an individual’s full-stack financial capacity—available liquidity and ability to support credit—from a relational and holistic viewpoint, not the discrete transactional nature of today’s banking. – Kim Anderson, Strategic Link
10. Better Regulation
Traditional banks will focus on taking deposits and lending for productive purposes and leave other financial services to innovative new fintech and digital organizations. This decouples risk, liquidity and “know your customer” and ameliorates the conflict of interest from modern banking’s dual mission—the safety of customer money and financial returns for its shareholders. – Erica Schoder, R Street Institute
11. More Targeted Services For Underbanked Households
The fees the unbanked and underbanked pay are still astonishing, but thanks to fintech this will rapidly change. Unlike in the past, if you have a cellphone, you can have a bank account, and that opens up so many possibilities for banks and other companies to provide services to this 22 % of households. – Vlad Rusz, Centaur Digital Corp.
12. Big Banks Extending Services To Small Businesses
We’ll continue to see legacy financial institutions offering services to small businesses. On the surface, this seems like good news, as SMBs have historically struggled to access capital and credit through mainstream banks. However, the banking industry may still not adequately address the financial needs of Main Street businesses, such as the need for spending controls. – Farhan Ahmad, Bento for Business
13. The Reemergence Of ‘Relationship Banking’
In addition to seeing some of the regulations resulting from the recession of the early 2000s being rolled back, we’ll continue to see a proliferation of community banks and other smaller institutions, as opposed to the merger mania and larger banks that came on the heels of that trying economic time. The opportunity for businesspeople is closer, more personalized banking relationships. – Wm. Scott Page, LifeGuide Partners