The evolution of banking: then, now and beyond

by jcp
Editorial & Advertiser disclosure

By: Franco Severini, CTO Financial Services at Fujitsu UK

Today we have a world where you can pay for day-to-day goods with your phone. One where the majority (71%) of consumers globally rely on digital banking channels weekly. A world where AI is used to assess and reduce risk and fraud, and where the promise of quantum computing, and all the fundamental changes it will bring, is slowly becoming a reality.

No one can deny that the past decade has been synonymous with disruption in the banking sector, from the rise of purely digital cloud native challenger banks and the cashless society, to the impact of the global pandemic. The cycle of both new technology and economic challenges is driving the reinvention of consumer services, and can ultimately be beneficial if the resulting services provide what the consumer needs.

The positive experiences consumers have with online retailers, like Amazon has created the societal confidence needed to make the use of online channels for major financial commitments acceptable. For example, using an online broker such as Habito or Trussle to arrange a mortgage. Once concerns about trust have been assuaged, consumers are more likely to adopt the ease, convenience and accessibility of these services.

This shift in consumption is driving a digitally enabled levelling of the financial services playing field. If approached correctly, this levelling provides a healthy challenge to banking providers and drives the beneficial evolution of their offerings.

Consumer desire vs providers’ priorities

If the consumer desire warrants a joined up, easily accessible, socially responsible and environmentally friendly bank that provides an excellent customer experience, then the successful banks must prioritise the same.

Nowhere is this becoming more relevant than with the rise in concern for the environment and our planet’s sustainability. These factors are becoming prevalent in driving consumer choice. In fact, IBM recently found that 90% of consumers feel that the COVID-19 pandemic affected their views on environmental sustainability.

It is likely that in the very near future, the majority of consumers will choose to use banks that help them to have a positive impact on society, and not just via their products but also by the way they operate internally. Banks, with their central position as facilitators for trade and transactions, are ideally positioned to drive and help shape this ethically conscious agenda if they make it their priority to do so.

For example, providing consumers with the carbon footprint of their internal operation at a transactional level, and giving them the capability to offset that footprint, would be a basic capability that all banks should have, but very few currently offer.

Put society first

Elsewhere, the rise of digital challenger banks like Starling, Monzo, Revolut and many more came at a time where cloud-adoption enabled lower operating costs and drove product innovation. It has created a beneficial focus on what makes for a great customer experience in the provision of banking services.

These digital native companies are reaping the rewards of both an adaptable service and a socially responsible one. When Monzo gained popularity a few years ago, it was dubbed “one of the best” ethical current accounts by an independent body. In contrast, major high street banks such as Barclays and Santander all fared poorly.

Fast forward to today and the situation is changing for the better – since the aforementioned study was conducted, NatWest launched a ‘green mortgage’, offering homebuyers a preferential interest rate on their loan if they bought an energy efficient property. They have also partnered with CoGo to provide their customers with information regarding the carbon footprint of their spending. These are socially relevant products from a company that has operated in the high-street for decades.

Know your audience

It’s clear that the services banks provide will evolve as they strive to meet the changing needs of their customers. But many of their operations will inevitably become unprofitable if they cannot prove their credentials to customers.

To be relevant, the consumer must trust the provider. One of the biggest advantages that banks should have in this regard is that they have access to a wealth of information and socially relevant credentials with which they can build a foundation of trust.

Yet when it comes to coordinating the data, organisations need to surface that information effectively. Most are still hampered by their internal procedures and approaches to data management, which seem to exist solely to make it difficult to get any useful information.

The key to solving this information challenge is to stop treating data as if it was a problem to be validated or reconciled, or as something that is an adjunct to the business. Instead, it’s about accepting that the real business of a bank is data, while the money is the adjunct. To that end, it is not enough for a bank to superficially align its external offerings to the consumers need, whilst still maintaining its existing operational model and ineffective information distribution.

While digital challengers do have the clear advantage here as their capabilities have been designed to put data at the centre of their offerings, the banks can turn the challenge around by building the right enterprise. This includes partnerships with cloud partners, and by bringing fintechs into the fold in an effective way. Fintechs can help revolutionise banks and drive collaborative innovation in the sector.

And the future?

To evolve and maintain relevance a bank needs to have: an empathetic approach to social responsibility, an acceptance that change needs to course through the entire business model from top to bottom, great information management, and to acknowledge that even at the expense of some revenue, it is all a morally worthwhile goal.

Every bank that has done well, historically, understood and put their customers’ needs first and foremost. Technology and information are key enablers to help banks on their journey, but they won’t reach their destination without revolutionising their business model.

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