From fintech to DeFi, the once static banking industry is facing a wave of changes. Traditional financial institutions now operate side-by-side with a new crop of online financial services providers, and the Covid-19 pandemic has only increased the pressure on banks to expand digital offerings.
The rise of technology, in turn, is likely to bring about changes to procedures and regulations across the financial sector. In this article, banking experts share the ways they see the banking industry evolving over the next five years.
1. New And Diverse Services From Banks
We can expect to see a significant diversification of offerings. With interest rates so low and a depressed economy due to Covid-19, many banks are struggling. Smart banks will be looking for new revenue streams from services or products they’re not offering today. This will require bank leaders to think outside their traditional boundary lines. Those who innovate will win customer loyalty and financial rewards.
2. Expansion Of Digital Currencies
Digital currencies are soaking up more and more money from the traditional monetary system. Financial solutions built within the decentralized financial ecosystem—such as digital lending, arbitrage trading, digital financing solutions such as STOs and ICOs, and the tokenization of assets—are directly attacking the traditional revenue streams of banks and taking business away from them.
3. Fewer Physical Bank Branches
Experts are also suggesting that the industry will be completely moving away from brick-and-mortar buildings. So much banking happens online and over the phone now that there’s a reduced need to have a lot of brick-and-mortar operating spaces, which are expensive to both purchase and maintain. The banking industry is ever-competitive, and reducing these operating costs is an area many operators will consider so they can provide a better value to the customer.
4. Commitment To Sustainable Finance
Sustainable finance is on the rise, and it’s proven that it’s here to stay. The banking industry will deepen its commitment to environmental, social and governance goals in the years ahead. A recent survey of 200 banking executives found that 75% agreed that their institutions would increase their financial commitments to sustainable finance.
5. Focus On Security Solutions For Digitized Assets
With the industry having had to do two to three years of digital transformation overnight in 2020, organizations are now having to ensure their security transformation keeps pace. Expect to see more organizations with permanent remote workforces leveraging innovative security solutions to secure the fast-growing digitization of assets.
6. Growth Of Non-traditional Lenders
New players are entering the banking space, due in large part to banks not lending. Most consumers and small businesses don’t understand the difference between what commercial banks offer versus nontraditional lending entities—whether from fintech or investor-backed funds. Consumers want capital at reasonable rates and do not care about the source. Banks will have to adjust or lose customers.
7. Tech-Driven Simplification
The biggest change that’s happening is a move toward simplicity. Fintechs help create a healthy competitive environment, pushing banks to transform. People will always need financial services and financing; however, banks are going to have to chase clients, not vice versa. They will need to simplify their documentation, implement automation, speed up applications and onboarding, offer improved customer journeys and refine marketing to stay alive.
8. Rise Of Open Banking/Open Finance
Experts think that the banking industry is going to see a lot of changes in the way customers are served. One of the biggest trends is going to be open banking/open finance powered by open APIs, enabling third-party providers to have open data access from both banks and non-banks. This will provide an improved customer experience, new revenue streams and a sustainable service model for underserved markets.
9. Renewed Regulatory Focus
Black swan events often inspire renewed regulatory focus. The Great Recession attacked credit policy and risk management; Covid-19 is highlighting an inconsistent focus across all risk categories and the need for enterprise risk management. Additionally, as fintech gains a greater market share, we’ll see a regulatory reckoning of sorts, forcing them to play by the same rules that govern banks.
10. Added Risk In Investing In Innovation
Technology rapidly enables the capture of new financial services market opportunities. However, material, structural changes to the rules and regulations governing banking take far longer. During the next four years, federal regulatory agencies are likely to impose new policies and oversight, which may increase the risk associated with investing in innovation, slowing the pace of real change.
How many of these changes do you expect to see in the coming years? Share your views in the comments below.