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At the beginning of the year, financial institutes were excited by the prospect of a new decade. The advent of digital payments services becoming ubiquitous, digital transformation projects moving from idea to reality and the advent of 5G, among many other technologies, all look set to push the boundaries of what was possible.
Fast forward 12 months and plans have had to change drastically in the light of the coronavirus pandemic. Covid-19 has forced a different approach – one that puts safety first. It’s also something that has seen consumers’ habits completely shift online, underpinned by a need for a convenient, quick and informed approach. The rise of digital banking was accelerated even further due to the global pandemic and the complete closure of high streets presented an all too realistic future for traditional banking institutions that could now become reality.
According to Ian Bradbury, CTO, Financial Services for Fujitsu UK and Ireland:
“Covid-19 has had a major impact on financial services. However, it has also shown us the resilience that organisations have. Overnight, employees weren’t able to go into their offices, branches had to close and banks had to rethink the services that they provided online. From banking and insurance to conveyancing, financial institutes have found themselves in new scenarios but adjusted quickly and efficiently. If anything, it has confirmed to long-standing organisations that technology isn’t to be feared because it can enable them to catch-up, adapt and innovate in a world that is increasingly becoming digital.
“As well as the ability to move quickly, the shift away from bricks and mortar to digital has helped banks to realise the cost benefits. Stripping unnecessary operating costs out of the business will lead to a renewed focus. The coronavirus pandemic has also given perspective – and time to reflect on what is most important. This is something that consumers will take into a post-Covid-19 ‘new normal’ world as purpose-led banking, the green economy and new payment methods like ‘buy now, pay later’ top the list of priorities.”
In the face of drastic, widespread digital transformation, Ian Bradbury has outlined the top five changes he predicts for financial services in the coming year.
1. Covid-19 accelerates digitisation
For years, traditional organisations have watched plucky digital entrants eat away at their market share. Alongside this was a fear to digitise services quickly enough to meet consumer’s demands. Often, this was met with inaction because of existing practices that were still sufficient, particularly in the banking industry. Covid-19 has forced them to show their hand, and their hand has proved doubters wrong. It has given digital activity the push it needed. Just this month, NatWest and Santander joined a digital remortgage service to simplify the process for homeowners. The resulting impact of this has led people to question the long-term viability of Starling and Monzo, for example; Monzo’s premium account was an expected announcement in October, but it wasn’t an innovative or new idea. Covid-19 has demonstrated to older financial organisations that they can move quickly and provide digital services that consumers will expect more and more now.
2. An evolution in how consumers pay
The consumer lending model has been transforming for some time now. Rather than visiting a branch, consumers are increasingly turning to a buy as a service model. PayPal recently introduced an option for consumers to buy and repay the cost afterwards, not dissimilar to Klarna. The sector will have to reassess how people purchase products and borrow money, underpinned by the right level of comfort to pay it back without having to pursue them.
Moreover, the traditional credit risk model that we have had in place for decades will not be a viable way to support the economic environment we should expect next year. The aftermath of Covid-19 will be challenging, and the regulator won’t allow businesses to fall into another payday loan conversation. Ultimately, it’ll boil down to companies needing to innovate to allow people to borrow, and a personal and sympathetic approach.
3. Humanising the banking experience
Banking has had to become purpose-led. The focus has shifted away from making money for stakeholders, to supporting the economy and positively contributing to wider society. We’re now seeing a stronger focus around employee wellbeing, collaborations with charities, and investment in ethically sound companies. Alongside this theme will be the rise of the green economy. Start-ups such as TreeCard are already using the green revolution as a way to position their services as unique. The onus will be on competitors to look at where growth will come from as the government’s 10-point climate change plan becomes a reality in 2030. Banks will have to find the balance as consumers’ purse strings tighten and the full impact of Covid-19 is felt on the economy.
4. As technology becomes ubiquitous so too do bad actors
One thing that hasn’t changed is the number of technologies available to financial organisations. Quantum technology may be the biggest beneficiary of this renewed shift to digital, but it’s realistically 10 years away from widespread adoption. Blockchain will have an impact, but it’s about finding specific use cases where the technology is a viable alternative. AI has been on the horizon for what seems like a decade now. There is one constant, however, the acceleration of cloud adoption. Large organisations have moved to public clouds, meanwhile major players like Google and AWS have doubled down their investment. The cloud is not new, but it will accelerate – rather than moving what we already have it’ll become about reengineering everything to become cloud-native.
This rising reliance on technology may also contribute to fraudsters’ ability to dupe customers. Organisations cannot allow fraud, identity theft and customer manipulation to become commonplace; fraudsters are putting effort into their innovation. How we protect people, providing ways to make sure they are not being defrauded will underpin the technology that we successful adopt. While there is nothing on the horizon that is game-changing, that’s good because there so much to achieve and fine-tune with existing technology.
5. Winners & losers will emerge
The financial services industry will do well to get to the end of this year and take learnings from Covid-19. The pandemic has shown institutions – new and old – that they can undertake significant digital transformation projects, perhaps better than we initially thought. The ‘new norm’ will bring change, and all organisations should expect the unexpected. The Bank of England (BoE) will say success is about managing stability. However, maybe we need to move the thinking away from stability and managing risk to how we can accelerate innovative thinking when stability isn’t an option. This is a huge shift away from a 100-year-old mantra to the new world, underpinned and challenged by technology.