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After what could euphemistically be called a tumultuous year for the world, it is time to cast our minds forward to what 2017 holds. Here are five trends and challenges that will affect the world of banking in the next 12 months.
Regulation will consume everyone’s thoughts (and budgets)
Ironically, it is preparation for regulatory compliance in 2018 that will preoccupy financial institutions throughout 2017. The EU General Data Protection Regulation (GDPR), revised Directive on Payment Services (PSD2) and Competition and Markets Authority’s (CMA) requirements to implement Open Banking will all come into effect in 2018. So, lenders and other financial institutions will spend a lot of next year working towards meeting these compliance obligations. The implications will be wide-reaching, with increased technology investment, reduced revenue streams, and a more crowded, competitive marketplace already on the horizon. It is impossible to predict quite how lenders will meet these challenges, but it is safe to say that it will soak up most of the bandwidth in the majority of organisations.
The big banks are unlikely to be troubled by digital disruptors
The past year has seen tough conditions for new entrants to the Financial Services market. A combination of perennially low interest rates and the exorbitant cost of getting to market has forced many digital challenger banks to throw in the towel altogether. The success of the disruptors that made it ch as ATOM may be the exception, not the rule.
Naturally, new players will continuously enter and exit the market in 2017, but it is unlikely that any challenger bank will grow subtansial market share in a way that seriously threatens the major institutions. We predict that the challengers who will thrive will have a quick route to market and will focus on relatively niche banking products that do not put them in direct competition with the sector’s big players.
There will be more cyber security casualties
As the recent Tesco Bank hack proved, cyber criminals are as devious and tenacious as ever. Customer behaviour is always going to leave lenders exposed to fraud and hacks, and cyber criminals will continue to exploit these vulnerabilities in 2017. As such, there will be continued investment in biometric technologies that authenticate customers through inimitable factors such as fingerprints or voice. It will be interesting to see whether banks push beyond conventional voice and facial recognition factors into innovative new solutions, such as the prototype Unisys built in partnership with Behaviosec for Nationwide’s mobile banking app that recognises how users hold, swipe or type into their phone.
Once the GDPR is in full effect, data breaches could cost financial institutions up to 4 per cent of global revenues or €20 million, whichever is greater, not to mention the costly damage to reputations that might result.. 2017 will be the year in which banks must put significant investment into making sure this does not happen.
There will be more an increase in customer-centric thinking
In 2017, lenders will have to find ways to differentiate beyond price. Consumers have become remarkably discerning, and the challenge for banks will be how to present themselves favourably to more demanding customers.
Next year we will see financial institutions take big steps towards providing a more tailored experience to customers. Many will mature their thinking around big data, using analytical insights about customer spending habits to either cross-sell or create new customised products.
Brexit looms, but the effects are still unclear
Making a prediction on how Brexit (or the Trump factor) will affect the Financial Services sector in 2017 is a fool’s errand. Questions still loom over access to the single market and freedom of movement, both of which will have significant impacts on the industry.
That said, it is fairly likely that next year many institutions will have to make decisions about whether or not to stay in London and the effect that will have on the cost of doing business. But, given the twists and turns the Brexit saga has seen up to now, it is almost impossible to determine what those decisions will be.
Whatever happens, it is safe to say that 2017 will be another year of rapid change and evolution within the industry. Organisations that will do well in the coming year are those that are equipped with the tools and technologies that allow them to respond rapidly to these challenges.