Technology is transforming the way consumers interact with banks and bringing to life new consumer experiences that weren’t possible before. This change is being accelerated by fintech startups who are building digitally-native, niche solutions and more established financial services players who are developing new, consumer-centric products and services to cater to the demands of their next-generation customers.
Building off our understanding of what banks need based on Mastercard’s Labs-as-a-service engagements and the capabilities of fintech startups based on the work that the company is doing through its Start Path program, the company is launching Mastercard Future View – a series of reports researched and written by Mastercard Labs, each focusing on the evolution of technological and consumer trends and the implication of these evolutions on payments and commerce. Future View takes a 3 – 5 year view of a key topic or trend and provides information that is digestible, engaging and actionable for Mastercard’s key customers and partners.
The first of our many Future View topics is focused on retail banking.
The Future of Retail Banking:
Retail banks are concerned, and rightly so. New entrants have proven to be more adept than traditional institutions at meeting changing business and consumer expectations, largely due to lack of regulations, offering niche product solutions to address customer needs. Although retail banks have found it difficult to keep up, they are in a unique position to lead disruption in the industry.
Mastercard has identified five key ways in which retail banks can capitalize on the trends that are shaping the future of the industry:
- Diversify Your Channels. Embrace new tech to be where your customers are. Imagine paying without ever having to leave an app or social channel, and avoiding multiple login processes which are often burdensome. Such a scenario is being made possible by banks who adopt an API-led approach and make digital integration easier.
- Pursue Fintech Partnerships. Rather than swimming against the rising Fintech tide, a better idea is to join forces with them. Fintech has the edge when it comes to user experience, technology and innovation, whereas banks have scale, money, trust and customer reach. Well-chosen alliances will be mutually beneficial for all stakeholders, including banking customers.
- Connect Commerce with Security. Banks face large security risks given the proliferation of connected devices, digital services and increasing ecommerce activity. In IoT, 80 billion devices will be connected by 2025ii, increasing the need for dynamic, layered security systems that protect data without hindering the user experience.
- Personalize, via AI. The maturation of artificial intelligence (AI) opens worlds of opportunity for banks. Already, 70 percent of consumers indicate that they would welcome computer-generated banking advice and servicesiii. Banks have the opportunity to pair vast amounts of data with AI-enabled services to drive increasingly personalized, interface-less customer experiences and simplify their current customer service models
- Engage with RegTech. Major banks spend, on average, $1 billion each annually on cumbersome regulatory requirements that rely heavily on manual intervention and legacy systemsiv. Demands for quicker, more robust and quicker service mean banks are under pressure to deliver without compromising regulatory requirements. Banks and Regulators need to work together to explore opportunities in new sandbox environments and to pursue creation of industry utilities for non-differentiated services such as Know-Your-Customer regulations.