25 September 2018
Four visions about the future of banks
Banks need to reinvent themselves now that the banking landscape is drastically changing. After all, fintech companies are continuously looking to attack profitable niches, developing their products from scratch using the latest technologies and an extreme focus on usability and fulfilling the wishes of the user. This differs from a lot of traditional banks that mainly focus on maintaining and integrating existing products into new channels.
In addition, current trends such as Open Banking, PSD2, Instant Payments and Digital Identity have a major impact on the traditional banks: the new legislations pave the way for new parties to enter the payments market and getting access to customers’ payment accounts. Furthermore the speed of payments is increasing, with receiving transactions going from one day to about ten seconds. These changes trigger the question what role banks will play in the future. Here are four visions about the future of banks, from members of both the financial establishment and the cutting edge.
Provide financial products
According to José Manuel González-Páramo, Executive Director of the Spanish bank BBVA, the future success of banks will be determined by trust, reputation and ability to focus on the customer. He thinks there are two scenarios. In the first, only a few contemporary banks will survive – those that can transform and become entities that have little to do with the current banking sector. There is also a scenario in which banks develop into providers of financial products and services. Banks would then be in close contact with third parties (platforms) that market these products and services, and would maintain the relationship with the end customers. Whatever the future brings, banks must place the customer at the heart of their business model.
Manage customers identity and information
They could be the keepers of identity; this is what Ghela Boskovich of FemtechGlobal sees as a possible future business model for banks. The question nowadays is what the online identity of an individual should look like in the future. How do consumers give permission to share data, and how do companies identify consumers? Banks could become the keepers of identity, with the end customer as the owner of the original data. This is where a new product set can be created. Boskovich gives an example: what if a customer gets a discount on an Uber ride in exchange for sharing information about what they’re doing at their destination (for example, if they’re going shopping, what do they buy?)? A bank could manage those permissions and that information for you, then deliver it in a way that is secure and private. Banks could also help consumers understand the market value of a particular piece of information.
Build on Instant Payments
CEO Michael Steinbach of equensWordline thinks it’s clear that the business model for banks will change as Instant Payments (IP) will inevitably become the global payment system of the future. With the introduction of PSD2 and fintechs, banks have to find new business models – and learn how to use them. They also have to think about how they want to position themselves. That’s why banks should explore the impact of innovative enterprises and the IP interface to deliver new products and services. Banks must decide how much they want to carry out themselves and how much they should outsource to an expert partner. In short, the business model for Instant Payments and the future business model of banks will be determined by what services banks want to offer and what kind of bank they want to be.
Change to meet customer needs
Being relentlessly customer-centric is the new motto for banks, according to Ignacio Vilar, Chief Innovation Officer of Dutch bank ING. A bank must become a go-to platform for the financial needs of its customers. That’s why future changes at banks must be in line with its customers’ needs regarding use, information and accessibility. The mortgage market is a good example, says Vilar. Customers come to a bank for a mortgage, but their primary need is to buy a house. A bank can simply lend money, but it’s better to meet the customer’s needs throughout the buying process, such as introducing them to a notary. These changes will only be possible if banks reinvent their relationship with customers and make their services as accessible as possible using all available technological means.
It is clear that experts differ on what role banks should play in the future. Will Instant Payments become the centre of the bank’s business or will the bank create a platform for financial products and services? Will banks become the keepers of identity or the financial sounding board for customers? One thing is certain: no matter what route traditional banks take; innovation is not an option, it is a must.