You cannot stop innovating! If you do, others will take a piece of the cake.
Hyper personalisation of banking services
Technology giants including Apple, Samsung, and Amazon are building digital first, customer-centric banking services alternatives that outstrip traditional banking services when it comes to customer-centricity. Banks need to catch up fast. According to one study, 82% of customers now expect banks to understand their individual needs, but only 38% said their banks currently do so.i One way in which banks are responding to the need for more personalised, human-focused services is through the development of Personal Finance Management tools powered by machine learning.ii The aim is to bring back relevance to the consumer journey through categorisation capabilities, granular segmentation, and behavioural analytics to enable meaningful insights, tailored advice, and context-based alerts.iii Thanks to digital technologies, banks are starting to serve many thousands of individual customers, while still treating each as a segment of one.iv Banking is coming full circle, but this time far more customers will benefit.
There is still low adoption of open banking, and a lack of good use cases. However, open banking is a two-way street. While it has increased competition for banks from fintech competitors, it has also made it easier for banks to connect with new ecosystems and move into new markets. We will see further acceleration in 2023.
Core Banking; digital back to front
To be truly digital, based on customer demands moving forward, replacement of legacy systems to the cloud is necessary. Also, for better gathering and analysis of big data with AI. Banks, having focused on front end digitalisation, now understand that digitalising the back office is every bit as important as offering compelling customer experiences. Banks are looking to differentiate through accuracy, speed, and credibility. Doing so means moving beyond interface design at the front end to a broader transformation of core banking. This change is particularly urgent given the moves being made by fintech competitors, which are embedding banking-as-a-service models that leverage cloud software to reduce costs by nine tenths, compared to traditional core infrastructure and offering more agile, real-time, and personalised services to customers.v Other drivers for core modernisation include:
More Composable Banking
Composable banking platforms provide components that can be selected and assembled in various combinations to satisfy specific use cases.vii Similar to how corporate enterprises are composed of various applications on a common platform, composable banking platforms enable banks to connect applications from a broad range of fintech partners to their architecture, to future proof it and better meet customer expectations. The benefits of composable banking platforms include an enhanced ability to fight off competitive threats to the business from disruptors, and the ability to develop additional revenue streams by extending banks’ services portfolios.viii
According to the Corporate Sustainability Reporting Directive (CSRD) listed corporations are obliged to report on their social and environmental impact from 2023 onwards. The reporting rules apply to large public interest companies and groups across the EU, including listed companies, banks, insurance companies and other designated companies. We will see accelerated activities to be able to comply.
Neo banks for still under serviced SME’s
Complex services can be better offered through digital value proposition.
Digital Wealth Management; focus on financial health of clients
Looking ahead, wealth managers are planning to adopt technologies including artificial intelligence (AI), automation, enhanced software packages, revolutionised communication tools, and more efficient and accurate analytics and cognitive tools.ix Getting there may be a struggle. While 86% of wealth managers consider servicing clients as a highly important digital capability to acquire, 50% say providing a more sophisticated digital experience is a challenge for their firm.x Digitally native challengers such as Robinhood and e-Toro are providing investors with low-cost alternatives to traditional firms, and ones that come with better customer experiences. Meanwhile, fee pressures and poor margins mean that greater efficiency is imperative, something that digitalisation can help achieve.xi
In 2023 banks will invest further to impress customers by innovating and differentiating their digital banking features against that of their competitors. Mobiquity’s Digital Banking Features Radar analyses the ‘musts’, ‘delighters’ and ‘differentiators’ of digital banking features to understand emerging trends that support a frictionless customer experience. The radar reveals that many digital banking functionalities provided to customers are the same. This includes key features that the report identifies as musts and delighters, such as rounding of savings, chatbots and sustainability insights. 2023 is all about wise investing and not just copying others, but instead focusing on what is in it for the client and aligning with brand values.
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i Meeting customers' desire for Personalization [Internet]. PYMNTS.com. 2021 [cited 21 July 2022]. Available from: https://www.pymnts.com/digital-first-banking/2021/fi-customer-expectations-digital
iii Panzarino H. Hyper-personalisation: the key to banking’s past – and its future. [Internet]. 2021 [cited 21 July 2022]. Available at: https://www.finextra.com/blogposting/20227/hyper-personalisation-the-key-to-bankings-past--and-its-future
iv Panzarino H. Hyper-personalisation: the key to banking’s past – and its future. [Internet]. 2021 [cited 21 July 2022]. Available at: https://www.finextra.com/blogposting/20227/hyper-personalisation-the-key-to-bankings-past--and-its-future
v Joshi R, Meralli Core Banking Systems Primer [internet] Medium 2021 [cited 2022 Jul 20]. Available from: https://medium.com/fintech-in-depth/core-banking-systems-primer-a2d26919f3eb
vi Foest M. FIS Core Banking Modernization [Internet] FIS; 2019 [cited 2022 Jul 20]. Available from: https://www.fisglobal.com/-/media/fisglobal/files/pdf/white-paper/core-banking-modernization-building-a-successful-business-case-white-paper.pdf
vii What’s composability? [Internet]. Mambu.com. [Accessed 26 July 2022]. Available at: https://mambu.com/composable-approach
viii Varadhan P. Why Composability is The Future of Banking. [Internet]. 2022 [cited 26 July 2022]. Available at: https://internationalbanker.com/banking/why-composability-is-the-future-of-banking/
x Digital transformation of Wealth Management. [Internet]. Refinitiv.com. [cited 20 July 2022]. Available from: https://www.refinitiv.com/en/wealth-management-solutions/digital-wealth-management/digital-transformation-customer-engagement
xi Digital transformation in wealth management…at last! — Cygnetise [Internet]. Cygnetise. 2021 [cited 20 July 2022]. Available from: https://www.cygnetise.com/blog/wealth-management-digital-transformation