Until recently, managing your money meant dealing with a bank. For both businesses and individuals they were pretty much the only game in town.
But that’s no longer the case. Thanks to digital challengers, tech startups and the ongoing fallout from the financial crisis, banks face huge competition in all areas of their business.
Each year fintech disruptors are chipping away at the banking sector’s dominance. As a result, banks need to make some pretty urgent decisions about their future. Here are the top four challenges banks will have to face up to in 2016 if they want to stay ahead of the game.
Banks to be forced to get in sync with real-time payments
In the age of social media and smartphones, the concept of having to wait hours, days or even weeks for payments to be processed seems archaic.
Small businesses and consumers are pushing for transfers and payments to be completed in 24 hours, if not in real-time. Innovations with mobile payments, digital wallets and even payment via social media platforms have unsurprisingly increased customer and businesses’ service expectations.
Banks will come under increasing pressure (both regulatory and commercially) to improve their own offerings and speed up areas such as transfers and payment processes. There is a desperate need to revamp the payment infrastructures that banks use to move money around to ensure it meets the demands of a ‘real-time’ world.
But banks may struggle to rebuild this infrastructure whilst making new products that make the most of the improved system. A problem fast learning fintech firms don’t have to worry about.
The ‘grey’ generation, not millennials, to force shift to better digital banking
Whilst millennials may be digital banking natives, older generations have until recently preferred more traditional forms of banking. As senior customers tend to have more wealth (in the US customers over 50 provide 60% of revenue), many banks prioritised serving them and took their eye off going digital.
Smartphones and tablets usage is now rising amongst older generations. As the ‘grey haired’ demographic becomes more comfortable using apps to make payments or check their balances, banks will need to ensure their online services match the standard of their offline ones.
Otherwise, fintech firms - who take great pride in their intuitive, fresh and appealing user experiences - may tempt many profitable customers their way.
Banks to have no choice but to partner with more fintech firms
A few years back nobody would have envisaged that a digital platform - that seemed to primarily deal in holiday snaps, cat photos and relationship updates - would become a potential game changer when it came to personal finance. Yet when Facebook started offering peer-to-payments, it was another wake up call for the banking sector.
Fintech firms, less restricted by regulations and infrastructure than banks, tend to specialise in one area - such as payment transfers, insurance or credit cards. This means they can move faster and with more agility than those they are competing with.
The success of services such as PayPal and TransferWise have demonstrated that the public is more than willing to shift its faith (and finances) away from the high street. To try and retain customers, expect banks to increasingly partner with and lean on fintech firms to top up and improve their own digital offering.
Culture wars to come to the boil
Culture is a key reason SMEs, retailers and personal consumers have turned to fintech offerings. Fintech startups begin by looking at what the customer needs or what problems they face and then consider how they can build a solution. Banks, unchallenged in the pre-digital age, have tended to work differently. New products were far and few between and were designed with a bank’s convenience in mind, rather than the user.
With even the likes of Facebook and Twitter now dabbling in financial transactions - and the rise of the sharing economy making consumers fully comfortable with alternative models of business - it’s never been more critical that banks rebuild their relationship with customers. As high street bank branches continue to disappear, banks don’t even have much of a physical edge anymore.
I’ve no doubt we are going to see even more exciting and ground breaking developments in banking in the next twelve months.
The question is, will the banks be leading the way or just resigned to playing catch up?