In order to understand the future, we must observe the past, someone said. And when it comes to banking, past has been more or less constant. Banks are (at least for some short period of time) and have been paramount of financial services: whether hiding the vast amounts of gold behind the thick safe walls or servicing high profile customers in their marble paved skyscraper hallways. When it comes to money, banks are the institutions we have looked upon for centuries and more.
Oh, but how the times have changed! What has been accepted as the tradition and common behavior changed dramatically in just a few years? The landscape of banking changed in favor of new players, so-called challengers, offering banking services in a way that reflects the modern way of living, and more important: modern client. And with the modern client, everything revolves around the service: it has to be available 24/7, has to be fast and has to be agile.
And judging by the course of events in the past few years, it has to be: mobile. Yes, mobile is the king for sure. Smartphone has changed many of the services we use today, and banking is not immune to it. Whatsoever, the main direction of banking services today is mobile. Yes, mobile banking is present for many years, but the offering coming from the challengers on the traditional banking market made all the difference.
One stop shop approach through the mobile phone, offering friction free services, without the burden of legacy procedures, tons of paperwork and unnecessary fees created some of the biggest financial companies that have not existed just a few years ago.
For example, the UK advanced its market when it comes to fintech, more than 60% of the payment and active financial institutions on the market are established after 2005! And already they make almost 15% of the total banking revenue in the UK, most of it arising from the last 5 years growth. On the other side of the globe, Chinese giant Alibaba’s fintech Ant Financial is currently valued more than two banking giants Goldman Sachs and BBVA combined!
Why is that so?
Well, the answer is actually simple. Customer. Yes, modern customer, as said, wants everything here and now, customizable to his needs, available on his phone. And preferably without too much on-site interaction. And that is exactly what those challengers offered.
The formula is very simple: a mix of scalable technology, with fresh thinking and automation of processes, enabled cost-effective offering that led to fast market scaling. And customer acquisition with very low cost and high efficiency. Which enabled investment to more technology and so on.
Result: Ant Financial employee generates revenue of around 16 million USD per year, while Barclays Bank employee generates around 400k USD revenue per year. Scary. Furthermore, UK mobile-only banking pioneer Revolut managed to achieve financial break even in less than 24 months from their launch, with almost 3 000 000 customers and growing, onboarded solely on the mobile phone. Customer acquisition cost is almost on the level of statistical error for the traditional bank with branches and paperwork process behind. There is no legacy systems to think about, no cumbersome procedures to respect.
How to compete with that? And the future is?
Well, the future of banking is all this and more. Without any doubt, the battle is not for the existing customers but for those arriving on the scene in the years to come. Recent research by FIS shows that the current users of banking services aged 18–26 are interacting with their bank/provider in more than 75% time through their mobile phone. With the tendency on that percentage to rise.
Combined with the estimation that between 3,5 and 4 billion new customers are going to need account or banking service of some kind in the next 10 years, the answer is pretty clear. Fully digital onboarding, paramount security, 360-degree offering powered by technologies like blockchain, machine learning, and open systems enabling integration of various friction free services in one app are the future.
Sounds like a revolution. But no, it is an evolution. In a full sense of the word. Advancement in the industry enabled by the elements of technology, regulation (PSD2 anyone?) and the market need. And like in every evolution process some of the participants will evolve and embrace the new conditions, and some will fail to adapt and slowly fade away, making room for the new, improved shape of life.
This does not necessarily mean that the traditional banks will disappear. They are already adapting their strategies. Whether to partner with fintech’s, become one themselves through their spin-off brands or simply position themselves as pure service providers for the other entities, they are searching for their place under the sun in this evolution process. And if they fail, they will make room for the others fighting for their place in this crowded space.
One thing is sure. All the elements for success are present already. The technology is here. Digital onboarding has never been better with biometric face recognition, OCR of documents and streamlined KYC. The blockchain is enabling scalable processes, fast decision making, and scoring, AI is marching forward when it comes to customer support and interaction.
And guess what? We have all that in our very own Leonus digital banking platform https://www.abc-softwaredev.com/products/digital-banking-platform . Check it out on next Finovate Europe in London, we’ll be there. In the future of banking.