Banking Industry Trends

3 Trends Affecting the Retail Banking Industry

Regulation, Automation, and Payments

March 1, 2018, Bruno Jacobsen

The banking industry hasn't been as disrupted as other industries by emerging technologies. Indeed, the bank where you open your first account is likely the same you'll stay with for the rest of your life.

But a few interesting things have begun happening. First, open banking regulation will allow new services to emerge. Second, automation is changing the face of retail banking. And, third, new players and services are reshaping the payment landscape.

3 Trends Affecting the Retail Banking Industry


1. Open Banking and New Services

The new European directive, known as the Second Payment Services Directive (PSD2), has come into effect this year. The directive explains banks must provide open APIs that allow third-parties to build services on top of their data. Similar initiatives are taking place in other markets, like the US and UK.

For instance, a "fintech" company can now use a bank's open API to create a personalized budget manager. In order to get your data, it would only have to get permission from you and then get your bank's data.

Many more services can be built on top of this. Another example is a company using your different banks' APIs to provide a way to manage all your finances in a single place. For those who have multiple cards or banks, this would make it much easier for them to manage it all. All their data, purchases, etc., could be in a single place.

But the full scope of possibilities is hard to assess. And it's hard to know exactly the full impact open banking will have. Back when Google Maps came out, no one really knew what you could do with it. Now it's used in several messaging apps, ride-hailing services, and food delivery apps. And every day a new app comes out that uses Google Maps one way or another.

So it will be exciting to see what types of products and services open banking will create.


2. Automation Changing the Face of Retail Banking

But new regulation isn't the only culprit of the changes sweeping across the industry.

With digitalization, much of front-end retail banking is being automated.

Take, for instance, investing in equities, opening a savings account, making payments, or ordering a new card. Today, in most cases, you can do all these easily online.

Even if you have questions that require someone on the other side to talk to, banks have already started addressing this by... well, automating it.

Chatbots are now on the verge of becoming something more than a gimmick. Their arrival is likely to render yet another function superfluous. Customer service, in most instances at least, will be left to an AI. This will not only allow a larger number of customers to be serviced immediately. It will also significantly reduce customer service costs. For a bank, that's a win-win.

This suggests that bank branches across cities will become less important, as the digital world takes over.

And this automation is, of course, only part of the whole. In this McKinsey article, you can see how else artificial intelligence and automation will change banking, disrupting many of its functions.


3. Payments and new players

Besides open banking and automation, banks also have to brace themselves for a revolution in payments.

Companies like Facebook and WeChat (owned by Tencent) already allow people to make all sorts of transactions on their platforms. Whether you want to send some money to a family member or buy a new product, you are increasingly able to do these online. In many cases, barely interacting with banks.

On top of that, mobile payments and digital wallets are beginning to enter the domain of credit and debit cards. While these can often be integrated with the digital wallets, they won't always need to, especially with the new open banking regulations. As credit card providers, retail banks might see a chunk of their businesses compromised.

But these companies do not provide are not just front-end payment providers. They are also data companies. They own enormous amounts of data on us, from our chat and search history to likes and interactions. In essence, they know more than banks do about our personalities and characteristics, and therefore know better what we need.

This suggests that you may start to rely less and less on banks for any financial decisions. Instead, they might become more of a back-end service - still there, but not completely visible.


Other trends

These are only a few of the trends affecting retail banking. There are other trends shaping its future. Some examples include blockchain technology, a growing middle class around the globe, and new disruptive services and players, worth addressing in another article.

Banks have looked the same for decades, if not centuries. But we seem to be at an inflection point beyond which the future is unrecognizable.

It is the banking industry's job, for now, to understand what role they will play in tomorrow's society. For while banks are unlikely to go anywhere, they are also unlikely to stay the same. The bank of tomorrow will look quite different from today's bank.


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