Humans have always pushed the banking industry boundaries. The human race has always been interested in change and innovation, from the exploration of new planets in the 15th century to the search for new worlds in the present. The banking industry is no exception.
Technology is advancing at a rapid pace, which has caused the banking industry to change and will continue to do so. Banks are using cutting-edge technologies like blockchain, artificial intelligence, and data analytics to improve their services in this era of digital transformation. These developments are simplifying banking procedures while also giving consumers a more tailored and responsive banking experience. With the advent of open banking and decentralised finance (DeFi), which give consumers more control over their financial data and access to a greater range of financial services, the all-pervasive technology layer is continuing to change and empower consumers.
In response to customers’ growing demands for convenient and seamless banking experiences, banks are utilising automation and data-driven insights to offer customised financial services and products. Customers can now access banking services more easily and manage their finances while on the go thanks to the introduction of chatbots, virtual assistants, and mobile banking apps.
At its core, banking is a customer-centric business, and its ability to adapt to technological advancements and customise services will determine how far banks can go in the future.
Generation Alpha
Banking has always been the foundation of trade, from trading in Renaissance Italy to the sophisticated financial instruments of today. Although the methods and procedures are changing, the fundamental goal stays the same. By 2024, banks want to be more than just financial hubs—they want to be comprehensive platforms designed with customer interaction in mind.
The emergence of Generation Alpha, or people born in 2010 and beyond, marks a turning point in consumer behaviour. Over the next few decades, Generation Alpha will have higher expectations of the banking system than previous generations did. Because of their inherent inclination toward technology, banks will be compelled to use it as well and offer a technology-first service that meets their unique financial needs. The expectations of this generation regarding banking services are shaped by their experience with digital technology. They look for platforms where interactions happen, not just transactions; where things happen instantly, seamlessly, sympathetically, and in harmony with their digital lives.
In order to provide real-time, context-aware services to this tech-savvy generation, banks need to leverage data analytics and artificial intelligence (AI). The idea of a fixed credit score, for example, is becoming dated. Rather, dynamic credit assessments at the point of sale will become standard practice, enabling quicker and more precise financial decision-making. As demonstrated by China’s recent social credit law, credit evaluations now consider individuals’ moral principles and social conduct in addition to transactional factors. Credit needs to be placed in context.
The foundation of banking’s future is intelligence, individualisation, and intuitive design. AI systems that can create individualised financial plans with little human supervision are replacing human experts in the field of financial advice. The intention is for banking services to provide customised solutions and anticipate the needs of their clients without requiring their requests.
Embracing technology-driven approach
In this new era, technological infrastructure is essential, and the idea of convergence is crucial. Banks can now provide incredibly dependable and speedier services thanks to 5G technology, bringing in a new era of seamless connectivity. The Internet of Things (IoT), advanced analytics, and high-speed data transmission are coming together to create a revolutionary wave of innovations that will continue to reshape the banking experience. The convergence of these technologies fosters a potent partnership that allows banks to offer personalised, context-aware, real-time financial solutions to their clientele.
The integration of diverse financial services from all industries, including banking, payments, insurance, and investing, all accessible through a single digital ecosystem, is another aspect of this convergence beyond connectivity. Customers can anticipate an unparalleled degree of ease and effectiveness in handling their financial matters as a consequence, paving the way for a banking environment that is more connected and focused on the needs of its clients than in the past.
The growing collaboration between the banking sector and the transportation industry is exemplified by ride-sharing applications that feature automatic payment mechanisms. By 2027, there will be 3,467.00 million users in the shared ride market, and revenue is expected to reach $429.10 billion in 2023. The way we pay for transportation services has been drastically altered by ride-sharing apps. Those days of trying to find the closest ATM before getting a ride are over. Instead, users can connect these apps to their credit cards or bank accounts to enable automated, cashless transactions. The payment process is made easier and security is improved by this integration.
Additionally, the e-commerce industry and banks are collaborating more and more. By providing co-branded credit cards and even investigating the idea of offering Amazon-branded checking accounts, Amazon, for example, has made a foray into the financial services industry. In addition to strengthening Amazon’s relationship with its clientele, these financial products establish the business as a major force in the financial industry. Furthermore, Amazon Pay has expanded its influence in the digital payments market by enabling users to make payments on other e-commerce websites, in addition to Amazon’s own platform.
The distinction between banking and shopping will likely become increasingly hazy as banking services become more integrated into the e-commerce ecosystem. Customers may benefit from more tailored financial advice, adaptable payment options, and improved security measures as blockchain, digital wallets, and artificial intelligence technologies develop. The way that people shop and handle their money is ultimately going to change as a result of this developing partnership.
The food and beverage industry is one of the other sectors to which this also applies. In the past, the partnership has mostly focused on handling payments for delivery services and restaurants. However, biometric authentication techniques, like fingerprint recognition, are increasingly being incorporated into the payment process. The latest collaboration between Mercedes and Mastercard, providing fingerprint authentication for car purchases, is just one instance of the application of this technology. With the help of this development, consumers will soon be able to safely and easily use biometric information, like their fingerprints, to pay for groceries or restaurant meals.
We may expect additional biometric authentication integration across different touchpoints in the food and beverage industry as technology develops. This could include self-checkout options at grocery stores, fingerprint-enabled payment terminals in restaurants, and even biometrically secured food delivery services. These innovations improve security while streamlining the payment process and increasing consumer convenience and efficiency. In the end, banking spreads throughout society.
Fintech collaboration
The partnership between fintechs and banks signifies a significant change in the financial services industry. Financial institutions, frequently encumbered by antiquated systems and conventional methods of operation, require substantial digital enhancements to effectively mesh with the nimble and technologically advanced methodologies of fintech enterprises. This integration forces banks to embrace open APIs for improved interoperability, modernise their IT infrastructure, embrace cloud computing, and improve their data analytics capabilities.
Meanwhile, Fintechs have to conform to the strict security and regulatory frameworks that are characteristic of the banking sector. In addition to quickening the rate of financial services innovation, this convergence forces traditional banking institutions to change their culture in order to promote a more customer-focused and cooperative approach.
Fintech businesses are experts at creating digitally first, user-friendly experiences that appeal to today’s tech-savvy customers. By utilising this expertise, traditional banks are modernising their outdated systems and switching from rigid, paper-based procedures to flexible, digital platforms. This change improves the overall customer experience, lowers expenses, and streamlines operations.
Moreover, banks can access cutting-edge technologies like blockchain, artificial intelligence (AI), and data analytics through fintech partnerships. These technological advancements enable banks to provide more individualised services, instantaneous risk assessment, and effective fraud prevention. Consequently, clients experience expedited loan approval processes, customised investment suggestions, and improved security protocols.
Even though there are many reasons to be optimistic about these partnerships, organisational outlook alignment and cultural synergy are necessary for true success. The recent split between Apple and Goldman Sachs emphasises how crucial it is to align oneself not only in terms of technology but also in terms of values and strategic vision in order to forge enduring and successful relationships.
Meanwhile, the market capitalisation of publicly traded fintechs as of July 2023 was $550 billion, which is two times more than in 2019. Furthermore, as of the same time frame, there were over 272 fintech unicorns, valued at a total of $936 billion, a seven-fold rise from the 39 companies that had a $1 billion or higher valuation five years prior.
A market correction in 2022 caused this rapid growth momentum to slow down. Even now, the effects are still noticeable. There is a general decline in funding and deal activity, fewer initial public offerings (IPOs) and SPAC (special purpose acquisition company) listings, and fewer new unicorn creations. The macro environment is still unpredictable and difficult.
In this case, fintechs are starting a new chapter in their value-creation history. Businesses in the past have been more experimental, taking calculated chances and going for growth at any cost. Fintechs can no longer afford to sprint in the new era due to a difficult funding environment. They have to run more slowly and steadily to stay competitive.
The way forward
The transformation of the banking industry is driven by a move away from conventional profit models and toward ones that prioritise customer outcomes. Banks are gauging their success by the total value they offer to clients, rather than just the difference between deposits and loans. Providing an integrated platform with a seamless convergence of banking, commerce, and lifestyle services is part of this.
These days, banks are supposed to be flexible organisations that can adjust to shifting consumer needs and technological advancements. Future banks will be transparent, data-driven, customer-focused, and flexible. It must be prepared to adapt its offerings instantly, placing the needs of the client first at all times.
The future of banking is being shaped by three layers of models: innovative, flexible, and agile products at the top, ever-evolving, robust technology at the base, and a customer-centric approach at the top. This has the potential to propel the banking industry forward and make banking experiences as instinctive and natural as the environment we live in. Banks are laying the groundwork for a time when banking will be more than just a service—rather, it will be a customised path to financial empowerment and well-being as they adopt this revolutionary model.