Consumers today want to bank where they want, when they want and how they want. This includes across digital channels, 24/7 and without attachment to any one provider.
Speaking with global banking leaders last month at the annual Web Summit conference, all agreed that the future of banking will be defined by these very consumers. The reality is, though, that banks don’t have many touchpoints with consumers anymore and ultimately provide a utility service: consumers check their balances weekly or pay their mortgages annually. For payments, it’s far more likely consumers use unregulated apps like Venmo and PayPal. In Singapore, for example, ride-sharing provider GrabApp built a mobile wallet directly in its app, which customers use to digitally pay for their rides or split bills at restaurants.
These external banking services will only grow more frequent as we move into 2018. As banking leaders look to match consumer expectations and digitally transform, below are three themes that shouldn’t be ignored:
People don’t need banks – they need banking
Consumer banks in the future will be curators of services, rather than sole providers of services. They will be responsible for finding the right match to meet customer needs—whether internally or externally. Within the next five years, one banking leader believes his organization will sell more of other companies’ products than its own. Instead, the organization will become a marketplace.
Some banks are starting to take action in this direction. In preparation for the UK’s open banking regulation (PSD2) set to go into effect January 2018, HSBC recently announced it’s the first UK bank to release an aggregate Beta app that brings in data from 21 rival banks. If successful, HSBC will serve as a marketplace where customers can manage all their bank accounts. Fairly quickly, I hope HSBC leaders look at other products and services that they can offer customers through the same channel and look at it from an affiliate perspective. It needs to be about more than just bank balances and instead about building an ecosystem of products that are best for the consumer.
Banks need to open up
For banks to compete effectively in the digital era, they need to unbundle and build an ecosystem around their core value. This entails unlocking their core systems and data—such as customer, transaction and behavioural information—and offering it up as services for internal and external developers to leverage. For example, a bank offers loan origination as a vertical product, but should also offer things like appraisals and background checks for third-party fintechs. In creating an open ecosystem, banks can join other value chains to drive new sources of revenue, offer customers more holistic experiences and compete effectively.
The key way banks are unbundling is with an API strategy, where existing capabilities are turned into reusable assets designed for broad consumption. The modern API allows internal and external developers to gain controlled access to valuable business data or capabilities and supports stronger security and governance models that can evolve over time. For example, Mastercard has turned its core services into a platform of APIs, changing the way it develops products while simultaneously growing an ecosystem around its capabilities.
Banks need to give customers power over their data
For decades, banks have been using customer data against them to sell more services. However, with artificial intelligence (AI) and machine learning entering the fold, banks are now on the verge of being able to allow customers to own their data to better manage their financial lives. Additionally, as banks open themselves up to participate in more value chains, they will allow consumers to design their own banking experiences.
In order to effectively orchestrate this type of ecosystem, banks will need to build an application network, where their apps, data and devices are connected via APIs and can be plugged in and out quickly as market conditions change. For example, a bank could turn its lending products into a set of services accessible through its application network that a fintech startup could leverage. The bank is able to reach a wider demographic, while the fintech is able to tap into an experienced provider to offer consumers a more holistic service—ultimately giving consumers more choice over how they want to bank.
It’s not clear who will win: big banks or fintechs. Or, if there even needs to be a “winner” as more banks and fintechs partner. Banks do need to think differently about where they provide value and what kind of ecosystem they can strategically build around their core value. Because banking in the future will center around an orchestration of providers for tailored consumer needs, versus just one.