I recently published a report for Verdict Financial on ‘Key Trends in Retail Banking in 2016’. I was asked a few questions about how the retail banking landscape will change in 2016, and here are my replies.
What is the single most important trend that will drive the banking industry over the course of next year?
I’m particularly excited about the emergence of open platforms in banking. Partly as a result of regulatory pressures, banks will start to open up their APIs to third parties, allowing them to develop services that will plug into the banks’ own systems. This means that established banks and fintech startups will evolve from sworn enemies into partners working towards a common goal: the conception and delivery of a new generation of services that will allow consumers to manage their finances more easily and effectively.
This shift from competition to collaboration will help kick-start a renewed wave of innovation in the sector. Taken to its logical conclusion, open platforms will transform banks into ‘app stores’ that host the best products from the fintech sector, in areas as diverse as P2P lending, personal financial management, and digital currencies.
It’s a win-win for both sides. The banks will gain from lower development costs and shorter lead times, and the startups will benefit from immediate access to a large customer base. Consumers will be the ultimate winners.
What else can we expect to see next year?
Several new entrants will be trying to establish themselves during 2016. New banks in the UK, such as Mondo, Fidor, Atom, and Starling will busy themselves with brand-building and customer acquisition. Each is promising to revolutionize the delivery of banking services, using a digital-only strategy to focus their efforts on younger consumers who are wedded to their smartphones.
However, I’m rather skeptical as to how much of an impact they will really have, and I think that they may turn out to be the Jeremy Corbyns or Donald Trumps of the banking world. They will undoubtedly win over a small but enthusiastic number of followers drawn from a specific demographic, who will become engaged and vocal advocates for their brands. Yet, there’s a strong chance they will meet with indifference from the wider public, who still place a high premium on reputation, established track records, and a physical presence.
It’s consumer inertia, rather than regulation and funding, that will be the most difficult obstacle for these new banks to overcome, particularly given the efforts of regulators, at least in the UK to streamline the authorization process.
How should established banks respond to these developments?
They should embrace the change, even if it ultimately results in reduced margins and revenues on their traditional activities. The alternative is extinction, a far worse prospect – just ask Blockbusters! The good news is that more and more banks are making the leap. New accelerator and incubator programs are being set up almost every week, as banks try to harness the creativity out there and overcome their innate conservatism. For those banks that manage to successfully negotiate this transition, the reward will be a more secure future and access to new sources of revenue.
– This article is reproduced with kind permission from Verdict Financial. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here. Image: Wilfred Iven, StockSnap