The Customer Effect

The trends that shaped 2017: Grading last year’s predictions

  • Across every industry, technology is changing so much so fast -- in financial services, that change looked more like a blend in 2017
  • Banks are just scratching the surface of voice, fintech M&A has been slow to take off and branches exist to retain rather than acquire customers

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The trends that shaped 2017: Grading last year’s predictions

Across every industry, technology is changing so much so fast.

In financial services, that change looked more like a blend in 2017. The pendulum swung away from narratives of disruption and toward embracing partnerships and operating like fintech startups. That could explain the low merger activity between incumbents and startups: Old banks appear to want a bit of everything in a collaborative environment.

Here’s how three big predictions for 2017 actually panned out.

Banks are just scratching the surface of voice
Voice-mediated artificial intelligence was going to be “the most significant change” to banking in 2017, according to the Digital Banking Report. It was going to make banks more relevant to their customers and help them become trusted “private bankers,” offering information and advice through voice.

Not so fast. Voice only began to emerge as a banking channel this year. USAA, Ally Bank and U.S. Bank all launched Alexa skills, following Capital One, which launched its own in 2016, but they have a ways to go on the sophistication spectrum. Banks are still figuring out what it’s going to be used for, besides just providing another way to look at account balances. Alexa banking skills also let customers hear their transaction history and upcoming payments due. Some let customers move money between different accounts. Banks are considering rolling out voice-enabled PFM capabilities, but that might not pan out.

“It’s still in the experimental stage,” said Christopher George, svp of client strategy at banking technology company Nymbus. “But the APIs are now open integration and the cost barrier of entry has been lower [for institutions] over the last couple of quarters.”

Fintech M&A has been slow to take off
Some said traditional companies would acquire more fintech startups in 2017 in an effort to innovate.

Not really. Fintech M&A activity picked up in the third quarter of 2017, with 235 transactions and $32.9 billion in volume — the highest quarterly volume since the fourth quarter of 2015. Payments were the most active sector, by dollar volume and number of deals.

Banks always say that to stay relevant among fintech startups they have to build, buy or partner with them — but few have been buying. In October, JPMorgan Chase acquired WePay, a small business-focused payments company. Otherwise, fintech mergers have also declined since 2015. Banks aren’t trying to be major fintech investors, said Sam Yildirim, the deals leader at PwC. They’re just looking for technology they can use in their existing business rather than building it themselves.

“They’re looking for unique opportunities to acquire platforms that will add to their growth rather than changing their business model. Banks are not technology companies,” Yildirim said, contrary to how banks like to tout themselves. “It takes too long for them to build technology themselves.”

Branches are for retaining rather than acquiring customers
Leaders were supposed to turn their attention to “digitalizing the branch or store” in order to differentiate, not by just putting it online but by executing a strong omni-channel strategy so customers can connect with the banks on- and offline. That looks right so far, but innovations in branch design are still in the trial phase.

Citi is consolidating locations with lower servicing volume, opening in higher growth areas and renovating existing branches and ATMs. Some end up looking more like Apple Genius Bars than banks. Bank of America’s minimally-staffed branches allow customers to connect to banking representatives through video conferences and make the most of mobile banking tools. Samsung is talking to banks about rolling out retail pop-ups “sooner than in a year” and showing them how they can mobilize their branch staff and improve the retail experience.

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