Tearsheet asked top executives and entrepreneurs in financial services and digital banking about the future of banking. More specifically, we wanted to know what they thought would be the biggest banking theme in 2020 -- something that would really move the needle for the industry.
From making everything move smoother and faster to the evolving and changing role of banks, experts don't necessarily agree on what's coming next. There is generally consensus, though, that consumers are the beneficiaries of the increasing competition in the space. More products, offerings, and options are available than ever before.
Customer experience
Pierre Habis is the head of consumer banking at Union Bank
“I see 2020 as the year of the consumer experience for digital banking. Our industry is ripe for change. Over the years, we’ve seen some incredible new technology being built – both within and outside of our industry. For those who are in the traditional banking industry, I believe the focus will remain on integrating new technologies and enhancing digital offerings but the emphasis will be more around providing a more valuable, more personalized experiences for our clients.
Consumers aren’t necessary making their banking choices based on whether you offer the latest new technology or not, but rather they want simplicity, ease of use and customized experiences – and we need to deliver that to them.”
Real time
Craig Ramsey is the head of real-time payments at ACI Worldwide
"Consumers and banks are driving demand for products and services that interact with them in real-time, and this will push real-time payments to progress from being the “new norm” to becoming the “expected norm” in banking in 2020. The conversation will shift from being about how to get set up for a real-time future, to what banks can be doing to become more competitive by leveraging real-time payments, digital overlay services, and more.
Request for payment (RfP) is one such overlay service that The Clearing House is pushing in the U.S. and we’ll see banks seek out technology solutions to support and roll out these services to customer-facing channels. Similarly, APIs will play a huge role in real-time growth as they’re required by the fintech community to interact with the banking services their customers need. 2020 will be less about the building blocks of real-time payments needed by banks and more about setting up new real-time payments services that attract consumers and fintechs."
Latin America
Ximena Aleman is the chief business developer at Prometeo Open Banking
"2020 will be Open Banking MVPs year in Latam. With more and more mature fintechs in the financial space and banks totally aware of their need to push innovation initiatives in the region, there will be an incremental interest in crafting new ways to leverage data. I bet most innovative companies in each market will jump first and go further, gaining not only experience in this space but also customers' sympathy and loyalty."
Evolving role of banks
Cameron Peake is co-founder and CEO of Azlo
"Banking as an industry is becoming irrelevant. The end-user perceives money as a potential for work and growth and they care less and less about the idea of a columned building being the gatekeeper for that potential. Fintech and modern financial services have to go beyond this mental model of banking and focus on the success and welfare of its customers. Azlo is creating an ecosystem that focuses on the survivability of new businesses which entails many diverse aspects above and beyond traditional banking services."
"Intelligent services are also becoming more and more prevalent as the barriers to starting a business are disappearing. Founders don't want a prestigious MBA in order to learn how to erect a brick and mortar shop, they want easy-to-use tools that empower them to go to market as fast as they generate new ideas. This kind of speed and frictionless commerce are vital to stay current and explore the many creative directions that younger consumers have."
Incumbents focus on tech
Carson Lappetito is president of Sunwest Bank
“Financial technology such as smartphone payments, better integration and mobile banking, will become an even greater focus in the banking industry, as innovative companies continue to disintermediate banks by offering a vastly better customer experience."
"We can also expect to see continued regulatory scrutiny placed on depository fintech companies, due to the current lack of regulatory oversight and FFIEC compliant cybersecurity programs. Many fintechs are essentially creating their own internal, “mini-core processors” or “banking ledgers” that record, track & process customer deposits. This trend will continue in 2020, as it solves the issue of scalability with banks, but is creating unregulated depository risk in the banking system.”
Efficiency ratios
Christopher McClinton is CMO at Finxact
"Historically, banks have aspired to generate a buck of revenue for every 50 cents of non-interest operational expense. For many, a 50 percent efficiency ratio still remains an aspirational threshold. Strategies to knock down that stubborn ratio a few percentage points here and there have historically been based on reducing branch footprint, optimizing branch formats, transitioning teller-intensive activity to digital channels, bill-pay adoption, among other tactics that did not include eliminating the technical debt that’s actually ballooning the numerator. In 2020 we will see pragmatic approaches to digital transformation that incrementally move Lines of Business to new technology stacks with much stricter criteria for successful outcomes as determined by efficiency metrics."
"Over the past two decades there’s been quite a lot of innovation in banking, but almost all of that innovation has occurred on the periphery of the core systems. Increasingly, it has become difficult for banks to keep pace with the expectations of consumers at the digital channels while managing costly translation layers back into siloed legacy code bases. ‘Nimble product factories’ at the core level that can rapidly define position (loan or deposit) behavior and expose it via RESTful APIs will reduce the cycle from product inception to deployment by an order of magnitude. Beginning in 2020, the winds of innovation will change direction, emanating outwards from the next gen cores into the marketplace of financial services."
Gen Z
Michael Praeger is CEO and co-founder at AvidXchange
"Banks should consider that Gen Z is much more research driven than their Millennial counterparts. They don’t remember life before the internet and expect to assess financial products and services independently, online first before selecting a specific provider. For Gen Z, digital payment products are incredibly important, specifically ones that offer multiple touch points and clean interfaces that are personalized and adaptable through interactions with the user. Most Gen Z-ers also grew up during the financial crisis of 2008, so providing resources that teach about money management and emphasize the ability to save will offer a desired sense of security."
Branded credit cards
Sean Donovan is co-founder of Finix
"From Square to Amazon to Microsoft, in 2020, neo and challenger banks will coalesce around a set of features centered around possession of the stored value of that customer. In 2019 we saw it with Uber and Lyft, Square Cash all launching debit cards for consumers to keep their money on their one platform, in 2020 tech companies will threaten traditional credit card companies like Chase or Wells Fargo with banklike capabilities."
Rebundling
Lu Zurawski, practice lead, retail banking and consumer payments at ACI Worldwide
"There are interesting shifts happening in the way businesses and consumers are interacting, which will lead to some changes in how consumers bank. In 2020, consumers will become more discerning about “free banking” and “bundled banking,” as they search for understanding and clarity on fees and charges. Consumers sometimes avoid the monthly fees of traditional bundled bank accounts and instead use the services of check cashers, which are often associated with high one-off fees. This is just one scenario where we’re seeing “unbanking” taking effect – something that will continue to affect traditional banking institutions going into 2020."
More PSD2 and fintech hubs
Richie Serna is CEO and cofounder of Finix
"Historically, open banking in the US has been driven by smaller niche banks that are licensing out their charter to innovative tech companies. As PSD2 is implemented in the US, a new wave of innovation will change B2B and B2C banking as we know it. These new regulations create new incentives that will spur more data sharing from and between larger financial organizations, giving developers access to much richer data sets
As fintech companies move beyond Silicon Valley, new Fintech hubs are being created like Salt Lake City, Chicago, Mexico City and Atlanta. Chime recently opened offices in Chicago, Stripe opened offices in Mexico City, Salt Lake City now has Galileo, Plaid and WebBank while Atlanta has a healthy mix of established fintech companies and emerging startups that are changing the face of payments. From Elevon to FiServe to First Data to Finix and Green Sky and Kabbage - it’s becoming a hotbed for new fintech ideas and talent. Expect to see more new fintech hubs popping up in 2020 and beyond."
Intelligent engagement and actionable insights
Leo Gill is vp of innovation, banking solutions at Bottomline Technologies
In 2020, banks will finally get serious about translating their information advantage into a competitive advantage through data, analytics and actionable insights that will allow them to intelligently engage with their customers. Banks are facing increased competition in the battle for primary ownership of the customer relationship. It is not enough anymore for banks to simply offer basic services, such as loans and deposits, at a lower cost. Banks are now competing with new entrants in the space, fintechs and platform providers, all who at their core leverage fine-tuned data and analytics and have exceptional customer engagement skills.
So what can banks do and how can they get there as we move into a new decade? In 2020, smart banks will inevitably increase their use of intelligent systems of engagement. These systems combine transaction and customer data with external sources of data, and deliver a unified view of the customer along with actionable insights. These insights will be useful across the bank from relationship managers to product and management teams, and directly to the bank’s customers – all powered by a seamless user experience. Following this trend will enable banks to gather more information about their customers, anticipate their needs, and ultimately capture what is coveted most -- primary ownership of that customer relationship.
Mobile standards and AI
Mark Crichton is senior director of product management at OneSpan
"Mobile becomes the standard platform for financial interactions. Because of this the corresponding increase in the attack surface that fraudsters will have access to gets worse. Whether mobile is already part of your offering, or you will be launching a new mobile app – security needs to be baked in from the beginning, not bolted on at the end. Many fraudsters look for loopholes in the process or registering, activating or using a mobile device in relation to an online account or transaction. App development whether in-house or outsourced needs to consider the best security mechanisms to protect the app and importantly the brand. Process flows also need to be streamlined. The ability to make intelligent decisions about applying the right level of security at the precise time is going to be largely driven by machine learning.
Financial institutions will need help embracing AI to its full potential. Financial institutions are still holding back from providing enough data to use AI in its most complete from in the effort to prevent fraud. Currently a lot of banks have siloed data pools which can’t be pulled, however over the next year, it will be rare to see banks not using AI in an efficient way. When complex fraud detection models are able to be read and understood by people, then we firmly believe the power of AI will shine through across the banking industry."
Faster
Rishav Chopra is head of strategy, operations & revenue optimization at Intuit
“According a new study from QuickBooks and Wakefield Research, 80 percent of small businesses feel stressed about their cash flow, and the time it takes payments to process plays a huge role in this. The industry can help SMBs combat their cash flow issues by increasing the speed of payments through innovations such as next day credit card deposits and enabling faster settlement on ACH payments.
Additionally, encouraging businesses to embrace omnichannel payments will help to provide them with the confidence of never missing a sale. Ultimately, these improvements to payments processing gives small businesses access to funds they desperately need right away, rather than waiting several days for a transaction to post, improving their cash flow and opportunity for success.”
Banks and fintechs
Marwan Forzley is CEO at Veem
"The rising popularity of financial technology will increase the collaboration between fintech and traditional finance consortiums in 2020 and beyond. Throughout the 2010s, the financial industry felt the pressure to innovate. Large banks and legacy financial providers made unprecedented venture capital investments in up-and-coming disruptors in Silicon Valley and around the world.
These investments have primed the industry for innovation, but there is still more work to do. In 2019, most payments were still facilitated by the SWIFT system—a network created in the 1970’s that hasn’t been updated at all. New fintech firms are proving that traditional payment rails can be combined with web dashboards, business software and new technology, like blockchain, to put the power of payments back into the hands of the users themselves, saving time and money while increasing security. Banks have taken notice and understand that, "the best way forward is to join them." Expect to see more investments, partnerships, integrations, and M&As between traditional banks and fintech players in 2020 as well as the mainstreaming and adoption of products and solutions stemming from partnerships made in the past few years."
Role of physical bank branches
Craig Peasley is director, marketing, Adobe Document Cloud, at Adobe
"People won’t ditch bank branches for online banking. Digital, and mobile devices specifically, has had a massive impact on how consumers manage their finances, yet most consumers are not very impressed with their online banking options. A recent study from Adobe found that 75 percent of consumers said they still believe physical bank branches matter and 70 percent have visited a physical branch at least once in the past month.
In 2020, banks will need to make every touch point, from talking to a bank teller in-person to making a transfer between accounts on your phone, as frictionless and helpful as possible for consumers. This year we’ll see more people continuing to crave that personal experience that comes with visiting a bank in person, and the death of bank branches will be greatly exaggerated. Instead, banks will need to complement the brick-and-mortar experience with innovative digital experiences in order to continue to engage and retain customers."
Battle over the bank account
Jillian Williams is a principal at Anthemis
"We are seeing an increasing amount of U.S.-born challenger banks pop up and raise money, as well as some other fintech startups add to their platform to start to look more like banks. We will continue to see this trend of competition for the bank account of the consumer. To date, we’ve seen the most traction for challenger banks targeting those that aren’t currently served well by traditional banks in the U.S. The European challenger banks are well-capitalized, but they don't have the same brand recognition here as they do in Europe and will won’t necessarily be going after the same type of customer in the U.S. as they are currently serving in Europe.. Despite their traction, I don't necessarily think they’ll have a leg up compared to their the U.S. competitors."
Challenger banks differentiate
Claudio Esposito is vp, banking product at Stash
"2019 saw a wave of new challenger banks entering the market, with new checking and savings offerings being announced right and left. It's safe to say that the commodification of the bank account is in full swing, but how challenger banks will differentiate themselves will take center stage in 2020 (and it can't simply be with competitive interest rates). Instead, in a bid to become the primary account, I think we'll see companies layering on automation and budgeting tools to help customers improve their overall financial health.“
Customer first
Harsh Sinha is CTO at TransferWise
"Newer fintechs (Chime, N26) and established technology companies (Apple, Google) have digital-first mindsets that promote transparency and empower customers to take charge of their finances. The increased focus on the customer experience is one of my favorite trends in banking right now. Whether it’s freezing your card when it’s lost or providing you with analytics on where you money is going, customers can now take these actions from their mobile apps — without going into a bank branch or calling customer service. Companies are also increasingly partnering with one another to best serve customers. For example, N26 customers can now access TransferWise’s fast and simple international payments services from within their N26 app."