Future of Banking - The Financial Services Forum
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Future of Banking
David A. Smith, Chief Executive
Global Futures and Foresight
1
Future of Banking
Table of Contents
Introduction ................................................................................................................... 3
Global growth: scarcity amidst plenty? .................................................................... 4
Market change .............................................................................................................. 5
A new banking era ............................................................................................................... 5
Competition and collaboration........................................................................................... 5
Fintech/ techfin .................................................................................................................... 6
Tech change .................................................................................................................. 7
Data........................................................................................................................................ 7
5G........................................................................................................................................... 8
Extended reality ................................................................................................................... 8
Blockchain ............................................................................................................................ 9
Artificial intelligence............................................................................................................ 9
The tech threat ................................................................................................................... 10
Collaboration and competitors ........................................................................................ 10
Organisational change .............................................................................................. 11
Cultural and strategic change .......................................................................................... 11
Talent ................................................................................................................................... 11
Platform and ecosystems ................................................................................................. 13
Digital transformation ....................................................................................................... 14
Retail banks ................................................................................................................ 15
Consumers and CX ............................................................................................................ 15
Tech mix.............................................................................................................................. 16
Future models and footprints........................................................................................... 18
Key takeaways ................................................................................................................... 20
Commercial banks ..................................................................................................... 21
Clients and CX.................................................................................................................... 21
Tech mix.............................................................................................................................. 21
Future models .................................................................................................................... 23
Key takeaways ................................................................................................................... 24
Investment banks ....................................................................................................... 25
Clients and CX.................................................................................................................... 25
Tech mix.............................................................................................................................. 26
Future models .................................................................................................................... 27
Key takeaways ................................................................................................................... 28
Regulation ...................................................................................................................... 29
Conclusion...................................................................................................................... 30
About the author ........................................................................................................... 31
2
Introduction
The founder of the World Economic Forum, Klaus Schwab, suggests that the coming
intelligent era, marked by ambient technology, will be a ‘transformation will be unlike
anything humankind has experienced beforei.’ People and the organisations they
inhabit could change profoundly as a result. Banks of all persuasions will not be
exempt from this change.
Strategic threats, through disintermediation, new market entrants and evolving
models around the world are ushering in a third digital revolution that will see
declining costs in tandem with rising efficiency. The mental models that underpin
current banking models will need to change thanks to technology, shifting human
behaviour and the ways in which the two interact. Artificial intelligence is chief among
these technologies, leading a transformation happening 10 times faster and at 300
times the scale, or roughly 3,000 times the impact, of the Industrial Revolutionii.
Whether banks have the flexibility and change management prowess to change at
speed remains an open question. They have access to many of the tools that new
entries threaten incumbents’ positions with. Access to data will enable banks to form
and leverage a more complete picture of the individual customer, allowing more
personalisation - whether in the form of offers, real-time lending decisions or through
adding value by providing gleaned insights back to the customers.
Companies like Amazon and Baidu have helped heighten consumer expectations to
the point that 76 percent of consumers now expect organisations to understand, and
presumably act upon, their individual needsiii. Leveraging technology will be critical in
achieving this, but the larger and tougher form of systemic change lies in cultural and
strategic change. Banks would be wise to prioritise consumer-centric offerings and
practices with regards to collaboration, technological adoption, and the crafting of
new business models.
The gap between ‘what’s possible’ and business as usual is widening. Technology is
evolving at a rate far greater than many businesses can adapt to, let alone use
effectively in a strategically coherent manner. Talent, technologies, strategies and
structures will all need to evolve to create new value pools and markets. Banks must
first consider where their strengths are, where their weaknesses are and what
partnerships and ecosystem positioning is appropriate in seeking to deliver such a
transformation.
3
Global growth: scarcity If you were trying to build a model
amidst plenty? scenario for corporate success akin to
the current opportunities in banking,
Global finance is set to outpace being a cash-rich leading consumer
economic growth substantially over the tech company in the 1990’s helping
next decade or so. By 2025, global drive the development and boom of
financial capital could surpass a the consumer tech age may rank
quadrillion dollars, which equates to comparably. Having a history of cutting
over ten times global GDPiv. This edge technological innovation would
growth is concurrent with, and also further reinforce this perception;
partly because of, a shift in global developing one of the world’s first
growth towards emerging markets. digital cameras in 1975, OLED
Despite current woes, about 70 screens and cloud storage as early as
percent of global economic expansion the mid 1990’svii. One company had all
to 2030 is forecast to come from that and more, but this company was
emerging marketsv. Whether this not Apple, but Kodak. Success
coming shift proves the concept of ultimately made the organisational
geographic destiny remains to be resistant to change and overly product
seen. The variations in banks’ global as opposed to consumer, focused.
valuations continue to be substantial, Indeed, afraid of hurting its comfortably
but whereas geography accounted for fat margins on film, it failed to market
74 percent of the difference in 2010, its own digital camera.
by 2017 it lowered to 39 percent. The
remaining 60 percent plus, notes Likewise, Nokia commanded a 40
McKinsey ‘…is due to the business percent share of the global mobile
model and its execution, strategy, well- market in 2008viii. It too possessed a
aligned initiatives, and the other levers rich history of innovation but ultimately
that banks commandvi.’ failed to transition to a new age. A
product focus reinforced by a strategy
For many banks this growth, coupled that assumed emerging market
with increasingly geography-agnostic consumers would buy its phones
success is ostensibly an ideal point in completely missed an emerging truth.
history. Such growth suggests a range Nokia was a very good phone
of opportunities for incumbent banks, company in a world that was
yet such headline growth masks an transitioning away from buying
increasing range of challenges. History phones. Smartphones redefined what
is littered with examples of product a phone was and what a phone did.
centred innovation that, absent the Emerging market consumers leaped
requisite concurrent organisational and technologically from no phone to
cultural changes, resulted in smartphone and Nokia was ultimately
spectacular failure. left unable to play in the new market
that had formed around it.
4For institutions partially sheltered by five banks are confident they could
onerous regulations, riding the detect a cybersecurity breachxiv.
bleeding edge may prove
uncomfortable. However, the speed Tomorrow’s organisations will
and spread of the same forces that increasingly inhabit a network of
accounted for Nokia and Kodak have networks, whether they orchestrate,
both increased: the risk of stasis is facilitate or contribute to such
now more significant than the networks. People, sensors, and
discomfort of self-disruption. Perhaps devices are increasingly
nowhere is this more true than interconnected, in many cases beyond
banking, which as an industry is still in traditional organisational boundaries.
part under the misapprehension that Increasingly the issues emerging from
digital is a project to invest in, rather this are beyond the capabilities of the
than a wider cultural and business bank that relies on legacy structures
transformationix. and strategy.
Market change Competition and collaboration
It is suggested by Harvard Business Since competition with agile and
Review that the coming phase of specifically targeted fintech is beyond
technological disruption is set to the ability of the many banks that do
change banking more than the Great hundreds of things moderately well but
Recession didx. At the core of the not one excellently, collaboration
issue is that ‘… strategic success now would appear to be banks’ favoured
requires a structural response. A strategy. 82 percent of banks plans to
company can’t adapt to 21st-century increase collaboration with fintech
conditions without modernizing its companies by 2020 to 2022xv. Indeed,
20th-century structuresxi. Notably, 42 percent of bank executives believe
around the world some 17 percent of fintech collaboration will help lower the
banking and payment players evident bank's cost base and one study
in 2017 had entered the market since suggests that 86 percent of bank
2005xii. executives expect to suffer if they don't
embrace fintechxvi.
A new banking era
It is techfin as opposed to fintech, that
Although the emerging era will require could prove more transformational for
requisite changes to culture and many banks however. These tech
organisation, banks would appear companies branching out into financial
vulnerable enough even in straight products will ensure '…even with the
technological terms. 52 percent of best collaboration, the ability for legacy
bankers saying that their organisations financial institutions to compete in the
do not invest enough in digital future banking ecosystem will be
technology as part of their overarching challenged by the techfin
strategyxiii. Furthermore, just one in
5powerhousesxvii.' This is already disrupt the industry since several low
happening, for example Alibaba’s hanging fruits, such as payments, are
Alipay serves over 15 million small on their own free of onerous
businesses in Chinaxviii. regulation. Google has started
partnering with Indian banks to provide
Fintech/techfin online loansxxvi in a market that has
seen non-banking finance companies
The number of new banking players in increase their share of overall total
the British marketplace alone has risen loans from 21 percent in 2014 to 44
63 percent since 2005, with new percent in 2017xxvii. Facebook has also
entrants having captured 14 percent of made headlines for wanting access to
total revenues in the sector thus farxix. customers’ financial informationxxviii.
‘Shadow banks’ and fintechs that do
not aspire to be banks, held 48 percent
of European financial sector assets in
2017, up from 22 percent in 2008xx.
Banks and other traditional financial
services provider could lose up to 35
percent of their current revenue to
fintech companies by 2025xxi. This risk
is reflected in incumbents’ own views,
as they view around 23 percent of their
business as at risk due to further
fintech innovationxxii. Growth prospects
would seem robust, with the UK fintech
sector is forecast to grow to more than
100,000 employees and 3,300
companies (double that of 2018) by
2030xxiii. Such forecasts also have
regulatory tailwinds, for example it is
suggested that EU regulation with
PSD2 could drive U.S banks into
embracing fintech more fully or risking
market share lossxxiv. With China and
India dominating the fintech
landscape, banks will have to consider
whether business models from the
east will (increasingly) disrupt those in
mature financial marketsxxv?
Critically, techfin entrants do not need
full banking license to be able to
6Tech change or indeed excellency, will rise as the
IoT powers data generation. By 2025,
Whether many banks have an around 160 zettabytes of data are
overarching strategy capable of forecast to emerge every year. For
adjusting to the new normal is context, if all the words ever spoken
debateable. While some 86 percent of over the last 3000 years were
corporate banking executives converted to audio files, the overall
acknowledge that digital will change size would approach 40 zettabytes of
both the competitive landscape and dataxxxi. By this date, nearly a fifth of
the economics of the business, only 43 all data generated worldwide is
percent admit to having an explicit forecast to be marked as ‘critical’ to
digital strategy for this. daily life, and nearly a tenth forecast
as ‘hypercriticalxxxii.’ This information is
Furthermore, only 19 percent suggest increasingly within the purview of
their organisation has market leading ordinary consumers, with 70 percent of
digital capabilitiesxxix. This should be bankers suggesting both big data and
conceived as a systemic issue; machine learning will grow in
leadership, technology, organisation importance. 23 percent expect a
(and business models) and future skills revolution in this spacexxxiii. Some
and talent all impact each other to banks are looking to co-opt this space,
such a degree that, from a strategic for example JPMorgan Chase has
sense, you cannot look at technology begun trading in a "dark pool," that lets
in isolation. That said, core capabilities clients use the bank's algorithms to
in the narrower technology domain are buy and sell stocksxxxiv.
appearing.
Nevertheless, more than one in five
financial institution decision-makers
Data
state they have limited trust, or even
active distrust, in their analytics. Only
In 2018, running a banking interest of
33 percent have a high level of trust in
any significant size is a tech-intensive
the way their organisation uses
proposition. The foundation underlying
different types of analyticsxxxv. This
many emerging technologies and
evident gap with Silicon Valley born
banks’ future value propositions is
companies and the client-centricity its
data. This key, and often prerequisite,
use of data enables, is critical to both
capability for wider digital
talent issues and value propositions.
transformation is alarmingly deficient in
Banks can only close this gap by
many banks. Around half are not doing
‘…enhancing data governance and
enough to verify the accuracy and
infrastructure, building advanced-
validity of their data, leaving them
analytics capabilities, scaling up use
vulnerable to garbage-in-garbage-out
cases, and pursuing continual
(GIGO)xxx.
improvementxxxvi.’ Banks may be tech
companies, but few think like them.
The importance of data competency,
Developing the understanding, skills
7and strategic propositions that are and potentially increased security
needed to yield the most from data offered by 5G could shift capital
requires technical skills – which could markets in profound ways – by
be acquired relatively quickly - and shortening settlement cycles
cultural change, which is more difficult significantly and lowering (or
to enact. Ultimately, change should removing) latencies with real-time
focus on data intimacy and data geographically agnostic trading
leverage; whether banks become tech capabilitiesxl.
companies or vice versa is perhaps
irrelevantxxxvii. 5G could also revolutionise the ways in
which banks provide training and
digital know-how. Micro-accreditation
5G
systems could be enabled by 5G –
Business models will be transformed allowing precise tracking and
as high-speed and low-latency assessment of skills in real-time. Allied
ubiquitous networks create a forecast with AI, this could become a
$12 trillion of related goods and recommendation engine for filling
services by 2035xxxviii. 5G’s educational or digital blind spots or
characteristics will enable fintech gaps.
innovation, necessitating a new
paradigm in how banks use technology Extended reality
for customer experience and
engagement, as well as back end Designing for engagement will become
processes and internal operations. It a critical task as the omnichannel
has been suggested that ‘…many expands to include a wider array of
familiar banking operations such as touch points. Since new forms of
payment services will attain new forms interaction will impact all core
extending to newer channels including competencies for banks – from
wearables, IoT devices and virtual management of workers, marketing
reality xxxix.’ and sales to customer service – there
is a need to address it at the very top
Models will shift. A focus on solving of the organisation. Since this will
customers’ issues is likely to include core users such as clients and
predominate, and this could signal a front-line employees, banks need to
subtle shift into systems architecture ask what does interaction look like with
and other disciplines that take an an outside-in approach?
enterprise-wide view of I.T systems.
Since various emerging technologies Overall design of corporate
create new moments for consumers; architecture will also receive much
the ability to augment such moments attention to allow companies to take
with data driven insight or situal offers advantage of deep seated changes in
may help shift consumers behaviour engagement. Banks will need to
and trust perception. The high-speed reimagine how their workers get things
8done and where, how and where they but especially financial services firms –
interact and engage with bank clients at 54 percentxlv- means authority and
and whether their current influence is now shifting from
organisational structure is conducive to ‘leadership’ to the wider population.
this agility. Consumer-led trust score systems are
therefore likely to emerge, leveraging
Blockchain an increasing array of data to assess
‘trust’ over a range of issues. Social
Blockchain will almost certainly allow blockchain could host an irrefutable
us to do things differently in the short trust score on its’ ledger for every
term, but in the medium to longer term businessxlvi, compiled from real
it will allow us to do different things. In feedback directly attributable to a real
a WEF survey of financial institution person.
executives and experts, 58 percent
believed that by 2025, we would hit a Artificial intelligence
tipping point for blockchain. This was
defined as ’10 percent of global GDP 'In the new economy, successful
will be stored on the blockchain.’ Such businesses will design their business
an expression reveals a sea-change in processes around harnessing data
attitudes towards digital assets and an from every department to fuel AI, just
appreciation of their ability to invert as industry once built around
business models and unlock value. In harnessing electrical power from other
addition, blockchain could power the sources to fuel machineryxlvii,' notes
nascent P2P economy. Independent of Forbes. A.I is likely to change our
blockchain as a medium, global industries, shift what is possible and
investment through crowdfunding change how we work. IBM CEO
could reach $93 billion in 2025, from Rometty suggests that ‘…AI systems
$34 billion a decade earlierxli. will touch all business decisions
(with)in 5 yearsxlviii.’ Ultimately, banks
Blockchain’s potential is evidence in will need to look at how they can
banks’ own nascent exploration. 17 explore artificial intelligence platforms
percent of banks have already for bettering the customer experience
generated revenue via blockchainxlii and developing a closer relationship
and several have started with clients.
experimenting with smart contractsxliii.
With Millennials now the most powerful Artificial intelligence is also reckoned
consumer group in many economies, it to risk 2.5 million financial jobs, saving
is likely we will see movement in areas banks $1 trillionxlix including 1.7 million
relating to trust and verification given in the U.S and Europe by 2026l and 32
their distrust of institutions, big percent of existing UK jobs in financial
business and claims in general. Broad services by 2030li. It is likely that
reductions in trustxliv in business, artificial intelligence will impact 100
government, NGO’s and government, percent of all banking jobs, requiring
new skills, competencies, roles and
9leadership. Beyond simply disrupting matter how deep their collaboration
the industry, the World Economic with fintechs reaches.
Forum has warned that AI ‘…may
destabilize the financial systemlii.’ Collaboration and competitors
Collaboration and networking across
the banking industry could therefore Mid markets positions are likely to
become a critical component in erode in the face of increased
ensuring AI development – and its competition, the advance of fintech,
subsequent regulation – develop in regulation, market demands and
ways that beneft banks in the long digitisation. As a result, bank
term. strategies are likely to broadly
bifurcate into niche players and
The tech threat ecosystem hubs, driving very different
structures and core competencies at
The emerging threat is well either end of the spectrum.
documented by a WEF report, which
suggests that banks’ dependence on It is unlikely that many incumbents
tech giants for much of their have the capacities needed to move
‘strategically sensitive capabilities,’ into some of these spaces, however.
remains a structural weakness. ‘In Collective solutions in the form of
areas of rapid technological platforms and ecosystems will emerge,
advances—cloud computing, artificial requiring the construction of new
intelligence, and data analytics—the frameworks to enable shared
likes of Google, Amazon, and accountability in terms of data,
Facebook have far more experience cybersecurity, access and beyond.
than most banks. It would be difficult However, many incumbents not only
for the financial industry to catch up have the tech threat to contend with,
with its own capabilities, if it came to but also assess how data access,
thatliii.’ sharing and partnerships impact their
wider competitive positioning.
Technology has grown to represent Partnership development and
between 15 and 20 percent of the formation is therefore emerging as a
wholesale banking cost base yet the critical competency for banks –
$30 billion spent ‘…covers all core especially in the open banking era.
business functions and support areas, Restrictions on data sharing could
with limited funds left over for 'grow the complicate partnership formation and
bank' initiativesliv.’ In short, grafting impact potential efficacy and potential
new technology onto legacy conflicts of interest could limit the
processes, cultures and even tech extent and longevity of many
bases will allow banks to do things partnerships.
differently, but not different things. It is
here that banks are susceptible to
techfin and ambitious fintech, no
10Organisational change organisational or managerial
perspective.
All organisations and industries are
built, to varying degrees, around Banks will have to go through radical
(traditional) assumptions and beliefs change across the range of its
surrounding value creation as well as a competencies to survive and thrive
resultant set of behaviours. This amid a raft of new challengers and
‘mental model,’ has often been found challenges and this has to start nowlxi.
as unfit for purpose in the digital The efforts, in terms of time and
economy and inverting some core capital, to enact cultural transformation
beliefs is a prerequisite for changing must equal or exceed that given to
wider business models and any operational transformationslxii. Organic
successful digital transformationlv. change against a backdrop of
Cultural obstacles correlate clearly continuous and often rapid shifts will
with negative economic performancelvi. not suffice in the digital age, or the
In many cases, it is the friction of new imminent intelligent era. To this end,
technology against legacy systems, bank ‘…executives must be proactive
legacy processes and legacy people in shaping and measuring culture,
that causes problems rather than pure approaching it with the same rigor and
tech issues per se. discipline with which they tackle
operational transformations,’ says
Cultural and strategic change McKinseylxiii.
The requisite changes in ways of doing Talent
things runs contrary to layers of
accumulated and established ways of At one extreme, Deutsche Bank's ex-
working, both within management and head of equities believes banking
the day-to-day operations of workers. careers are overlxiv. While jobs will
54 percent of executives say that continue to exist in the industry, they
having a corporate culture unable to will likely have different requirements,
embrace digital technologies is one of skillsets and purposes to the historic
their biggest barrierslvii. 68 percent of range of employment opportunities.
executives say that their organisation There is no playbook for how financial
needs new leadership to compete in institutions should manage the talent
the digital agelviii and only 7 percent to transformation that AI will precipitatelxv,
18 percent of organisations possess yet if the half-life of a job skill is now
the digital dexterity to adopt new ways about five years as research claims,
of work solutions, such as virtual continuous disruption is baked into
collaboration and mobile worklix. banks whether we tacitly accept it or
Legacy systems simply won’t cut it notlxvi.
with fifty years of digital transformation
happening in the next five yearslx, Many banks start from a handicapped
whether from a technical, cultural, position with regards to digital talent;
11only 7 percent of U.S, graduates see Data Scientistlxix: In addition,
banking and capital markets as a top as technology improves, banks
industry to work forlxvii. Against this will be able to evaluate risk
backdrop, some 82 percent of using highly complex formulas,
employees across all industries expect and do it in real time. The why,
digital to transform their workplace in when and how of consumer
the next three years. Tech interaction may be increasingly
infrastructure and sophistication could personalised as a result.
become key attractions for talent within Financial Services Partner:
industries and companies. Talent Data science could drive new
pathways, banks’ value propositions classes of banking jobs. A
for Millennials and GenZ as employees trusted advisor using algorithms
and the way in which work is shaped and latest ecosystem
by technology must all be carefully knowledge could advise in an
assessed. This is the case for existing on-demand nature allied to
jobs, their evolution, and the consumer wants and needs.
emergence of entirely new roles that Conversational Interface
diverge to varying degrees from the Designer: Different mediums –
traditional skillset found in bank from VR to voice and AR to AI
employees. Such jobs could will require different interface
includelxviii: design as our dependence on
the screen lessens.
Extended Reality Experience Universal Service Advisor:
Designer: Overlaying our Somewhat ironically, call-centre
physical world with a layer of style jobs are likely to emerge
digital data creates new from the influx of A.I and pay
workforce formation and extremely well. While routine
empowerment options, and our questions may be handled by
future banking interactions as increasingly automated
customers. systems, complex issue will
Algorithm Mechanic: need to be handled by
Algorithms are incredibly technologically adroit experts
powerful tools, but with swathes able to switch between
of decision making flowing from technology mediums and
them, it is increasingly important converse confidently to meet
to validate inputs and outputs. customer needs.
Given the fast-changing Digital Process Engineer:
environment of shifting With new workforce
regulations, new information, configurations likely – chiefly
evolving products, not to team working on an ad hoc
mention instances of incomplete basis and virtual collaboration
or outright false consumer data, between ecosystem partners, a
these algorithms may require digital process engineer may be
near constant tuning.
12needed to analyse, assembles compete not just with fintechs but
and optimise various workflows techfins too, the need to develop
in ways that maximize efficiency pathways and propositions to match
and remain secure. big tech’s will be urgent given the
Partnership Gateway Enabler: uneven supply of demand and supply
‘In an increasingly networked of such talent in the wider employment
business world, the digital marketplace. This will necessitate
relationships with banking approaches not seen before in the
partners, Gateway Controllers banking sector; expectations from
will balance technical would be employees are being set by
knowledge of the digital Google and other tech firms. New
interfaces with an modes of working, non-salary perks
understanding of security and and wider societal good will need to be
risk management.’ analysed in detail. A virtual workforce,
Behavioural Psychologist: A for example, is noted by Accenture as
behavioural psychologist could independently able to ‘…complete
enable a more holistic customer-facing and operational tasks
understanding of consumers. to provide increased enterprise
Together with data drive insight, scalability and agilitylxxii.’ Management
such roles could better match norms, tech infrastructure and
products and services to corporate culture all need to change to
customers at various touch enable what is on the face of it, a
points, including in real-timelxx. simple shift.
Community Advocacy
Builder: This role could knit Platform and ecosystems
together parts of a banks’ given
ecosystem – allowing banks to Platforms, in all their guises, act as
reposition themselves as frameworks for collaboration between
lifestyle consultants rather than users, providers and third parties
simply money repositorieslxxi. which also results in these definitions
blurring somewhat. Fundamental rules
Depending on their target market, of strategy are broken, with emphasis
starting point with regards to increasingly placed on external
technology and ultimately, different interactions, generating ecosystem
strategies, talent mixes will diverge value and harnessing network effects.
from bank to bank and sector to Failure to appreciate this shift is one
sector. While all banks will likely obvious source of disruption for
possess a technical base to some business lacking the agility or culture
degree, the organisation and structure to adapt
of this (in-house vs ecosystem
provided for example) will result in The power of platforms is proven
varying talent footprints. For banks and across a range of industries, and this
financial services providers looking to range will increase. As of April 2017,
Airbnb had 4 million listings worldwide
13which equates to more rooms than the quantify and understand the structural
top five hotel brands combined, at 3.9 changes occurring within banking
millionlxxiii. Platform ecosystems play a noted that the ‘…overarching
strategic role in all types of takeaway from the study is that a
businesses. They can be asset heavy digitally enhanced version of business
like GE and Philips, asset light like as usual is unlikely to be a winning
Google or Uber, or those like strategy for banks competing in the
Apple/Amazon that have powerful digital agelxxvii.’ Technology remains a
platform ecosystems combined with key component of digital
asset driven businesses. Such transformation, but organisational,
ecosystems are forecast to replace cultural and structural change are also
numerous value chains in the coming required – and are perhaps more
decade, which account for $60 trillion important.
(or more than 30 percent) in global
GDPlxxiv. Organisational changes will differ from
bank to bank given different starting
The shift to platforms emphasises points, sizes and other factors, but
orchestration, external interaction and broadly speaking, banks will need to
ecosystem value focus. Corporate reimagine their front, middle, and back
practices, internal silo, mindsets and offices. Leadership skills in innovation,
data-ownership issues will likely need risk management and services will
to change as a result. Those banks need to be re-imagined. ‘Those that
that succeed in developing an succeed will achieve as much as
ecosystem strategy could possibly double-digit revenue growth, as high
raise their ROE to about 9 to 10 as a 20-percentage-point drop in cost-
percent, and those that create their to-income ratios, and an ROE
own platforms possibly up to 14 advantage of ten percentage points
percentlxxv. Beyond open architectures against lagging peerslxxviii.’
platforming or pooling certain common
services, banks should consider where Putting aside for one moment that
platforms could lead. Deloitte paints digital transformation is as much a
the scenario of ‘…four of the world’s cultural, organisational and
largest banks combining resources to management shift as it is a technical
develop a new form of digital currency one, some 62 percent of banks expect
to clear and settle financial to be digitally mature by 2020,
transactions which is estimated to cost compared with just 19 percent in
the industry $65bn to $80bn 2017lxxix. As renowned financial
annuallylxxvi.’ commentator Chris Skinner notes,
‘…who knows what “digital” really is?
Digital transformation Bankers who think they have
transformed their organisations to
Digital transformation cuts across become digital may have to think
technology, organisational and market againlxxx.; With just one in ten banks
change. An Accenture study aiming to currently executing an omnichannel
14strategylxxxi and up to 25 percent of Such developments demonstrate
consumers showing an interest in banks need to reposition for the future.
voice- controlled assistants for Globally, 77 percent of bankers believe
everyday bankinglxxxii, such thinking that more than 50 percent of payments
had better commence quickly. will flow outside traditional banking
networks by 2020, with bankers in
Asia-Pacific the most likely to
agreelxxxviii.
Retail banks
Consumers and CX
By 2021, Asia could surpass North
America as the region with the highest Of the fifty largest global banks, three
retail banking revenueslxxxiii and by out of four now pledge themselves to
2025 China could provide the 'single some form of customer-experience
largest growth opportunity' for global transformation according to
investment managers, with the McKinseylxxxix. Such transformation
country’s mutual fund assets forecast must reorient the balance of power
to multiply fivefold to reach $7.5 (i.e. information asymmetry) between
trillionlxxxiv. Ageing Asia will also swell banks and their customers since trust
global assets under management by may soon be a commodity that
2025, almost doubling their valuelxxxv. consumers not only want from the
In China and across emerging markets brands with which they interact, but
‘super apps' are shaping the future of demand, as they become empowered
finance as '...digital inclusion has now by new technologies such as
outpaced and effectively substituted blockchain.
financial inclusionlxxxvi.'
Consumer behaviour will drive banking
In China, Ant Financial added 100 change. 'The relationship between
million new clients to a client base in financial brands and consumers is
excess of 500 million in 2016, poised for radical change, giving
representing a near equivalence of 10 people total control and vision of their
times the number held by the world’s financesxc.’ Signs of consumer change
leading banks. In 2018, Ant Financial are already visible: 63 percent of UK
is now rightly viewed as one of the customers suggest they’re willing to
largest financial services companies in share financial information concerning
the world considered one of the largest their accounts with a competing bank,
financial services companies in the fintech or aggregator in pursuit of a
world. Data is the fuel behind this better offerxci. Banks that do not accept
growth as such platforms ‘…now have the shifting balance of consumer
the capability to evaluate the credit risk power will likely suffer, and few
of small borrowers with no credit or blueprints exist for how to capitalize on
collateral history through mobile these changes. However, a close
behavioural datalxxxvii.’ examination of how key technologies,
and in what configurations, could help
15drive overall strategy is a necessary consumer experience. Even relatively
first step. prosaic technology in use will need to
be examined, since, for example, only
This needs to include physical assets, around half of US customers strongly
such as the branch. Since even 93 agreed that their primary bank's
percent of millennials want to visit a website lets them do everything they
branch for at least some mattersxcii, it need, and only 31 percent agreeing for
is time incumbents took a strategic primary bank apps.
look at their offerings. Second only to
excessive fees, a poor branch A key message is to remember that
experience is cited as the most ‘…angling for quick disruptions is no
common reason consumers switch longer sufficient: everything and
banksxciii. Statistics confirm banks’ everyone is getting connected,
misuse of branches: everywhere and at all timesxcv.’ One of
the key architectures for this is the IoT;
‘Less than one in five banks over 40 percent of banks are
offer digital appointment experimenting with IoTxcvi and 80
booking for branch visits, and percent of retail banks are expected to
most do not have visibility into by 2020. Chase, for example, is testing
the average wait time for these beacon technologies to ‘pre-announce’
more specialized visits. customers before they approach a
Many banks still do not have human bank teller or ATMxcvii, if that is,
any automated processes for the customer has opted in.
generating loans applications,
still relying on paper Analysis by Deloitte suggests that
applications that tie bank staff perhaps as many as fifty percent of all
up rather than speeding the sensors deployed by 2020 could be of
transaction. use to the financial services sector, up
Only 13 percent of banks have from 33 percent in 2015 and 25
tablet-based applications for percent in 2013xcviii. Whether one takes
front-line staff, so most bankers a conservative estimate or else an
remain tethered to desktops. optimistic one on just how many
That means they have to take sensors will be deployed by 2020,
customers back to their office there will be several billion sensors
and tie up additional time, even deployed within two years that could
to answer simple questionsxciv.’ provide a range of useful data to
financial services organisationsxcix.’
Tech mix This alone should prompt a look at
where banks could operate within new
Banks will need to develop a strategic ecosystems, what they could do with
sense of how technologies connect this data that benefits their customers
with each other, how they enable and how to build new models around
strategy and how they enhance it. In the short-term the IoT may add to
complexity as applications in banking
16migrate from common uses with financial services to
tangible measures to new and become ‘…embedded directly into the
experimental uses with intangible user activity itself as a native, not a
measuresc. However, IoT applications separate, functionciv.’ A couple of years
could also enable banks to improve ago, PwC made the claim that banks
their underwriting processes and reach as we know them may no longer be
new markets. ‘The pattern of ‘life data’ needed by 2025. The continuation of
could emerge as an innovative way to an ever-more connected digital
de-commoditize consumer financial lifestyle, the emergence of the IoT and
products. Consequently, new a profusion of digital applications is
businesses may emerge to meet the likely to augment this trend in which
market need for access to these data banking becomes embedded in every-
flowsci.’ day activities to a greater degree. Data
driven, tech-savvy banks should be
The promise, of course, is that access able to adapt a truly customer-centric
to this data will enable banks and other model if they are able to use their data
financial providers to both form and stewardship to open new value chains.
leverage a more complete picture of The opportunities in such a move
the individual customer. This should would appear significant, but are
allow more personalisation - whether matched only be the challenges of
in the form of offers, real-time lending ignoring this trend; API-powered and
decisions or through adding value by data fueled business models are
providing IoT gleaned insights back to already appearing, such as with Figo
the customers. Banks could, for and Open Bank Project.
example, ‘…help to fraud occurring in
the first place, given that tracking the In transitioning to an ‘ambient’ bank
geolocation of a customer’s assets can able to use platforms to dispense
assist in discerning where risk personalised information, data and
particularly liescii.’ With wearable insights unobtrusively and at
technology use rapidly expanding - actionable points, incumbent financial
some 345 million people are forecast institutions are essentially accepting
to use wearable devices on a daily the value proposition of fintech. The
basis by 2020, significant situal and adoption of a fintech veneer is easy
real time markets are opening up. That enough yet the processes, systems
could enable banks to collate, and re- and culture of the incumbent must
dispense people’s own data back to align with the technology is its’ full
them in insightful ways that enable potential is to be realised. To adapt
better decision making, pre-emptive legacy systems and legacy people to
behaviour and better adherence to enable the deeper benefits that come
financial goalsciii. from excellence in data provenance,
interface design and value proposition
PwC’s Dean Nicolacakis suggests that are more difficult, but will help
automation and its synergies with distinguish those who disappear from
other technologies could compel
17those who choose to become invisible Opportunities exist for partnerships
in the digital age. advantageous to incumbents since
post-GFC regulations offer some
The shift from people to platforms that protection against direct like for like
AI encourages is visible with the competition, but as emergent new
emerging roles of robo-advisors. $2.2 comers focus on the lower hanging
trillion could be managed by 2020 fruits, delaying such partnerships may
through these platformscv, and it is increase the pain at the margins for
plausible that '...investors will use incumbents and create a slide into
several robo-advisors to manage their irrelevance.
money, like they use several bank
accounts todaycvi.' Autonomous Future models and footprints
personal finance could increasingly
represent the future of ‘banking’ for Banks’ short term options include
many, with elements of autonomy pursuing M&A, focusing on product
appearing. Swedish bank SEB, uses a specialisation, or deciding to collapse
virtual assistant called Aida as a tool the value chain and participate in
for interaction. By interrogating financial ecosystems or platformscxi.
swathes of data, Aida can deal with Irrespective of the direction, as the
FAQ's, ask follow-up questions flowing shift towards consumer-centric,
from them and analyse the caller’s technologically enabled models
tone of voicecvii. Such autonomy can progresses, a sea change is likely in
help free up talent for more value how we conceive of banks. Within our
adding tasks. lifetime, generations will likely think of
banking as we think about dial-up
The impacts of AI have other perhaps internet or landlinescxii. Indeed, a
lesser appreciated features. Some two senior Deutsche Bank executive has
thirds of financial services firms in the even suggested that a hitherto core
U.S say they are hindered in AI banking component – bank accounts -
adoption by operations, regulations could be obsolete within 15 yearscxiii.
and budget /resource limitationscviii. Despite the opportunities inherent in
Such limitations may push such banks technology, most banks' business
towards a cost cutting implementation models remain poorly equipped to
of AI – focused on outright automation adapt to technological disruptioncxiv,
replacement for example, but leaving whereas fintechs – unencumbered by
more interesting combinations of talent legacy - can innovate unique offerings
and AI to fintechs and techfins. via A.I and other technologies and
utilise open baking to access data.
Such digitally mature competition New paradigms for incumbents will be
could capture 35 percent of full service needed to combat what could become
banks’ market share by 2020cix and a terminal threat.
even in areas of relative consumer
conservatism such as Europe, 21 Four broad although not mutually
percent within the next five yearscx. exclusive models could emerge from
18the turbulence set to impact banking, running the online platform.
as outlined by Baincxv. Nearly 78 percent of bankers
believe that platformisation of
The first is for banks to become the banking sector will help
the ‘infrastructure’ providers in them to retain and regain
an open banking environment. businesses against new
Banks may even extend their payment playerscxviii.
core infrastructure to other Another possible model lies in
financial institutions in an effort the banking of digital identity.
to remain consumer centric but Outlined by the World Economic
need to undergo substantial Forum, it is suggested that a
organisational and strategic ‘…person’s data should reside
change. in an account where it would be
Indeed, future banks may controlled, managed,
increasingly look like an IT exchanged and accounted
company with a banking forcxix,’ by around 2028. If data
licensecxvi. Another option that does indeed become a
satisfies this is for banks to bankable commodity then
become ‘aggregators.’ The banks have an opportunity to
economics of aggregators hinge become the safe-keepers of the
on taking a larger share of the underlying digital identity. Digital
banking wallet, earning greater identity systems will likely
loyalty from customers and proliferate as a medium for
taking a fee for various value- managing personal data flows
added transactions flows. There (i.e a consolidated point of
is, however, a huge cultural shift control as consumers gain
in moving from control to increased control over how their
curation. data is used) Digital identity, as
Digital pure play banks, part of a wider initiative, could
exemplified by Atom in the UK enable banks to reposition
and Marcus by Goldman Sachs themselves as trusted advisers.
are another option, running off a BBVA, for example, has
lower cost base and well placed launched Veridas along with the
for future trends. 72 percent of start-up Das-Nano. It
the UK adult population are ‘…specializes in biometry that
forecast to bank via a phone helps develop customer
app by 2023 and only visit a identification and authenticity
branch twice a yearcxvii. systems that are securer and
Embedded component easier to usecxx.’
experiences. The economic A further possibility, hinted at
model here revolves around earlier in this paper, repositions
transaction fees from the the bank as a life events
retailer or other company manager that focuses on how
consumer stress points in the
19wider sense could be mitigated. Key takeaways
Managing big events – from
weddings to moving home, Many retail banks will undergo
could see banks partner with reinvention and become part of
the wider and provide services an ever-widening yet integrated
that reach across current networkscxxiv.
industry boundaries. Since Retail bank leaders will need to
nearly activities – and certainly look beyond traditional targets
major life events- have and goals to develop the ability
significant personal financial to adjust to a changing and
implications, banks could volatile macroeconomic
develop a more holistic environment.
understanding of money That may require new
managementcxxi. performance metrics, planning
techniques and even
An additional banking model that could organisation structures.
appear, albeit one unavailable for Personalization will become the
incumbents, is the techfin model. Bain new mass market.
estimates that a banking service from A.I and other technologies could
Amazon could pull in more than 70 revolutionise banking, making it
million US customer accounts within almost omnipresent/invisible
five years, equalling the size of the and more embedded in
country’s third-largest bank, Wells everyday life.
Fargocxxii. Another possibility, mixing A vast array of new models are
elements of the above models, lies in a appearing, but the time and
low-cost airline carrier type model space to make the adjustment
whereby the bank competes on price or jump - is closing.
and ensures consumers have full
Sources of competition are
transparency on services and charges.
evolving and expanding.
The platform for such a bank already Developing unique selling
exists, notes Insead, but is ‘…vastly points is vital
underutilised by large bankscxxiii.’
The interplay of data, platforms
and regulation will be key in
determining appropriate
ecosystem positioning.
20Commercial banks help orient the model around clients’
needs and wants.
The urgency to anticipate and respond
to change within the wider corporate Strengthen client relationships
and commercial bank industry runs with differentiated multichannel
along two lines. The first is an coverage.
accelerating need for adaptive change Digitize processes end-to-end.
in which new business models evolve Redefine the product offering.
in response to shifting market Build an advanced-analytics
opportunities and challenges. The DNA.
second, more destructive form sees
new organisations and new business However, as few as one in five
models push incumbents into executives feels that their bank has
irrelevance. The problem for made significant progress towards
commercial banks is that both are their target statecxxvii. Whether because
happening at once and each requires of poor leadership, cultural inertia, lack
different responses, yet a common of technical know-how, the burden of
theme can help anchor efforts to deal legacy technology or insufficient
with both. Central to both streams of change management nous, stasis and
change is the requisite repositioning of the status-quo will not work in an era
the client at the centre of the business of accelerating client expectations.
model Commercial customers are also retail
customers too, so even though some
Clients and CX of the needs will differ, the basics of
customer experience expectations will
Developing a more client centric be similar. As ever, those eschewing
proposition will require better data use innovation risk being left behind.
and a resulting superior value
proposition. These can both arise from Over the next five years, BCG expect
multiple places. For example, as new digital platforms and channels to
Deloitte notes, intelligent risk culture is attract around 30 percent of traditional
set to become a key source of corporate banking revenuecxxviii. This
competitive advantage but the risk is reflected in incumbents’ own
technical shift from overnight to real- views, as they view around 23 percent
time analysis requires new of their business as at risk due to
organisational capabilitiescxxv. further fintech innovationcxxix.
Developing a new perspective on CX
cannot be achieved by plug and play Tech mix
technology.
It is difficult to suggest whether
McKinsey cites four transformational commercial banks’ focus on prosaic
levers for corporate bankscxxvi - all of technologies is a result of their
which require technological and relatively meek attempts to craft digital
organisational responses – that could propositions thus far or else a worrying
21lack of imagination. Either way, some time on non-core administrative,
68 percent of banking execs suggest repetitive, and automatable taskscxxxii.’
the biggest tech impact on their Nevertheless, signs of outright
business in the next five years will replacement are emerging: as many
come from banking apps. No doubt as 10,000 jobs at Citi's investment
they will are importance, but alone bank could be automated from a total
such apps will rarely lead to a market of around 20,000 jobs, according to a
leading position. In terms of disruption, senior executive with tech and
commercial bankers also rank such operations positions deemed most
apps highly, with only cryptocurrencies vulnerablecxxxiii. Existing experience
and virtual assistants reckoned to have with deploying intelligent automation
a greater disruptive potential. technologies across capital markets
Surprisingly, only 32 percent suggest organisations ‘…suggests that most
machine learning will have a future firms could reduce FTE costs by up to
influence on the sectorcxxx. 30 percent from defined back-office
and corporate processes alonecxxxiv.’
This latter figure is especially jarring
given the emerging uses of machine Other uses of machine learning are
learning. WEF notes that AI in general emerging. For example, Germany’s
is ‘…launching a commercial banking second largest bank, Commerzbank, is
renaissance through improved data exploring the use of AI to write analyst
integration and analytics tools that reports and differentiate itself from
unlock a vast underserved marketcxxxi.’ competitioncxxxv. McKinsey notes that
Machine learning and deep learning ‘…in Europe, more than a dozen
could yield whole new business banks have replaced older statistical-
models and revenue pools in a way modelling approaches with machine-
that apps simply can’t. Incumbents, for learning techniques and, in some
example, generally have no real-time cases, experienced 10 percent
visibility as to the financial situation of increases in sales of new products, 20
their clients. Integrating data streams percent savings in capital
into client advisory with the help of expenditures, 20 percent increases in
machine learning and predictive cash collections, and 20 percent
analytics could almost certainly declines in churncxxxvi.’
improve decision making and boost
advice quality. Other possibilities are emerging at the
intersection of multiple technologies.
Machine learning also has a large part For example, ‘Commonwealth Bank of
to play in the vulnerability of many Australia, Wells Fargo and trading firm
codified, repeatable tasks and jobs Brighann Cotton claim to have
seen within the industry. McKinsey completed the first global trade
notes that ‘…within commercial banks, transaction between two banks using
relationship managers, underwriters, blockchain, smart contracts and the
and portfolio managers still spend IoT. The transaction involved a
more than 40 percent or more of their shipment of cotton from Texas to
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