In our last installment, we chatted with Zafin’s Alex Roddy, Gabriel Leiva Von Bonet, Venkataram Balasubramanian, and James Redfern about the world of banking in 2020.
With this unusual year almost behind us, we’re asking them the question: What is ahead for the banking industry in 2021?
What trends do you foresee in retail banking in 2021?
Alex: 2021 will further hasten branch closures as customers settle into digital banking post-Covid. With branch networks less of a competitive advantage than ever before, expect the retail banking industry to move away from “location, location, location” as the primary consumer value proposition and seek to differentiate based upon products and experiences–leveraging data and AI to accurately predict consumers’ needs, and revitalized tech stacks to deliver micro-segmented value propositions that appeal to the unique needs of customers, down to a segment of one.
Bala: Embedding intelligence and automation into transactions will become more pronounced to enable business agility and also serve to create the new normal. Lending innovations will become prominent with a broader acceptance of fintechs into the banking ecosystem. Digital experiences will power and shape the consumer and their habits: from digital currency to entire digital processes that streamline consumer journeys.
Gabriel: As banks focused on supporting staff and customers during the peak of the 2020 pandemic, they paid less attention to the top and bottom line and profits fell significantly. So, I believe that in 2021 significant attention will be paid to cost optimization initiatives such as branch rationalization, focus on core activities and increased use of technology for efficiency and simplification. The latter will include implementation of paperless processes, modernization of legacy, middle and back end systems, creation of low-cost no-friction customer acquisition solutions, and increased use of AI and bots to process and analyze unstructured data types.
James: I believe that with the rapid digitalization that we have seen in the last year, as well as the movement of a lot of functions to be remote rather than in-branch, what we are seeing is a leveling of the playing field. So the value of a large brick and mortar presence is less important, what people are looking for is a streamlined digital experience, that recognizes them as an individual and presents products and services accordingly. I also think we will continue to see the rise of AI and ML in everyday banking, not necessarily replacing human interaction but enhancing that interaction. But branch banking is not dead, it is being repurposed, so rather than being a primary place to withdraw and deposit cash, we will see these transform into relationship centers where financial wellness conversations can occur.
What trends do you foresee in commercial banking in 2021?
Alex: With almost no interest income to be had, banks will try to get smart about consolidating commercial relationships and picking up the fee-based treasury management services of loan-only customers. Expect more comprehensive and complex relationship-based pricing arrangements designed to motivate consolidation of banking activities with banks that have the marketing savvy to nurture customers through the sales funnel (from awareness to interest, consideration and purchase) and the product and pricing execution capabilities to deliver relationship-based benefits to their commercial customers.
Bala: Embedding AI and automation will drive both transaction efficiency and relationship management efficiency. A digital and real-world hybrid relationship management will emerge as a seamless way of managing commercial relationships. Legacy ways of working (including technologies) will undergo a critical review with the aim of optimizing and creating new experiences.
Gabriel: Some of the previously mentioned cost optimization initiatives will also be applicable to commercial banking, particularly the use of technology for efficiency and modernization. In addition, they will probably invest to overcome the weakness of discrete risk assessments and static underwriting models. Banks will need to conduct loan portfolio diagnostics to assess borrowers’ capacity to repay loans on an ongoing basis. From a technology point of view, we should also see significant growth in intelligent engagement systems, that can learn about users, integrate more sources of data and then translate that into actionable insights.
James: I think we are going to see increased pressure on credit decisioning in the commercial sector, as we begin the rebound from the pandemic. Decisions taken will need to re-assessed more regularly, with pressure on internal systems to do this as well as the need to continually innovate with products to support business growth over the next couple of years. Agility will be key here, as will a quick return on investment, both areas I think that Zafin is well placed to support.
What trends do you foresee in community banking in 2021?
Alex: This sector will need to innovate to remain relevant. As a result of the pandemic, basic consumer banking has become even more digital. The next generation of community bank, credit union and building society customers aren’t going to sign-up for branch interactions limited not only by location but also by bankers’ hours. They expect smartphone banking apps that perform on par with the experiences of retailers like Amazon–always on, easy-to-use, relevant and personalized. Two pieces of good news for the sector: (1) the technology required to build and deliver relevant, personalized, digital interactions is more accessible than ever before; and (2) the next generation of customers is values-driven, and community banks, credit unions and building societies play a key role in the economic well-being of the communities they serve, which makes them values-aligned. For this sector, the key to success lies in the combination of articulating a clear brand promise and delivering a competitive digital customer experience.
Bala: Payments and Lending related product enhancements are likely to become a key focus for community banks as they continue to strive to excel in member services. The drive to local helps community banks provided they can set and match the expectations their members have come to expect from the larger banks.
Gabriel: With community banking being very limited in Canada because most of the banks are large and national, Credit Unions have successfully filled this market niche. However, the global pandemic has dramatically accelerated industry movement toward virtual access and reduced the traditional competitive advantage of these institutions. With this in mind, I believe that we will see additional investments on omnichannel experiences based on secure and easy access to member data and on digital transformation applied to internal operations. And, particular to CUs, we should see more broad-based collaboration among them in order to keep up with member needs and leverage the new technologies.
James: Although not as big a market in the UK/Europe as it is in North America, the building society, credit union and cooperative movements are a key part of the European banking market. I believe as they become more digitally savvy, these institutions will increase their appeal, particularly to a growing generation of consumers who are looking for banking that links their values to their banking, for example, has local relevance, that is sustainable as well as fair, all of which are the foundations of these types of institutions.