What’s the Future of the Financial Services Industry?
Multiple high-street banks have announced closures in recent months, with Lloyds Banking Group, for example, reporting plans to shut over 150 branches. Why are we seeing these closures and what does it mean for the future of the industry?
The move from one of the UK’s largest banking groups, Lloyds, is a prime example of how the industry is adapting to consumer trends and the shift to online banking. Statistics show that in 2007 around one-third of consumers used online banking. Today, more than 90% of consumers conduct most of their banking needs online.
This shift in behaviour has gradually changed the industry, but it is clear that the future of the financial services industry is digital. However, the closure of bank branches has forced a seismic divide between those who prefer to bank online and those who don’t. It has also raised many questions about the readiness of our high-street banks when it comes to supporting this divide and future-proofing services.
Amid these branch closures, how can banks ensure that they are supporting all customers, both online and via the high street?
It’s true, not all consumers are willing or capable of making the digital change, and there will always be those who prefer to bank manually. As banks continue to accelerate their digital transformation, the closure of more high-street banks is inevitable. As a result, those who prefer to bank in person could be left in the dark when it comes to managing their finances.
We’ve seen some banks providing hands-on support at their branches for those unable to access digital services at home. This approach has helped to improve accessibility and increased education around digital initiatives. It has also encouraged increasingly more people to embrace digital ways of banking. The industry and regulators are also focusing on introducing plans to support those who are less digitally experienced.
What are some of the initiatives that the industry and regulators are putting in place to support those who prefer to continue banking via the high street?
Recently, a pilot agreement was launched for banks to share services to support the local community and the future of cash. Large banks across the UK will assess local needs every time a branch closes. The assessment could recommend a shared branch opens, an ATM installed, or a Post Office is upgraded. Banks will commit to delivering whatever is recommended to support those customers who prefer to bank in person.
What’s more, the Financial Conduct Authority has proposed that banks will have to provide a more detailed analysis to justify closing a branch. The FCA will also have the power to ensure local communities across the UK have access to cash and banks who don’t comply could face fines. This will make sure that in those areas where digital adoption is not common, access to physical services will remain a priority for banks.
These are promising initiatives, but the industry must do all it can to ensure these initiatives are widespread. It must also continue to think outside the box, innovate and develop other initiatives aimed at those reluctant to embrace digital banking.
How can banks focus on innovating and continuing to improve and develop the digital customer experience, while catering for all customers?
There is no denying the dramatic shift in consumer behaviour to digital. This should be taken as an opportunity for banks to future-proof their services and improve the online customer experience.
However, the extensive use of legacy technology within banks, means the speed at which these established institutions can bring new services to life is often too slow and outdated. This challenge is also complicated by a lack of industry standards, meaning that banks continue to be restricted by having to choose partners based on their language and the way they’re able to transform the bank.
To truly digitise banks, they need to overcome these obstacles surrounding interoperability with a coreless banking model. This approach to transformation empowers banks to select the software vendors needed to obtain the best-of-breed for each application area without worrying about interoperability and being constrained to those service providers that operate within their own technical language or messaging model. By translating each proprietary message into one standard message model, communication between different organisations is, therefore, significantly enhanced, ensuring that each solution can seamlessly connect and exchange data.
Are there additional approaches that banks should be considering to further enhance the customer experience?
In addition to taking a coreless approach to banking, banks must form an ecosystem alongside FinTechs, service providers, and aggregators. This will help banks when it comes to the speed they can introduce new products, which in turn will support the customer experience.
An effective ecosystem strategy will make banks more relevant to their customers, creating an opportunity to drive better relationships and bigger wallet shares by providing the speed, scale and differentiated products that make the most of the opportunity presented by the significant shift to digital banking. If banks fail to take this approach, they will struggle to survive as consumers continue to demand new, digital services aligned to their needs.
So, what can banks do to prepare for the future and make sure they are providing for all customers?
While we anticipate that there will continue to be more high-street branch closures, the industry must continue to adapt based on the needs of every single customer. Failing to do so only means that customers will leave for a nimbler competitor who understands the customers both now and in the future.
This may seem like a hard weight to bear for many across the sector. By taking a core banking approach to transformation, however, supported by an effective ecosystem – banks will benefit immensely. If banks continue to focus on the balance between maintaining previous methods of banking and the development of new and innovative services based on the needs of every customer, the future will be bright.