The global banking industry is poised for a considerable amount of change over the next 10 years.
Some of this change will be driven by the fallout from COVID19. However, most of the shifts taking place relate to technological developments that predate the pandemic.
The banking model that has prevailed for the last 30-40 years is being disrupted, and is likely to look very different at the end of the current decade.
One of the most notable trends of the past 5-10 years has been increased competition from non-traditional financial intermediaries. This includes Fintech companies, which are typically nimble and early adopters of new technology. Fintech’s rapid ascent has been a boon for consumers and smaller businesses requiring tailored solutions for their individual needs.
In the UK, Fintech startups like Monzo and Revolut have already made a serious dent in the banking industry. Meanwhile, in Sweden, McKinsey estimates that such new players now account for more than half of the consumer finance market. This trend is compounding the cost pressures facing high street lenders, and could lead to more M&A in the industry.
Traditional lenders also face stiff competition from so-called ‘challenger banks’ and big-tech companies. The GAFA quartet (Google, Apple, Facebook and Amazon) has already begun its foray into financial services. While it’s not yet clear how this increased competition will play out, it stands to benefit consumers via more choice and innovation, and lower pricing.
The digitisation of finance is bringing with it a new wave of exciting solutions for customers. Mobile banking is one major area of development, which is proving particularly appealing for millennials and the younger demographic. This includes smartphone payments, as well as apps that empower the user and give them a richer overall experience.
Mobile capabilities such as tap-and-pay and bill sharing are becoming essential to attract millennial audiences. Wearable payment solutions (e.g. bracelets) are also starting to get popular. The increased use of chatbots gives customers the benefit of 24/7 assistance, while allowing banks to automate frequent requests and reduce the workload of support staff.
Elsewhere, parts of the ‘sharing economy’ took a hit from the COVID19 lockdown and social distancing that was imposed around the world in 2020. Nevertheless, further growth in more remote applications, such as peer-to-peer lending, looks highly likely going forward. Faster 5G internet and AI will be a catalyst for the broader digital revolution in the years ahead.
Although the long-term implications of COVID19 won’t be known for some time, it will almost certainly result in a rethink about the way the finance industry delivers services. The crisis will probably accelerate the decline of brick-and-mortar high street banks. Bank branches won’t disappear altogether, however we will see more customer services delivered virtually.
The case for digital currencies got a boost from the recent pandemic. In Scandinavia, the business community is enthusiastic about the uses of blockchain technology. Consumers in parts of this region can already access credit with the help of cryptocurrencies. Sweden’s CryptoLoan, for example, lets users access cash loans without selling their digital assets.
With online data sharing and the integration of services continuing at light speed, trust is becoming more important than ever. For their part, consumers are demanding heightened cyber security. Traditional banks still hold an advantage in this regard, since customers see them as more trustworthy than the GAFA technology giants and other new entrants.
Over the coming years, we’re likely to see a shift towards consumers taking (back) ownership of their private data. AI will play a role in the fight against fraud, with machine learning algorithms getting better at spotting irregular activity. Even so, there are still serious ethical questions about how AI should be allowed to interface with sensitive customer information.
Against this backdrop, regulations will keep growing at a phenomenal rate. Banks globally spend nearly US$300bn a year on compliance, with smaller banks paying a proportionally larger share of their operating expenses. The biggest compliance hotspot looks set to be information governance, which includes data collection, sharing, privacy and security
In the Nordic countries the sector accounts for more than 10% of all capital invested - a bigger share than in established financial market hubs such as Germany and the UK. Denmark and Sweden are leading the way, but Norway and Finland aren’t too far behind when it comes to innovation.
This trend is only set to accelerate in the coming years. The open-minded nature of Scandi consumers and strong growth in consumer finance make these markets ripe for innovation. Cooperation between borrowers and Fintech companies will ensure local providers devise world-leading solutions that solve the financing needs of individuals and companies.