Covid 19 saw the financial sector, including the banking industry, face a major setback brought about by an unprecedented global recession. The banking industry’s collective response has one been of resilience and agility as it efficiently deployed technology and made a smooth transition to virtual operation and in the process, set the course for several new retail banking trends to watch out for in 2021.
The World Bank’s database shows that out of over 3000 policy measure taken till October 2020, 54% were from the banking sector alone. COVID-19 set the tone for future operational models to be carried out as retail banks shifted focus towards integrated risk management, prioritizing cost transformation while engaging customers virtually.
Banks are providing more experiential services with personalized offerings while aiming to humanize digital channels for increased engagement. They are also preparing to become enhanced one-stop shops by offering customers value-adding financial services and no financial experiences. Banks are leveraging the benefits of cloud. According to Fitch Ratings, interest rates dropped as low as 1% but private banks emerged with stronger capital positions with digital adoptions picking up.
2021 sees much scope for growth and innovation within the sector and its policies as banks take advantage of the efficiency, flexibility and convenience of digital banking. Let’s take a peek into the key retail banking trends that are predicted to transform the industry in 2021.
Digital-only banks or neo banks operate through a digital interface and are set to rewrite banking in 2021. Banking is shifting from product centric institutions and branch interactions to offering personalized, seamless digital experiences for customers. Traditional banks have also taken the step towards exploring their own technological solutions to elevate their digital offerings.
With an expected CAGR of 45.23% between 2020 and 2027, the future of neo-banking looks very promising.
The coming years will see automation as a key tool for retail banking which will enable banks and credit unions to use sophisticated workflows to execute complex processes. Artificial intelligence and other technological advancements will help in better management of banking services at lower operational costs and enhance customer experiences. With RPA (robotic process automation), bots are intelligent enough to offer significant benefits to the KYC/Anti Money Laundering processes, help customers with bank services without any human intervention. AI will help banks leverage big data and offer customers personalized services.
Autonomous Research forecasts, predicts that by 2030, AI technologies will help reduce operating costs by 22%.
By the end of 2021, there will be a lot of partnerships between financial institutions and cloud providers like Standard Chartered and Microsoft who entered into partnership recently, to become a cloud first bank, with all core banking systems to be 100% cloud powered by 2025.
With huge amounts of data being processed by banking institutions, advanced cloud technologies have become a strategic priority and banks are investing in cloud environments to make banking processes safer, easier, and more convenient. In the next few years, the cloud will help to mitigate risk and increase stability and control of business platforms.
Remote work is becoming popular and is set to become prevalent as companies find ways to reduce costs. This has also led to an increase in exchange of critical and sensitive information, especially financial data, between banks and customers on the cloud.
Cybersecurity and access management are going to play crucial roles in the sharing of secure and verified data. Blockchain technology will play the role in transforming the banking industry by ensuring secure transactions. Blockchain has gained customer trust in fintech companies. With services going online, the threat of attacks is more severe and financial institutions are making huge investments on cybersecurity, for at least the next four years.
With Open Banking picking up, the road is leading to Open Finance and open data to deliver connected and data-driven consumer experiences. Open Finance is an extension of Open Banking data-sharing principles which enables customer data access to third-party providers across several financial sectors and products, including savings and investments.
2021 will see further acceptance of Open Banking and a move by global regulators towards opening their own versions of Open Finance. Open Banking Implementation Entity (OBIE), announced that the number of Open Banking powered product users has more than doubled to over 2 million, since January 2020.
Sustainable finance along with ESG (environment, social and governance) commitments are set to become a fundamental part of the banking sector globally. Several banks are already focussing on ESG commitments in meaningful ways.
Goldman Sachs is deploying 750 billion USD across investing, financing, and advisory activities for climate transition, inclusive growth and other sustainable finance activities by 2030.
The pandemic led to a surge in using digital platforms for payments, lending, insurance, wealth management, Robo-advisory, etc. and this increased the need for technology-backed banking. With fintech technologies offering a solution for traditional banks to integrate and leverage advanced business functionalities and financial processes, a lot of FinTechs are emerging as service platforms. They offer their APIs as software to other financial market players, to be integrated into their systems and a new model, the fast-emerging Fintech-as-a-Service (FaaS) is something to look out for in 2021.
Recovering from the setback of COVID-19 pandemic and keeping pace with the high demands of a dynamic banking industry, retail banking will need to embark on a fundamental transformation exceeding their previous efforts. In the new era, banking will have to leverage technological advancements and collaborate with healthy competition to build resilient business models to help them stay relevant in the coming years.
2021 sees the banking industry with a renewed focus to become more agile and set new landmarks for the banking ecosystem.