If 2020 taught us anything it’s that forecasts are far from an exact science. Indeed, this time last year, many of the predictions being made in even the most revered financial circles were being subtly undermined.
The COVID-19 pandemic effectively forced banks into digital action, with even the largest legacy names in finance unable to steer away from the digital tide that rose as a direct result of social distancing and global lockdowns. Particularly for banks that were still clinging to the mast of brick-and-mortar finance, this posed a major challenge as they were forced to shoehorn multiple years’ worth of digital progress into a matter of months to satiate increased demand.
But nobody could have foreseen that tidal wave. So, let’s not make any bold assumptions about what 2021 is going to look like for the retail banking sector. One thing we can be sure of, however, is that it’s going to be a year unlike any other. If 2020 was a year that forced a sea change into digital transformation and more secure working from home systems, 2021 will be the year that leans into those changes.
To outline where else the retail banking landscape might take us in the next 12 months, we’ve focused on five of the most significant retail banking trends.
With the cloud becoming a more stable, affordable and powerful solution every year, more and more banks are going to be side-stepping the traditional in-house IT infrastructure in favour of the leaner and more agile alternative. The cloud is where all of the truly disruptive technologies are taking root. Security and storage were always the primary reasons given for banks refusing to pull the trigger on cloud adoption, but those worries have been largely mitigated by continual capability upgrades.
COVID has arguably catalysed this large-scale digital adoption and cloud migration. According to Capgemini, banks were on track to invest 48% of their IT budgets in the cloud in 2020, up from 34% in 2018. The real challenge, going forward, is going to be in banks scaling cloud operations in a manner that results in greater operational efficiency without alienating their legacy users. In that regard, it’s all in the customer experience and this is something banks should also be investing in heavily this year if they hope to stay in the game. They need to act fast too, as they are very much on the back foot right now with legions of new-age, online-only challenger banks two steps ahead in terms of functionality and flexibility.
Studies show that consumers are going to feel a deeper connection with brands that prioritise environmentally friendly initiatives. In 2021, retail banks must focus on more sustainable banking initiatives and operations if they hope to be able to compete with the younger and more ‘woke’ challenger banks. This means developing internal sustainable cultures that promote environmental, social and governance (ESG) practices and encouraging that behaviour amongst employees.
It also means focusing more heavily on sustainable products and services and investing in sustainable sectors and charities. Carbon-neutral banking is not the fairy tale it was once thought to be, after all. Of course, there have been several vocal commitments made by leading banks about cutting carbon footprints. NatWest aims to halve its climate impact by 2030 and the People’s Bank of China is providing a wealth of green lending incentives. But it’s still not far enough. 2021 is going to be the year where banks start to go that extra green mile.
With the vast majority of consumers feeling either jaded or emotionally shell shocked by the last 12 months, they are more likely to feel drawn to brands that they feel comfortable with and that align with their values. Humanising these increasingly digital banking experiences is going to be a large part of that, particularly as customers continue to migrate away from traditional face-to-face banking. Digital interaction is not going to be an option in 2021, it’s going to be a must-have feature and it’s going to need to go beyond the basics of simply having a bespoke app.
Traditional retail banks can’t possibly hope to compete against their online-only incumbents in terms of price or even functionality. Where they can work to retain customers, however, is in how they interact with their customers. Banks are going to need to start looking towards more personalised offerings that offer better customer experiences. These are the kinds of uniquely tailored, on-demand experiences that are going to help users feel more comfortable and secure with their banks. This means giving customers the flexibility to choose whether they speak to human beings or automated electronic systems, and being more open and transparent with how they operate.
With 2020 stretching credit quality to its limit and various government stimulus packages rendering traditional metrics for measuring credit quality utterly meaningless, 2021 is going to be the year where the chickens come home to roost, so to speak. This means retail banks are going to need to think hard about how they can meet the demand for credit and recognise how credit provision is integrated with payment transactions. Otherwise, a new generation of lenders will eagerly step in to fill the gap.
They are going to need to utilise the insights and data they have gained from the last 12 months and deploy micro-segmentation to analyse viability at a sector level. The more specific the better. Retail banks will also need to think smarter about credit extensions and more quickly how they react to changes in the market. There are plenty of opportunities for credit, particularly with the major increases in e-commerce we’ve seen in recent months. It’s up to the banks to jump on those opportunities at the right time.
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Finally, cash (at least in the conventional sense) has been on the way out for years now. Indeed, many of us don’t even carry ‘paper money’ anymore because it’s simply unnecessary. COVID simply accelerated a phenomenon that was already pulling comfortably into third gear, with social distancing measures now meaning customer preference has dramatically shifted away from cash towards contactless payment.
Throughout 2021, expect to see retail banks across the world starting to play catch up with countries like Sweden and Finland that have committed to cashless societies. This will have a number of benefits, including a reduction in the costs associated with handling cash and an increase in transactional data which can be used to better understand customers. Cashless systems are, however, going to be a more realistic proposition in some countries than in others. But even in countries that have been traditionally slow to adapt to change, such as Vietnam, there has been a major increase in cashless adoption in recent years; an adoption spurred on further by COVID.
In years to come, we’ll most likely look at the world of retail banking through a ‘pre-2020’ and ‘post-2020’ lens. For the immediate future, however, it’s going to be up to the banks themselves to decide whether they are ready for a revolution or an evolution. 2021 is going to be a chance for the sector to take a breath and steady its sails for the unsteady but potentially very lucrative waters that lie ahead in a post-COVID world.
Have you thought about how you’re going to up your digital game in 2021? Get in touch with EXUS today and we’ll be happy to take you through your options.
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