The financial services industry in the UK in 2019 is drastically different than that of 2009. Social, economic and technological shifts have led to enormous change and this has translated to a radically different banking experience for consumers across the country. We have seen the rise of digital banking, the disappearance of banking services from our high streets; and traditional banking institutions are facing increasing competition and growing costs of operations. The next decade holds only more transformation for how banks run their business, and consumers interact with their banking providers.
According to Ian Bradbury, CTO, Financial Services for Fujitsu UK and Ireland, the changes afoot in the industry offer traditional banks challenges, but also opportunities to evolve their business and offer a new banking experience; one that will cater for a discerning and demanding customer base.
“Technology has completely changed the face of banking in the UK. As we head into a new decade, it’s safe to say that there has been a radical shift in the way people bank. Customers are looking to digital alternatives that are speedier and more convenient than traditional ways of banking and the new competition in the market has changed the way traditional banks operate. The past year has seen app-only challenger banks rise in popularity, a decline of physical bank branches and a renewed focus in the industry on social purpose. These will continue to shape the face of financial services over the next year as the industry heads towards another important year.”
In the face of rapid transformation, Bradbury has outlined the top six changes he predicts for financial services in the coming year.
1. Workplace transformation will take hold
While we have been seeing a subtle transformation in the banking workforce for a number of years, 2020 will bring the biggest shift yet. As the digitisation of banking continues, financial services organisations will move away from traditional, functional roles; prioritising people who can help evolve what the bank does.
This will result in a vastly different workforce with vastly different skills. Creativity, collaboration and empathy will be crucial skills for the new set of banking employees, as companies look for employees who can offer not only technical expertise but the soft skills that will help banks build the new services and ways of working that will attract consumers.
Banks all around the world have been looking at ways to scale down and reskill the workforce, but 2020 will be the year we see that fully take shape.
2. 2020 will be the year of challenger banks
There has been a lot of talk about challenger banks over the past few years, and in 2019 the likes of Monzo and Starling Bank were successful in their crowdfunding ventures. But 2020 will be the year they reach their full potential.
These banks have all been born in the cloud and their methods are agile, cheap and stable, a model that traditional banks have been attempting to replicate. Over the year, they will continue to grow their customer base and expand their services over the next year. Most significantly, these banks will start to see growth coming from the segment of consumers who are the most loyal to legacy banks; tempting traditionalist to use their services by offering slick user interfaces and superior digital services.
As a result, 2020 may be the year when a traditional bank takes the leap and acquires a challenger bank to take advantage of the brand loyalty, as well as the scalable cloud-native systems owned by those banks.
Many challenger banks are now in a position where they are serious competitors to traditional banks, largely thanks to the huge investment in the fintech sector over the past year. This will see them move even further into the mainstream in 2020.
3. Debate about digital currencies will reach fever pitch
The arguments for the introduction and adoption of cryptocurrency may be valid – for example, ensuring that nation states are unable to manipulate and influence traditional currencies, ensuring more financial stability for citizens – but the entrance of new cryptocurrencies in 2019 has attracted strong criticism from the industry.
With tech giants betting big on the future of cryptocurrencies, financial regulators have had to respond in kind; and 2020 may be the year we see central banks introducing their own cryptocurrency.
Tech companies will go through great lengths to develop their own cryptocurrencies next year, so central banks will have to match them to maintain control over their legal tender.
4. Outsourcing rates will spike, as banks hand over responsibility for their legacy systems
As banks continue to focus on modernising their services, we will see a dramatic rise in outsourcing when it comes to the management of legacy systems. Rather than focusing resources on managing their IT stack, banks will hand off responsibility to third parties, so they can spend more time serving their customers and finding new routes to market that will grow their consumer-base.
Much like the moves we’ve seen in the insurance industry over the past few years, banking will become less about legacy tech, and more about building new cloud systems that allow for innovation and new digital solutions for customers.
As banks improve their IT systems, they will be able to meet the increasing demands of today’s tech-savvy consumer.
5. Banks will put trust at the heart of their services
2020 will be the year where banks invest in services, offerings and programmes that demonstrate to consumers that they are trusted institutions. As businesses that are entrusted with consumers’ money – and their data – they hold a unique position to build a strong relationship with people based on trust.
As the industry’s social purpose is increasingly put in the spotlight, banks have recognised the need to contribute to wider society; not only providing banking services to their customers but also improving their lives on broader level.
With traditional banks typically more trusted than new digital entrants, this is an opportunity to differentiate themselves in 2020 in an industry that is more crowded, more complex and more competitive than previous years.
Given the pressure that traditional banks are under from app-only alternatives, trust will be one of the biggest strengths they have over the next year.
6. Non-bank digital platforms will up the fight against traditional banks
As non-bank digital platforms continue to offer alternative payment schemes, lending options and savings alternatives in 2020, banks will risk losing an increasing number of customers to these competitors. As these services become more integral to the customer journey, banks will be facing a tough decision – whether to find opportunities to partner with digital-first non-banks, or to rise to the challenge and compete with the new players in the market.
For those who choose to create partnerships, there will be the opportunity provide payment, lending and saving services via the non-bank platforms, but they should expect to see a squeeze on their margins of profit and a rise in competition across the market. The increased competition on the market means that banks’ profitability and wallet share will inevitably suffer.