An influx in innovative fintech and digital banking competitors against the conventional bankers has seen the industry find ways to adapt their approach to suit their customers.
Gareth Whitaker, presales director at Software AG, foresees five key changes for the banking industry locally and globally.
“The South African banking industry will see major shifts this year from a competitive and operational perspective. The rise of fintechs and digital banks will see conventional banks adapting to their competitors practices, and in some cases, acquiring them.” says Whitaker.
Data will become king
2017 will see banks leverage their most valuable asset: client data. While banks have spent millions to collect the data, few have dedicated themselves to fully operationalising these insights by utilising predictive analytics and machine learning. New revenues for banks depend on operationalising data in real time so that it can be monetised.
Collaboration with the competition
On a global scale, banks will buy the very fintechs and digital banks that are disrupting their business. While banks have the distribution and greater trust (at least among older generations), fintechs and digital-only banks have newer, more agile technology. The two together are a powerful combination, but the cultures are significantly different. Though it may be an uncomfortable transition at first, the result of this collaboration could prove to have a prosperous impact.
Rising interest rates will drive consolidation in mid-tier banks as well as divestitures, as large banks exit less profitable business lines. At the same time, active asset management is losing market share to the index providers. Automated advisors, offered by long-standing competitors as well as fintechs, pose a further threat to traditional asset management. Given a rising interest rate environment, which few active portfolio managers have experienced, we will see more automation and consolidation in asset management as well.
Branch numbers will decrease for value to increase
Bank branch closings will accelerate as customers increasingly adopt mobile and online banking. Most banks will maintain smaller, anchor branches to provide a reassuring brick and mortar presence versus purely digital competition. However, as they transform and focus on costs, they will transition remaining branches to low volume/high value activities.
More choice for customers
Regulation and market forces are combining to fundamentally transform the way people bank. Competitive forces globally are seeing leading banks leapfrogging regulation to open up their systems and data, and begin to develop ecosystems of partners. The result will be greater choice and competition for customers, and the possibility of entirely new revenue lines for retail banks.
“Banks will operationalise their data, open and partner up with their competitors and scale back on the physical world to investing in the digital world. We foresee these changes will impact the way everyone approaches banking in the future,” Whitaker concludes.