Has banking changed forever?

History

Banking has a long and rich history, dating back to the time when currencies were first minted. In those days, wealthy individuals sought a secure place to store their money. However, with the absence of steel safes, ancient homes posed a challenge. In Rome, the solution came in the form of storing coins and jewels in temple basements. The presence of priests or temple workers, assumed to be devout and honest, along with armed guards, provided a sense of security. Interestingly, historical records from Greece, Rome, Egypt, and Babylon indicate that temples not only kept money safe but also lent it out. This dual role as financial centers made temples vulnerable to being ransacked during times of war. The significance of this historical context cannot be understated, as it laid the foundation for the banking practices we have today.

Objective

Banking originated as a means for empires to facilitate international trade through easily exchangeable coins. However, with the rise of digital disruptors and changing customer expectations, traditional banking models must adapt or dwindle into insignificance. The banking landscape has drastically transformed in recent years, with only five major banks serving 85% of the UK market in 2014. To remain competitive, banks need to embrace transformation and cater to the evolving needs of customers.

Today, the barriers to entry in the banking industry have been significantly reduced thanks to the cloud and other digital technologies, as well as regulatory changes aimed at fostering innovation and providing more options for customers. However, technology alone is not enough for successful transformation. Banks must also undergo cultural and mindset shifts, as well as develop new skills. Above all, they must prioritize customer needs and desires in all aspects of their operations.

Traditional banking has long been plagued by customer complaints, including poor service, inconvenient hours and locations, time-consuming transactions, payment delays, limited online and mobile capabilities, and more. These issues were further exacerbated by the 2008 financial crisis and high-profile incidents like data breaches and service outages.

To truly transform, banks must not only embrace technology but also address these customer pain points. By improving customer service, expanding digital offerings, and streamlining processes, banks can enhance customer satisfaction and loyalty.

Meanwhile, many customers – especially those accustomed to the speed and ease of apps and online shopping – have been looking for a better digital banking experience. Unlike previous generations that were often reluctant to switch, these customers feel none of the loyalty or lock-in to big high-street names. They want banks that offer services that meet modern needs.

Today’s customers, whether individuals thinking about their current accounts, or businesses reviewing their banking services, want more. More choices and options, including greater personalisation, faster solutions, self-service, and the ability to conduct transactions anytime and anywhere.

For banks, this has brought increased pressure to update and digitise their products and services. Customers today are demanding a better digital banking experience. They want banks that understand their modern needs and offer more choices and options. The COVID-19 pandemic has only accelerated these trends, forcing organizations to find new ways to deliver services virtually and digitally.

The desire for a different kind of retail banking is reflected by the latest customer ratings from the consumer association Which? Challenger banks have already taken the lead in updating and digitizing their products and services. These showed that two of the top three highest-ranked organisations were challenger banks. One of those was Starling Bank, which launched as a digitally native mobile retail bank in May 2017.

Digital transformation also requires banks to modernise their back-end operations through the right mix of technology and workforce reskilling.

The main objective behind every transformation programme should be delivering an improved customer experience.

Banks must embrace new and emerging technologies that will enable them to do this: mobile technologies, the cloud, automation, the Internet of Things and artificial intelligence. Such innovations will enable them to provide personalised services with a human touch, informed by better data insights. And they will enable banks to provide these services cost-effectively and at scale,

Questions

In today's digital world, the concept of a bank is evolving. We must ask ourselves, can the traditional functions of handling deposits and loans be separated? This is a fundamental question that requires further research.

Another important consideration is the role of central banks in the era of digital currencies. Should they supply their own digital currency or allow private providers access to reserves? This policy decision warrants careful analysis.

Furthermore, we must examine how the digital world will impact the asymmetric information problems in financial intermediation. Will it alleviate or exacerbate these issues? This is a crucial area for investigation.

The emergence of blockchain technology and smart contracts also raises questions about financial contracting and competition. How will these innovations shape the industry? It is essential to explore their potential impact.

Additionally, we need to understand how digital marketing and price discrimination techniques will interact with the biases of consumers and investors. This intersection requires our attention to ensure fair and ethical practices.

Moreover, we must consider the role of new entrants in providing credit to individuals and businesses without collateral. Will innovation be encouraged in this space? This is a topic that demands exploration.

Lastly, we must address the risk of entrenching dominant positions in a platform-based banking world. How can we avoid this and foster a competitive environment?

These questions highlight the need for rigorous research and thoughtful analysis. It is imperative that we delve into these issues to shape the future of banking.

Conclusion

The digital disruption of banking is set to revolutionize the industry, bringing about increased efficiency and improved service. By leveraging big data, AI/ML techniques, and blockchain technology, information asymmetries can be overcome, leading to a more user-friendly consumer interface and a higher standard of service.

As a result, outdated technology will be replaced, and banking will transition to a customer-centric platform-based model. However, incumbents face significant challenges. They must update their technological platforms, embrace the flexibility of the cloud, and address branch overcapacity in low-profitability regions.

Furthermore, they must compete with new entrants encroaching on profitable lines of business. Restructuring and consolidation will be necessary for incumbents to thrive in this evolving landscape. It is imperative for incumbents to take proactive steps to adapt and embrace these changes to remain competitive and deliver value to their customers.

Based on feedback from our private and institutional members, extensive market research, and collaborative efforts with our partnership network, we are pleased to offer a wide range of customized solutions to address various uncommon challenges.

Written by Joseph Farodoye for Bluxe Century

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