The Three Biggest Opportunities for Banks in 2019
As 2018 comes to a close, it is time to look ahead to what will influence the banking industry in 2019 and your goals for the new year. Do you have a plan for key strategic initiatives that you want to accomplish?
Major trends of digital transformation and customer centricity will continue to be relevant, but are evolving in ways that are likely to be important next year. These influences include an increased focus on operational efficiencies, embracing financial technology (fintech), and balancing human and digital services.
1. Improving Operational Efficiencies
In recent years, advancing customer-facing services such as mobile banking has been a priority for financial institutions. These initiatives were necessary to keep up with expectations of digital convenience and seamlessness that customers have experienced in other industries. Although improvements can always be made, core digital services are now up-and-running, and there is now more of an opportunity to focus on renovating “back office” legacy systems to improve operational efficiency, security, and automation.
“Technology resources at most banks are becoming difficult to manage, with a hodgepodge of systems, platforms, software, and tools—much of it legacy infrastructure that demands significant resources and capital to ensure that operations run smoothly.” – Deloitte, 2018
Modernizing and integrating IT systems will make operations run more smoothly, save costs, and make it easier to discover insights and provide personalization through data analytics. Migration to cloud-based core banking systems is also predicted to increase as financial institutions look to improve their capabilities.
2. Acquire or Learn From Fintech
In the last decade, many fintech players have disrupted the banking industry by fulfilling unmet customer needs. These companies, such as Stripe (payments), SoFi (loans), and CoinBase (cryptocurrency exchange) often outcompete traditional banks on specific services by being easier to use, faster, more seamless, and more innovative.
Whereas traditional financial institutions are often burdened with slow processes of approval and change, regulations, a wide range of products and services, and a risk-averse culture, fintech providers are agile risk takers that focus on a specific need. These qualities enable them to quickly capitalize on new opportunities through innovations such as open banking, APIs, biometric authentication, artificial intelligence, and blockchain.
To overcome this challenge, many banks have chosen to partner with or acquire fintech providers rather than compete with them (i.e. Chase’s acquisition of WePay). This trend is likely to continue into 2019.
Another strategy is to learn from fintech attributes and prioritize innovation in your organization. An agile and focused team dedicated to developing ideas will put you in control of improving your services.
3. Balancing Human, Digital, and AI
As banking continues to be transformed by digital technology, the role of human interactions is unclear. Chatbots can be efficient ways to provide basic information and transactional services to customers – and are getting more humanlike through improvements in artificial intelligence technology in an effort to “humanize” digital services and make them more intuitive and natural.
And yet, are there human qualities that can never be truly replaced? Will customers feel as strong of a connection and open up to even the most convincing AI chatbots? A genuine, empathetic human will make people feel understood and cared for – which is hard to imitate once customers find out that they are talking to an algorithm.
Finding the right balance between human, digital, and AI technologies is likely to be important in 2019, especially considering that there appears to be a largely unmet need for financial advice and guidance. In the J.D. Power 2018 U.S Retail Banking Advice Study, 78 percent of U.S. retail bank customers say they are interested in receiving financial advice or guidance from their bank, but just 28 percent say they receive it. This advice was reported to be the most helpful when they received it face-to-face (58 percent felt it completely met their needs compared to 45 percent among customers who received advice digitally).
Umpqua bank is recognizing the strengths of human financial advisors in their human + digital strategy. Their Go-To financial expert app allows customers to choose a dedicated advisor based on their profile and text them with questions and concerns. This service gives customers a more personalized experience where they feel cared for and that a real person knows their history.
These three goals of improving operational efficiencies, acquiring or learning from fintech, and balancing human and digital services will help financial institutions be successful in 2019. A focused strategic plan for the upcoming year is essential to remain competitive in this quickly-changing and complex financial services market.