Defining the future of banking is a difficult endeavor we have decided to take on, and one key aspect we are often asked about is whether or not the channel structure will resemble anything we are familiar with, or if it will drastically change. Before we look at how we believe the channel strategy will evolve, we must first look at what it looks like today.
Driven by market dynamics, such as Millennial and Gen Z banking habits and the pressure on margin driving the growth of online banking platforms,the banking omnichannel landscape has transformed. In spite of all of these fast-evolving trends, bankers have left the branch channel somewhat unchanged, with the exception of a focus of reducing number of branches and their physical footprint. Banks are still attempting to sell the same suite of services, irrespective if the branch is 500 or 5000 square feet, relying on increased ATM, Video ATM and Universal Bankers to fill the transaction gap. This model is being challenged by fast growing fintech platforms, but also by the fact that human interaction in the branch remains the most important tool in the banker’s arsenal to drive growth.
The introduction of AI, personalization and greater automation, including the addition of robots will only solve the shrinking side of the transactional relationship with customers. It will do very little to overcome the large perception gap that banks are no longer the primary resource for financial knowledge and advice. If banks continue with the single-minded focus of reducing transactional costs, they will accelerate the move of customers towards non-traditional banking products, as our recent Stealth Attrition study clearly indicated.
Banking in 2025 will not be based on the speed and convenience of transactions for two simple reasons: first, money as we know it will no longer exist as customers manage their daily purchases with mobile wallets. To see the impact of the growth of mobile payments, all you need to do is visit China where the majority of Chinese customers are very comfortable doing the majority of their purchases without the use of hard currency. Secondly, the trajectory of focusing on transactions will soon run its course as the gap between various financial institutions no longer exists and convenience becomes table stakes.The future of banking, in 2025 and well beyond, will shift focus from uniformity and conformity to customer personas and unique emotional need states. For banks to regain their position as the primary source of financial advice, they will need to choose, own and resolve a unique un-met need of their customers.
One of these unique customer needs will be for banks to assist them beyond the conventional services currently being offered, to represent a curated set of tailored services and knowledge-based tools that will ensure they feel confident about their financial future. Our work on the NXT Bank project, looking at the what banking could look like in 2025, has clearly identified the branch channel needs to shift to a niche strategy where the network consists of branches targeting very specific customer personas. From incubator-type customers looking for support and advice on how to launch their new start-up, young Millennial families wanting to ensure a secure financial future, to small business owners looking for support well beyond the numbers, the branch channel will no longer be one-size-fits-all. There will also continue to be a need for wealth-centric branches who can provide the right advice and investment strategy for Millennials as they enter their retirement years.
What will be a more startling change for the next generation of bankers will be the evolvution of their business model from access to money to an ecosystem that supports each of the different personas. For example, the small business banking branch would not only offer conventional products such as loans, lines of credit and payroll solutions, but would expand their offering to include access to mentors, a safe place for small business collaboration and sharing of knowledge, access to services such as HR, marketing, sales automation, growth strategies and acquisition. The foundation of the banking industry will no longer center around the management of money, but will evolve to a higher ground where access to knowledge, expertise and growth will become the new currency.
Fast forward to 2025 and you will discover it’s no longer a game of numbers with the bank with the largest network winning. The future will be owned by an agile and nimble bank that can combine the emotional power of belonging with the sense of empowerment and control found typically through large consulting firms. The lines between managing money and growing through knowledge will blur and eventually disappear. Who knows – the next big bank could be one of the largest accounting or consulting firms such as Deloitte. Whoever it is, proving it’s worth as a trusted financial advisor is the key to unlocking the bank of the future.