By Tom Rich, Business Consultant at BJSS
I’m sure you don’t need reminding, but 2020 has been a chaotic year. Many of the predictions that were made for the finance industry at the end of last year were being ripped up by the time spring came round. As we move towards 2021 with coronavirus still causing havoc and uncertainty, it can seem challenging to predict what the future of the industry is going to hold. There is, however, several trends that can be expected to develop and progress despite turbulent times. Often these have been accelerated by the impacts of the virus. Still, broadly they represent longer-term trends in the finance industry and will shape not just the year coming but many years into the future. Four of these key trends to look out for as we approach 2021 are examined here.
Evolution of the Customer Journey
With lockdowns throughout 2020, meaning that most financial services have had to be performed online, a sharp focus has been thrown on customer experience in banking. A growing trend across many industries is the increased personalisation of services, utilising the vast volumes of data collected to offer products and features that are tailored to an individual’s needs. The modern customer demands a more personal and catered service, and one that can be provided to them exactly when they want it, typically at the click of a button. As they say, the customer is king, and financial services are no exception to this.
Meeting these needs ultimately comes down to what technology can be deployed. The developments in the scope and use of technology in finance have been positive green shoots in an otherwise difficult year. We’ve already seen improvements in the use of conversational AI to service customer queries and remove the frustrations of waiting on the phone, particularly with branches out of action for the time being. Over the coming months and years, we can expect to see a raft of new tech being delivered. Whether it be the use of AI to provide meaningful insights and advice on your financial habits or the use of data analytics to pool together a complete view of someone’s finances; the end goal will always be an improvement in the customer’s experience.
Collaboration over Competition
One area where I expect to see growth throughout the next few years is through the application and development of Open Banking and its potential uses throughout the industry. Open Banking employs an open API model to let firms access the financial data of customers using other applications, gathering and collating this information together to provide truly unique solutions. Applications like Cleo and Plaid have been finding success in utilising Open Banking’s potential and combining it into sleek and smart products. We are likely to see many more following suit in the coming months. Watch this space.
Alongside this, I think we will start seeing the development of finance ecosystems in which multiple firms work together to deliver a wider variety of products and services to consumers. Expect to see more established players with larger customers bases collaborating with Fintech start-ups with unique products but without the reach or scale to deliver to consumers.
The Struggles of NeoBanks
2020 has not been a good year NeoBanks. The digital native banks have grown so strongly up until this point, and 2021 is looking perilous too. Monzo and Revolut, two of the most established in the UK, have both struggled this year and we’ve seen considerable losses and redundancies, with paths to profitability pushed into the distant future. These were the stars for the future of banking, a shake-up of the joyless and stuffy monopoly that high street banks held over customer accounts. But the revolution has slowed, and now could it stop completely?
The expectation is that these struggles will continue. Low customer profit margins, falling revenues, and continuing regulatory cost pressures are just some of the challenges that will be faced. Although NeoBanks have been introducing subscription models to try and build an extra revenue flow, there is notable scepticism around whether these can stem the cash shortfalls at the levels they are seeing. Combining that with incumbent high street banks who are starting to close the digital gap,all in all 2021 does not look too much brighter for the NeoBanks.
The Digital Currency Debate
Back in March, the Bank of England published a discussion paper around the introduction of a Central Bank Digital Currency (CBDC)- a new digital payment instrument that could be used to make payments by households and business alike. It is in response to the continuing decline of cash over the past few decades and the rise of private cryptocurrencies like Bitcoin.
Central Banks are traditionally very slow to change their policy and innovation is rarely prioritised over stability, but here we could be seeing a break from the norm with a recent study showing 80% of Central Banks are actively investigating the concept. Estonia have even made a form of cryptocurrency a pseudo-national currency. Although it will take a few years to develop, 2021 is likely to be full of policy and technical analysis, and perhaps even pilot studies as central banks grapple with the design and consequences of such a drastic shift to the monetary landscape. With Brexit causing jitters in the city, could the Bank of England look to take the lead in this area and showcase London and the UK as an innovation hotspot to the rest of the world?