By Tim Chong, Co Founder and CEO of rewards credit card, Yonder

Digitisation and tech innovation are the driving forces that are transforming the way consumers are interacting with their personal finance.

The pandemic improved digitisation across sectors, as all industries invested in their technologies in order to stay competitive. Covid propelled the digitisation of financial institutions, with the industry now at the cutting edge of technological innovation. Regulators, fintech, Big Tech and banks have had no choice but to embrace technology, as the demand for embedded finance, open finance and social finance climbed.

How will financial institutions change and what role does digitisation have to play?

Embedded finance

Verticalisation of finance or embedded finance is the new way financial institutions are diversifying their offering to stay competitive now and for the future. In the past – as financial institutions became more commercialised and less embedded in their community, the products and services they offered became very much a one size fits all. Loans, pensions, savings and deposits have long been the pillars by which consumers interact with financial institutions – and depending on whether you were eligible to be served by these categories, there was not much else on offer.

Since the rate at which digitisation has driven the financial industry furlongs into the future over the last few years, the needs of consumers have changed greatly and this includes a change in expectations towards their financial solutions. Embedded finance is the answer to this shift in demand, and something that financial institutions will have to embrace in order to stay competitive in 2030.

Verticialsition of finance means that financial institutions can act more nimbly to suit the needs of their ever changing customer. It means that financial institutions will be able to adapt their products to align with a more individualised consumer or business. Instead of a huge number of customers having to adhere to fixed fees, rates and unchanging services, the verticalisation of finance means that financial institutions can tailor their products to serve their customer base depending on individual demographics instead of the standard demographic. In place of a fixed product, like a deposit account or loans, financial institutions will be run by their verticals, their communities, instead of a fixed product. 

This means that by 2030, financial institutions will have to drive their growth by adapting to how consumers want to run their financial solutions, instead of by how the solution fits into the customer’s life.

Open finance

Similarly, in the future, financial institutions will have to ramp up their technology to streamline their processes to achieve more accurate credit scoring and improved customer experience by embracing an open finance model.

Customers’ entire financial footprint, data on how they interact with their mortgages, savings, pensions, insurance and consumer credit will be opened up to third parties that will access transaction data from bank accounts and payment services so that customers can move, manage and make more of their money. The goal is to use innovation to improve financial health and wellbeing by offering consumers better deals and products. 

Understanding financial health in the future has to be improved and will benefit customers by giving them access to cheaper and more holistic debt advice and better product recommendations. What we will see in 2030 will be financial institutions engaging more with their customers based on their behaviour. Financial institutions will make suggestions based on spending and payments – that in the future could look more like ‘move £50 into your savings account on this day in order to achieve this goal’ as well as reminders of bill payments at the beginning of the month etc. 

This model aims to use data to learn more about the customer and to get them to engage more with their financial products to alleviate financial stress and make their money go further for the future.

Social finance

By 2030, financial institutions will look incredibly different to how they did 10 years ago, by shifting from a ‘private’ model to a more ‘social’ one. We are at a point in time where we are just about to tip the axis from a horizontal relationship between financial product and consumer, to a far broader relationship between products, experiences and multiple customers. Social finance will enable customers to plan, save, purchase and manage communal activities and their associated financial aspects. 

Born out of digitisation, consumers’ relationships with their financial institutions quickly migrated from the highstreet into the palm of their hands. And with the surge of social media, embedding social features within financial institutions will be one of the best ways to engage with consumers. Soon we will see banking apps including financial news feeds, keeping customers up to date with the latest changes to their services, the rates that are changing that will affect them and possibly updates on how their peers are using their money which will ultimately influence how they save, invest and spend. 

How will millennials and gen Z spending habits shape financial institutions in 2030?

By 2030, millennials and gen Z will have moved into the 25-40-year-old cohort. These individuals will be engaging with financial services more than they ever have before and their incomes will be growing to their peak. This generation will set the pace for what our financial institutions will look like in 2030 and beyond. With the majority of smartphone-carrying gen Z-ers already, using an online banking application, financial services will have to adapt in ways that engage this age group in order to keep a loyal customer base.

Financial institutions will have to rise to the challenge of catering to younger generations which will mean much more than just adding extra digital features to legacy offerings, even greater action will need to take place to keep this demographic engaged in order to drive growth.

Millennials and Gen Z-ers won’t necessarily demand a range of options from their financial institutions. Instead, as previously discussed, the customer experience will always be the biggest factor for this demographic. By 2030, financial institutions will have to raise the bar when it comes to genuine experiences.

To conclude

Financial institutions will look very different in 2030 than they did in 2020. As consumer expectations change and technology evolves, institutions will have to adapt now to maximise opportunity. Covid gave the industry a chance to reassess its business practices. The post-pandemic world is now the time to capitalise on that experience in order to future-proof for the next 8 years. Digitisation won’t just play a role in the future of financial institutions, digitisation is the future of financial institutions on a global scale.