Simon Kent, Global Head of Financial Services, A.T. Kearney
The relationship between technology and banking has played a huge part in changing the financial landscape over the past few years. It has not only facilitated the arrival of Open Banking, but has also enabled neobanks, which are 100% digital, low-cost and geared towards mobile users. The statistics surrounding these emerging neobanks speak for themselves, with their customer base growing by more than 15 million across Europe since 2011.
However, a by-product of the rise in alternative banking methods is the impact on the retail banks, which experienced a decrease of two million customers in the last eight years. Figures like these make it clear that success will come most quickly to the modern banks, especially those integrating technology, whilst the others risk becoming obsolete.
Making Data Secure
One result of this new approach to banking is that customers are now more eager to share their data; in fact, more than half of European customers say that they are ready to share their personal data with their banks in return for a more personalised customer journey.
However, it’s important to note that customer data sharing doesn’t stop there; data is often subsequently shared between banks, third parties and their customers. As a result, the importance of data security and tighter regulation has become more prominent, and once again, it is technology that is supporting this change.
Perhaps the most frequently talked about of these security initiatives is the Second Payment Services Directive (PSD2), an EU directive introduced to regulate payment services and providers. One of the key mandates within PSD2 centres around Strong Customer Authentication (SCA), which refers to the need for two-factor authentication when purchasing anything online, creating another level of security aside from just password protection alone.
Whilst the need for additional SCA checks is clear, the work required to make these improvements was initially underestimated by many businesses and the regulator. As a result, retailers were left struggling to set up the technology and systems required, and banks and card companies also had trouble adapting. The fact that the FCA granted an 18-month extension to the deadline a few weeks ago is probably the clearest sign yet of the complexity of SCA from a regulatory point of view.
Creating a frictionless customer journey
But why has SCA caused such a huge problem for retailers and financial institutions alike, and can technology help to provide a solution? The main problem is that our modern day lives revolve around the ‘subscription economy’, with the majority of the population now having subscriptions to music, film, TV, product, and delivery services.
This business model only works, however, if the customer journey is as effortless as possible, as this will ultimately persuade customers to stay loyal and continue to pay for the service. As such, with some of these services now needing two-factor authentication, there is an increased possibility that consumers will choose not to go through the renewal hassle that will be prompted by the new regulation.
There are other options, of course, with the smartphone being central to most solutions. For example, perhaps a customer could have a text sent to their smartphone with a code they need to enter in order to confirm the purchase of goods. But what if the customer has no signal and therefore can’t get the code they require? Then the business and the customer both lose out.
Once again, technology is going to need to adapt and evolve; if text messages aren’t reliable enough, perhaps the future lies in facial recognition technology, whereby all customers need to do is show their face to the camera to approve their purchase. Ultimately, any successful solution will need to achieve the delicate balance between the convenience and security that today’s customers demand.
Shaping the future of banking
Aside from security, technology will continue to play its part in transforming the landscape of banking as the years move on. The future of banking will see the evolution of advisory banks, digital banks and the integration of lifestyle platforms within banking.
The latter of these, and potentially the most interesting, is the concept of traditional banks turning into lifestyle platforms, offering customers everything they could possibly need, from shopping and entertainment to travel and utilities, all in one place. The institutions that are bold enough to innovate in this way will also integrate social media capabilities and crowd wisdom in order to become a one-stop shop for their customers’ daily needs.
At the heart of all these future possibilities, from the emerging capabilities of digital banks, lifestyle platforms, down to security processes, lies the idea of personalisation. It is this concept of personalisation that truly demonstrates what technology offers to financial services, and what will continue to motivate the changes we are going to see in the future of banking.
