Advent of Competitive Banking Sector & Its Building Blocks

One happens to live in an increasingly digitalized world where citizens have all the data as well as services they require at the click of a button. At any time of the day or even night, one can go on to access the day’s news, indulge in some shopping, plan a trip, or even pay a bill by way of direct debit through their smartphones. And as if all this was not enough, COVID-19 happened to create a huge push toward further digital shift.

Even elderly people throughout the pandemic lost their apprehension of using technological tools and devices like smartphones, tablets, and also computers in order to carry out tasks that helped in their daily lives. Online banking happened to be no exception, as a growing number of people performed financial transactions or even accessed financial services by way of applications, tablets, and computers.

In Spain, for instance, which is a country with a high level of banking penetration, as per the National Statistics Institute- INE for the Instituto Nacional de Estadística, between pre-pandemic and the end of 2020, the users of digital banking services grew by 10%, meaning that almost 67% of internet users, comprising 93% of the total population, regularly accessed electronic banking. This growth happened to be much more prominent in the age bracket of 65–74, with a surge of around 28%. Underpinning this evolution happen to be the investment in digitalization made by financial institutions. As per one of Deloitte’s studies named Digital Banking Maturity, the Spanish banking sector happens to be considered one of the most digitized across the world, given the broad range of functionalities as well as the high quality of the experiences that happen to get offered to users.

The digitalization process across many countries, teamed with the need to decrease costs in the context of low interest rates, got pushed by the growth in default ratios because of the pandemic, which has necessarily entailed a decrease in bank office networks as well as changes in their roles. The branch must go on to evolve to aim at providing high-quality, professional service across the customer base when more absolute, in-depth, specialized, or even customized advice is required, elevated by the proximity offered by human contact.

Apparently, the challenges from big tech players such as Google, Amazon, Apple, etc., and also fintech players such as Digit and Flywire go on to require online banking so as to offer not just basic banking services like queries, transfers, direct debits, etc. but at the same time give out value-added services that enable high-quality customer engagement within the medium term.

It is well to be noted that financial well-being happens to be one of the key areas in which value can be constructed for banking service users. Helping customers enhance their finances as well as their abilities to keep control of their expenses while at the same time generating sufficient savings in order to cover some unforeseen events and also meet their vital objectives happens to be essential to retaining them and at the same time making them profitable as customer.

With regards to this, the EU PSD2, which is Payment Services Directive 2, enables the users within the affected countries to have all their banking information in a single application, not necessarily from a bank, even if the data comes from varied financial institutions, thereby helping them to get an absolute view of all their financial data. Entities that can happen to generate more confidence in their clients will go on to offer them this integrated as well as aggregated vision of their finances. They will have an invaluable 360-degree vision when it comes to their clients, which is very necessary to offer quality advice and also provide them with the most apt products and services, both financial and otherwise, thereby resulting in enough revenues.

In today’s era, consumers have faith in their banks when it comes to sharing their financial data, which is indeed a competitive advantage as compared to big tech and fintech firms making an entrance into the financial services market. As per a study by Accenture’s 2020 Global Banking Consumer Study, 37% of consumers trust their banks a lot when it comes to looking after their data, while less than 10% trust big techs or even neobanks to do so. But that said, this trend can very well go on to change quickly if a reputable technology firm provides this service with a more customized and quality-centric user experience.

Digital banking also enables full traceability of everything that customers do, so evaluating the data that’s generated becomes key to effectively improving and personalizing the experiences along with the services provided. Banks must also use all their customer data, which is captured from every channel, so as to get to know them better and, at the same time, provide more tailor-made experiences with a human touch, enabling them to establish emotional connections. Detecting a customer’s emotional state in terms of interacting with the bank by way of voice- or text-analysis tech happens to be necessary to humanize the experience and at the same time connect with the customer, but it is also quite challenging.

If in case, banks can go on to monetize and, at the same time, make their knowledge of their customers profitable, as most of the large technology companies do, their businesses will definitely get the benefit. Google, in all possibilities, knows what one wants to do, but what one actually does is the data at present residing in the banking sector. Hence, looking for new sources of revenue by way of using this data happens to be the key in an environment with growingly narrow intermediation margins, in which the choices of commissions do not happen to be sufficient and are unpopular with consumers, who, by the way, are used to receiving services that look free but there is a real cost involved, such as the values of the transfers of their data. Banking must balance ensuring the protection as well as confidentiality of the data offered by the customer with taking value from that data. Therefore, data analytics along with artificial intelligence- AI technologies will be critical to properly exploit as well as use this information while at the same time providing differentiated and personalized value to customers at a price that’s easier on the pockets.

The fast-paced development of e-commerce as well as the digital transformation of society make it essential for banks to offer their services via other companies and third parties like car dealers, real estate agencies, or even online stores so as to meet the financial needs of their customers. Meeting these needs when and where they arise happens to be pivotal. If the customer happens to be making a large purchase, that is when it makes a lot of sense to offer financing. Furthermore, nonfinancial institutions already happen to include financial services in the digital customer experience. For instance, in China, the WeChat app goes on to make it possible to transact messages, book cabs, order food, transfer money, or even access a personal loan.

Open banking, banking as a service- BaaS and even strategic alliances with other businesses happen to be emerging trends that will hold the key in the upcoming years. This is technically supported by way of using APIs- application programming interfaces that are open to third parties which also enable communication between two systems, like financial institutions and other institutions. The data that’s shared in these transactions happens to be crucial when it comes to knowing the customer. But offering financial services by way of third parties also has risks, and hence the financial sector must invest as much as possible when it comes to security so as to avoid vulnerabilities or even fraud.

Sustainability, apparently, happens to be another key area that can go on to generate prominent revenues when it comes to the banking sector. In a world that happens to be marred by global warming and also climate change, with efficiency required to ensure companies’ profitability, enough investments happen to be required so as to improve production processes by reducing the use of energy resources as much as one can, thereby also decreasing the environmental footprints and even the production costs. The banking sector will be a major push when it comes to providing the necessary financing for such a transformation taking place. The risks of continuing to invest in fossil-fuel-based activities will go on to become increasingly evident, and thus financing costs will require to be higher for companies functioning across these sectors. Notably, such a cost differential is surely going to incentivize moving these sectors toward more activities that are environmentally sustainable.

Hence, the banking sector’s future will also go on to depend on its capacity to innovate; however, this innovation must go beyond just developing the next generation of hardware or software and must also involve varied ways of thinking by way of open-mindedness and collaboration with other players. The banking sector in the days to come must go on to have an emotional bond with its customers that will go on to enable it to be their partner of faith when it comes to the financial management of their lives, giving it an endless space of opportunities, that is if it knows how to take benefits out of them.