I remember not so long ago standing in line for over 20 minutes to open my first bank account and thinking how ridiculous it was to wait so long to give someone else my money. Add to that, how many banks were charging so many fees, and consumers were starting to smarten up and realize that they did not have to accept that—the shift was bound to happen. As we enter into this first quarter of 2018, there are many changes that we will start seeing banks adopt. The following six are my predictions for the future of banking:
The Use of Artificial Intelligence (AI) Will Increase
Artificial Intelligence (AI) will have a major role in banking for both the short-term and long-term. First, we will see AI help banks with fraud mitigation. Today, most fraud is detected through computer patterns that alert a fraud team who would then take the necessary steps to try to prevent or mitigate the threat. Now that technology has made access to money fast and easy, the transaction volume has increased exponentially.
With millions of transactions happening every day, AI will help gather patterns as well as other data to validate a transaction in real-time. AI will also help reduce cost by introducing chatbots that are more sophisticated. These chatbots will analyze a customer’s and add value to the customer by proactively providing solutions that will make their lives easier and preempt any customer service issues.
Lastly, AI will also help banks with operational efficiencies which will allow financial institutions the ability to do more with less.
Bank and non-banks will form closer partnerships.
Fintech and banks currently have a myopic relationship. Banks want access to the cutting-edge technology that has and wants the customer base that banks have. This year both Fintech and banks will realize that in order to move the needle forward they are going to have to form partnerships with non-banks.
Traditionally, in order for a company to grow they either needed to expand organically or through the acquisition of another company but by using a leveraged growth strategy, Fintech and banks will see that by partnering with non-banks they can grow with less risk and less money. By tapping into a customer base, it will lower the bank’s cost of acquisition while providing more value for the customer. Banks will also realize that non-banks provide them with valuable data from their customer bases that they can leverage to provide a customized banking experience as well as a source additional revenue streams.
There Will Be More Competition in the Digital Banking Space
Research has shown for a long time that the banking customer is changing and that there is no longer a need or desire to go into bank branches anymore.
Despite this research, because banks were too invested in their branches, they were reluctant to make the pivot into digital banking. Now that it is becoming evident that the branch-based customer acquisition model is not sufficient, you will see many banks follow suit.
Whether it’s JPMorgan Chase with Finn, or Greenhouse by Wells Fargo, big banks are entering into the digital banking space full force with the hope of attracting young consumers. Then you have digital banks like Ally, USAA and Capital One 360 who truly made a major effort in 2017 to attract millennials by tweaking their product, tone, messaging and branding to make sure they start penetrating that segment. We will continue to see that this year.
Competition doesn’t stop there though. You still have niche financial products like Sofi that focuses on student loans or Stash Invest that on investing, which are playing in the digital banking space. Now that they have acquired so many customers through focusing on a specific segment of the population they now will need to keep those customers by expanding their offering. They also will realize that their acquisition strategy was a good start but not enough to sustain an emotional connection with their customers.
Lastly, you have like Moven, GoBank, Simple and Varo who will continue to flourish and but will be threatened by giants like Amazon, Google and Apple. If and when they enter the digital banking space, it will be cause for much alarm. Because these juggernauts have such deep-pockets and access to so much customer data, they can truly disrupt the banking space if they can get through most of the regulatory hurdles that exist today.
Cybersecurity will Get an Upgrade
After the highly publicized and damaging Equifax security breach that affected approximate 145 million Americans, we will surely see a modernization and upgrade of cybersecurity.
Because banks need all of your sensitive and personal information in order to do business with you, they are also a perfect target for hackers and fraudsters who are relentless in their pursuit to defraud anyone they can get their hands on. With the Equifax breach affecting so many people, lawmakers are diligently working to stop these types of breaches from happening again by proposing charging hefty fines to companies that are victims of a breach. With this knowledge, banks will double down on their security initiatives and spend a good amount of resources modernizing their IT infrastructure to thwart off sophisticated hackers.
Banks will also raise their security standards when working with vendors to assure that threats don’t exist externally.
Blockchain will be Explored More to Create Efficiency
Blockchain, which is the technology that powers Bitcoin and other cryptocurrencies will garner major attention this year.
Banks will continue to explore how they can use the blockchain technology to streamline operational processes and cut costs. They will also explore how the technology can make them more competitive with companies. Because of the speed and security of the blockchain, banks will leverage this technology to create and enhance new business models.
Right now for most is just this idea of what can happen but banks will really hone down on the technology to find tangible ways to use it to solve problems within their current infrastructure. We will also see increased partnerships with banks and regulators as both try to navigate how to use this technology in the highly-regulated banking business.
Lastly, there will be a race by banks to come up with blockchain-based solutions that will solve specific problems in financial services that can be adopted by other banks. One example of this is the fact that Bank of America has already filed over 20 blockchain patents with more to come.
Cryptocurrency will be More Prevalent
Lastly, we will see cryptocurrency become more prevalent and accepted more by merchants. Banks will also follow suit and figure out how and if cryptocurrency is a viable investment option.
While we will continue to see a lot of fluctuation in the cryptocurrency prices, banks will now realize that this is not just a fad but something that will be with us long-term.