Banks ‘Must Embrace New Models to Survive’

Banking organizations will assume one of four strategic models by 2025 as their leadership teams choose a preferred operational battleground, a new report has suggested.

A research paper published by Forrester – entitled “The Future of Banking Is Built on Trust” – found that banks were preparing to compete in specific areas in an operating environment shaped by technology, open finance and higher consumer expectations.

Researchers concluded that future banks would be focused on direct-to-consumer, banking-as-a-service, marketplace-selling or platform operations.

The research comes as market experts have raised concerns that economic challenges relating to the Covid-19 pandemic may stifle competition in the banking market and push banks to restrict lending through tighter underwriting standards.

In July, the Washington Post summarized the issue in a report explaining how US banks were setting aside an additional $28 billion in reserves for predicted consumer and corporate loan defaults.

Chris Kotowski, an analyst at Oppenheimer, told the Post that banks did not know how badly the novel coronavirus would impact their future planning.

“Banks don’t know any more about where unemployment will be in the fourth quarter this year than you or I do,” he said. “Everybody says this is unprecedented, and for once the word is correct.”

The latest Forrester report states that banks have recognized that they will need to collaborate with others if they are to meet changing regulatory requirements, growing customer expectations and an overall erosion in consumer trust.

“Technologies, partnerships, ecosystems, and platforms will combine across multiple industries, sharing data and resources to deliver financial outcomes,” a Forrester analyst wrote in a media note accompanying the report launch.

“Despite technologies like 5G enabling banks to integrate finance into devices and adjacent ecosystems, consumers will still expect blended human and digital experiences. As a result, banks will maintain the human touch, repurposing branches as engagement hubs.”

Forrester’s research also found that banks were already willing to embrace the potential in customer data, but had, as yet, been unable to capitalize on the substantial big data opportunities.

“Over the next decade, quality of insights will be a key battleground on which banks differentiate,” the analyst wrote.

“At one end is engaging personalization; at the other, autonomous finance. Consumers, in turn, will demand greater transparency and control over the use of their data for more personalized advice and engagement.”

Banks are also expected to embrace the growing trend for environmental, social and governance (ESG) focused banking, according to the report. The research found that “purpose” was becoming increasingly used to match banking approaches with consumer attitudes.

As a result, the market should expect the emergence of purposeful banks that would embrace transparency through values-driven ecosystems and co-operative style principles that align with global ESG trends.