Legacy players might win the war in 2020

Over the past 12 months, the banking technology landscape has continued to feel the impact of the challengers, new AI technology, the evolution of Open Banking, and the consolidation of businesses functions and business operations. But what does 2020 have in store for the banking industry?

Steve Morgan, industry lead for financial services EMEA, Pegasystems, discusses his top predictions for the year ahead.

1. Bring on micro advisory-focused branches: The speed at which bank branches are closing will not abate. Yet, there are still some activities that will continue to require a face-to-face advisory service, primarily those related to lending and investment advice. As a result, we’ll see more micro-branches popping up in our towns and cities, which will include focused areas on education (about products and using online banking), private zones for advisory, and areas designed specifically for declining volumes of basic transactions.
   

   Will fintechs continue to gobble up customers from legacy players?

2. Challengers struggle with differentiation: A majority of new fintechs have a limited spread of financial products. So, how can they keep their existing customers engaged and pique the interest of new ones? To continue their disruption, they will focus on perfecting customer experience and carving out their USPs, as well as expanding their variety of products to fuel revenue growth. However, a roadblock will be that they need a bigger balance sheet first before they can offer new products, for example with investing and borrowing.

3. Overseas operating centres get the chop: About 15 years ago, there was one way to attack your cost base – outsource. But with the proliferation of AI and machine learning, if banks can automate more, it will be possible for them to reduce the number of operations and service centre staff. Consequently, it will be beneficial to have employees closer to their head office, their colleagues and the customer. This will help eliminate friction costs caused by management/colleague distance and time zone differences. Next year, improved AI, automation and next best actions will lead to the further consolidation of customer operation centres around the world.

4. Meet your virtual bank advisor: As mobile banking becomes the norm and branches become education and financial advisory hubs, the problem that banks will face will be having the best people available in branch who can deliver these more complex services to their customers that cannot be undertaken online via a chatbot, for example. Making sure they have enough skilled people available at the right time is crucial: people won’t wait half an hour in a branch anymore. Therefore, banks will further harness technologies such as video conferencing so financial advice can be offered virtually, as well as booking appointments online. There is a huge opportunity here to improve convenience for the customer.

5. It’s time to restructure: At the same time, as banks move more of their technology to the cloud, on-going re-platforming, customer and regulatory demands have led them to think more about their strategy for how to best operate in an Open Banking world. Next year, more banks will realise that they need to be set up for three key technology areas: product, pricing and data. The knock-on impact will not just be technological but will also stimulate organisational restructuring as they try and eliminate organisational silos and determine how technology can be implemented to support these new business opportunities and threats.

It’s clear that commercial and retail banks alike are finally embracing all that technologies such as artificial intelligence have to offer, and it will be exciting to see how it accelerates the industry. Considering they are facing an extremely challenging year ahead, their investment in innovation has never been more important. Additionally, as consumers and businesses shift their banking habits ever more online it will also be interesting to see whether banks can keep up with these preferences, and whether fintechs will continue to gobble up customers from legacy players. If traditional banks can get their restructuring right and enhance their customer experience, then they should be able to fend off the challengers’ charge.

By Steve Morgan, Pegasystems industry lead for financial services in EMEA