Future of banking is a digital business model

The banking industry of the future will look radically different from what it is today driven by some evolutionary changes. It would be safe to say that the future of banking is ‘Digital’. The pandemic has reshaped our lives from how we shop, travel, work, to even how we bank, and has also driven a change in consumer behaviour. Driven by the pandemic, the social and economic landscape has been radically reshaped while customer needs and expectations continue to dynamically evolve.

Consumers have become more demanding of digital experiences. The pandemic has only amplified the need for easy access to banking products, services and information. Given most customers are now comfortable using online channels, the traditional ‘customer loyalty’ for physical proximity of branch would now be influenced by personalization and customization provided through digital offerings. Some of the key purchase drivers would be ‘Value for money’, ‘Ease of buying’, ‘Personal safety’, ‘Customer Experience’ and ‘Personalization’.

Globally, the market has been flooded with a new wave of growing neo banks. Unlike traditional banking, these are not burdened by legacy technology and are operating with greater agility, neo banks can offer personalized experience and seamless interaction craved by a generation who demands a smart digital experience. Neo banks have not yet become the primary banking service for the customers and customers fall back on traditional banking channels only for primary banking. Having said that, the traditional banks will have to scale up in terms of their offerings and services to cater to their customers with changing behaviours which can be achieved by going ‘Digital’.

For most of the traditional banks, security and cost-efficiency are strong motivators for going digital. With an increasing number of specialized banks and FinTechs, competition for acquiring new customers and retention of existing customers has never been higher. The advantage these traditional banks have over the specialized banks and FinTechs is that they have a 360-degree offering in terms of products and services. They just need to adapt to the customer-first approach in this ever-changing environment to continue to lead the space.

Emerging Technologies

Several emerging technologies will combine to redefine the bank-customer relationship forever. We expect to see a rapid uptake of open banking approaches and models as people become more aware of the benefits it can provide to consumers and small to medium enterprises viz. the ability to quickly understand their financial position, explore alternatives and make better financial decisions. As technology reshapes how we live and communicate, this will have an impact in several ways including a hyper-connected world as the norm, open banking services, engagement as a service and the rise of the ‘super-app’.

Super Apps

Super apps as emerging technology essentially serve as a single portal or app to a wide range of virtual products and services. The most sophisticated apps bundle together online messaging, social media, marketplaces and services. One app, one sign-in, one user experience, for virtually any product or service a customer may want or need.

Emerging Payment Technologies

For the longest of time, traditional banks were the kings of payments. Throughout the debit card era and well into the digital era, banks held a virtual monopoly over the payment’s ecosystem. This landscape is also changing and over the past few years, we have seen the rise of a range of new payment service providers and UPI emerging as a major payment option for most Indians. Some payment platforms have created vast 'merchant' networks through their online presence and partnerships with some of the bigger platform players. Others have found a niche in their own areas, often responding to specific customer pain points in the payment environment. The industry would see several payment options which would dominate the future broadly revolving around Biometric Authentication, Invisible payments, Voice enabled payments, Face recognition, QR Code Payments, etc.

Technology will continue to evolve at a rapid pace and emerging concepts such as augmented reality and distributed ledger technology will further redefine banking services. The above technologies will combine to redefine the bank-customer relationship, making banking more personalized across customer devices. Now, with low code development, ease of integration capabilities and cloud, the technology element of digital transformation is no longer the difficult part. The signals of change are driving an evolution across the retail banking sector, and our research tells us that in order to achieve profitable growth banks will need to pivot to a digital business model ecosystem to succeed.

The author is Partner and Head, Financial Services Advisory, KPMG in India. Views are personal.

(For front-line insights on how the future of banking, digital payments and markets will look like tune in to ET India Inc Boardroom from 22-26 February and hear from CEOs and thought leaders. Register now on www.etboardroom.com.)