Thought leaders ATOS published “Toward next-generation financial service ecosystems”, which analyses mega-trends in financial services and why we should all prepare for a fundamental shift in the next few years.
As its report says, banks are at a crossroads, and the “rise of non-banking platform companies are now disrupting the most profitable parts of the banking value chains. New players could capture up to a third of incumbent banks’ revenues by 2020.”
ATOS has identified four challenges and opportunities that will have the biggest impact on banking, providing they leverage the emerging technology.
1. Faster response to customer demands
Retail banks that adopt digital tech will see a 5% to 20% boost in revenues thanks to an improved service. They will also reduce their network costs by anything from 15% to 35%, and increase customer satisfaction by 10% to 15%. In advanced economies, two-thirds of banking customers execute half their financial transactions online. Customer loyalty is becoming elusive and branches are less relevant as a result. To respond, banks may shift from a product-centric to a platform- centric approach focused on customer-driven strategies.
2. Optimise costs
Fintechs are more agile and have lower operating costs than banks, making for strong competition. Digital banks can enjoy a cost-to-income ratio of below 30%, whereas banks are in 40% to 60%. Banks have some options, including shifting to lower-cost, standardised utility processes for selected administrative activities and using AI to improve customer response times and reduce employee redundancies.
3. New revenue streams
With banking business models changing thanks to neobanks, there is a need for traditional banks to reassess their position. They could position themselves as a hub platform and introduce new services for underserved segments of the community, such as mobile only banking for Gen Z and the unbanked.
4. Develop security and compliance systems
Customer data has now become a ‘product’ for financial institutions and this requires enhanced security and insights, which could be provided by AI. For example, PSD2 requires banks to implement secure application programming interfaces (APIs) to make account transactions and data available to third parties. Developing system using AI-generated insights from civil and military intelligence could dramatically reduce the cost of cybercrime and enhance consumer trust.
There is nothing here that is earth shattering; it is what many have been saying throughout 2018, yet the banks continue to be slow in their response. Perhaps 2019 will the year they wake up and start moving forward.