Banking as we know it is in the midst of its first fundamental remaking in centuries. What’s driving this transformation? Two major shifts: our transition to interacting with money digitally instead of physically, which opened finances to tech disruption, and a tech wave that has changed the way consumers define ease and convenience.
In just 10 years, we can expect banks (and other financial institutions) to look, from the outside, like a vastly different organization: a technology startup. That doesn’t mean branches will offer nap pods and catered lunches; rather, your bank will have placed newfound emphasis on the design and customer experience paradigm that has changed while retail banking has been playing catch-up.
Banks have been caught asleep at the wheel in the Digital Age. It was left to PayPal, Square, Mintand others to build the online services that are top of mind for consumers today. On mobile, more people default to Facebook Messenger or Venmo to transfer money to a friend rather than a bank app.
But despite the proclamations of some visionary fintech founders, banks aren’t disappearing anytime soon. The engine under the hood of big banks — the compliance and money-transfer systems — are simply too difficult for any startup to replace, which is why tech plays like Apple Payare still built on top of existing bank systems and payment rails.
To maintain the dominance they’ve enjoyed up to this point, however, banks need a radical redesign of their customer-facing assets. If banks fail to overhaul their exteriors to offer a personalized, best-in-class product experience, they will be relegated to supplying the engine for sleeker-looking tech companies in 10 years.
Thanks to steep regulatory costs and the need for physical infrastructure like ATMs and branches, banks have been shielded from the technological revolutions that have reshaped other industries. Without serious threats of disruption, most banks have focused on consolidating to drive down costs and cross-sell services, placing the customer-facing product experience on the back burner.
Now, however, as our interactions with money have essentially become invisible, the traditional selling points of a money service — moving, storing or growing it — have become table stakes while customers seek the product experience they want. For consumers, convenience is no longer about being a one-stop shop; it is all about fitting seamlessly into existing behavior. The success of mobile payments in WeChat should not come as a surprise when money enables social experiences.
Banks’ inability to keep pace with these customer expectations led mobile banking satisfaction to decline in 2015. Technological advances have raised consumer expectations for a personalized, integrated service, while also reducing the barriers and cost for new entrants to do so, putting banks in a vulnerable position. While startups may not have the infrastructure and systems that give banks their staying power, they aren’t burdened by the legacy systems common in big banks.
Consequently, upstarts like Venmo, LendingClub and Wealthfront are stealing some of the most profitable segments of the market that big banks spent billions to consolidate.
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