One of the things we learned over the past year is that you can accelerate anything. The banking and fintech industries compressed roughly a decade of ecommerce innovation into a 10-month span. Unsurprisingly, people have adapted. Consumer expectations have shifted, and companies have pivoted accordingly.
This change has been represented in the finance sector by customers embracing digital services, including many who previously had never completed financial transactions online. Currently, millions are banking without walking into a physical location, and that trend is unlikely to change. It’s often quoted that necessity is the mother of invention. In many ways, this pandemic has proved necessity is also the mother of adoption.
Now, entrepreneurs, business leaders and industry executives face an unprecedented and unexpected rate of change. Advancements that were estimated to be years out may now emerge as the “new normal” within months. The future of banking will not only look different in regard to more rapid digital adoption, but also in terms of service offerings, who offers them and the relationships institutions have with one another and their customers.
Soon, the most successful banks will rely less on traditional services and revenue streams. They’ll depend more on the ability to see customers’ financial needs from end-to-end and to meet those needs in a connected, seamless and frictionless way.
The following eight factors will significantly inform digital banking through 2025.
Related: 6 Technology Trends Every Bank Should Be Ready For In 2021
1. Physical decline
The relevance of brick-and-mortar banks will continue to fade, slowly but steadily, giving way to the overwhelming use of digital services via mobile, computer and other devices. While physical banks are unlikely to disappear entirely in the decade ahead, many of those remaining will have to repurpose to serve niche needs as general financial services are increasingly available online.
2. Thinner wallets
For consumers, it's beneficial to maintain access to a variety of payment options, but those options will include cashless. Not only are electronic transactions generally more convenient and efficient for individuals, but digital financial ecosystems also deliver significant advantages to businesses, governments and economies at large. The question is not whether companies and countries will go cashless — rather, it’s who will lead the charge or dig in their heels.
3. Cardless payments
A century ago, it would have been nearly impossible to convince someone their entire liquid value would one day be available for viewing and transactions would be completed via a small plastic card. Today, you might encounter similar difficulty in convincing some that cards will soon be obsolete, too. Asian markets lead this trend, where more than 50% of transactions are made using digital wallets. The massive growth in payment-capable IoT devices and accompanying services are the primary drivers of this trend.
4. Competition with non-banks
Despite ongoing debate between lawmakers, regulators, and executives, SaaS companies like PayPal, Stripe and Venmo aren’t considered banks. Increasingly, however, they will serve customers’ financial needs in the same way traditional banks do today. The rise of super-apps like China’s WeChat, Singapore’s Grab, and Indonesia’s Gojek will also continue to disrupt the financial world.
5. Credit relevance
Consumers will continue to rely on credit as long as wages and spending needs are misaligned. However, what is poised to change is how financial institutions make credit decisions, which will affect the relevance of credit scores. In the same way credit issuers took a more comprehensive approach to evaluate creditworthiness following the 2008 financial crisis (considering home value, criminal history, professional background and other nontraditional factors), today’s institutions are turning to artificial intelligence to analyze the risks and rewards of consumer lending. The amount of data available to banks is only growing, and they will increasingly use it to discover better decision-making methods.
Big data and AI-driven analytics bring about a new paradigm in financial services, one in which the bank will treat every customer as if they are its single greatest priority. Instantaneous borrowing, proactive product suggestions, detailed guidance on purchases, budgetary recommendations based on factors like real-time location, spending profile and much more are poised to be the new standard for financial institutions’ approach to customer personalization.
There are many players in the financial landscape, including traditional banks with online services, digital-only banks, fintech apps and related service providers, merchants, and of course, consumers. Variety is nice, but it also can cause transaction friction, privacy and fraud significant concerns for all parties involved. As a result, groundbreaking innovations can only disrupt financial markets to the degree consumers are convinced of their safety and efficiency. The solution to these challenges will increasingly come in payment and financial stacks that offer interoperability by design.
The initial shift toward digital financial services saw an ad hoc response from regulators. As new technologies come into play and tech giants like Google and Apple become increasingly disruptive in the financial industry, these transformations will force policymakers to identify emerging threat vectors and comprehensively address risk. In contrast to today’s mostly national systems of oversight, a global approach may be necessary to ensure stability in the sector, and we may see the rise of new licensing and supervisory bodies.
Related: Top 5 Fintech Trends That Will Shape Financial Markets in 2021
The future of digital banking appears bright, but the unprecedented pace of innovation and shifts in consumer expectations demand a new level of agility and forward-thinking. Even as financial institutions attempt to differentiate themselves from competitors, co-innovation will become an integral part of success.
People and technology will both play critical roles in these developments. Tech capabilities and digital services must be extremely resilient, constantly available at the time of customer need. Human capital, however, will be as crucial as any other asset. Leaders will have to know how to upskill, reskill and retain their talent to promote innovation. And they’ll need to do this all while challenging their teams to do things the customers of tomorrow will expect. The companies that succeed at seamlessly blending these two dynamic forces — people and technology — are those most likely to lead the challenging, changing times that lie ahead.
Featured Article: What is operating income?7 Stocks to Watch When Student Debt Forgiveness Gets Passed
Now that the Biden administration is fully in charge, student debt forgiveness has moved to the front burner. Consider these numbers. There is an estimated $1.7 trillion in student debt. The average student carries approximately $30,000 in student loans.
If $10,000 of student debt were to be canceled, there are estimates that one-third of borrowers (between 15 million to 16.3 million) would become debt-free. Of course, if the number hits $50,000 as some lawmakers are suggesting the impact would even greater.
Putting aside personal thoughts on the wisdom of pursuing this path, it has the potential to unleash a substantial stimulus into the economy.
And as an investor, it’s fair to ask where that money would go. After all, there’s no harm in having investors profit from this stimulus as well.
A counter-argument is that the absence of one monthly payment may not provide enough money to make an impact. However, Senator Elizabeth Warren referred to the effect student loans have in preventing many in the millennial and Gen-Z generations from pursuing big picture life goals such as buying a house, starting a business, or starting a family.
With that in mind, we’ve put together this special presentation that looks at 7 stocks that are likely to benefit if borrowers are set free from the burden of student loans.
View the "7 Stocks to Watch When Student Debt Forgiveness Gets Passed"