2021 FINANCE TRENDS 13th January 2021
Circumstances of the pandemic have been in many ways a catalyst for the finance and banking sector. From an increase in contactless payments to fast-tracked digital transformation, the sector has been forced to rethink its offering, experience and network strategy. Here we discuss the trends that will affect the competitive and future of financial institutions throughout 2021 and onwards.
For decades, the promise of digital banking has never been fully realised, largely due to customer reluctance and a lack of attractive digital solutions. However, due to the pandemic the end of cash has never been closer, it has hastened its decline and given way to the prevalence of contactless experiences with 74% planning to use contactless after the pandemic is brought under control (Mastercard, 2020). It has also turbo-charged digital adoption across products and demographic segments. Customer perception of the experience will no longer be based solely on price and product, from digital services they will expect speed, simplicity and relevance.
CREATING RELEVANCE & PERSONALISATION
To create ‘relevance’, they will be leveraging customer data and analytics to digitally deliver hyper personalised services and engage customers—together with partners—in new and differentiated ways. Personalisation at the end of the day is non negligible, with 80% of consumers being more likely to purchase from a company that offers personalised experiences (Epsilon, 2018).
HUMANISING THE DIGITAL EXPERIENCE
As for predictive-AI and chatbots, we will continue to notice improvements and greater application across the user journey. The success of all these data-led applications will rely on the balance between user-focused technology and highly personalised human connection. Humanising the digital experience will become a significant feature that will impact customer retention, this does not necessarily mean human involvement is necessary but understanding lack of the technology they have in place is. Consequently, knowing when to involve people in the users’ banking journey will be an important consideration – after all 63% of customer still rely on staff to resolve their problems (PWC, Retail Banking, 2020).
PARTNERING IS SURVIVING
Also, of note is data-driven banking, which will result in cybersecurity and privacy gaining even more significance in customers eyes, this will especially affect new banking providers, neobanks and payment solution companies amongst others. Banks and finance organisations that are going to survive and succeed will have to work towards building and strengthening their digital ecosystem and experience. As a result of these changes, we will be seeing banks, FinTech’s, insurance providers, payment solution companies and open banking partnering up more than ever.
The surge in contactless payments during the pandemic has seen the intensification of the likes of contactless card, QR code payments and digital wallets. Touchless payments have slowly but surely become ingrained in consumer habits and reinforced by COVID-19 hygiene requirements, these changes are going to persist and drive innovations of completely contactless solutions similar to Amazon Go and other self-checkout concepts.
As previously expressed, the pandemic has turbo-charged us towards a cashless society, as of April 2020 90% of face-to-face transactions have become contactless in the UK (Barclay Card Payments, 2020); following this, we saw an important increase in P2P (Peer to peer) payments, an area where the likes of Paypal as well as neobanks excel and where debit cards might see some disruption.
With the rise of e-commerce and the surge in online shopping during the pandemic, Buy Now Pay Later has thrived. BNPL use to be a feature of convenience but has now become essential, this POS solution is mainly provided by fintechs such as Klarna, Clearpay, Laybuy and Affirm, which are becoming a determining factor in consumer purchases. According to Sensor Tower Store Intelligence data reveals that the adoption of BNPL apps in the US by first-time users collectively grew 115% year-over-year in September while monthly active users climbed by 186% (Sensor Tower, 2020) In addition to this, Data compiled by PYMNTS.com in a report on the BNPL industry showed that a whopping 87% of consumers between the ages of 22 and 44 have expressed interest in BNPL (PYMTS.com, 2020).
BNPL providers are definitely disrupting the credit card providers and this will continue as these providers offer their services across a larger range of products and uses. And to top it off, new players such as Apple Credit Card that charges no annual and late fees or even the Amazon Credit Card that works hand in hand with the prime membership will definitely shake things up, especially as these brands are already part of consumers’ daily lives.
Digital payments are swiftly closing the gap in B2B payments, with 89% of organisations in 2018 already having had plans to adopt a digital-first business strategy (IDG, 2018), and fintechs are increasingly getting in on B2B functions, focusing on SME’s to help simplify transactional and account management. Fintechs approach to targeting specific problems, offering better value and better branding with user-friendly experiences and interfaces are now just as appealing to entrepreneurs, independent business and smaller enterprises as they have been to consumers. By building focused yet highly effective solutions fintechs have been able to take over areas neglected by traditional banks in terms of offerings (i.e. finance management tools, small loans etc.). An example of this is Starling’s business account, which is free, easy and quick to set up; companies can choose between accessing it from the app or from desktop, they can make payments abroad for free and can link to an accounting software as well as open a connected euro account, other leading SME challenger banks include Qonto, Solaris Bank and Anytime.
THE CUSTOMER-FIRST MINDSET
What these alternative banking and financial providers have in common is that they are increasing convenience, facilitating access and/or management of finances and making it approachable to the masses – we are coming back to the essence of what partly disrupted the banking industry, the inefficient features, the overly complex offerings and the intimidating experiences… This shows that although technology has had a major impact in this sector the success of these providers is the flexibility they introduce and above all the customer and user-first mindset.
Misinterpreting changes in consumer behaviours to mistakenly pivot to digital-only is a very easy move to make, nonetheless 98% of customers which switched banks last year, chose one with branches (Oliver Wyman, 2020). Rather than shifting solely to digital, now is the time to rethink the very purpose of the branch and move towards a more experiential strategy, away from functional and solely transactional propositions.
SAY BYE TO TRANSACTIONAL BRANCHES
The rise of digital has questioned the value of physical branches, however for banks that balance both, consistency in the experience and the offering across both physical and online channels have never been more important. Consumers will be expecting a harmonious experience across all platforms in real time. The days of so-called ‘digital branches’ and smaller transaction-focused branch formats are numbered.
SAY HI TO INSPIRATIONAL BRANCHES
The effects of the pandemic combined with the advancement of mobile banking mean that the need to visit physical locations purely to transact is fast disappearing. The upcoming focus for physical spaces will be about people, not machinery – 60% of great in branch experience are due to great staff (PWC, Retail Banking 2020). These will be vibrant spaces that encourage conversation, stimulate learning and support the brands’ online features.
A NEW BRANCH ENVIRONMENT THAT REPRESENTS YOUR CUSTOMER
A great example is Virgin Money branch in Manchester inspired by the concept of learn, work and play and tailored to serve the needs of local communities. Open to customers and non-customers, it provides facilities for entrepreneurs to co-work and create in the social media studio, fuelled by bottomless cups of free caffeine at the coffee bar. The stores are a platform for social engagement, a destination hosting a diverse range of networking events, seminars, panel discussions, even morning yoga and evening gigs – all curated to the needs and interests of the local market. Other similar concepts pushing the boundaries of the branch experience is ImaginCafé by Caixa Bank which follows the motto “enjoy.share.create”; coined as a multidisciplinary space placed in the heart of Barcelona and designed for millennials. It unifies technology, innovation and music and hosts expositions, concerts, workshops and has a cafeteria, co-working spaces and game room. More recently ING Bank has launched in its Amstelveen location, a new-concept branch featuring a series of homely spaces and rooms designed to set customers at ease and facilitate conversations. The space has a cafe, child play area and several cosy meeting pods all in a colourful setting, together it aims to echo aspects of a hospitality experience and atmosphere.
While banking seems to be changing, so does the purpose of banks. Societies around the world now expect banks to help address and support income inequality, racial and gender inequity, and climate change. According to EY, 44% will chose not to bank with a brand they feel is focussed on profits during the pandemic and 56% will chose a bank based on its role in supporting community and society and on transparency (EY Future Consumer Index, 2020).
CONNECTING WITH CUSTOMER VALUES
To connect with customer values and their daily lives, retail banks must also consider cross-sector collaborations to expand their offerings in a relevant way. Customers analysis and review of their experience from financial institutions will include various social and sustainability issues, banks have the opportunity to tap into this by taking an active role, such as providing transparent services, enabling financial literacy and supporting community and ecological investments.
ENVIRONMENTAL, SOCIAL, AND CORPORATE GOVERNANCE
Specifically, the term ESG “Environmental, Social, and Corporate Governance” which represents three factors in deciding whether to invest in a company or business, is becoming more and more important; brands have already felt the pressure from their customers and from the general public, this will expand to banking and financial institutions, seeing an increasing number of consumers that will be choosing their bank based on ESG credentials.
LEADERS IN SUSTAINABLE BANKING
The vast majority of banks centre their sustainable commitment around reducing fossil fuel investment and taking part in more green financing. However, the ultimate ethical bank today is Triodos, it pours its profits back into local communities, investing more than £6 billion in projects that benefit people and planet across Europe. Another leading green bank is Ecology Building Society, it is the UK’s only dedicated green mortgage provider. It loans money to those looking to make green improvements on their homes or to build an environmentally friendly house from the ground up. Whilst these sustainable banks might represent an end of the spectrum, it is fair to say that it has become fundamental for leading financial organisations to re-consider their approach to ESG
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