The future of banking is already knocking on the door

The future of banking is already knocking on the door

Digitization is progressing unabated in the banking sector, which will soon lead to drastic changes in the field.

The digitization wave was noticeable before, but since the beginning of the pandemic, it has been happening much faster. This is mainly due to the fact that the public’s fear of the virus resulted in a reduction in physical contact and a switch to digital channels. As a result of the epidemic, people who had previously ruled out the possibility of doing so switched to online banking. Among the elderly, for example, it is traditionally difficult to induce this change, but since they feared the epidemic the most, a good number of them switched to digital channels. It can be stated that the pandemic accelerated this process by years, even decades. The sector also had to respond to the change in banking habits, one of the most visible ways of this is the closing of bank branches. Although the process had already started in the early 2010s, it accelerated spectacularly in the last two years. In Great Britain, for example, the largest banks have closed more than a thousand branches since the spring of 2020 and are considering further cuts. But not only the number of bank branches, but also their role is changing. The role of digital channels is constantly increasing in the locations that survived the downsizing, and more and more are already providing support from the branch to customers banking from home. This also affects the design of the bank branch, as well as the continuous training of employees. Banks cannot therefore be accused of not adapting to the transformation of consumer habits. Despite this, the accelerated digitalization is not good news for them, as it moves the race to a space where fintechs are much more experienced. In particular, the fintech challengers, the neobanks, pose a threat to traditional banks, as their business model is based on a completely digital operation that avoids bank branch networks. Neobanks offer experiential, fast, simple and convenient services to their customers, who understandably do not tend to return to traditional financial institutions later. Although more and more of the latter are also starting to sell digital products, in many cases this means nothing more than transferring a lengthy process involving a lot of paperwork to the online space. A good example of this is opening an account online, which is still a process that takes hours at many banks, where the new customer must read and sign hundreds of pages of contracts and information. It is also not uncommon to have to contact the telephone customer service several times. In one word, it is not good news for banks that the demand for online channels has grown so quickly, but at the same time it is undeniable that the majority have started to react and are approaching product development with a new approach. The growing use of digital channels can also focus on the issue of cyber security. For example, it speaks in favor of the banks that more and more neobanks are breaking into customer identification and money laundering protection, which may discourage many from opening an account with them. It is true that traditional financial institutions also struggle to prevent financial crimes, but trust in fintechs is more easily shaken by clients from their young age. And if the competition between banks and fintechs wasn’t enough, another exciting trend could disrupt the banking of the future: the metaverse. In the metaverse, apostrophized by many as the Internet of the future, according to some, the best aspects of online and offline banking will be mixed. In the virtual space, the convenience and speed of online banking will be given, but the interactions between avatars can also restore the personal feeling. At the same time, critics refer to the metaverse as a dystopia of capitalism, and it will take a lot of time to do justice between the two camps. Every month, Peak’s research and consulting team prepares a comprehensive overview of the trends in the fintech world and their effects on the banking sector, insurance companies, the IT sector and government bodies. In the studies, we deal in detail with the strategic aspects of traditional banking and neobanking product development steps. If you have any questions regarding the entire circular or its individual elements, we welcome you to the email address [email protected].Subscribe to the World of Fintech Weekly Newsletter>>>

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