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Investment Priorities to Prepare for the Future of Banking – Part I

By Benjamin P. Seesel | November 08, 2022 | 0 Comments

Financial ServicesFinancial Services Client Experience and Journey TransformationFinancial Services Digital Business Strategy and Innovation

During the pandemic, banks cemented their status as indispensable providers to customers. Consider everything the industry accomplished: helping consumers navigate relief efforts and job losses; helping business owners navigate shutdowns, PPP and CEBA; and helping high-net-worth individuals weather unprecedented volatility. Clients could not have survived COVID-19 without the support of banks, and except for healthcare, no industry did more over the past 3 years for customers, the economy, and the entire world than banking.

The question now becomes how to make the future of banking as indispensable as the past. This prospect is far from certain. A recent survey of financial services leaders revealed that only 48% feel confident or highly confident in their ability to “evolve products and channels to meet evolving customer needs.” And these fears are not misplaced. The banking client of the future will indeed look different in multiple respects:

  • Future customers will enjoy greater freedom to shop around between different providers than ever before. Future clients will own and recognize the power of their data, and take their data to different providers who meet their financial needs. This trend is already underway, with 57% of consumers using fintechs over the past 6 months and 54% of CFOs considering fintechs for their firms’ payment needs.
  • Future clients will require advice from their bank that is more relevant, by degrees of magnitude, to their personal and business objectives. This trend is likewise apparent already. Customers receiving contextualized advice from their bank are 25 points more likely to be financial empowered than those receiving more generalized advice.
  • And customers will require support that goes beyond just banking to help them achieve a constellation of personal, business, and life objectives. This trend is also very much in flight, as we noted in our recent blog on how providers can expand their value proposition beyond traditional financial services.

In our view, banks must embrace 3 strategic imperatives to maintain their indispensability to future customers:

  • Become More than a Bank – first, banks must develop both their banking and non-banking value propositions. It is too easy for customers to get just banking elsewhere. Banks must mobilize to support customers’ banking needs but also a much wider range of personal, business, and life objectives.
  • Be Relevant Across All Ways of Working – as customers engage banks on an array of new topics beyond traditional banking, they will engage as they please. Customers will connect with banks in live, virtual, and hybrid ways, and banks must deliver a world-class experience across all ways of working.
  • Build Breakthrough Innovation Muscles – to keep pace with market dynamics, technology, customers, and competitors, banks must innovate more aggressively. Fast following is no longer fast enough.

Across these three admittedly broad imperatives, there are 7 more specific investment priorities that banks must adopt to maintain their status as indispensable providers. In this piece, we’ll look at the first four investment priorities aligned to the first imperative: becoming more than a bank. We’ll review the remaining three investment priorities in additional pieces to appear in the near future.

Building out both the banking and non-banking value proposition involves banks embracing four investment priorities:

  • Build out API Architecture – your future product is not just credit, deposits, or treasury, but data. Clients’ data – their credit, activity, and transactional history – is the key to them achieving their financial objectives. To be indispensable to customers, you must help them make the most of their data, which is why API architecture is so critical. Uses cases will include banking-as-a-service, ecosystems, and fintech partnerships.
  • Develop Specialized Payments Capabilities – payments is a complex undertaking, particularly for business customers. There is infinite variation in payments across different industries and use cases. Clients require a bank who understands their payment flow in detail and can dispense personalized advice to help maximize cash flow and liquidity. But clients also need advice that goes beyond the transactional element of payments. Business owners also have a constellation of related questions on how to navigate relationships with their ecosystem of suppliers, partners, and customers. Banks that go beyond the transactional side of payments to advise on these questions will be the indispensable providers.
  • Focus on Sustainability Strategy and Offerings – consumers, business owners, and high-net-worth individuals want to work with banks that reflect their sustainability priorities. But they also seek banking partners that help them make tangible progress in this critical area. And banks can indeed help clients advance their sustainability priorities. In business banking, banks can offer specialized credit or insurance products to support green buildings, technologies, and investments. In consumer banking, firms can provide specialized credit products for solar panels, carbon offsets, and electric vehicles. And in wealth management, ESG investment advice is critical to engage both current and future generations of high-net-worth individuals.
  • Understand Crypto Regulatory Scenarios – consumers and business owners increasingly want to make crypto a tool for their payment needs. But there is considerable uncertainty regarding how the regulatory regime will evolve. Because the future regulatory structure will be such a strong driver of crypto adoption, banking leaders should invest in scenario planning to prepare for different potential regulatory states. Banks should explore not just expected scenarios, but also “wildcard” scenarios of extreme regulatory futures that could significantly hinder or support crypto adoption.

Check back soon for more insight on the remaining investment priorities to prepare for the future of banking. For more insight from our research on this topic, click here. For ideas on how to keep financial services leaders ahead of market disruption, take a look at Techniques to Challenge Stale Assumptions. For more support to be the indispensable provider to your clients, please schedule an inquiry with our experts to discuss how Gartner can help.

The Gartner Blog Network provides an opportunity for Gartner analysts to test ideas and move research forward. Because the content posted by Gartner analysts on this site does not undergo our standard editorial review, all comments or opinions expressed hereunder are those of the individual contributors and do not represent the views of Gartner, Inc. or its management.

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