What is a bank? The definition is in flux. As the regulatory-driven Open Banking agenda powers innovation and accelerates the fragmentation of a heavily concentrated banking market, incumbent banks must act quickly to stay relevant.
As customers look far and wide to satisfy their financial needs, some are questioning the need for a bank at all. Disruption is not new in banking; after all, today’s banks look very different from even twenty years ago. But the scale of disruption and the pace of change are unprecedented: in less than ten years, the industry will look radically different.
The winners will be those that can rapidly convert customer insight into powerful new experiences that are personal, friction-free and add real value to daily life.
To investigate the industry’s readiness for the era of opening banking, Marketforce and Earnix surveyed 300 senior banking executives. From their responses, we have identified five key imperatives for the industry as it stands on the cusp of a banking revolution:
- Prepare: technology and regulatory drivers will intensify competition and accelerate market fragmentation over the next five years
- Personalise: with the customer relationship in play, the winners will be those that can differentiate themselves by using analytics to create bespoke services and tailored products that add meaningful value
- Entrench: banks have a window of opportunity to capitalise on their existing ownership of the customer relationship to deliver highly personalised services that customers find they cannot live without
- Innovate: total digitisation, machine learning, analytics and the internet of things will deliver previously unimaginable opportunities to get closer to customers and re-invent what it means to be a bank
- Invest: banks recognise they face an analytics gap to deliver the personalisation agenda and plan to significantly ramp up spending over the next five years
Change in banking is clearly inevitable, with technological innovation at its heart. The key enabler to almost every element of the digital revolution appears to be data analytics, powering personalisation, machine learning and value-adding services. In an open banking environment, data analytics will be the commanding basis for differentiation in an increasingly competitive financial landscape.
TIME FOR BANKING REVOLUTION?
Waves of digital disruption have created fertile ground to seed new banks. After half a century of consolidation, the banking industry is again fragmenting, offering greater choice for consumers. Before the launch of Metro Bank in 2010, no new banking licence had been issued in the UK for over 100 years; since then, 19 new retail and commercial banking licences have been issued, with at least eight more pending. And it’s not just new banks. The booming FinTech sector is propagating an array of challengers with smart user friendly solutions for the on-the-go customer.
These new entrants are being emboldened and enabled by regulators. The open banking provisions in the EU’s Payment Services Directive II (PSD2) and the UK’s Competition & Market Authorities Open Banking Remedy will trigger an unstoppable groundswell of competition that will reshape the industry for decades to come.
The open banking agenda will loosen the grip of the large banking groups that dominate the current account market by compelling them to use open APIs (Application Programming Interfaces), which give third parties easier access to customer data and the ability to develop services that plug directly into banks’ systems.
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