By 2020, today’s 39 year old will turn 50 and today 9 year old will be 18 and both represent a whole new generation of customers for the financial services. The 18 will be in the market for financial services and having gone through the banking and credit crisis they will be very skeptical of financial institutions. The newly turned 50 will be joining a powerful group of boomers that have very different idea of what they want for the second part of their life as well as their financial goals.
By 2020, there will be way fewer banks. Market consolidation will result in making the megabanks even bigger. But they will face non-bank specialists and non-bank banks that specialize in providing highly differentiated product offerings. Partner/Channel relationships will be more important than ever as channel owners continue to gain market power.
In 11 years time, there will be massive innovation on the payment side. I cannot imagine how retail banking will change and even the very nature of currencies. So what services will be wanted and how they will be delivered is likely to radically change by technologies. And even the assumption that customer financial needs will all be met by traditional banks will become a big question as financial services’ potential convergence with another industry.
There is a five-year project between MIT and Bank of America is bringing together bankers as well as academics to think about the future of banking. The objective is to help provide a unique opportunity to grow banking in innovative ways that respond to the evolving marketplace as well as customer behavior, preferences, and trends.
Some of the ideas they’re working on:
- How can every customer be empowered with the knowledge and tools to take better control of their financial futures?
- How will banking interactions evolve as a customer’s physical and virtual worlds become completely intertwined?
How will social networks and mobile platforms transform customers’ banking experiences, making it easier, more convenient, and better integrated with their daily lives?
It is hard for banks to innovate. And when they do generate some radical ideas, these innovations cannot make it beyond a small pilot? Often this is the result of dogmas and bureaucracy, and the dynamics of inertia among these large institutions. It is not often that banks get disrupted by a radical technological discontinuity (ATM and online banking were the biggest ones), these large financial institutions are bureaucratic but there are no significant external forces to present any urgency to innovate. There’s also a lack of process and so it is difficult for their management to put their teams, assets and even culture together.
Let me paint three scenarios for Banking 2020:
Ubiquitous Financial Services – in a world where trust is still mediated physically financial services become ubiquitous. Credit is available from your utility company, insurance company, supermarkets and even employers. These credits will be transferable and they all compete and you can switch you loan among those depending that provides the lowest interest rate.
Social Money STM – finally money will no longer need to be tangible. Mobile money? It is happening in Japan and finally coming to the US. We are 6-8 years behind Asia in mobile (thanks to the larger carriers). Virtual currency/digital wallet are embedded in your digital device and you can use from parking meters to shopping mall. Biometric solves all the security company even if we lose our cell phone. Your IPhone becomes you iWallet. Need cash? Walk up to gas station/convenient store and wave your iPhone to their system, you get your cash. We all hate ATM fees. Competition and free market pricing have created an explosion of new ATMs. Since the advent of access fees in 1996, the number of ATMs has nearly tripled, creating new terminals in more convenient locations. With Social-Money, you can walk up to your friends and withdraw cash from him/her, the transaction happens in the back. Your money debited and his/her credited. He/She makes $3.
Quantitative Analytic Risks Management – Technology will progress enough to provide instant calculation of risk / rewards of every monetary instruments. Customer can simply pick and chose products based on their risk profile. Quantitative analytics and smart infographics allow each customer to manage their risk as easy as picking what they want to eat for dinner. Customer can play with different scenarios where quantitative assessment is accurate to the last cent. System will prompt and alert you when they think you are taking more risks that you should and trigger a review of your credit ratings. Every customer from the bank perspective is a SI number and a risk rating.
