Retail Banking: 5 trends to look out for in 2021
If 2020 taught us anything, it was that forecasting is far from a precise science. Indeed, many of the predictions made in even the most prestigious financial circles were being subtly undermined at this time last year.
The pandemic of COVID-19 forced banks into digital action, with even the most prominent financial legacies unable to escape the digital tide which grew as the result of social distancing and global lockouts. This posed a major challenge especially for banks that were still clinging to the brick and mortar mast, as they had to show the value of digital progress over several years to satisfy the increasing demand.
But nobody could have foreseen that tidal wave. So, let’s not make any bold assumptions about what 2021 is going to look like for the retail banking sector. One thing we can be sure of, however, is that it’s going to be a year unlike any other. If 2020 was a year that forced a sea change into digital transformation and more secure working from home systems, 2021 will be the year that leans into those changes.
Cloud solutions make their mark
With the cloud becoming more stable, cheaper, and more powerful each year, more and more banks are joining up in favor of the leaner and more agile alternative in the conventional in-house IT infrastructure. The cloud is the root of all truly disruptive technologies. The primary reasons for banks that refused to trigger cloud adoption have always been the security and storage, but these concerns have been greatly minimized by continued capacity upgrades.
This large-scale digital adoption and cloud migration has probably been catalyzed by COVID. Banken are on track to invest 48 percent in the cloud in 2020, up from 34 percent in 2018, according to Capgemini. Capgemini. The real challenge is that banks will scale cloud operations in a way that will increase operating efficiency without alienating legacy users. This is all in the customer experience, and banks ought to invest heavily this year if they hope to stay in the game. They need to act fast too, as they are very much on the back foot right now with legions of new-age, online-only challenger banks two steps ahead in terms of functionality and flexibility.
Greener banking is key
Studies show that consumers will have a deeper link with brands that prioritize ecological initiatives. Retail banks must concentrate on more sustainable bank initiatives and operations in 2021 if they hope to compete with the younger and more “weaker” banking challenge. This means developing sustainable internal cultures which promote and encourage environmental, social, and governance (ESG) practices among staff.
It also means focusing more heavily on sustainable products and services and investing in sustainable sectors and charities. Carbon-neutral banking is not the fairy tale it was once thought to be, after all. Of course, there have been several vocal commitments made by leading banks about cutting carbon footprints. NatWest aims to halve its climate impact by 2030 and the People’s Bank of China is providing a wealth of green lending incentives. But it’s still not far enough. 2021 is going to be the year where banks start to go that extra green mile.
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The need for customer-first digital banking experiences
With the vast majority of consumers feeling either jaded or emotionally shell shocked by the last 12 months, they are more likely to be drawn to brands that they feel comfortable with and that align with their values. Humanizing these increasingly digital banking experiences will be a big part of that, especially as customers move away from traditional face-to-face banking. Digital interaction will not be an option in 2021; it will be a requirement, and it will need to go beyond the basics of having a bespoke app.
Traditional retail banks can’t possibly hope to compete against their online-only incumbents in terms of price or even functionality. Where they can work to retain customers, however, is in how they interact with their customers. Banks are going to need to start looking towards more personalized offerings that offer better customer experiences. These are the kinds of uniquely tailored, on-demand experiences that are going to help users feel more comfortable and secure with their banks. This means giving customers the flexibility to choose whether they speak to human beings or automated electronic systems, and being more open and transparent with how they operate.
Smart credit quality management
With 2020 stretching credit quality to its limit and various government stimulus packages rendering traditional metrics for measuring credit quality utterly meaningless, 2021 is going to be the year where the chickens come home to roost, so to speak. This means retail banks are going to need to think hard about how they can meet the demand for credit and recognize how credit provision is integrated with payment transactions. Otherwise, a new generation of lenders will eagerly step in to fill the gap.
They are going to need to utilize the insights and data they have gained from the last 12 months and deploy micro-segmentation to analyze viability at a sector level. The more specific the better. Retail banks will also need to think smarter about credit extensions and more quickly how they react to changes in the market. There are plenty of credit opportunities, particularly with the major increases in e-commerce we’ve seen in recent months. It’s up to the banks to jump on those opportunities at the right time.