Retail banking— sometimes referred to as consumer or personal banking — provides a range of financial services to individuals (rather than businesses). In the face of an ongoing pandemic, looming economic uncertainty, and an explosion of technological innovations, the current state and the future of banks and credit unions are topics worth discussing.
McKinsey sees the future of retail banking including a variety of modern capabilities to keep customers and members satisfied. Future banks and credit unions will use innovative tools such as analytics and biometrics to “seamlessly make the lives of retail customers easier and more efficient, helping them with everything from shopping and payments, to connecting to their smart homes.”
Banks and credit unions of the future will also use tools like artificial intelligence, machine learning, and cloud technology to assist customers and members with day-to-day transactions. To compete with in-demand fintech superstars, it will be essential for financial institutions to prioritize highly customized customer experiences and services.
The possibilities for modern banking are exciting and seemingly endless, but there are potential obstacles to consider as well. Read on to discover the current and emerging trends in retail banking, including the goals, challenges, and tools your financial institution needs to ensure future success.
the speed of retail banking evolution
Change in retail banking does not occur all at once. The evolution of the industry depends on many factors, from large-scale disruptive events like the COVID-19 pandemic to the development of innovative technologies. Below we discuss a few of the ways the future of retail banking is evolving, including the variables that are accelerating the evolution and those that are slowing it down.
Effects of the COVID-19 pandemic
The arrival of COVID-19 has impacted many aspects of the banking industry. The pandemic era has played a role in the increase of:
- Digital transactions and self-service
- Cybersecurity risks
- Consumer credit challenges
At the same time, in-branch visits and transactions have decreased as customers and members increasingly embrace digital-only services.
Banking consolidation trends began over a decade ago, but the landscape has been changing at an even faster pace since the arrival of COVID-19. As a result of decreased foot traffic at brick-and-mortar locations and rising competition from fintech firms, many FIs have resorted to closing offices and consolidating branches.
Furthermore, with fintech firms finding success in various types of traditional banking services, The Financial Brand reports, “Nearly three-quarters of financial executives expect a fintech or big tech firm to be a top ten financial institution in less than a decade.” If the trend toward fintech servicing continues to expand, FIs may face increased closures and consolidation of in-person branches.
Salesforce explains that “Cloud computing is a way to access information and applications online instead of having to build, manage, and maintain them on your own hard drive or servers.” In the banking industry, the cloud computing sector is growing rapidly, especially when compared to other forms of digital innovations. This is great news for FIs, as cloud computing allows for faster processing of large volumes of data.
goals of retail banking
Though the overarching goals of banking remain largely unchanged, technological innovations require financial institutions be adaptable in order to stay competitive in the modern world.
The following list presents the top goals for the future of retail banking and how Element can work with your bank or credit union to bring those goals to fruition.
Make the lives of retail customers easier
Solutions: ITMs, seamless digital-to-physical transitions, self-serve tools
New tech tools offer an exciting opportunity for financial institutions to make life easier for customers and members. However, these innovations can prove ineffective without a strategic plan and proper team member training. Element can work with your team to set goals and optimize your physical space to better support and leverage new banking technology.
Offer a highly customized customer experience
Solutions: ITMs, universal agents, data analysis
As part of our brand strategy and marketing services, Element provides ongoing data analysis and consumer research to ensure FIs have the latest insights needed to meet the changing expectations of customers and members.
Provide speed and simplicity
Solutions: employee training, customer and member tutorials
We can help maximize performance with training protocols that are personalized to your specific branch, emphasizing real-world skills, training employees to take charge, and tracking progress by measuring performance and monitoring employee progress.
Attract new customers and members
Solutions: exterior digital signage, content programs, outreach events, in-store branches, self-serve solutions in new locations
Element’s marketing campaigns can help increase visibility, drive brand awareness and recognition, increase lead generation, and help build your FI’s authority and credibility.
Strengthen customer engagement and loyalty
Solutions: digital signage, touchscreen technology, digital content programs
Our team provides technology solutions that enhance customer and member engagement, whether in the branch or using a digital application.
Maintain a competitive mindset
Solutions: competitor analysis
Element can help your FI stay ahead of the competition by researching and analyzing competitors and providing you with highly-personalized, data-driven solutions.
challenges of retail banking
Along with the abundant opportunities currently available within the retail banking sector, there are also a few challenges financial institutions need to be aware of going forward.
Each of the following is an obstacle that may pose a challenge to traditional banking models:
Third-party solution providers/fintech firms
Over the past ten years, banks and credit unions have faced new competition in the form of fintech firms and third-party solution providers. The Financial Brand reports, “Now that many of the first fintech firms such as PayPal, Square and others are achieving scale, they are offering expanded financial services as many seek to provide ‘super app’ functionality for stronger customer engagement and loyalty.”
Established FIs need to move quickly to deliver “startup-like innovations” and faster solutions in order to compete with fintech firms.
High customer demand for digital-only solutions
As the COVID-19 pandemic swept the nation and the globe, in-branch visits decreased and the demand for contactless transactions increased. Despite the lifting of mask mandates and social distancing restrictions, many persist in their preference for digital-only solutions.
In order to survive the changing landscape and digital transformation period, FIs should adapt in the following ways:
- Meet customers/members where they are (and want to be) by providing digital services as an alternative to on-site transactions.
- Focus on combining data and digital delivery by using innovative platforms and applications to gauge customer insights.
Most banks and credit unions are not currently prioritizing technology or the expansion of digital-only solutions. Financial institutions that embrace digital transformation will have an opportunity to beat out the competition and increase their digital footprint.
Payments, deposits, and lending moving out of the banking system
Processes like payments, deposits, and loans are largely moving to fintech, where transactions take place quickly and conveniently. Companies like PayPal, Apple, and buy now, pay later platforms like Afterpay offer quick solutions for transferring money and setting up payment plans without going through a bank or credit union.
Financial institutions can compete with fintech firms by investing in technology and technological infrastructure, providing impeccable customer service, and enabling faster and more affordable services.
Additionally, banks and credit unions can seek out opportunities to collaborate with fintech firms to offer alternative options for customers and members if the need arises. For example, they can:
- Outsource to fintech companies that can provide a specific option for consumers that may be too expensive for FIs to take on
- Combine the dependability/credibility of established FIs with the innovation and “newness” of fintech
retail banking tools of tomorrow
There are many innovative tools from the fintech and finserv sectors that banks and credit unions can utilize to remain competitive in the future. These tools include:
Data & analytics
We live in a world driven by data. Using data and applied analytics to gauge customer and member opinions can help develop the data-backed insights you need to improve the customer experience and drive results.
McKinsey advises, “Banks should develop deposit estimation algorithms that are better informed by new types of data — including quantitative, account-level data on client payment flows — and supported by outreach to understand clients’ views of current deposits and plans.”
The rapid expansion of biometrics in business applications offers a valuable opportunity for banks and credit unions. Not only can biometrics help make transactions quicker and more convenient for customers and members, but this technology can also help improve account security. Biometrics provides a potential way to deter credit card fraud, which accounted for more than 400,000 reported incidences in 2020 alone.
Many banks and credit unions are already using biometrics via interactive teller machines (ITMs), which offer an effective in-branch use of this technology. Biometric authentication is based on physical characteristics used to identify a user and authorize a transaction. Popular forms of biometric modalities include fingerprint scanning, voice recognition, face recognition, iris scanning, and palm verification.
Artificial intelligence & machine learning
Though artificial intelligence (AI) technologies emerged decades ago, the last twenty years have ushered in an explosion of AI developments across most sectors. Today, AI-powered tech offers a range of opportunities for the banking industry, particularly when it comes to automation.
According to McKinsey, “These technologies can lead to higher automation and, when deployed after controlling for risks, can often improve upon human decision making in terms of both speed and accuracy.” Furthermore, “the potential for value creation is one of the largest across industries, as AI can potentially unlock $1 trillion of incremental value for banks, annually.“
As the need for data increases, so does the need for more efficient means of collecting, processing, and storing that data. This is where cloud technology can serve as a useful tool in the future of retail banking.
Cloud computing solutions can help banks and credit unions handle capacity and speed challenges. The collection and processing of data can provide customer insights, improve operational efficiency, and reduce data and continuity risks.
VR & AR
Virtual reality (VR) and augmented reality (AR) technologies are also gaining traction for their usefulness in the banking industry. While VR involves an immersive, simulated experience in a virtual environment, AR involves modifying the real-world environment with the addition of digital components, including visual, audio, and other sensory elements.
VR and AR experiences can help bank and credit union employees practice a wide range of skills, such as managing client relationships, navigating tough conversations, and listening and responding with empathy.
Bank of America recently announced VR training for employees in nearly 4,300 financial centers nationwide, allowing “approximately 50,000 employees to practice a range of routine to complex tasks and simulate client interactions through a virtual environment.”
Other potential uses for VR and AR in the financial services industry include:
- VR/AR projects that allow customers to access account activity and transaction records in a VR environment
- Holographic workstations for financial trading
Oracle defines the Internet of Things (IoT) as “the network of physical objects that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet.”
When it comes to the future of banks and credit unions, IoT has a big role to play. According to Deloitte, IoT in banking can help banks and credit unions accomplish the following:
- Provide more comprehensive, real-time data about FI and clients’ assets
- Promote efficiency in branches, e.g. using motion sensing technology to control lighting, temperature, etc.
- Utilize applications that track and analyze foot traffic flow
- Deliver proximity-based content
Blockchain technology offers a highly-secure, decentralized solution for recording information. Forbes explains, “At its core, blockchain is a distributed digital ledger that stores data of any kind.” The potential for increased automation through smart contracts and instantaneous execution, post-trade processing, and settlements are particularly alluring to financial institutions.
There are three key strengths when applying blockchain technologies to retail banks.
- Data Handling: Blockchain technology offers better protection for data, as the nature of blockchain structure provides for greater resistance to cyberattacks.
- Disintermediation: Transactions can be verified without the need for a central authority, which cuts costs and improves operational efficiency.
- Trust: Every entry in the blockchain ledger is accessible to members of the network, leading to savings in retail banking processes that call for duplication.
- Remittances: Payments can be made and settled in a matter of minutes with better transparency.
- Know Your Customer (KYC)/ID fraud prevention: Customers and members can utilize a digital fingerprint for universal proof of identity. McKinsey notes that “The decentralized blockchain structure eliminates overlapping KYC and AML compliance checks (banks share authenticating information), lightens the information burden, and allows banks to disseminate data as it is updated.”
- Risk scoring: Large quantities of encrypted data can be pooled, thus helping make faster credit decisions, especially for those considered to be unbanked or underbanked and for microenterprises with a short or nonexistent history of noncash transactions.
the future of retail banks & credit unions
Traditional branch networks are in a unique position to redefine the physical branch space by utilizing innovative tools, building stronger communities, and embracing a customer/member-first mindset.
To remain competitive going forward, now is the time for financial institutions to embrace digital transformation while maintaining outstanding on-site experiences and customer service.
For additional tips on adapting your bank or credit union to thrive for decades to come, contact the Element team today. We’ll help make sure you’re equipped to take advantage of the opportunities and tackle the challenges related to the future of retail banking.