The third part of the European Banking Trend Radar completes the series on future trends in the banking landscape, for which Deloitte has examined European macro trends and classified them into six dimensions. The current edition focuses on “Technology” and “Corporate Organization,” rounding out the previously published trend dimensions of Customer Perspective, ESG, Regulation and Policy, and Economy and Financial Markets.
“The banking sector continues to undergo tremendous change,” says Thomas Peek, partner at Deloitte and responsible for the Banking Trend Radar. “While there was already a clear upheaval within the sector before that – including in the way customers were treated – it was still very gradual and cautious. In the first two years of this decade, however – also due to the pandemic – this development has accelerated considerably. Of course, the process is far from complete, but the progress already made is considerable and could otherwise have dragged on for a decade or more. This makes it all the more important now to prepare in time for the next challenges and developments ahead.”
Banking Trend Radar monitors dozens of trends
With this edition, the Trend Radar completes its outlook on a total of 46 trends, some of whose time horizons extend beyond the next four years. Within the dimensions, the Banking Trend Radar focuses on those trends that stand out particularly in terms of relevance and urgency. In the current series, these include the topics of process optimization, predictive analytics 2.0, user profiling, crypto in banking/distributed ledger, cognitive computing and metaverse for banks.
In the third part, the Deloitte experts focus on technological and business organization trends that have a major impact on sustainable business development and are now not far from mainstream adoption – and are therefore considered particularly time-critical.
Trend dimension technology
Banks are well advised to keep pace with increasing digitization to improve customer experience, employee satisfaction, operational efficiency and business profitability. The following technology trends are among the most important developments in this regard:
- Digital payments: The trend toward digital payments benefited significantly from the pandemic lockdowns, as a result of which consumers increasingly purchased goods online and used digital services. Digital and online banking also saw explosive growth. This trend is expected to continue, with a wide range of digital payment options now part of the industry standard. Innovations in this area are enabling banks to forge closer relationships with existing customers and more easily acquire new ones.
- Decentralized or cloud computing: Cloud computing, the on-demand availability of computer system resources, fulfills a wide variety of tasks with its decentralized, effective structure. The financial industry has been reluctant to move sensitive data and transactions to the cloud, despite many advantages. For example, cloud adoption brings a shift to real-time data processing with automatic updates, which improves the customer experience. However, complex, cross-border regulations on cybersecurity, data protection and knowledge transfer are slowing European banks’ adoption of the cloud. Nevertheless, its decentralized architecture makes it more robust against crashes and provides greater security against cyberattacks.
- New authentication methods/biometrics: While passwords are still the most popular authentication method, biometric alternatives are increasingly being used in business. Biometric authentication, for example, is very convenient and secure compared to traditional verification methods such as passwords or identification numbers (PINs). The rise of online commerce has spawned a number of innovative payment methods, such as a biometric payment card that combines chip technology with fingerprints; cars can also be equipped with fingerprint sensors to identify the user and allow convenient payment of fuel or parking fees.
Trend dimension corporate organization
It makes foresight and economic sense to embrace the latest organizational trends. From cybersecurity to employee satisfaction, a well-designed corporate organization will lead to improvements in all areas of business. The following fields are particularly in focus here:
- Holistic understanding of security: Digital transformation has opened up new business opportunities for banks, but with every digital process comes a growing list of potential security vulnerabilities. This is compounded by unprecedented levels of hacker professionalism, making cyberattacks one of the biggest threats to banks. The trend is therefore toward a holistic transformation of the security architecture, which is something banks absolutely have to address as part of the digital transformation. They should take a holistic approach here and integrate cybersecurity into their organizational structure if they want to win this cat-and-mouse game.
- The new banking experience: In view of narrow price ranges and product breadth as well as high competitive density, banks must differentiate themselves on the market. The most effective and efficient way to do this is through the quality of the customer experience. Moreover, if the customer experience is taken into account at all levels, the costs of customer acquisition and retention are reduced. In fact, the financial industry is currently undergoing a transformation in the way it deals with customers: Customer inquiries, for example, are increasingly being handled in real time and across multiple channels, which in turn leads to higher referral rates. Customer centricity and personalization are fundamental to delivering a superior customer experience. To achieve this, all processes at the interface with the customer and within all internal bank processes must be integrated. And what about the branches? Here, too, innovation plays a central role, from bank cafés to bank advisors in the form of robots.
- Banking ecosystem: fintechs used to be seen as challengers by banks, but today institutions are increasingly partnering with them to implement their strategic plans. This ecosystem is enabling a broader and more modern portfolio of products and services. It is growing as a result of collaboration with regulators, BigTechs, industry players, payment service providers and other banks. Linking all players enables better fulfillment of customer needs, and the resulting increase in customer satisfaction also increases willingness to pay for more comprehensive services. Such ecosystem strategies increase customer relevance and help reduce costs, especially in payments and authorization processes, the domain of fintech partnerships.
The change is massive and predictable
Although traditional banking has been late to embrace this customer-centric approach, change processes are taking place here as well in the face of increasing competition. “Banks are clearly making efforts to move from a product-centric to a customer-centric approach, reviewing all touchpoints with their customers,” says Peek. This includes online banking systems, emails, call centers, face-to-face interactions and online advertising, as well as the use of social media, he adds. The goal is the much-vaunted unique customer experience, according to the Deloitte partner.
Tilmann Bolze, Director at Deloitte and co-responsible for the Banking Trend Radar, adds: “It is important for banks to recognize the signs of the times and their own changing role and to courageously take the necessary measures. The time is ripe for change, and so banks no longer persist in purely competing with emerging fintechs, for example, but are increasingly entering into partnerships with them. Ecosystems are emerging that involve tightly interwoven collaborations with third parties, enabling banks to offer a broader portfolio of best-in-class products and services to enhance the customer experience. Ecosystem strategies represent a significant shift in how banks can meet the needs of their stakeholders and deliver high value to all stakeholders.”
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