The performance of banks is affected by both micro- and macroeconomic factors. For banks to be able to determine what affects their profitability, an understanding of these factors, the impact they have, and how to curb the challenges that come with each, is imperative to the successful running of the bank, and is of natural interest to stakeholders. The traditional way of banking has seen crises within the sector being met with the most effective and efficient strategies at the time. However, what is needed in the banking sector goes beyond mere effectiveness and efficiency. Disruption of processes, personalised financial products, and Artificial Intelligence (AI) are what will drive the banking industry forward into a bold new future. The introduction of new financial products and services should be based on a foundation of trust with clients, as the fear of fraud and exploitation makes individuals less willing to place their faith in AI.
As personalisation evolves, it will direct the individual consumer to select the product that is best-suited for their wants and needs, rather than the solutions that increase the bank’s bottom line. Clients feel safer pursuing investment and savings options that put them at the centre of the discussion and are relatable to them and their lifestyles. Not only should this be a key consideration when new banking products are architected, but it should be built natively into the consumer experience across banking channels. In other words, as much as innovation in fintech is on the rise, it remains critical that banks take into account the unique preferences of human interaction that their clients still value. Some of the ways that this can be achieved are:
- Enforcing experience-driven banking
- Use of Artificial Intelligence
- Customisation of mobile banking apps
Personalisation and convenience drive non-interest income activities, as these are the day-to-day activities of clients.
Creating Cashless Environments
The consumer demand for convenient banking is essentially what promotes innovation around banking processes and products thereof. Challenges posed from external factors such as the COVID-19 pandemic, increasing unemployment rates, and monetary policy, to name a few, feed further into this need for innovation. These socio-economic issues demand that banks speak to individuals’ experiences and answer their day-to-day questions. In this insight, we focus the magnifying glass on the changes that the pandemic has had on banking; in particular, increasing the usage of cashless transactions. We have seen the upsurge of eCommerce among South African consumers, as well as the emergence of NFC-based pay points where consumers simply tap their bank card on a speed point machine, versus manual PIN code entry in-store or at an ATM. All of these developments help limit the spread of COVID-19, but also point to a fundamental change in consumer behaviour now and in the future.
Such payment mechanisms could be implemented in sectors such as public transportation. Millions of people use public transport to get around daily and are forced to pay cash and be subjected to physical contact in passing on taxi fares in a taxi. In this era of the COVID-19 pandemic, this is a point of grave concern, as the virus can be transmitted from person to person via the currency notes. In this scenario, cashless transactions are viable and beneficial and can be made possible through collaborative engagement between the taxi associations and the banking industry. In practice, specialised NFC-based card processing machines could be mounted inside each public taxi, allowing passengers to simply tap their card for payment. This would greatly reduce the risk of passenger contact and subsequent COVID-19 transmission. From an administrative standpoint, this setup would ensure that the taxi driver is able to collect the correct fares on each trip.
Opportunities in Cryptocurrency and the Blockchain
The use of cryptocurrencies is popular amongst individuals who feel that the central bank’s monetary policy reduces the value of money, and as such would prefer having a currency in their own hands. One of the most appealing elements of digital currency is that it operates on a blockchain, which due to its inherent decentralisation is considered quite safe to use.
Banks can seize the opportunities presented by cryptocurrency and blockchain technology by offering cryptocurrency-based services. Bitcoin, being the most well-known and valuable digital currency, would be an excellent place to start. Banks could allow their clients to buy, sell, and hold Bitcoin through specially-designed Bitcoin accounts (wallets). This presents an opportunity to banks to:
- Decrease outflow of money by depositors to exchanges.
- Charge clients for custodian services.
- Increase traffic on their banking apps.
Banks should constantly work to add to the financial lives of their clients by helping them save, manage and invest their money. These objectives are indeed being met, however, there is still plenty of room for improvement and innovation. The ultimate outcome should not be for individuals to leave banks and move to other avenues, but for banks to understand the rapidly evolving and persistent demands and expectations of their clients, and implement the necessary strategies to remain relevant.