Banking   Technology   Vision   20 February 2018

Digital banking at 2025: towards the greater user experience

Digital banking at 2025: towards the greater user experience

Banking gets personal and for everyone


Being banked in 2025 is more pleasurable customer experience than it used to be 10 years ago. At that time, banks definitely realised their business is no longer entrenched and they either evolve into a customer-centric entities or ultimately extinct. Therefore, those who will serve customers also in the post-Fintech period are the ones that undergo a full digital transformation with complete re-design of customer experience journeys. However, many customers might not noticed as banking had become invisible in the app-based digital economy. Take the examples of Uber or emerging physical stores by Amazon seamlessly integrating banking services so customers do not even know they interact also with banks.


Retail banking services will be rapidly improved. The core services, namely current accounts, payments and loans, are smart (current accounts equipped with AI-powered personal finance management tool), fast (e.g. instant payments introduced in 2018 within EU will become a market standard or instant loans) and crowd-based (banks integrating crowd lending to their loan portfolio in order to optimize risk or P2P discussion forums facilitated by banks) in 2025. The new products will emerge too as banks will try to acquire a larger stake on clients’ digital lives. A good example of a new breed of financial services for retail customers that will become common in the future is a digital concierge service. The first examples of concierge have already been introduced. Within the European context it is a Buddybank’s, a digital Fintech bank by Unicredit, 24/7 mobile concierge service introduced last year.[1]


Besides the product development, banks will increase their focus on customer development and pay more attention to almost 2 billion under/unbanked population that lacks the access to basic financial services. Big data allowed banks for better evaluation of creditworthiness of disadvantaged groups, such as low-income people or students, so they can target these segments with simple, unbundled products and microloans.


As more Generation Z clients enter the productive age, multichannel strategies will increasingly focus on mobile and chat, which are already a preferred communication channel of Millennials. These client segments will communicate mostly with chatbots via conversational UIs. With advances in IoT and 5G internet, adoption of the wearables as a communication channel will be widespread in 2025.


Banking institutions are digital at their core


I write banking institutions as lines between incumbent banks and Fintechs or tech giants will blur. Technology giants integrated financial services in their offerings long time before 2025 to capture synergies with their remaining business activities and to bolster their indispensable position in lives of digital-savvy customers. This trend is visible today namely through activities of Apple, Google and Alibaba (reuniting with Ant Financial via acquisition of 33% stake).[2]


Incumbent banks with their new IT core systems are nimbler in 2025 than we know them today. By adoption of lean methods, cloud and robotic process automation they were able to significantly reduce headcounts and lower costs. The modern IT architecture allowed for adoption of blockchain to record data, machine learning for credit scoring and streamlining of back office functions (e.g. KYC, AML) and for 3rd party integration via APIs. This all reshaped traditionally large and cumbersome banking houses into agile institutions able to quickly adapt to ever-changing market conditions by incorporating new technologies and products or just simply by scaling-up their operations through cloud computing to reflect increased demand.


Branches as we know them today will undergo rapid transformation. The network size will be significantly reduced while individual branches will serve mostly as showrooms, not client information centres as we know them today. Actual client relationships will move to online channels and will be managed by AI analysing customer data from various sources and personalise products as well as communication accordingly. Thanks to in-depth client profiles and deep learning techniques the clients will hardly discern if they chat and email with bot or bank teller.


Regulators pursue openness, transparency and innovation


In the future, regulators grasped and embraced intricacies of the digital banking in the regulation, which reflects various sizes and business natures of entities in the financial sector. The first attempts to catch-up with the pace of financial technologies represent EU’s PSD 2, UK’s Open banking regulation and US Fintech charter. Their later versions will set the standard rules open and secure banking.


Machine learning in combination with blockhain will impact regulators. Technologies enable a real time flow and analysis of data from banking institutions, hence unburdens the human staff that can spend more time on facilitating discussion with banks and testing innovative solutions within regulatory sandboxes.


Overall, as many banking functions are automatized a larger focus will be on underlying AI and its discriminatory practices as well as on security to ensure that clients possess full control and ownership of their data.


So, are there any pitfalls?


Banking in 2030 looks bright indeed. However, new risks arise with emergence of new technologies. The main threats for future banking might be:


  • Data security and privacy will become even more important than it is today. Data became the most valuable assets and every technology and Fintech firms is keen to utilize every possible information for more accurate credit scoring or better targeted product offering. With The potential advent of quantum computer can be a real “game-changer” here with its capacity to crack any password. The future-proof data security solutions should be the ones with post-quantum encryption embedded.


  • Unregulated general AI resulting in unpredictable outcomes. As Elon Musk portrayed in his catastrophic scenarios, once AI progress from limited tasks to general consciousness, the potential impact is worrisome. Imagine AI tasked with a goal of revenue maximization for the bank. Without any human in-the-loop (a human constantly monitoring the operation in charge for key decisions) or at least on-the-loop (a human able to intervene at any time)[3] the unconstrained AI could reach a conclusion that discriminatory practices, money laundering or price bubbles are the best ways how to achieve its goal. Therefore, a regulatory body overseeing the development will need to be established sooner or later to avoid letting market entrants steer the progress unsupervised.


Future of banking


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