What’s the future of banking?
Mark Aldred, VP of International Sales at Auriga, a leading omnichannel bank software provider; explores the future of banking including contactless payments, NextGen branches, and virtual banking.
The financial services sector underwent significant changes last year including cases of banks modernizing their infrastructures, the adoption of ATM pooling initiatives, and an ongoing emphasis on access to cash by governments and consumers alike. Looking ahead, there are five key trends expected to take place in the next 12 months.
Access to cash
Despite the boom in digital-only challenger banks, mobile banking, and online services many still prefer in-person banking experiences with a human touch. There is likely going to be an increasing resistance to digital payments as the only choice – some retailers and businesses are no longer accepting cash payments.
This is not putting their customers first, as everyone should be permitted to pay using their preferred method. Cash usage receded at the start of the pandemic, but there is a global resurgence underway. The amount of cash being circulated through ATM networks is now rising in aggregate, despite the falling numbers of ATMs. RBR’s Global ATM Market and Forecasts research predict that the compound annual growth rate (CAGR) of worldwide cash withdrawals will be 2% by 2026.
Unfortunately, banks are removing ATMs instead of actioning policies that enhance security, minimize the total cost of ownership, and personalize customer experiences. There will be a tremendous impact on customers who need access to bank services or cash locally, which would result in compromised service and accessibility – leading to a migration of clients to alternative providers. Branches should therefore exploit a renewed appetite for personal service and aim to use that to win back loyalty, rather than sending their most valued (and valuable) customers into the arms of their new, digitally focused competitors.
Paying via contactless
Contactless payment is a popular choice as it is easy to use, widely accepted, and convenient. Visa has noted an evident growing demand for contactless transactions across Europe, with more than 80% of in-store Visa payments being contactless. The number of contactless transactions in France and Germany has increased by two-thirds and almost half respectively year-on-year.
As long as it is regulated and effective practices are in place, it is possible to contain fraud risks. This is important as it is likely to remain a payment method for lower value purchases and will, therefore, not have too much of an impact on the demand for cash.
Card issuers have already implemented preventative measures, such as placing a maximum number or value of contactless transactions before pin validation is required. Alternatively, some consumers can choose their own limit at a lower level. Even so, criminals can still steal card details when in proximity. Contactless becomes less attractive to some consumer groups who may feel uncomfortable with the increased chances of being a victim of fraud or card theft. Furthermore, it is important to avoid contactless becoming a tool used to influence consumers to turn away from cash use as it remains vital to some people and the main payment source of others. It should remain easily accessible to all.
There is a growing number of branch closures because of the reduction in customers using legacy banking channels, cost pressures, reduced footfall, as well as the emergence of digital-only services. However, it remains possible to build a next-generation branch network that is sustainable and profitable. Closing branches might be advertised as an attempt to cut costs and increase efficiencies, but it damages customer loyalty and business reputation.
At the center of the #NextGenBranch model is smart digital self-service banking. The aim is to boost efficiency whilst maintaining access to cash and banking services for all communities. This strategy considers new ways such as video banking to engage with customers, who will be seeking personalized customer service and valuing human interaction more fervently than ever before.
Banks can improve the user experience and manage costs by spending IT budget on solutions entirely independent of the hardware used that can streamline all channels together. This way, customer data is shared and available on each one, allowing banks to create one source of truth for each customer and track the complete user journey. In a #NextGenBranch, staff can very quickly and easily access customers’ information on a device, including what products and services they use and what questions they have previously asked. Banks now have the chance to offer new, relevant products and services or even upsell, enhancing the level of customer service.
Virtual banking from home
Large retailers and businesses across Europe have already started offering video-based services that replicate in-store experiences, where sales assistants can be on hand to provide real-time advice. Banks will likely begin to research and develop the equivalent to allow customers to conveniently use services from the comfort of their home, in a secure and safe environment. That said, virtual banking will open up another opportunity for cybercriminals.
Distributed endpoints (including laptops, smartphones, and Internet of Things (IoT) devices) are a constant threat to both individuals and financial institutions as they act as ideal “entry points” for cybercriminals. Fraudsters can target any device that can be manipulated to gain access to the entire network. Unit 42, Palo Alto Networks’ research arm, discovered that cybercriminals across the US, Canada, and Europe are demanding more money than ever; with a 171% year-over-year increase in the average ransom paid for organizations from US$115,123 in 2019 to $312,493 in 2020. With the highest ransom paid doubling from $5 million (2019) to $10 million (2020).
This year, banks will see major infrastructure overhaul and significant changes in customer habits but new ATM upgrades, with the purpose of preserving and expanding access to cash and services, are inhibited by legacy infrastructure. There must be innovative strategies like the lean bank branch or ATM pooling to provide flexibility and efficiency. More and more financial institutions are realizing this when embarking on modernization and optimization processes.
The next-generation ATM infrastructure is built on a modular approach that accelerates time to market for branch automation and self-service innovations. A single point of control of the branch automation channel reduces the possibility of time lag when defining, agreeing, coordinating, or implementing services across different channels. Banks and ATM deployers will be able to extend automation to cover all the functionalities currently managed within the branch and deploy new lean branch concepts that automate the transactional banking services. This can include 24/7 availability of routine and complex services by leveraging video banking technology that can enable subject matter experts, in fields like unsecured loans and mortgages, to be shared and made available on-demand across all branches.
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By adapting their infrastructure, banks will more cost-effectively deliver key banking services, including opening and managing accounts, bill payments, and loan applications to customers. Financial institutions should invest in technology to stay in touch with customers and communities, especially those that suffer from a loss of access to not just cash but financial services that are vital to local economic health. In the next 12 months, having ATM software and infrastructure that enables seamless alignment with current and future needs is going to be imperative for current and future banking.
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