Future of Banking Business Models

For years, the industry’s business models were as set in stone as stained-glass cathedral windows. Whether it was a century-old global behemoth or a neobank offering a digital alternative to traditional goods, a bank typically owned each layer of the value chain and created, packaged, and distributed its products. It has monolithic, linear, and vertically integrated models.

However, new waves of digital-only companies have broken free from vertical integration and are fragmenting the banking value chain by picking and choosing which levels to play in. They’re also unbundling traditional products into micro-products or services, then re-bundling their own offerings with components from other vendors to deliver stronger client propositions.

This non-linear and adaptable business model is being used by many digital-only players to attack incumbent banks where they are most vulnerable. Each competitor has a unique strategy, but they all have one thing in common: the capacity to swiftly and at scale build innovative products and propositions with lower client acquisition costs.

Future of Bank Business Model

The banking industry is undergoing digital transformations. Banking business models are shifting as a result of new gadgets, technology, and FinTech. For the banking sector, digital transformation represents a significant opportunity. Financial institutions will benefit from digital transformation in terms of customer acquisition, retention, and revenue production. Client relationship management has become increasingly important for banks as competition has increased and customer loyalty has decreased.

To keep existing customers, gain new ones, build genuine loyalty, and maximise client lifetime value, banks must earn the highest level of trust. Banks will be able to use digital technologies to gain a better understanding of their clients and target them with customised products and communications all day long (Ernst & Young, 2015). To keep existing customers and win new ones, banks must be easy to do business with, credible, and secure.

Consumer loyalty and bank profitability will both benefit from closing the gap between customer expectations and provided service. Keeping loyal clients is less expensive than acquiring new ones. Customers have begun to use digital platforms. Compared to branch or call centre encounters, mobile channels are significantly more likely to delight and far less likely to offend. It leads to improved client retention, repeat purchases, and recommendations, resulting in increased loyalty. Customers are increasingly expecting to communicate with bank employees via digital chat, video, or other real-time options, and banks are working to meet this need.

Digital Banking

Digital banking allows financial organisations to move beyond antiquated, private-banker-versus-teller, core-constrained, branch-hours-based models by digitising traditional banking services. Traditional branch locations and banking systems have become obsolete and, frankly, inconvenient for most consumers, and with fintech companies redefining expectations by bringing efficient on-demand banking services at consumers’ fingertips, digital banking trends appear to be here to stay.

Future of Digital Banking 

So, what does the digital banking future hold? Banking, payments, and investing solutions will be combined into simple, safe, and comprehensive apps in the future of digital banking. Digital banking services are generating comprehensive suites of financial services that are increasingly international and devoid of human bankers by providing access to solutions formerly only available to the wealthy via their private bankers.

Not only will the future of banking be different as a result of increased digital use, but in a post-pandemic environment, consumers will expect more physically secure access to banking services. Consumer expectations have shifted—from contactless payment alternatives and the ability to pay someone electronically to quick visibility and access to accounts—and financial services providers must adjust accordingly.

Rise of fintech drives the Digital Banking Evolution

Fintech firms, by their very nature, develop innovative products and solutions to fulfil these ever-changing demands by incorporating technology into essential banking functions. We have apps to organise our photos, friends, likes, and so on, and the future of digital banking will bring financial technology tools to assist us in organising our financial well-being as well. Digital banking solutions must be structured around our goals and revenue, and they must satisfy clients’ financial demands in a linked, seamless manner.

Whether it’s a new mountain bike or a family vacation, savings accounts should have sub-accounts for each of our individual savings goals. Investment accounts should also be tailored to specific objectives, such as a down payment on a home or retirement. And, similar to how private bankers help their customers find the best ways to borrow, spend, and save money based on their individual portfolios and requirements, the future of digital banking will see digital apps serving as everyone’s personal banker.

This approach to the future of banking will provide rapid insight and direct access to prequalified and customised loans, insurance, bill payment tools, and credit solutions for each individual’s unique scenario.

The technology driven change

Banking is prone to the same technological revolution as other businesses, which allows for the creation of a creator economy. The internet has created a global, cross-industry platform for delivering goods and services that may be separated from manufacturing, exposing banking to outside competition, particularly from internet platforms. Advances in data science and artificial intelligence (AI) make it feasible to provide a faster and continually improving online customer experience to a far larger number of customers, allowing organisations with the best algorithms – and especially the most data – to dominate. Mobile has increased internet usage while also increasing the amount of time people spend online, making it the most important channel for client engagement and rewarding the platforms that succeed.

Conclusion

The Fintech scene is always changing. Various business value propositions are entering the financial services industry, ranging from improving user experience to developing a time-to-market framework for banks to innovate products, processes, and channels of contact, as well as improving cost efficiency and looking to “partner on order” to reduce regulatory burdens. Banks are modifying their value chain architectures and adjusting their business models in a variety of industries.