Banks should refocus their efforts to try and become champions in identity management, as fintech challengers nibble away at many of their other functions.
This was just one of the key takeaways from a panel discussing the future of banking last week at the World Forum Disrupt's Strategy and Innovation Summit, where leading experts gave their predictions about the future of banking.
Nora Peterson, a serial company builder who recently helped launch a new credit card into the US market, Yoni Arbel, head of treasury at TransferWise, and Hana Rolles, senior director, innovation and strategic partnerships at Visa, shared what they were seeing in the market right now.
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These were their predictions:
- Forget making money from padding services out with hidden fees. Banking consumers are getting wise to that, and there are growing numbers of fintech alternatives with transparent pricing, says Nora Peterson. She recently helped launch CreditStacks, a new zero-fee credit card into the US market and sees this becoming the norm. Competitors such as Petal are offering the same.
- There will be an increasing focus on inclusivity in finance; for example, initiatives to get women to close the savings gap with men. Women currently save some 40% less than men, and it is becoming urgent to rectify the imbalance, according to Peterson.
- Bank profits will become increasingly squeezed as fintech challengers cherrypick different parts of the financial sector to operate in, says Visa's Hana Rolles. Banks typically make money from lending money to their users, but there are a growing number of lending startups taking over. Rolles says she is seeing a growing number of customers come under pressure.
- Undercut by cherry-picking specialists, banks will have to focus on their general, customer-friendly “bank for everyone” function. Only the big ones will do this well, smaller banks will not survive, predicts Rolles.
- Banks may be able to carve out a new function in identity management, suggests Yoni Arbel, who, at TransferWise, is part of one of the fintechs threatening the banks. Banks are already used as a way to verify a person’s identity in many cases and they could build further on this idea.
- Financial services areas such as wealth management and insurance will be next to be disrupted. One trend will be the coming of microinsurance — insuring your coat, for example, says Arbel. Such microinsurance services are already common in Asia but will increasingly come to Europe.
- Building a community is not a magic bullet for the fintech sector. While companies like Monzo have been able to create a strong fanbase with a colourful card and a do-gooding ethos, most other fintech companies will struggle to follow, says Arbel.
- The term “banking the unbanked” will die. Or at least it should. Arbel says he objects to it because it assumes that the solution for people without access to financial products is a bank. But they may not need or want a bank in any traditional sense. Rather, they need ways to solve their daily problems, such as receiving payments or saving money. They might simply need a number of separate fintech services.