Feb 21, 2023

Top digital banking and financial industry trends

The financial services sector is feeling the intense heat of innovation. So what trends are we seeing in banking and FS in the coming years?

Top digital banking and financial industry trends

If 2020 taught us anything, it’s that the future is unpredictable. Making forecasts for the year ahead is always tricky, but there are plenty of trends in the digital banking and financial sector that we can see forming before our very eyes.

Some of these are extensions of the technology and customer trends we’ve seen developing over the past years and decades. Some have emerged anew, and will become the “new normal” – whatever that means.

But before we dive into 2021’s banking and financial industry trends, let’s quickly review some of what happened in 2020 to set the scene with a bit of context.

A look back at banking and financial services in 2020

Heading into 2020, several ‘megatrends’, as Deloitte calls them, were playing out across the banking and financial services industries. Most of these had been in motion for several years, and many analysts believed they would continue to make steady progress last year. Business as usual, so to speak.

Unsurprisingly, the pandemic threw a spanner in the works. Some megatrends have now stalled, while others were sent into hyperdrive. Globalization, urbanization and the sharing economy have all been hampered by reduced travel, health concerns and social distancing measures.

Plans for digitization and remote working, on the other hand, were fast-tracked considerably. The industry had typically been slow to adopt work-from-home policies because of concerns over the security gaps that can open up.

And they were right to worry; from February to April 2020, cyber-attacks against the financial sector jumped 238%. Left with no choice but to have large parts of the workforce working from home, firms have focused heavily on cybersecurity over the last 12 months.  

A combination of digitization and cost-cutting also saw branch closure plans ramp up at many major banks in 2020. This has accelerated the shift towards digital customer experiences. UK bank NatWest is a good example, with the company going from conducting just 100 video banking calls with customers a week in January to more than 9,000 by September.

While 2021 may not end in the same way as 2020, with public health measures in place, many of these trends are fundamental shifts in how the industry works. The acceleration towards digital banking and maturing cybersecurity measures will not be reversed in this decade – and nor should it.

Top financial services trends

We’ve highlighted some of the most notable trends over the last 12 months: fast-tracked digitization, virtualization of the workforce, more robust cybersecurity and cost cutting, to name a few.

But let’s dig a little deeper. Where does the banking and financial services industry go from here? What specific digital trends can we expect in the coming years?

1. AI takes center stage

Many in the banking and financial sector had AI innovation built into their long-term roadmaps. But research from the Economic Intelligence Unit suggests the ability to extract value from artificial intelligence investments will be a game changer in a post-pandemic world.

In fact, 77% of executives agree AI will separate the future winners and losers in banking, EIU stats revealed. Separate figures from Contentstack show 66% of executives think new technologies, including AI, will be the trend that has the biggest impact on banks from now until 2025, up significantly from the 42% who said the same last year.

Blockchain, the Internet of Things, machine learning and risk management automation are all areas where AI will support decision-making and free up staff for more strategically important work. Conversational AI in chatbots, virtual assistants and digital humans are also likely to become more popular, as banking and financial services companies try to take online customer experiences to the next level.

According to McKinsey, firms that get AI right can expect to access new, untapped customer markets, dramatically increase scale, improve engagement, lower risk and reduce their cost to serve.

Customer-facing conversational AI holds a lot of potential to solve some stubborn challenges. Improving financial education, for instance, is an admirable goal for many banks and financial institutions. The role of AI in improving financial literacy – particularly through digital human solutions – is something that will likely come to the fore in 2021.

2. The rise of digital ecosystems

Even prior to the pandemic, banks were looking to build digital ecosystems to push their businesses forward. A whopping 89% of banks saw customer-facing ecosystems as the main driver of future value creation, according to a 2019 Accenture study.  

But customers still expect a personal and personalized customer experience. They want the human touch they’d get if they were visiting a physical branch. Delivering this type of experience online, while keeping costs low and maintaining robust cybersecurity measures will be a difficult balancing act.

It’s likely established banks and financial services providers will turn to agile fintech firms and other digital ecosystem partners to help them navigate this space. Done successfully, businesses can bring customers a range of easy-access services, including wealth advice, consumer finance, health insurance, housing and more.  

In this way, the industry will be able to own more of the consumer experience and drive exceptional growth in areas outside of core transactional services. Meanwhile, with 2020 bringing some customers online for the very first time, companies will want to make sure their ecosystems are educational, supportive and intuitive.

3. The evolution of branches

High-street branches may be on the decline, but they’re unlikely to disappear entirely any-time soon.

Many SMEs and big corporates still like to conduct their business face to face in banks, while retail banking customers who require additional support for complex enquiries may feel more comfortable getting the help they need at a local branch.

But for day-to-day transactions and other simple tasks, we are likely to see digitization bring branches well and truly into the 21st century.

However, just think about what’s naturally going to be lost in the “branchless” banking society. The chances of speaking face-to-face with an expert, who can give a unique, human experience, will begin to dwindle.

Many branches may be fully converted into self-service centers, with automated technologies and AI-driven solutions allowing customers to do most of the work themselves. To help banks offer a more personable customer experience, banks may also introduce digital human kiosks that can provide face-to-face support even when there are no on-site human staff.

This is happening in other sectors, including in the retail and telecommunications industry, where major brands like Singtel in Singapore are using conversational AI to add more human touch to unmanned stores.

4. Social responsibility in the digital era

Many banks and other financial institutions are beginning to embrace their environmental, social and governance (ESG) commitments. This trend shows no signs of abating in 2021. Recent Deloitte figures show three-quarters of banks are looking to increase their investment in climate-related initiatives, for instance.

But now companies within the industry will also be expected to respond with empathy towards the many customers whose financial situations are hit hard by the pandemic.

A number of providers will no doubt be asking themselves how they can provide a warm and friendly service in these situations, while conveying their social credentials, given the ongoing digitization of the customer experience.

And let’s not forget all business’ responsibilities to their staff. Last year proved to be a stressful one for employees, and one that may have stirred up ongoing security concerns in 2021.

New AI initiatives must enhance and augment what staff members can do on their own, by taking more menial tasks off their plates. Technology must make employees’ lives easier, not cause more concern. This is an important goal of the digital workforce trend, which you can read more about in our free eBook.

Of course, all this is done because it’s the right thing to do. But it’s good to know that consumers are attracted to corporate responsibility, too, and will support initiatives that aim to make a social impact.

For instance, 33% of consumers say they choose to buy from brands that are doing social or environmental good. The younger generations in particular are voting with their wallets, with 90% saying they’ve switched brands when they see a company with corporate social responsibility in line with their values.

Equipping AI in an age of acceleration

Like so many industries worldwide, banking and financial services faced unprecedented challenges in 2020.

However, for a lot of institutions, the pandemic merely accelerated the actions they were already taking to remain relevant to modern consumers. By fast-tracking their plans for digitization, AI innovation and better customer experiences, banks and other providers can ensure their business is digitally ready for 2021 and beyond.

Our personal wish is that digital banking begins to learn from its own history, and include more of what banking and financial services was built on – human connection. While that may not be possible with real people in a digitized (even socially distanced) era digital humans are providing it in spades.

Digital humans are making a difference today. Just look at Rachel, who helps originate loan applications for customers of Arcus Lending.

Want to know more? Our free digital human buyer's guide is a great place to start. Or just get in touch, and we’d love to help you get ahead of the trend.