1. Fintech will continue to erode the trust advantage
Historically, consumers have been less likely to entrust their money to dynamic new technology companies. But attitudes are changing. This year,
an EY study found that consumers under the age of 65 place more trust in FinTechs than in regional or national banks, with more than twice as many 18-24 year olds reporting higher levels of trust in contemporary digital financial services than the banks in place.
Trust invariably stems from people’s hope that their expectations will be met. Historically, these expectations were more primitive concerns of not losing deposits, but as these basic expectations are met, they have evolved to focus on higher level goals such as good service delivery and experiences. customer.
Evidenced by customer satisfaction results, FinTechs and challenger banks are gaining trust in
provide greater customer satisfaction than their historical competitors. Incumbent banks understand that their greater heritage and physical presence are mitigating factors in the challenge of gaining trust and will rise to the challenge of competing on customer experience.
2. Financial services will accelerate investments to improve consumer acquisition
Big tech has given the banking industry plenty to worry about, largely over its ability to create and sustain the attention of large audiences. With such audiences in place, you create a fertile environment to sell additional services. With $2.2 billion in M&A activity in FinTech in 2020, payments and other financial services are firmly in the crosshairs of big tech.
In 2022, financial institutions will likely take a cue from the big tech playbook and look to invest heavily to create an ecosystem that helps build and maintain relationships with their customers. JP Morgan recently acquired the restaurant review site
Enthusiasm, and Bandaged bought IndieHackers.
The big financial institutions have long argued that ultimately they are really
technology companies. While these acquisitions seem odd, they are consistent with the school of thought that all tech companies should become media companies to facilitate direct conversations with their customers. With such a critical issue for an industry struggling with the threat of customer disintermediation, it will be interesting to see how activity in this space evolves.
3. Banks will accelerate digital transformation
the Legislation on operational resilience (ORI) announced by the UK’s Prudential Regulation Authority will provide a litmus test for the operational awareness of large parts of the financial industry. Specifically, companies in Capital Requirements Regulation (CRR) will need to demonstrate “…the ability to prevent, adapt, react, recover and learn from operational disruptions…”.
To achieve this goal, companies will need to become much more connected to significantly advance their operational awareness. Connectivity applies not only to operational IT systems, but also to how those systems support processes and people to deliver critical financial services. It’s digital transformation, but with different shoes. The Covid pandemic has dramatically accelerated digital transformation, but regulatory pressures such as ORI will see this trend continue into 2022.
4. Financial inclusion will expand
Historically, financial inclusion has not been a big topic of conversation, but the trend is changing. The Bank of England recently noted that 42% of the population frequented a retail outlet that did not accept cash. Without a compelling digital banking solution, over a million UK adults who are currently unbanked will become increasingly marginalized and disadvantaged – both
financially and practically – as cash transactions decrease.
Fortunately, serving the unbanked and underbanked is becoming increasingly viable with the help of technology and industry involvement. Digitized banking means that people can increasingly access financial services without permanent access to physical branches, and customer data can be more easily shared to extend lines of credit to people who might not have been able to take out a loan before. HSBC’s collaboration with homeless charities in 2019 gave birth to something new
Homeless banking service, which has opened more than 1,100 accounts since its inception. 2022 is likely to see an acceleration in the number of Britain’s 1.2 million unbanked adults being brought into the mainstream of finance.
5. Net zero financing and a growing green market
Net zero finance is on the rise, with the UK planning to become the world’s first ‘net zero financial centre’. To achieve this, new treasury rules have been introduced which oblige all financial institutions and companies listed on the London Stock Exchange to create net zero plans, which will be published from 2023. This marks a shift from the ‘carrot’ from positive sentiments surrounding green initiatives, to the “stick” of new rules that require the largest financial institutions to quantify their carbon footprint and plot their path to reducing it.
In turn, customers who want to receive their money back in an environmentally friendly way will have more options than ever before. Investment managers will increasingly offer “green” portfolios, while banks will create new green savings and bond accounts for customers. This should be accompanied by rigorous measurement of the environmental impact of products. Although some question the extent to which companies will be held accountable for their green claims, the UK’s transition plan task force will supposedly prevent companies from carrying out what is known as ‘greenwashing’ “. Hopefully, 2022 will be the year when claims of “green” benchmarks need to be backed up with data – not only will the market grow, but the maturity of the “green” rating will increase.