The financial services industry has seen drastic technology-led changes over the past few years with the booming technology-driven innovations. The year 2020 marks the end of a crucial decade for the financial services industry, a decade in which we witnessed a lot of disruptions and positive innovations that brought about new opportunities as well as challenges for financial institutions. The next decade promises to be even more dynamic as we look ahead at financial services in 2020 and beyond. As more and more friction is being stripped away from the average transaction, the future of money movement will take place behind the scenes.
With all these technology-led innovations, we should expect to see significant industry shifts, with transactions moving behind the scenes through a combination of automated features, machine learning, blockchain, and growth in the acceptance of contactless cards. Financial services providers will look for innovative ways to take even more friction out of everyday transactions, transforming the payment experience from seamless to invisible. Moreover, with continued advancements in artificial intelligence, the financial design-making process will move behind the scenes and automated transactions will extend into more product lines such as savings and investments. Lastly, gamification will take off in the personal financial management (PFM) space, encouraging consumers to make better financial decisions disguised as entertaining experiences. When it comes to paying, saving, borrowing, and investing, these transactions are not only getting faster, but they are also becoming more automated. With this comes the ‘Uberization’ of payments which is separating the payment from the transaction. Completely invisible payments will not be appearing in 2020 or even 2025, however, within the next few years consumers will start to perceive significant industry shifts with transactions moving more and more behind the scenes. However, for retail banks, the latest swing of neobanks and challenger brands has put pressure on traditional checking and saving accounts as consumers redefine what a primary banking relationship looks like. Allowing, and even encouraging, automated and behind-the-scenes transactions such as moving money from checking into a savings account are proving to be a successful strategy for promoting better financial habits. How consumers pay for purchases is a fundamental financial decision that most people are bound to make several times a day. Even though technology has enabled consumers to make payments with their digital gadgets, however, according to Mintel research, 79% of consumers believe there will always be a need for cash as consumers are accustomed to credit, debit, and cash. Yet mobile wallets that had a slow adoption are beginning to pick up steam with more than two in five consumers under aged 45 saying they have used mobile payments in the past year (i.e. Apple Pay, Google Pay, or Walmart Pay). Consumers are already comfortable placing food and retail orders on their phones. In 2020, we are expected to see this model mirrored in financial services. 71% of US consumers define personal financial success as paying bills on time, while half say saving 20% of their income is not possible. In Canada, a quarter of consumers have expressed interest in automation tools from their financial providers. Auto bill-pay is a feature that has been around for many years but expects to see a shift toward more PFM providers offering auto bill-pay features with the added technological advantage of machine learning to determine the safety of paying bills. This means putting money aside ahead of time to ensure that the customer can safely spend and still be able to make on-time bill payments. A similar model is working for various micro-savings and micro-investment sites promising an out-of-sight, out-of-mind approach to improving one’s financial health. Hence, it can be said from a PFM standpoint, automating transaction is a step toward financial freedom.
In 2020, we will see more traditional retail banks and credit unions take a page from fintech apps like Acoms by offering automated savings mechanisms or integrating with third-party apps to do so. Fifth Third re-launched Dobot to sweep accounts based on spending habits. Digit is another micro-savings platform designed to help consumers save small bits of money over time. The popularity of subscription services over the last few years is another signal that consumers are open to the set-it-and-forget-it model as these services rely on recurring payments. Banks are taking this opportunity to incentivize card-on-file usage especially for automatic payments. On the contrary, budgeting apps such as Clarity Money providing automated savings features and spending categorization will cancel unnecessary or unused subscription services. However, the road to invisible payments is not limited to only client-facing services. From a back-end technology standpoint, more and more banks are testing the blockchain waters, including Wells Fargo, which announced in September 2019 that it was piloting its blockchain-backed digital currency to help customers move money across borders and from branch-to-branch in real-time.
Customer service will take center stage in 2020 but with a new twist offering solutions to problems consumers and startups did not know they had. In terms of customer service, there are three key shifts to expect in 2020. Firstly, AI-driven empathy engines will reinvent the traditional customer service landscape with more intuitive call centers and tech-first solutions that can reach the right human when necessary. Secondly, financial brands will incorporate product recommendations into more digital channels and adopt stranger solutions-based marketing strategies to increase engagement and drive customer loyalty. Lastly, credit card issuers will differentiate products by streamlining card benefits with more access to events, unique experiences, and concierge services.
As the financial services market becomes extremely cluttered with challenger brands and alternative providers, solution-based marketing puts customer needs first. With the industry shifting toward prioritizing customers and their very human needs in a tech-driven world, the days of value propositions based solely on trust and stability are gone. Hence, consumers expect to see a move towards more proactive customer services such as robust educational resources, concierge services, and customized financial advice. However, Mintel’s research shows that poor customer service is more than twice as likely to drive the customer away and make them switch banks. With all these ongoing challenges, the next generation of fintech companies is putting consumers first by establishing AI-driven empathy engines and customer service bots that can sense emotions and respond accordingly. This technology not only understands real human emotions, helping the bank react appropriately to the user, but it can also be used to nudge customers toward better financial habits. Hence, there is an emergence of educational resources that banks are providing to upgrade their customer service offerings. According to Mintel research, over a third of first-time homebuyers strongly agreed that information on buying a home should be more available to consumers. Financial brands are stepping up their customer service game with concierge services that go beyond cash incentives.
With a strong emphasis on financial health, the industry is working harder to help consumers across all income levels prepare for an uncertain future. With all these challenges to grow better, there are three major steps the financial industry is expected to take to prepare ahead. Firstly, the debt crisis is getting worse and financial brands will utilize unique value propositions and brand identities to communicate a sense of security and stability to customers and prospects. Secondly, Gen Z will become a stronger focus for financial providers, both in terms of product development and marketing strategies. A shift towards digital marketing mediums will align with approaches that take a unique spin on traditional products and after solutions to help consumers make better financial decisions. Lastly, preparedness and financial stability will take center stage across multiple product lines, along with an increased focus on flexibility to help consumers adapt to any bumps they may encounter along their financial journey. As we are going toward some very uncertain times in North America’s political and economic climate, hence consumers are looking to their financial providers to help them prepare. As Gen Z enters financial maturity, consumer reluctance to take on debt-fueled in large part by witnessing the effects of the great recession may give an edge to challenger brands looking to upend the status quo. To curb concerns about debt and recession, having conversations about financial health is key. Consumers across demographics in the US and Canada agree that their current financial situation needs to be improved as the consumers are in debt in a total of $4 trillion. 22% of Americans classify their current financial situation as struggling and tight whereas, 61% of Canadian Gen Z women agree their life is not where they thought would be at this point. As the fear for recession grows, there is an emergence of conversations moving beyond financial literacy and into financial health. Hence, some brands are reinvigorating efforts around students and kids as they try to establish healthy financial habits earlier in life.
Cross-industry partnerships, acquisitions, and product extensions will enable financial brands to offer some very unbank-like improvements. The financial industry will look to mirror successes in other industries such as retail and media. Partnerships and acquisitions will bring these industries closer together, offering consumers a more connected experience. Secondly, banks will continue to innovate the branch experience but will take inspiration from other brick-and-mortar offerings beyond just Starbucks. Lastly, financial rewards will get richer with partnerships that build on rapidly growing brand loyalties in other industries. This will mean more segmented targeting, but increased use of social media marketing will provide a deeper reach within those niche segments. As the financial industry lag behind others when it comes to change, hence some brands are looking to close that gap by taking notes from the successful retail industry. Consumers want to be rewarded for shopping and brands like Amazon, Walmart, and Uber are setting a high bar for convenient customers. For Gen Z, liking or loving a brand runs much deeper than for older generations because they see the brands they use as representative of who they are. This is why the customer-FSI relationship now has to be emotional and rewarding. According to a JD Power report, only about one-third of cardholders are aware of the benefits their cards avail. So, issuers are eliminating less-used benefits and instead are partnering with retailers for better consumer experience. FSIs are getting inspired by practices like these and are partnering with travel and entertainment services for greater customer experiences.
The financial industry is taking revolutionary initiatives not only to stand out among other industries but also to make their consumers’ lives easier. To make this happen, brands are not limited to only coming up with schemes and offers, rather they are trying to educate their consumers and make them aware of their financial habits. Invisible payments will make the consumer life easier and brands are working not only to make it happen but also to prepare their consumers for the upcoming shifts in the financial industry. Traditional methods of financing, banking, making payments, investments are changing with the booming technology-led innovations. These drastic shifts can create situations that are uncalled for, hence the financial industry is taking precautions to stop or at least tame them. In 2020, it is not only about making changes in the financial industry, but it is also about awareness, knowledge, innovation and sustainable growth.
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N.B. This is an abridged version of the ‘Financial Services Trends 2020’ report. Illustrations and visuals have been collected from the original report published by Comperemedia, a Mintel company.