Is Virtual Banking the Future?
Capital and investments still hinge on financial institutions that are well known to Wall Street. In this digital age it is the adjacent industries who are adopting advanced technologies proactively. Outside the banking walls the world is becoming digitally intertwined. The fast flow of widespread information is transforming the way goods and services get transacted. Could this be the future of banking? Such progressive end-to-end transformation is also impacting the financial value chain and morphing the banking role.
Digital information and virtual banking services carry intrinsic value. From the vantage point of the digital customer, the value of digital transactions accrues instantly and transcends traditional banking. Most customers care more about the tangible real-life outcomes than the enabling financial process. Digital natives, namely Millennials and Gen Z individuals, expect immediate, real-time fulfillment. Daily consumer activities and interactions outside a bank typically exceed the number of financial transactions by two orders of magnitude. Personal devices, sensors, and non-bank providers of goods and services capture more abundant and richer information about customers than the banks.
Banking depends increasingly on digital information that flows across a broad value chain. Banks now find that digital innovators such as Fintech and retail companies are decoupling and redefining lending, payments, and other banking functions. Advanced analytics and machine learning algorithms churn insights from social media and give rise to predictive credit models that may outperform the conventional rating engines.
Interestingly, pressure from banking regulators in the UK and Europe may stoke innovation. For example, the Second Payment Services Directive (PSD2) is mandating banks to open access to their digital/virtual banking services to non-bank providers. Open banking services represent a catalyst for disruptive transformation whereby banks expose core functions, particularly payments, through APIs.
Developments in the digital value chain and open banking are putting a plethora of creative financial services in the hands of bank customers. Such ample repertoire of choices, coupled with the intelligent personalization of digital services, are empowering customers to make optimal financial decisions on the spot. Innovative financial services, such as crowdfunding or personalized credit of very short duration to cover digital transactions on the spot, may encroach into lending and other traditional banking products. A continual surge and rapid fade of these unconventional financial offers may discourage customers from keeping long-term relationships with any given bank.
How will banks keep up with these changes? Winning the primary customer interactions and relationship will be decisive. Banks will also need to rethink their core competencies and integrate securely with a dynamic ecosystem of financial providers. And enrich banking products with financial and external information, and social media interactions that are relevant to customers in real time.
Banks should also explore a blend of digital and physical channels. Such as mixed reality orchestrations that enable consumers to interact virtually with the goods and services before purchasing. As digital financial offerings and virtual banking services turn real, banks should play game and capitalize on their own financial savvy, strengths, and virtues.
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