Luigi Wewege says 2020 will see a digital banking revolution
“If there is one industry that is benefiting rapidly from AI and mobile, it is digital banking or the fintech industry as we prefer to call”, said Luigi Wewege who works for Caye International Bank as their Senior Vice President and Head of Private Banking. He is also an instructor at the FinTech School which provides online training courses on technology developments to individuals and institutions within the financial services sector. He has written The Digital Banking Revolution, a book available in print or digital formats, now in its third edition.
In his book The Digital Banking Revolution, Luigi Wewege discusses the way technology is disrupting the way banking is done and how the effects will be drastically felt in 2020. In his book he states that for many years retail banks were very secure and highly profitable businesses as customers had few alternatives. Things changed due to the financial crisis of 2007-2009 which led to losses, the collapse of a number of banks and the general loss of trust in banks.
Luigi says banks are now facing a new challenge: the disruption that is being caused by fintech: the technology that supports banking and financial services. The technology has been changing the way people manage, move and spend their money. It has drastically shifted customer behavior and expectations from their financial service providers and banks have to satisfy those expectations or risk losing their customers to more innovative banks.
PayPal, the first disruptor
Luigi mentions PayPal as the first disruptor of the financial industry that used to be treated as an annoyance by banks as it was initially limited to eBay. They were wrong! By the end of 2015, PayPal was reported to have 173 million customers, US$9.2 billion in revenue and US$1.2 billion in profit.
PayPal paved the way for new entrants into the payments industry which used to be dominated by banks. Also, new digital banks are emerging all the time that provide all their services online without the need to go to a branch. These new banks are disrupting the industry in a big way as they offer convenience and speed.
Millennials dictating how banking should be done
Luigi specially mentions the behavior of millennials, people who reached adulthood in the early 21st century, many of whom have never needed to stand in long queues waiting to be served. They were born into technology and their expectations are for technology to meet all their needs. They do not have long-term relationships with their banks, they judge banks according to their digital capabilities and will not hesitate to switch their bank accounts to another service provider with better financial services.
While many people have the same expectations, the millennials are pushing the boundaries of innovation and they are pushing banks to adapt. This is based on the Cassandra Report which provided in depth analysis on millennials’ behavior. Luigi says that banks have to take note of these millennials because they will soon have the largest purchasing power compared to other age groups.
Digital banking revolution in 2020
The digital revolution has already been taking place over the last 10 years or so, and it has redefined the banking model. In 2020, the revolution is going to be even more rapid. Luigi says banks have to adopt to available technology at a faster pace in order to stay relevant and competitive or else risk losing their market en masse to agile financial start-ups. This period is particularly tricky in that the market is experiencing no growth at a time when customer loyalty is weakening, and the banks get lower profit margins because of the competitive pricing of these start-ups.
Luigi says, given the issue of the millennials and the current challenges that the banks face, the digital revolution has changed from a threat into a survival strategy for all financial institutions. Banks are under pressure to either adapt to this technology or face ruin.
Most of the disruption has been in customer services where chatbots and customer relationship management software have been helping to keep customers satisfied. Now it is going to be in every banking activity as innovative products are going to be combined to make each bank’s services attractive to customers.
The chatbots themselves are getting smarter due to improvements in artificial intelligence. Also, more of the financial services activities are going to be hosted on cloud services for security, capacity and lower costs as big data requires huge capacity. Big data is enabling banks to know more about their customers and potential customers and banks will be seen offering curated products and specific financial services digitally.
At the time of writing, 75% of banking customers indicated that they prefer digital banking to visiting a branch. That means all banks have to provide several ways of accessing banking services online. People are making their homes smarter and they now even expect voice recognition to dominate the way banking is done. Banks have been testing voice recognition for customer verification and people can expect to see it being used by many more banks in 2020.
New technology brings new risks in the cyber-space, meaning that banks also have to invest heavily in security as they adopt to more new technology in 2020.
All in all, Luigi Wewege says banks will change from being providers of banking services to being providers of solutions. It’s a huge change in strategy for them due to this digital revolution taking place.
Suggested reading:
https://www.newstrail.com/latest-trends-in-fintech-and-tips-from-luigi-wewege-the-fintech-professor/