There will be some seismic shifts in the banking industry in 2017, as threats and opportunities from digital banks, fintechs and regulation continue to shake the landscape.
Here are my top five predictions for this year:
- Data, Data Everywhere…
This New Year will finally see banks begin to wrap their arms around their most valuable asset: client data. While banks have spent millions of dollars to collect the data, few have dedicated themselves to fully operationalizing the insights to be gleaned from it by using predictive analytics and machine learning. New revenues for banks depend on them operationalizing data in real time so that it can be monetized.
- Keep Your Enemies Close
Banks will buy the very fintechs and digital banks that are disrupting their business. While banks have the distribution and greater trust (at least among older generations), fintechs and digital-only banks have newer, more agile technology. The two together are a powerful combination, but the cultures are significantly different. There will be some awkward courtships, but marriages will happen.
- Liquid Assets
Rising interest rates will drive consolidation in mid-tier banks as well as divestitures, as large banks exit less profitable business lines. At the same time, active asset management is losing market share to the index providers. Robo-advisors, offered by long-standing competitors as well as fintechs, pose a further threat to traditional asset management. Given a rising interest rate environment, which few active portfolio managers have experienced, we will see more automation through these robo-advisors, and consolidation in asset management as well.
- Pruning the Branches
Bank branch closings will accelerate as customers increasingly adopt mobile and online banking. Most banks will maintain smaller, anchor branches to provide a reassuring brick and mortar presence versus purely digital competition. But, as they digitally transform and focus on costs, they will transition remaining branches to low volume/high value activities.
- The Bank is Open(ing)
Regulation and market forces are combining to fundamentally transform the way that people bank. In Europe, the Payment Services Directive 2 (PSD2) will require banks to open up APIs to third party payment providers and account aggregators in 2018. Competitive forces globally are seeing leading banks leapfrogging regulation to open up their systems and data, and begin to develop ecosystems of partners. The result will be greater choice and competition for customers, and the possibility of entirely new revenue lines for retail banks.
As banks begin to operationalize data, open up and partner with competitors and scale back on the physical world while investing in the digital world, we will start to see which ones will thrive in the new open banking environment.
Only a few will survive the shake-out.