There is no more business as usual.

Even before the sweeping changes brought about by the pandemic, global banking and payments were already experiencing unmatched upheaval – and that pace of change is now accelerating. Digitalization redefines what’s possible in the banking industry. On the supply side, boundaries between channels and services are blurring. On the demand side, customers are better informed, less loyal and more demanding than ever. In this blog we look at what’s driving change and how banks should prepare.

New Ways to Pay

Payments are as diverse as the people who use them. In 2020, the dominant trend in consumer payments is the growth in digital and mobile wallets, innovations that make shopping easier and are transforming payments at the point of sale. To say they’re popular is an understatement: it’s estimated that over one billion shoppers globally will make a payment from a mobile wallet this year.

The US market, which has built a strong affinity with credit cards over many decades, is also adopting digital/mobile wallets more and more. Although credit cards still account for 42% of consumer spend at the point of sale, much of that spend is expected to migrate to digital/mobile wallets over the next five years.

In reality, the smartphone is fast becoming the new wallet, the one thing that many people will not leave home without. As digital natives become a more powerful economic force, this trend is bound to permeate.

Gen Z Comes of Age

Generation Z – the children and young adults of today have a new focus on individualism. They’ve never known a world without social media, and they are routinely exposed to platforms where they can create their own reality. YouTube has empowered a generation of child stars who became rich and famous without leaving home. This personalization and immediacy profoundly alters their expectations.

This tech-savvy generation is confident and demanding; it expects more personalization and craves dialog. Studies find that 60% of Gen Z believes it’s important for brands to value their opinion, while 35% of those in mature markets feel their favorite brand values them as an individual. Over half of Generation Z use digital wallets at least once a month, three quarters use a digital payment app from a financial services provider, and 79% use peer-to-peer payments apps at least once a month.

Social Media – Friend or Foe?

From the inception of social media, brands have used the platforms to influence customers and start conversations. Today, social commerce extends beyond influence to drive sales conversion.  Fast, simple secure payment methods are essential to convert social media from social influencer to sales converter. Social media is an ideal setting to reach new customers with the right messages about products and services in context. Looking forward ten years, Gen Z will grow in stature, with increased spending power and influence.

Banking, But Not as We Know It

These new market dynamics have profound implications for banks and payment services providers in the coming years. Banks will become less relevant and non-bank channels will come to dominate banking and transactions. So, while banks have invested heavily to deliver a seamless omnichannel experience, it is naïve and unrealistic to assume that all channels will be bank-owned and operated.

To prepare for what’s ahead:

Think small and granular. Banks need to move away from a bank channel mindset to face a future where individual banking services converge and are embedded in non-bank channels. Technically, this is only possible by wholesale componentization and application program interface (API) enablement. Componentization separates capabilities that are traditionally locked together in the bank’s monolithic technology stack. Individual components can be marketed, monetized and combined to differentiate and deliver customer value in context. 

Dream big and real time. In the new order, a bank’s marketing strategy cannot be driven by looking in the rear-view mirror; it must be forward thinking and data driven. To harness the power of new technologies, such as artificial intelligence (AI) and machine learning (ML), scale is essential. Cloud and real-time processing will be critical to provide the computing power, scale and elasticity that become fundamental to business success.

Act now and evolve. Bank modernization is a journey and not a destination. With a componentized approach a bank can allow bank channels and products to evolve in line with market expectations. New products can be introduced into existing bank channels, and non-bank channels if required.

Faced with an uncertain future all banks must do all they can to position for success without knowing what that future holds. With a componentized architecture banks are free to innovate, respond to change and remain relevant – ready for the new dawn.