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The Widening Gap

Posted by Eric Brandt on Fri, Sep 8, 2017 @ 10:09 AM

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Editor's Note: Every year, Forrester publishes a report looking at the various trends in digital banking across North America. In today's blog, we take a look back into 2016 as well as jump into 2017 providing an overall grade for each year. We also go out on a limb and make a prediction of our own!


The gap between financial institutions that are embracing and actively pursuing digital transformations versus those doing what they have always done is widening at an eye-opening pace. Every year, Forrester analyst Alyson Clarke and her team publish a report on digital banking trends in North America. In each report, they evaluate a list of six different trends to watch for in the coming year. In today's blog, we grade the 2016 predictions, take a look at the 2017 predictions and even make a prediction or two of our own.

Grading 2016

In 2016, the Forrester team made the following six predictions:

  1. Uncertainty will plague the North American economy and global markets.
  2. The FinTech bubble will burst.
  3. Hyperconnected customers will expect more personalized digital experiences.
  4. Digital banks will proliferate and continue to challenge traditional banks.
  5. Security will remain a top concern for bank execs.
  6. Digital payment systems will evolve into digital wallets. 

Grade B: The Forrester team did well. There were no complete whiffs. Many of their predictions did emerge onto the scene in 2016, though their forward momentum varies. 

Solid: Hyperconnected customers are continuing to expect more personalized digital experiences. This couldn't be truer and is not going to go away anytime soon. Customers no longer expect just a "good digital experience;" they want a personalized and anticipatory experience. As big data and AI continue to evolve, this phenomenon is only going to become more prevalent.

Less So: Digital payments systems are evolving into digital wallets, for the most part, remain the tree falling in the woods that no one hears. While the number of digital wallet offerings (bank options versus Apple Pay, Samsung Pay, Google) has definitely increased, the adoption of mobile wallets has remained stagnant. Retailers haven't adopted new POS systems to accept mobile payments, and technology manufacturers (Apple, Samsung, etc.) haven't done much to improve the technology and drastically change the experience. Essentially, a solution to a problem was created for a problem that didn't really exist. 

Grading 2017

In 2017, the following six predictions were made:

  1. Optimistic uncertainty underpins the economic outlook.
  2. Low-interest rates keep interest earnings low.
  3. Regulatory uncertainty in the US creates ambiguity.
  4. FinTechs are moving away from B2C to partner with established firms. 
  5. Customers expect more relevant digital experiences.
  6. Millennials move into their prime spending years. 

Grade at Midterm B+: Overall, the predictions made by Alyson and her team in the 2017 trends report are tracking accurately. For 2017, the Forrester team bifurcated their predictions across two areas: retail banking in general and digital banking specifically.

Where the stars are aligning: Customers continue their demand from 2016 for more relevant digital experiences and Millennials are moving into their prime spending years. These two trends are interrelated and with Gen Z beginning to graduate from college (yes, Virginia, there is another generation besides Y or Millennials) to join the Millennials in the marketplace, it will likely accelerate. It is worth noting that although in their prime spending years, Millennials also carry far more debt at their age than their previous generations have, mostly due to educational loans.  Banks and credit unions that personalize their offerings to this Millennial generation and provide them with the financial tools to help them better manage and plan their finances have an excellent chance of attracting and retaining members of the largest generation in recorded history.

Where they might want to reboot: Regulations, economic outlook, and interest rate earnings all have a material impact on the operations of financial institutions. There also remains an uncertain element in the equation as concerns whether they will have a positive, negative or neutral effect on these organizations. However, whatever the case with these forces even in potential "hard times," those banks and credit unions that aren't innovating will be left behind. In addition, as concerns FinTechs moving away from B2C to partner with well-established firms, that shift hasn't been as much about FinTech moving the space they operate in as it has been about financial institutions realizing if they don't partner with FinTech, they won't be able to innovate at the pace they need leaving them vulnerable to competitive pressure.

Our Predictions

Far too many financial institutions are going to discover that simply replacing legacy online and aged mobile banking systems are not going to be enough. If community and regional-sized financial institutions want to compete, they are going to have to innovate at a continual rate. For most institutions, this will mean some degree of culture change which, even in small doses, can be daunting. Given that many institutions are not used to innovating at the pace currently demanded by consumers, the idea of doing it continually is akin to a very bad Halloween movie. Except for the biggest of the bigs, banks and credit unions that continue to believe they can achieve what is required on their own with in-house teams are going to find that the path they have chosen has never been more untenable than it is when competing in the digital space. 

Due to the fast-paced evolution, the model for partnering with vendors is going to change. Because digital banking is never going to be a set-and-forget endeavor, financial institutions are going to start partnering with FinTech providers for longer terms to keep their solutions continually updated. In some cases, banks and credit unions may team up on the development side with their FinTech partners to further accelerate development of innovations and improve time to market. In the past, many financial institutions needed to get funding on a project by project basis. To keep up with technology and continually evolving the digital offerings to their customers, banks and credit unions may need to move to a budgeting model that includes a "bucket" of funding that is discretionary based on the decisions of those paid to lead the digital banking charge

Many outside of banking may think that these changes within the current operations of financial institutions are not a "big" deal. Yet, those of us who work with banks and credit unions realized that in many aspects making these kinds, of course, corrections (as well as many noted by the Forrester team) is tantamount to revolution and not just evolution.

Our final prediction: There will be a few with the vision at all organizational levels required who will make the leap. 

Topics: digital banking, trends

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