04 Nov 3 Banking Trends for 2020
Like most major consumer industries, banking is changing. Current political, social, and economic pressures all have lasting impacts on how banks will evolve going forward. Although there are many factors that may change, we will highlight 3 in this week’s blog posts that will greatly effect mid-size banks.
As seen in our whitepaper, the world’s demographics are undergoing a tremendous change. Millennials have become an impressive force in consumer markets and will continue to influence various industries. Millennials are disrupting classic banking models as they have different financial goals and backgrounds than previous generations. For example, many millennials today face greater challenges securing home mortgages and personal loans due to outstanding student debt. They are marked as red flags by traditional lending factors and struggle to find affordable options when looking to make large financial decisions. Not only is this detrimental to the consumer, it’s also harmful to banks as they are forfeiting a large number of potential clients.
Newer banking/financial companies such as Sofi have addressed this problem. Described in a previous blog, SoFi uses data other than credit worthiness to screen potential clients that most other lending services deem not credit worthy. SoFi states that instead of using a credit score as the main indicator of credit worthiness, it opts to use other measurements such as free cash flow, or how much of your income is left after expenses. This model of reinventing outdated lending models will become extremely prevalent for banks to expand their lending successes.
Fewer physical branches
The rise of digital banking is eliminating the need of physical branches. Although customers prefer the option of both, decreasing the amounts of physical branches for a bank can be a strategic move. Most digital banks offer extremely competitive interest rates because they do not have to worry about the added expenses of a physical branch. Rents, wages, and property upkeep weigh heavily on a bank’s bottom line. If a bank can attract more customers digitally, they will increase their revenue and decrease their costs.
Improved Digital Experiences
Lastly, smaller and midsized banks must invest in high quality digital experiences. Larger banks have invested large amounts of money to streamline their digital presence through desktop, mobile, and app functionalities. Furthermore, with the rise of purely digital banks, traditional banks must invest in their online presence to remain competitive and appealing. Strong UX strategy may be expensive, but in the long run will yield to increased customer satisfaction and bottom-line profits. Modern consumers are looking for modern banks. Those who evolve will have success, but those who do not will struggle to keep up.