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The Future of Banking in an age of digital disruption
25 Apr 2022

Since the emergence of banking several centuries ago, banks have served a pivotal role in supporting the growth of nations. Fast forward a few hundred years and the progression of financial services has evolved exponentially to how we know it today.

Providing finance to Organisations and people is an important role in helping the economy grow, resulting in much needed tax revenues to the government. Against this backdrop, the forces driving change, be they digital, demographic or environmentally led, pose significant challenges or ‘disruption’ to the traditional financial services sector.

Rapid developments in technology have facilitated the equally fast drive to digital adoption. Whether it be online purchases, remote working or internet banking, the world as we know it has changed beyond recognition over the last 20 years. The relative ease of capturing this data, and the potential benefits of its use, is of high value to companies. However, the ownership and safety of the data needs standards and regulatory oversight. This increase in use of technology has also brought about a corresponding growth in data. In a survey conducted by global consulting agency BCG Capgemini, Banks, with a score of 89% ranked highest when participants were asked which type of organisation is most trusted to manage their data.

A recent progression has been Open Banking, a secure rules-based technology, that allows customers to grant banks permission to share their data with other companies. The benefits of this could be personal finance dashboards, the ability to compare different banking services, speedier mortgage decisions or better tax advice; all with a view to improving your banking experience. The significance of these numerous advancements has been the rise of Fintechs which have developed business models to benefit from this changing landscape.

Considering demographics, Maltese society has one of the highest life expectancies in the world; but this raises the challenges associated with an ageing population. There is a strong propensity to save, but with prospects of the state increasing the retirement age, retirement planning and investing in pensions remains low on the priority list for many people. Retirement insecurity manifests itself in several ways, from not knowing how much you will need when you retire to being unaware of how costly health provisions will be. It’s clear that people in their 20’s, 30’s and 40’s will have to take increasing control of the financial future. Banks can help in delivering clarity with this regard and with all cohorts of society a personal touch will remain crucial in building trusted relationships. Banks, more specifically, systemically important banks have access to face-to-face interaction, especially with the more vunerable members of society, and this brings about a social responsibility. The upgrading of branches with an exclusive modern look and feel and greater adoption of technology should lead to an inspiring aesthetically enhanced workplace environment for employees and a superfluously pleasant experience for customers.

To monetise this change, banks will have to categorise pricing according to different segmental requirements. Given this framework ,the effective communication of the purpose of the charge as well as the reasoning behind it are more important than the charge itself. For example, video streaming providers are renown for having clarity in pricing. Leaving the decision on how much to pay to the customer, depending upon how much they want to stream and how many parallel devices will access services at any one time. Even the car insurance model has evolved with firms now offering pricing based on kilometres travelled.

Large, systemically important Banks have strategically transformed to not only meet  present banking needs, but to be prepared for the future through a three-step approach of transformation and digitalisation, rebalancing the balance sheet and most importantly bringing superior value to customers. This multi-faceted strategy encompasses the smarter use of data analytics and IT platforms as well as the adoption of customer centric digital factories. The perpetually-increasing regulatory world has also placed more emphasis on enhanced risk control management and capital strength. On the surface, a new look and feel establishes a stronger brand identity. New ways of working with customers manifest themselves through improved interaction and engagement with the universal banker concept and the advise from dedicated Investment Advisors. Minimising back-office paperwork, and simplifying processes, especially in the field of consumer lending, result in an extensive reduction in the execution of over-the-counter transactions, especially if coupled with an educational campaign on alternative methods of payment, aimed at reducing cash and cheque usage.

This technology revolution will undoubtedly result in a transformation in the jobs landscape. Traditional roles in areas such as administration will disappear and we will see the emergence of technical roles in new sectors such as AI and Machine Learning. The consequence of this in the Banking sector has been an increase in the skills gap, requiring employees to upskill to compete with today’s sharp tech savvy generation. Nevertheless, transformations in the payments industry have led to big tech firms such as Amazon and Facebook to enter the payments market. However, it remains to be seen if they will proceed to a point where they will want to be regulated.

 

This Article was written by Dipak Chouhan – Head, Business Generation Retail Banking at Bank of Valletta

This article is not and should not be construed as an offer or recommendation to sell or solicitation of an offer to purchase or subscribe for any mortgage or other consumer finance product. The writer and the Company (Bank of Valletta p.l.c) have obtained the information contained in this document from sources they believe to be reliable but they have not independently verified the information contained herein and therefore its accuracy cannot be guaranteed. The writer and the Company make no guarantees, representations or warranties and accept no responsibility or liability as to the accuracy or completeness of the information contained in this document. They have no obligation to update, modify or amend this article or to otherwise notify a reader thereof in the event that any matter stated therein, or any opinion, projection, forecast or estimate set for the herein changes or subsequently becomes inaccurate. Furthermore, past performance is not necessarily indicative of future results. The value of investments may go down as well as up and may be affected by changes in currency exchange rates. 

 

 

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Bank of Valletta p.l.c. is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap. 371 of the Laws of Malta) and the Investment Services Act (Cap.370. of the Laws of Malta).