Retail banking has never been a more dynamic or exciting space. Technology is facilitating a level of flexibility customers have never before experienced, and its spurring a more interested and engaged user base.
This is great for customers, but is beginning to ruffle some feathers in the banking world. With a greater interest in (and expectation of) features, people are less complacent with their retail banking experiences and are demanding more and more.
And it’s not just people shaking things up for banks. The current financial environment includes rapidly rising interest rates which mean banks are struggling to maintain the profitability to which they’ve become accustomed over the last few decades.
The waters are choppy ahead for retail banks. But these challenges can be navigated if prepared for correctly. Here’s what retail banks need to be aware of:
1. The Rise of Digital Banks
As the populace becomes ever more online and money continues its trajectory towards digital-only, a bank without branches isn’t just becoming a reality — it’s becoming a preference.
Brick-and-mortar retail banks have long maintained financial industry dominance simply because they were the only game in town. But as technology facilitates new banking solutions, this old-school dominance is being challenged.
Digital banks have lower overhead costs and can thus offer rates and fees that are beyond competitive, they’re downright impossible to match. They also allow customers a great deal of freedom and control over how they manage their money, which is an increasingly desirable trait for flexible-minded millennials.
This poses a new challenge for retail banks. How can they keep up with the first rel challenger they’ve faced in their centuries old history?
2. Rising Rates Environment
If you’re aware of only one challenge for retail banks, you’re probably aware of the rising rates environment. Recently, the Federal Reserve in the States hiked the interest rate yet again. This means customers are making more money on their savings (for those who bank with institutions quick to respond.) But for banks? This means a reduced profitability.
In the current hyper-competitive banking environment profitability means more than just filling the coffers — it means having the resources to provide the best possible banking solutions and distinguish an institution from the multitude of competitors.
As our very own Adam Nanjee, SVP Digital Banking wrote:
“It’s always struck me as a short term strategy to refrain from raising rates for customers. I mean, we all knew the rates couldn’t stay low forever! And even though this strategy turns a profit for now, it’s doing absolutely nothing for customer loyalty, who might get annoyed when they find they’ve been missing out. If banks are going to want to exist in a rising rates environment, they’re going to need to look towards strategic pricing to remain profitable.”
Strategic pricing is one solid way to deal with this challenge for retail banks (but more on that in a bit.)
3. The Big Tech Companies Pose a Challenge for Retail Banks
Digital banks are one thing, but there’s another player entering the fray, with nearly limitless resources. I’m of course referring to big tech companies like Google, Amazon and Apple. They have their eyes set on the lucrative banking space, and they’ve got the cash to make some waves.
Banking is mired in strict regulations, something tech companies haven’t had to deal with as much. For some financial institutions this has lead to a culture of complacency which means innovation is rare — and difficult.
While small, digital banks are a headache, big tech could “change everything” to take a line from Apple’s marketing material. For retail banks that wish to remain relevant in the coming years, every strategy is going to need to be considered.
Solutions to the Challenges to Retail Banks
Banks ought to stick to banking. It’s what they do best. But this is becoming difficult with the modern challenge for retail banks.
Where once FinTech was seen as an antagonist, now it’s being viewed as a saviour. Where once it was the primary disruptor, now it’s integration is allowing traditional institutions to keep up.
For banks looking to keep ahead of digital banks, thrive in the rising rates environments and go toe-to-toe with the big tech companies, integrating FinTech solutions is the obvious choice.
The good news? We’ve got the solution to all these retail banking challenges. But don’t take my word for it — talk to one of our experts today.
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