Financial institutions can no longer plan for the future by looking at the past. As they evaluate the outlook for 2022 and beyond, two of the most important trends on their radar should be the ability to innovate quickly and at scale, and to humanize digital experiences, writes JIM MAROUS.

For most of the past two decades before the pandemic, the banking industry assumed a mostly passive mode with respect to change and innovation. Even though the marketplace was changing rather quickly, a great deal of the focus at banks and credit unions was around managing expenses, securing systems, responding to new regulations, and finding new sources of fee revenue.

While digital transformation was an area of emphasis, changes to systems, processes, products, and experiences were mostly modest, representing iterations to what was already familiar. The result was an industry lacking any true differentiation.

The pandemic forced financial institutions to become proactive, and to question existing business models. At the same time, fintech firms emerged that challenged the status quo in banking. Almost immediately, it became apparent that most organizations were not prepared to take advantage of the opportunities of a changing digital marketplace. In 2022, the trends across the industry reflect a new era for banking.

According to an Accenture report, some of the top banking trends for the coming year include reimagining the importance of innovation, using technology and automation to improve banking experiences and back-office efficiencies, understanding the impact of cryptocurrencies and new payment alternatives, and fighting for increasingly scarce talent.

With digital-first fintech and big tech firms altering the financial services landscape, legacy banks and credit unions can no longer sit on the sideline with regard to innovation and digital transformation. More than ever, financial institutions must innovate quickly and at scale.

“The pandemic served as a beneficial tipping point for banks by forcing them to accelerate their digitalization, question the future relevance of their business models, and accept that the world expects them to play a more positive role in addressing the needs of their customers, their markets and the planet itself,” the Accenture report states.

Banks and credit unions are increasingly reimagining their approach to the business by starting with a blank slate, unencumbered by the way things were done in the past. Having digital capabilities is no longer adequate – financial institutions need become future-ready by rebuilding from the inside out, testing new solutions with previously unimaginable speed. Many organizations have found the benefit of partnering with third party providers that have built market-leading solutions that can be deployed quickly.

Another major focus of innovation in banking is around building banking platforms that can leverage APIs for the development of solutions and the generation of new sources of revenues. An outgrowth of these initiatives is the ability to serve segments that were considered too costly to serve in the past.

The Need for Digital Humanization

“One of the overarching trends for 2022 and beyond is how do we take what we’ve done in branches for 50 years, and put it back in the digital, and put humanity back into it?,” states Senior Managing Director, Global Banking Leader at Accenture, Michael Abbott in an interview for the Banking Transformed podcast.

“We’ve become functionally correct and emotionally devoid. We’ve lost touch with our customers. We’ve lost the ability to have a conversation or ask a question of the customer. Today, technology can put humanity back in banking by creating seamless operations and exceptional experiences,” adds Abbott.

The most obvious components of this digital humanization are the increased personalization of solutions and the increasing deployment of proactive recommendations. Technology and automation by themselves, however, will never make banking better. Advancements in analytics, robotics and the use of data has to be combined with leadership’s willingness to accept change, the integration of humanized engagement in conversations and recommendations, and the rethinking of business models for a digital world.

The wealth of data at a financial institution’s disposal is only powerful if analyzed in real-time and deployed across an entire organization for the benefit of everything from product development, to improved back office operations, to enhanced personalized experiences. Combined with cloud computing, the impact of better data utilization and digital technology can be immediately impactful.

By transforming both middle and back offices, banks and credit unions will be in a position to rethink their businesses for the benefit of the financial institution and the customer. In fact, the next big leap in productivity will most likely lead to a disconnect between revenue growth and headcount growth.

The Evolution of Payments and Digital Currencies

“Over the past decade, the payments industry has been revolutionized to a point where consumers take it for granted that they can pay, and get paid, anywhere and at any time,” the Accenture report states. “We are now on the verge of also enabling them to pay in whatever way they choose.” The future of payments will be based on open, standardized platforms that allow for payment options well beyond what we see today.

Today’s closed networks will eventually be able to ‘talk’ to each other, seamlessly, making it easier for the consumer, merchant and even the financial institution. This will require rapid modernization of existing payments infrastructure. These changes will also greatly simplify (and reduce the cost of) international transfers.

At the same time, momentum is building internationally around development of standards and regulations around digital currencies. There is also a great deal of momentum around the potential of central bank digital currencies (CBDCs). Even since the beginning of the year we have seen a number of instances of governments sharing opinions on the future of alternative currencies.

Most banks and credit unions have come to realize that the future digital banking reality will require skills and talents that are currently in short supply in the financial services industry – and expensive. We are not just talking about finding people with data, technology, analytic and security skills. We are also talking about training people already in place how to think and work differently.

“Maybe the largest banks can, in theory, go out there and pay anything to anybody they want and get them, but that’s not going to be the case for the vast majority of financial institutions,” Abbott states. “For most organizations, training and reinvesting in existing people is needed … and in doing so, you’ll be able to show them, ‘Hey, here’s a future for you, and here’s what you can do for me.’”

The talent strategy for the future must look at staffing through a new lens that includes hiring new employees (from both traditional and new talent sources), reskilling current employees, redeployment across the organization, and partnering with service providers.

Throughout this process, culture must be rethought for a hybrid work environment where many younger prospective employees look beyond pay. “Many banks are already paying a talent penalty for being stuck in the past and failing to compete in the areas that employees today value most,” states the Accenture report.

• Marous is Co-Publisher of The Financial Brand, host of the Banking Transformed podcast, and Owner/CEO of the Digital Banking Report, a subscription-based publication providing deep insights into the digitization of banking with over 200 reports in the library.
• Editor’s Note:  This article was originally published on February 7, 2022