THE FUTURE OF BANKING - PART TWO

By Kelvin Mkwawa, Seasoned Banker.

Last week I shared that for banks to succeed, it is critical to understand the needs of the consumers as individuals, families, and communities. Also, I shared that since the cost of banking is still high in Tanzania, the majorityof people prefer to do their financial transactions through mobile financial services providers – telecommunication companies. Mobile network operators are the dominant players in Tanzania’s banking ecosystem. There are more active mobile money agents than there are bank branches and ATMs in Tanzania and mobile money services have taken off and filled the gap left by banks.

To be a sustainable industry, the traditional banking model of simply relying on providing bank accounts and access to funds will not work anymore. Competitors (telecommunications firms and financial technology companies) are eating away at significant parts of the banking value chain with the potential of limiting banks to becoming nothing more than utilities. We will continue to see companies creating similar services to tap into the unbanked pool so banks need to reinvent the current model and prepare for the future. I believe that the future of the banking industry is moving towards a system where consumers have transaction accounts that do not carry any charges and while banks are still able to maintain a successful business model by offering their customers value-added services or additional products such as mortgage loans, car finance, and savings products.

Though the idea of a free bank account might sound like a death toll for banks, it will actually drive volume growth as consumers increasingly look for safer ways to save and protect their money. The bank of the future will leverage the vast amount of insight it possesses to become central to a customer’s financial and non-financial digital ecosystem. This will enable banks to obtain a broader perspective of customer activity, transactions, mental state and emotions, allowing banks to become more relevant and contextual. Instead of “selling”, the future banking model will involve interaction with consumers similar to what Google, Amazon, and Apple are doing; offers and opportunities will be presented in real-time, based on what is happening at the moment on electronic platforms that are always on. To be able to do that, banks need to have some key components that I believe will prepare them for future banking ecosystem. Last week I shared one which is an ability to collect financial and non-financial data of consumers. This week I will share one more key component of the future banking ecosystem that banks need to have to prepare/build for the future.

• Advisory Services and Digital Concierge – By being the centre of a consumer’s life with all data it has of a consumer’s life, the bank of the future will be able to play an advisory role and advise customers in a different aspect of the consumer’s life. Through the strong Artificial Intelligence systems and strong banking ecosystem, banks will be able to provide recommendations on what products and services fit their customer’s lifestyle and goals, offer dietary and health recommendations, travel and hospitality advice, etc. In addition, with extensive insight into the way a customer conducts their life, it will be important for the bank of the future to provide reminders that are based on historical trends. 

In conclusion, future banking will be both invisible and seamless, providing insight-based support for commerce, communication and making life easier overall. As opposed to offering solutions to the consumer at a higher cost, they will be able to leverage the power of negotiation to lower the costs and simplify the access to products and services on behalf of the consumer. Consumers will enjoy an improved experience that saves them time and money, with a much more personalized relationship. Competitors (telecommunications firms and financial technology companies) will continue to create similar financial products to tap into the unbanked pool so banks need to reinvent the current model and prepare for the future. Banks must act now while the window is open if they are to transform ahead of the curve. The future banking model will help banks to reduce back-office costs, improve the speed of solution delivery, and increase revenue.

Written by Kelvin Mkwawa, MBA
Seasoned Banker
Email address: Kelvin.e.mkwawa@gmail.com