By Eric Crabtree
After what could emphatically be called a year of disruption for the world, which has carried into January, it is time to think ahead as to what the rest of 2017 has in store. Few industries have experienced as much change in the past year as financial services; however, changing customer expectations, disruptive technology, growing regulations and cybersecurity threats will all continue to evolve. Here are five trends and challenges that I believe will affect the world of banking in the next 12 months.
Regulation will consume thoughts – and budgets
Ironically, it is preparation for regulatory compliance in 2018 that will preoccupy financial institutions throughout 2017. The EU General Data Protection Regulation, revised Directive on Payment Services and Competition and Markets Authority’s requirements to implement Open Banking will all come into effect in 2018. So, lenders and other financial institutions will spend a lot of next year working towards meeting these compliance obligations.
The implications will be wide-reaching, with increased technology investment, reduced revenue streams, and a more crowded, competitive marketplace already on the horizon. It is impossible to predict quite how financial institutions will meet these challenges, but it is safe to say that it will occupy most of the resource bandwidth in a majority of organizations.
The impact of digital disruptors
The past year has seen tough conditions for new entrants to the financial services market. A combination of perennially low interest rates and the exorbitant cost of getting to market has forced many digital challenger banks to throw in the towel.
Naturally, there will be new players that enter and exit the market in 2017, but it is unlikely that any challenger bank will grow market share in a way that seriously threatens the major institutions. Digital disruptors will continue to struggle against the fact that they are unknown to consumers and have not earned the level of trust that the big banks enjoy. However, their differentiated business models will provide them with niche opportunities to enter the market.
Cybersecurity continues to be a priority
As the recent Tesco Bank hack proved, cyber criminals are as devious and tenacious as ever. The shift in customer behavior towards the new digital environment will continue to leave lenders potentially exposed to fraud as well as other attacks, and cyber criminals will continue to exploit these vulnerabilities in 2017.
As such, there will be continued investment in cybersecurity capabilities – namely biometric technologies that authenticate customers through inimitable factors such as fingerprints or voice. It will be interesting to see whether banks push beyond conventional voice and facial recognition factors into innovative new solutions, such as the prototype Unisys built in partnership with Behaviosec for Nationwide’s mobile banking app that recognizes how users hold, swipe or type into their phone.
Once the GDPR is in full effect, data breaches could cost financial institutions up to four percent of global revenues, not to mention the costly damage to reputations that might result. 2017 will be the year in which banks must put significant investment into making sure this does not happen.
The move toward customer-centricity
With market rates looking set to remain relatively low in 2017, lenders will have to find ways to differentiate beyond price. Consumers have become remarkably discerning, and the challenge for banks will be how to remain relevant and present themselves favorably to more demanding customers.
Next year we will see financial institutions take big steps towards providing a more tailored experience to customers. Many will mature their thinking around big data, using analytical insights about customer spending habits to either cross-sell or create new customized products.
Making a prediction on how Brexit — or the Trump factor — will affect the financial services sector in 2017 is difficult. Questions still loom over access to the single market and freedom of movement, both of which will have significant impacts on the industry.
That said, it is fairly likely that over the course of this year many institutions will have to make some difficult decisions about the ways they do business, based on new regulations, the global economic and political environment, and how the market evolves. Even though it is almost impossible to determine what those decisions will be, whatever happens, it is safe to say that 2017 will be another year of rapid change and evolution within the industry. Organizations that will do well in the coming year are those that have already undertaken steps to equip themselves with the tools and technologies that allow them to respond rapidly to the challenges and opportunities of a continually disruptive financial services landscape.
Eric Crabtree is a vice president and head of Unisys Financial Services for Blue Bell-based Unisys Corp. He can be reached at email@example.com.