The State of the Banking Industry and 2020 Outlook

December 4, 2019

Commercial Banking

According to Salesforce Research, “76% of IT leaders in banking believe IT is entering a new era driven by customer expectations.” As we look forward to 2020, modernizing and upskilling will be two challenges banks will need to find solutions for. And solving these challenges is crucial as customers increasingly expect a seamless, modern banking experience. 

Let’s take a look at the state of banking as it stands in 2019, including the relationships between banks, fintech, and bigtech; technology spending, and upskilling talent. With a solid understanding of the industry now, banks can make better-informed decisions as they face challenges and changes in the coming year. With customer expectations increasing, tech challenges evolving, and the role of IT expanding, 2020 promises to be an exciting year for the banking industry.

The State of the US Banking Industry in 2019

With total assets amounting to $18.3 trillion in the second quarter of 2019, the US banking industry is robust. Capital levels have also increased, with the tier 1 capital ratio averaging 13.36%. So the figures look good, but how do other elements of the 2019 banking industry look?

The relationships between banks and fintech and bigtech are changing. Fintech companies are collaborating with banks more than they used to, which gives fintechs access to funding and banks access to innovative technologies that make them more competitive. And as bigtech companies like Amazon, Google, and Microsoft offer more and more financial services, the competition encourages the financial system to improve. However, with bigtech’s access to low-cost capital, this competition could “put pressure on financial institutions' profitability.”

With competitive pressure mounting, banks are spending more on technology for channel improvement. An analysis by Accenture found that “global retail and commercial banks spent approximately US$1 trillion between 2015 and 2018 on efforts to transform their IT.” These funds are being spent on making banking a mobile-first, digitally-focused experience for customers. Legacy systems are being phased out and replaced with cloud and AI-powered analytics. 

However, adding cutting-edge technology isn’t enough. According to CIO.com, “the biggest threats to banks are disconnected technologies and archaic operating models that are incapable of evolving and scaling with consumer expectations.” Upskilling talent is vital for two reasons: First, threats, trades, electronification, and faster computing require human supervision. Second, a human touch is important to customers, as “branches remain the dominant channel for account opening and customer satisfaction with branches is a stronger determinant of overall satisfaction than either the online or the mobile channels,” according to a report from Deloitte.

2020 Outlook

As we look into 2020, customer expectations are high, obstacles are plentiful, and banking IT is changing at lightning speed. Let’s look at how things will change and stay the same for commercial banking in 2020.

Banking is the No. 2 industry in which consumers expect positive impacts from technology by 2020. Specifically, 72% of millennial consumers and 65% of older consumers believe that technology advancements “will positively impact their relationships with banks by 2020.” As banks make those changes, their customers are likely to be happy about it. When customers are satisfied, retention rates stay strong and upsell ability increases for products and services beyond the traditional checking and saving accounts.

Moving from good news to challenges, the banking industry will continue to address obstacles it currently faces. These challenges include a lack of an ideal place or system for unifying data, which may be exacerbated by legacy systems and home-grown systems that are difficult to integrate. Additionally, security and privacy will continue to be a concern. As more banks use the cloud, the issue of security will need to be tackled differently than with on-premise systems. 

Finally, banking IT teams will continue to change in 2020. No longer background players, IT is now integral to “deepening customer relationships and driving net new value.” As customers continue to demand highly personalized, accessible digital experiences, IT staff and developers need to have the freedom and time to make changes. This presents another challenge for banks: to provide an agile environment for their IT staff and developers. Improving internal technology to build closer, more meaningful relationships with the customer is essential for banks to stay ahead of the competitive pressures hitting them from all sides. 

Now What?

So, the question now is, how can you transform IT from a traditional service and support department to a center of innovation and gain more profitable ground with your customers?

Many banks are tackling these challenges head-on by using IT automation platforms like ServiceNow. IT automation platforms can help unify data, integrate legacy systems, and protect the privacy of bank customers. Platforms like ServiceNow are critical assets to helping banks make changes fast enough to outperform competitors, and implementing with them is just one-way banks can be agile in the face of unknown digital advancements. Automation in IT and across the organization allows employees to spend more time on what’s truly key to the bank’s growth: customers relationships. The less time spent on manual, redundant, and cumbersome tasks equates to more time to think innovatively. Additionally, platforms like ServiceNow take workflow automation and process efficiency well beyond IT into other areas such as HR, Finance, Project Management, and more. 

In 2020, customers expectations for a seamless, highly personalized, modern banking experience is only going to increase. In 2019, the banking industry pushed hard to collaborate and spend more time and money on making the necessary technology changes. As 2020 approaches and competitive pressures increase, the role of IT becomes even more critical to the bank’s financial success. The fact is, IT sits in the center of innovation for any bank looking not just survive the onslaught of competitive pressures, but to thrive. Banks need to rise to the challenge by embracing technology and the transformative role of IT. And when they do, 2020 will be a banner year.

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